BHARAT COMMERCE AND INDUSTRIES LTD. vs. THE COMMISSIONER OF INCOME TAX, CENTRAL-II

CIVIL APPEAL No. 5509/1985Supreme Court[1998] 2 S.C.R. 15005 March 1998Bench: 2 JudgesAuthor: SUJATA V. MANOHAR, D.P. WADHWA BHARAT COMMERCE AND INDUSTRIES LTD.12 pages
AI SummaryDismissed

What were the facts?

The assessee, Bharat Commerce and Industries Ltd., is challenging the disallowance of interest paid for delayed payment of advance tax and interest paid on account of additional tax liability arising from income disclosed under the Voluntary Disclosure of Income and Wealth Act, 1976. For assessment year 1972-73, interest of Rs. 11,470 under Section 139 and Rs. 1,04,399 under Section 215 of the Income Tax Act, 1961, was levied. The assessee claimed these as business expenditure under Section 37. In other appeals, interest paid on additional tax and sur-tax due to voluntary disclosure under the 1976 Act was claimed as deductible under Section 37 or 36(1)(iii). The revenue rejected these claims. The High Court upheld the revenue's view, and the assessee appealed to the ITAT.

What did the Supreme Court hold?

The Tribunal held that interest levied for delayed payment of advance tax under Section 215 of the Income Tax Act, 1961, is inextricably connected with the assessee's tax liability. Since income-tax itself is not deductible under Section 37, interest paid for default in discharging this statutory obligation, calculated with reference to the tax on income, cannot be allowed as a deduction. The Tribunal distinguished cases like Birla Cotton Spinning and Weaving Mills Ltd. and Mahalakshmi Sugar Mills Co. In respect of voluntary disclosures, the Tribunal held that the tax paid under the Voluntary Disclosure of Income and Wealth Act, 1976, is still a tax on income. Interest on delayed payment of such tax is of the same nature as interest on income-tax under the Income Tax Act, lacking any nexus with the business. The Tribunal further held that Section 80V is not applicable as the assessee did not borrow money from a third party for tax payment; obtaining instalments from the department and paying interest is not equivalent to borrowing. Therefore, claims under Section 37(1) and 36(1)(iii) were also rejected. The appeals were dismissed.

What were the issues?

1. Whether interest levied under Section 139 and Section 215 of the Income Tax Act, 1961, for delayed payment of advance tax for assessment year 1972-73, is deductible as business expenditure under Section 37(1). - Assessee's contention: The delayed payment of taxes led to increased financial resources available for business, effectively acting as borrowed capital. Therefore, the interest paid represents interest on capital that would have been borrowed, making it an expense incurred wholly and exclusively for business purposes. - Revenue's contention: Interest on delayed tax payments is a statutory liability linked to the tax itself, which is not deductible. Therefore, any interest on such delayed payments cannot be considered a business expenditure. 2. Whether interest paid on additional tax and sur-tax arising from income disclosed under the Voluntary Disclosure of Income and Wealth Act, 1976, is deductible under Section 80V, Section 37(1), or Section 36(1)(iii) of the Income Tax Act, 1961. - Assessee's contention: The interest paid is akin to interest on borrowed money for tax payment, and thus deductible under Section 80V, or alternatively, as a business expense under Section 37(1) or 36(1)(iii). - Revenue's contention: The interest is a statutory liability on undisclosed income and not equivalent to borrowing from a third party. Therefore, it is not deductible under the cited sections.

Which sections of the Income-tax Act were involved?

Section 37,Section 139,Section 215,Section 212,Section 80V,Section 36(1)(iii),Section 6

AI-generated summary — verify with the full judgment below

A BHARAT COMMERCE AND INDUSTRIES LTD. v. THE COMMISSIONER OF INCOME TAX, CENTRAL-II MARCH 5, 1998 B [SUJATA V. MANOHAR AND D.P. WADHWA, JJ.] Income Tax-Bw1iness expenditure-Laid out wholly and exclusively for the purposes of business-Assessee paid advance tax under section 212 of the Income Tax Act for assessment year 1972-7 3-lnterest levied/or delayed C payment under sections 139 and 215-Held, not deductible under section 37(1) as business expenditure-Section 80V not applicable to the said assessment year-Income Tax Act, 1961-Sections 37, 139, 215, 212 and 80V. D Assessee disclosing certain income under Voluntary Disclosure of Income and Wealth Act-Delayed payment of income tax and sur tax-Interest paid under section 6 of the Act-On obtaining instalments from the income tax department-Cannot be considered as equivalent to borrowing money frtJm third party-Held, such payment of interest is not an expense incurred for business and hence not deductible under Section BOV, 37(/) and 36(1) {iii) E of the Income Tax Act-Voluntary Disclosure of Income and Wealth Act, 1976-Section 6-lncome Tax Act, 1961-Section 80V, 37(I) and 36 (J){iii). F G In tile first of thes

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