DIGVIJAY TILES & POTTERIES LTD vs. COMMISSIONER OF INCOME-TAX

ITR/37/1988HC GujaratGJHC24013114198823 October 2001Author: HONOURABLE MR. JUSTICE MOHIT S. SHAH,HONOURABLE MR. JUSTICE D.A.MEHTA3 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that the disallowance of Rs.11,237/- being interest levied under Section 201(1A) of the Income-tax Act was justified and correctly disallowed. The Court agreed with the view of the Madras and Bombay High Courts that interest paid under Section 201(1A) for failure to deduct tax at source is not deductible as business expenditure. The reasoning was based on the principle laid down by the Apex Court in Bharat Commerce & Industries Ltd. vs. CIT, which held that payment of income tax itself is not deductible as business expenditure. Therefore, any interest payable for default in discharging statutory obligations under the Act, such as failure to deduct and remit tax at source, cannot be allowed as a deduction. The question referred to the Tribunal was answered in the affirmative, in favour of the revenue and against the assessee. The reference was disposed of with no order as to costs.

What were the facts?

The assessee, Digvijay Tiles & Potteries Ltd., is a limited company that claimed deduction for interest expenses. The assessee was required to deduct tax at source from interest payable on borrowings but failed to do so. Consequently, the Income-tax Department levied interest under Section 201(1A) of the Income-tax Act, 1961. The assessee claimed this levied interest of Rs. 11,237/- as a deductible expenditure. The Income-tax Officer disallowed this claim, a decision that was upheld by the CIT (Appeals) and subsequently by the Income-tax Appellate Tribunal. The matter was referred to the High Court at the instance of the assessee for assessment year 1979-80.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that disallowance of Rs.11,237/- being interest levied u/s.201 of the Income-tax Act was correctly disallowed? Assessee's contention: The assessee sought to claim the interest levied under Section 201(1A) as a deductible business expenditure. Revenue's contention: The revenue contended that interest levied for failure to deduct tax at source is not a deductible business expenditure, as it is intrinsically linked to the assessee's tax liability, and income tax itself is not deductible. The revenue relied on the decision of the Apex Court in Bharat Commerce & Industries Ltd. vs. CIT (1998) 230 ITR 733, and the decisions of the Madras High Court in CIT vs. Chennai Properties & Investment Ltd. (1999) 239 ITR 435 and the Bombay High Court in Ferro Alloys Corporation Ltd. vs. CIT (1992) 196 ITR 406.

Which sections of the Income-tax Act were involved?

Section 201,Section 201(1A),Section 37

AI-generated summary — verify with the full judgment below

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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 37 of 1988

For Approval and Signature:

Hon'ble MR.JUSTICE M.S.SHAH and Hon'ble MR.JUSTICE D.A.MEHTA

============================================================ 1. Whether Reporters of Local Papers may be allowed : YES to see the judgements?

2.

To be referred to the Reporter or not? : YES

3.

Whether Their Lordships wish to see the fair copy : NO of the judgement?

4.

Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be circulated to the Civil Judge? : NO

The order continues below.

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