Law: Income Tax Act, 1922

Section: 37,139,215

(a) Income-tax------Business expenditure---Interest---Interest levied for failure to pay advance tax up to statutory percentage---Not deductible---Interest levied for delay in, filing return---Not deductible---Indian Income Tax Act, 1961, Ss. 37, 139 & 215 (prior to amendment by Taxation Laws (Amendment) Act, 1975). (b) Income-tax--- ----Business expenditure---Interest on borrowed capital---Voluntary disclosure scheme--- Disclosure of income---Tax paid in instalments with interest---Interest not deductible as business expenditure or as interest on borrowed capital---Income Tax Act, 1961, Ss.36(1)(iii), 37 & 80-V--¬Voluntary Disclosure of Income and Wealth Act, 1976. Interest levied on the assessee under section 139 of the Income Tax Act, 1961, for delay in filing the return and under section 215 for failure to pay advance tax up to the statutory percentage are not allowable deductions as business expenditure under section 37 of the Income Tax Act. 1961. When interest is paid for committing a default in respect of the statutory liability to pay advance tax, the amount paid and the expenditure incurred in that connection is in no way connected with preserving or promoting the business of the assessee. This is not expenditure which is incurred and which has to be taken into account before the profits of the business are calculated. The liability in the case of payment of income-tax and interest for delayed payment of income-tax or advance tax arises on the computation of the profits and gains of business. The tax which is payable is on the assessees income after the income is determined. This cannot, therefore, be considered as an expenditure for the purpose of earning any income or profits. Under the Income-tax Act, the payment of such interest is inextricably connected with the assessees tax liability. If income-tax itself is not a permissible deduction under section 37, any interest payable for default committed by the assessee in discharging his statutory obligation under the income-tax Act, which is calculated with reference to the tax on income, cannot be allowed as deduction. Bharat Commerce Industries Ltd. v. CIT (1985) 153 ITR 275 affirmed.…

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