FENNER (INDIA) LTD VS COMMISSIONER OF INCOME-TAX, 1998 PTD-MADRAS-HIGH-COURT-INDIA 3238 (1996)

Income-tax---

----Business expenditure---Interest---Disallowance of expenditure---Tax on profits and gains of business or profession---Interest levied on such tax under S.220(2) is also not deductible---Indian Income Tax Act, 1961, -

40 & 220.

Where tax which is due from the assessee is based on profits and gains of business or profession any interest payable for non-payment of such tax should also be considered as levied on the basis of such profits or gains. It cannot be allowed as a deduction.

Bharat Commerce Industries Ltd. v. CIT (1985) 153 ITR 275 (Delhi); CIT v. Ghatkopar Estate and Finance Corporation (P.) Ltd. (1989) t77 ITR 222 (Bom.); CIT v. International Instruments (P.) Ltd. (1983) 144 ITR 936 (Kar.); CIT v. Oriental Carpet Manufacturers (India) (P.) Ltd. (1973) 90 ITR 373 (P & H); Federal Bank Ltd. v. CIT (1989) 180 ITR 37 (Ker.); National Engineering Industries Ltd. v. CIT (1978) 113 ITR 252 (Cal.); Orissa Cement Ltd. v. CIT (1993) 200 ITR 636 (Delhi) and Saurashtra Cement and Chemical Industries Ltd. v. CIT (1995) 213 ITR.523 ,',Guj.) fol.

P.P.S. Janarthana Raja for the Assessee.

C.V. Rajan for the Commissioner.

JUDGMENT

THANIKKACHALAM, J.---At the instance of the assessee, the Tribunal referred the following question for the opinion of this Court under section 256(1) of the Income Tax Act, 1961:

"Whether, on the facts and in the circumstances of the case the Appellate Tribunal was right in holding that any interest payable for delayed payment of tax with the specific permission of the Income- tax Officer under section 220(2) should also be considered as levied on the basis of profits and gains just because the tax due was based on the profits or gains?"

In respect of the assessment of the assessee for the assessment year 1976-77, the assessee claimed deduction of interest paid under section 220(2) of the Income Tax Act, amounting to Rs.6,104. The Income-tax Officer pointed out that two installments of interest, namely, Rs.3,155 and Rs.2,949 paid by way of interest under section 200(2) of the Income Tax Act cannot be allowed as deduction. Accordingly, the Income-tax Officer disallowed the same.

On appeal, the Commissioner of Income-tax (Appeals) relying upon the order of the Appellate Tribunal, "D" Bench, Bombay, in the case of Indian Express held that such interest cannot be allowed under section 37(1) of the Income Tax Act. The Commissioner of Income-tax (Appeals) did not agree with the assessee and he distinguished the decision of Bombay "D" Bench in Bennett Coleman & Co. v. I.T.O.---I.T.A. No. 3068/(Bom.) of 1972-73. The assessee took the matter before the Appellate Tribunal. The Appellate Tribunal agreed with the reasoning given by the Commissioner of Income-tax (Appeals) and it further pointed out that the tax which was due from the assessee was based on profits or gains and any interest payable for non-payment of such tax should also be considered as levied on the basis of such profits or gains. So, there is no specific deduction to the disallwance of any tax or interest. Accordingly, the appeal filed by the assessee was dismissed.

We have heared learned counsel for the assessee as well as learned standing counsel for the Department. In view of the decisions in National Engineering (Industries) Ltd. v. CIT (1978) 113 ITR 252 of the Calcutta High Court; CIT v. Ghatkopar Estate and Finance Corporation (P.) Ltd. (1989) 177 ITR 222 of the Bombay High Court; Federal Bank Ltd. v. CIT (1989) 180 ITR 37 of the Kerala High Court; Bharat Commerce Industries Ltd. v. CIT (1985) 153 ITR 275 of 'the Delhi High Court; "IT v International Instruments (P.) Ltd. ( 1983) 144 ITR 936 of the Karnataka High Court; Saurashtra Cement and Chemical Industries Ltd. v. CIT (1995) 113 ITR 523 of the Gujarat High Court: CIT 4. Oriental Carpet Mfrs. (India) (P.) Ltd. (1973) 90 ITR 373 of the Punjab and Haryana High Court and Orissa Cement Ltd. v. CIT (1993) 200 ITR 636 of the Delhi High Court we hold that the order passed by the Tribunal is in order. Accordingly, we answer the question referred to us in the affirmative and against the assessee. There will be no order as to costs.

M.B.A./1640/FCOrder accordingly.