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Chetan Kotan (P.) Ltd. Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Mumbai
Decided On
Judge
Reported in(1982)1ITD652(Mum.)
AppellantChetan Kotan (P.) Ltd.
Respondentincome-tax Officer
Excerpt:
.....by the assessee to the sales tax department as interest for the belated payment of sales tax is an allowable expenditure.2. for the assessment year 1978-79, the assessee-company did not pay the sales tax due from it to the sales tax department within the statutory period. the sales tax department, therefore, charged interest amounting to rs. 8,500 from the assessee. the ito disallowed the claim of the assessee for allowing rs. 8,500 as business expenditure under section 36(1)(iii) or section 37 of the income-tax act, 1961 ('the act"). the order of the i to has been upheld by the aac. the assessee has filed the present appeal.3. after going through the record and hearing the learned representatives of the parties, i am of the opinion that the assessee deserves to succeed. sales tax is a.....
Judgment:
1. The only question for consideration in this appeal is, whether the amount of Rs. 8,500 paid by the assessee to the sales tax department as interest for the belated payment of sales tax is an allowable expenditure.

2. For the assessment year 1978-79, the assessee-company did not pay the sales tax due from it to the sales tax department within the statutory period. The sales tax department, therefore, charged interest amounting to Rs. 8,500 from the assessee. The ITO disallowed the claim of the assessee for allowing Rs. 8,500 as business expenditure under Section 36(1)(iii) or Section 37 of the Income-tax Act, 1961 ('the Act"). The order of the I TO has been upheld by the AAC. The assessee has filed the present appeal.

3. After going through the record and hearing the learned representatives of the parties, I am of the opinion that the assessee deserves to succeed. Sales tax is a trading liability and the payment of interest in respect thereof is of the nature of a financing charge allowable as business expenditure. The reason is that the assessee would have paid much higher rate of interest by arranging funds from other sources for payment of sales tax in time. The levy of interest for non-payment of sales tax within the statutory period, cannot be considered to be the outcome of an infraction or violation of law. This view derives support from the decision of Mahalakshmi Sugar Mills Co.

v. CIT [1980] 123 ITR 429 (SC). I am, therefore, of the opinion that the interest paid by the assessee was incidental to the carrying on of its business and the expenditure was incurred on the ground of commercial expediency. The same is, therefore, allowable as revenue expenditure under Section 37 of the Act.

4. In support of his case, the learned representative of the department has relied upon the order of the Appellate Tribunal in the case of Fourth ITO v. Volga Frozen ' Food & Ice Cream Co. [IT Appeal Nos. 2638 and 2639 (Bom.) of 1979-80], wherein it has been held that the interest paid on account of late payment of sales tax is not allowable as revenue expenditure. With respect, I am unable to follow this order, because, an opposite view has been taken in a number of other decisions of the Appellate Tribunal. In this context, reference may be made to the Tribunal's decisions in ITO v. Nathani Steel (P.) Ltd. [IT Appeal Nos. 606 to 608 (Bom.) of 1980-81] and J.K. (P.) Ltd. v. ITO [IT Appeal Nos. 3634, 3635, 3637 and 3638 (Bom.) of 1977-78], wherein it has been held that the interest paid on account of late payment of sales tax is allowable as revenue expenditure. To the same effect is the view taken by the Income-tax Appellate Tribunal in Tahira Industries (I) (P.) Ltd. v. ITO [IT Appeal Nos. 2573 and 2574 (Bom.) of 1968-69] and Mrs. ABC v.ITO [IT Appeal No. 155 (Bom.) of 1975-76]. I may also refer to the following para of the order of the Tribunal in IT Appeal Nos. 3634, 3635, 3637 and 3638 (Bom.) of 1977-78, which shows that the levy of interest for non payment of sales tax in time does not arise from any infraction or violation of law.

In the earlier order relied on by the assessee in the case of Tahira Industries (I) (P.) Ltd. in ITA Nos. 2573 and 2574 (Bom.) of 1968-69 a reference has been made to the Madras High Court in the case of N.A. Abdul Rahim & Mohamed Ibrahim & Co. v. Deputy Commercial Tax Officer [19651 16 STC 290 which was concerned with the provision of Section 24(3) of the Madras General Sales tax Act which the earlier Bench found to be comparable in language and scheme with Section 36 of the Bombay Sales-tax Act. According to the Madras High Court decision, as stated in the earlier order of the Tribunal, the proper way of looking at the amount is to treat it as a liquidated sum for damages for the period for which the State is kept out of the money to which it is entitled. If this is the understanding, it is clear that the amounts are not levied for any infraction or violation of law and hence, it is deductible as arising in the course of or incidental to carrying on of business and/ or was incurred on the grounds of commercial expediency.

5. In view of the above decision of the Income-tax Appellate Tribunal in favour of the assessee, 1 conclude that the expenditure in question is allowable as revenue expenditure. The disallowance of Rs. 8,500 is, therefore, deleted.


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