Jindal Indus. Ltd. vs Commissioner Of Income-Tax
1992 Latest Caselaw 598 Del

JUDGMENT

B.N. Kirpal J.

1. In respect of the assessment years 1977-78 and 1978-79, the Income-tax Appellate Tribunal has, under section 256(1) of the Income-tax Act, 1961, referred the following question of law to this court :

"Whether, on the facts and circumstances of the case and in law, the Tribunal was right in holding that the assessed was not entitled to the deduction of Rs. 2,94,082 in the assessment year 1977-78 and Rs. 43,142 in the assessment year 1978-79 being the interest payable on account of additional liability for income-tax and surtax on account of the disclosure of income made under the Voluntary Disclosure of Income and Wealth Act, 1976, under section 37 or 36(1)(iii) of the Income-tax Act, 1961 ?"

2. Briefly stated the facts are that under the Voluntary Disclosure of Income and Wealth Act, 1976, the assessed disclosed certain income. The assessed did not pay the entire amount of tax payable under the said Act but chose, instead, to make the payment in Installments along with interest. The claim of the assessed before the Income-tax Officer was that a sum of Rs. 2,82,106 and Rs. 36,370 paid as interest in respect of the assessment years 1977-78 and 1978-79, respectively, should be allowed as a deduction.

3. The Income-tax Officer, following the decision of the Punjab and Haryana High Court in the case of CIT v. Oriental Carpet Manufacturers (India) P. Ltd. [1973] 90 ITR 373, did not allow the deduction.

4. The assessed then filed an appeal to the Commissioner of Income-tax (Appeals) but without any success. A second appeal was then filed to the Income-tax Tribunal and it was urged that the deduction was admissible under section 37(1) and also under section 36(1)(iii) of the Act. It was contended that the amount paid by way of interest was in the interest of business and instead of the assessed taking a loan or withdrawing capital from business had chosen to pay interest on delayed payment. The Income-tax Tribunal, however, did not accept this contention and, inter alia, following the decision of this court in the case of Dalmia Dadri Cement Ltd. v. CIT [1980] 125 ITR 425, it came to the conclusion that the amount of interest paid was not allowable as a deduction. It is thereafter that the aforesaid question of law has been referred to this court.

5. The argument which has been raised by the learned counsel for the assessed before us is that payment in this case was made of interest not under the provisions of the Income-tax Act, 1961, but under the provisions of the Voluntary Disclosure of Income and Wealth Act. Learned counsel submitted that in order to protect and preserve the business assets of the assessed the payment of interest was made. It was contended that if the full amount of tax had been paid then the assessed would not have been able to earn income on those Installments which it chose not to pay in time but instead paid later along with interest.

6. In our opinion, the preponderance of judicial opinion of the various courts in India has been that such a claim is not admissible as a deduction.

7. The assessed is claiming deduction under section 37 of the Income-tax Act, 1961. On the principles of income-tax, it must be shown that the said expense has been incurred wholly and exclusively for the purpose of business. The payment of interest can, under no circumstances be related to the carrying of any business activity of assessed. This interest is payable irrespective of the business or occupation of the assessed. Whoever makes a declaration under the Voluntary Disclosure of Income and Wealth Act is required to pay tax but if he chooses not to pay the entire tax, he is obliged to pay interest. The payment of this interest, therefore, has nothing to do with the carrying on of the business activity. In any case, this court, after considering the various decisions of different High Courts in India, in the case of Bharat Commerce Industries Ltd. v. CIT 1985] 153 ITR 275 (Delhi), has come to the conclusion that interest which is levied for failure to pay advance tax and interest levied for failure to file return within time is not allowable as a deduction under the Act. In coming to this conclusion this court observed that if an assessed is allowed deduction as claimed, then it would be getting an unfair advantage for not performing its statutory obligation as against the person who paid his tax in time as required under the law. It was observed that the interest paid due to delay in payment of tax would also be a part and parcel of the liability to pay income-tax and since income-tax paid is not a permissible deduction, the interest paid for delay in payment of income-tax would also, not be a permissible deduction under section 37 of the Income-tax Act, 1961. To the same effect are two earlier decisions of this court, viz., Dalmia Dadri Cement Ltd. v. CIT [1980] 125 ITR 425 and CIT v. Dalmia Dadri Cement Ltd. [1980] 125 ITR 510. In these cases of Dalmia Dadri Cement not only interest was paid on arrears of tax but one of the questions which arose for consideration was whether commission paid on the pledge of shares for borrowing money in order to pay income-tax was allowable as a deduction or not. This court came to the conclusion that the interest or commission so paid was not a permissible deduction in computing the profits of the assessed. Recently, the Bombay High Court has also come to the same conclusion in the case of Ferro Alloys Corporation Ltd. v. CIT [1992] 196 ITR 406.

