BERAR INVESTMENT PVT. LTD. vs. C I T

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ITR/84/1985HC GujaratGJHC24012216198508 January 2001Author: HONOURABLE MR. JUSTICE J.M.PANCHAL,HONOURABLE MR. JUSTICE MOHIT S. SHAH2 pages
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What did the High Court hold?

The High Court held that the Tribunal was justified in law in upholding the disallowance of interest of Rs. 3684/- paid under Section 220(2) of the Income-tax Act, 1961. The Court relied on its own decision in Saurashtra Cement & Chemical Industries Ltd. vs. CIT, 213 ITR 523. The reasoning was that while the interest on late payment of tax is compensatory, it does not make it an expense wholly or exclusively for the purpose of business. Section 37 of the Act requires expenses to be wholly laid out or incurred for the purpose of business. If the preliminary liability (income tax) is not allowable as a business expense, then the interest paid thereon cannot be considered as such. Income tax is a personal liability of the assessee and not a part of business expenditure. Therefore, interest paid on income tax also cannot be considered business expenditure. The reference was answered in the affirmative, in favour of the revenue and against the assessee.

What were the facts?

The assessee, Berar Investment Pvt. Ltd., is challenging an order of the Income-tax Appellate Tribunal, Ahmedabad Bench 'B'. The Tribunal had upheld the disallowance of interest amounting to Rs. 3684/- paid under Section 220(2) of the Income-tax Act, 1961. This reference has been made at the instance of the assessee to the High Court of Gujarat at Ahmedabad for an opinion on a question of law. The assessment year(s) are not explicitly stated in the provided text.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in upholding the disallowance of interest of Rs. 3684/- paid u/s. 220(2) of the Act, 1961? (Question of law). Assessee's contentions: Not recorded in the judgment. Revenue's contentions: Not recorded in the judgment. The core of the issue revolves around the allowability of interest paid under Section 220(2) as a business expense under Section 37 of the Income-tax Act, 1961. The Tribunal's decision to uphold the disallowance is under challenge.

Which sections of the Income-tax Act were involved?

Section 220(2),Section 37

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 84 of 1985

For Approval and Signature:

Hon'ble MR.JUSTICE J.M.PANCHAL and Hon'ble MR.JUSTICE M.S.SHAH

============================================================ 1. Whether Reporters of Local Papers may be allowed : NO to see the judgements?

2.

To be referred to the Reporter or not? : NO 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 -------------------------------------------------------------- BERAR INVESTMENT PVT. LTD. Versus C I T -------------------------------------------------------------- Appearance: MR KC PATEL for Petitioner MR MANISH R BHATT for Respondent No. 1

--------------------------------------------------------------

CORAM : MR.JUSTICE J.M.PANCHAL and MR.JUSTICE M.S.SHAH

Date of decision: 08/01/2001

ORAL JUDGEMENT (Per : MR.JUSTICE J.M.PANCHAL)

At the instance of the assessee, the Income-tax

Appellate Tribunal, Ahmedabad Bench `B' has referred the following question of law for our opinion :-

"Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in upholding the disallowance of interest of Rs.3684/- paid u/s. 220(2) of the Act, 1961 ?"

2.

We have heard the learned counsel for the parties. The question which is referred to for our opinion is squarely covered by the decision of this Court in Saurashtra Cement & Chemical Industries Ltd. vs. CIT, 213 ITR 523. This Court in the above quoted decision has held that the mere fact that the interest on the late payment of the tax is compensatory does not make it an expense wholly or exclusively carried out for the purpose of business. On perusal of relevant provisions, it is clear that the essence of section 37 of the Act is that such expenses should be wholly laid out or incurred for the purpose of business. If the preliminary liability to be discharged by the assessee is not allowable as expenses laid out or incurred for the purpose of business, ordinarily the interest paid thereon also cannot be considered as expenses laid out or incurred wholly for the purpose of the business. The income tax which is a direct tax is the personal liability of the assessee and is not a part of the business expenditure. Hence, interest paid on the income tax also cannot be considered as business expenditure.

3.

In view of the principle laid down in the above referred to decision, we are of the opinion that the Tribunal was justified in law in upholding the disallowance of interest of Rs.3684/- paid under section 220(2) of the Income-tax Act, 1961. 4. The reference is accordingly answered in the affirmative i.e. in favour of the revenue and against the assessee. The reference stands disposed of with no order as to costs.

(J.M. Panchal, J.)

(M.S. Shah, J.)

sundar/-

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