8. It was submitted by Shri Wazir Singh that the Gujarat High Court in C.J. Patel and Co. v. CIT [1986] 158 ITR 486 has taken a contrary view. In that case, the assessed had made a disclosure under the Voluntary Disclosure Scheme. Instead of making payment of tax a bank guarantee was furnished and commission was paid to the bank for obtaining the bank guarantee. A question arose whether this commission which was paid was allowable as deduction. On behalf of the Revenue decisions of this court and of a number of other High Court were cited in which it was held that interest paid on delayed payment of income-tax was not allowable as a deduction. The Gujarat High Court in the case of C.J. Patel and Co. [1986] 158 ITR 486 purported to distinguish the said decisions in the following words (at page 495) :

"We are afraid that learned counsel for the Revenue was trying to enlarge the principles which have been laid down and enunciated by different courts as stemming from the statutory provision like section 40(a)(ii) of the 1961 Act, or section 10(4) of the 1922 Act, and we do not think that the attempt is well-founded. The two situations are materially different. The situation where the courts have held that the expenses incurred for the payment of tax either in the nature of interest to the Government on delayed payment of taxes, or in payment of the interest on moneys borrowed from third parties are inadmissible does not stand at par when a assessed entails expenses for obtaining a bank guarantee for securing adequately for the payment of tax as required under the Finance Act, 1965. The situation in the latter case is for staying the enforcement and giving time for satisfying the statutory requirement which otherwise would result in the assessed exposing himself to the liquidation of his assets or facing coercive processes."

9. The aforesaid observations, therefore, clearly distinguish the present case from that of C.J. Patel and Co. [1986] 158 ITR 486 (Guj), even assuming that the ultimate decision in Patel's case [1986] 158 ITR 486 (Guj) is correct.

10. In the present case, the assessed had not made this payment of interest to preserve its assets and the said amount is not allowable as a deduction.

11. It has also been contended by Shri Wazir Singh that the Supreme Court in the case of CIT v. Birla Cotton Spinning and Weaving Mills Ltd. [1971] 82 ITR 166 has held that the law charges incurred in proceedings before the Investigation Commission are allowable as a deduction and, therefore, on the same reasoning, the interest now paid should be allowed to be deducted. We are not impressed by this contention. Similar submission had been raised before this court in Dalmia Dadri Cement's case [1980] 125 ITR 510 (Delhi) as well as in the case of Bharat Commerce Industries Ltd. [1985] 153 ITR 275. This court clearly came to the conclusion that the decision of the Supreme Court in the aforesaid case of Birla Cotton Spg. and Wvg. Mills [1971] 82 ITR 166 was distinguishable and not applicable. The Supreme Court in Birla Cotton Spg. and Wvg. Mill's case [1971] 82 ITR 166 had allowed the deduction primarily for the reason that it had come to the conclusion that if the assessed takes any steps for reducing its liability to tax which results in more funds being left for the purpose of carrying on the business then the expenses so incurred for the purpose of reducing the liability to tax would be allowed as a deduction. In the present case, however, the liability to tax has been accepted and it is only for the purpose of not paying the tax in time that interest has to be paid. Various High Courts have held that such a deduction is not admissible. Following the said decisions, the inescapable conclusion, in the present case, is that the assessed is not entitled to the deduction as claimed by it.

12. Before concluding, notice may be taken of the provisions of section 80V which were incorporated in the Act, for a few years with effect from April 1, 1976. The said section, as incorporated, reads as follows :

"In computing the total income of an assessed, there shall be allowed by way of deduction any interest paid by him in the previous year on any money borrowed for the payment of any tax due from him under this Act."

13. This provision was cited by Shri Wazir Singh and it was submitted that the petitioner was entitled to get the benefit thereof. We are not in agreement with this proposition. Firstly section 80V applied to a case where interest was paid on borrowed money. It was contended by Shri Wazir Singh that not paying the Installments, in effect, amounted to borrowing money. It is not possible to accept this proposition because even though Installments may have been agreed to by the Commissioner of Income-tax, non-payment of the Installments cannot tantamount to borrowing money.

14. Be that as it may, section 80V applies only to payment of any tax which was due "under this Act". The payment made by the assessed in the present case is not under the provisions of the Income-tax Act, 1961. The payment has been made under different statutory provisions and, therefore, the assessed cannot claim any help or assistance from section 80V. On the contrary, the insertion of section 80V indicates a statutory recognition of the fact that it is only that interest which is paid on money borrowed for payment of income-tax under the Act which is allowable as a deduction. Any other interest which is paid in relation to the delay in payment of tax would not be entitled to any deduction.

15. For the aforesaid reasons, the question of law is answered in the affirmative and against the assessed.

16. There will be no order as to costs.