1. This appeal relates to the assessment year 1979-80. The first contention raised by the assessee is in regard to disallowance of interest of Rs. 2,40,025 paid to the Income-tax Department on delayed payment of income-tax. The assessee admittedly delayed its payment of income-tax liability resulting in levy of interest as aforesaid under Section 220(2) of the Income-tax Act, 1961 ('the Act'). The assessee claimed before the ITO that the said interest, which was not in nature of penalty, should be allowed as a deduction in computing its business income. The ITO did not accept the assessee's contention and held that the interest levied as aforesaid was in nature of penalty for not making payment of income-tax in time and, therefore, was not an allowable deduction.
2. Being aggrieved the assessee carried the matter in appeal before the Commissioner (Appeals) who following the decision of the Special Bench in the case of Arvind Mills Ltd. v. ITO  1 ITD 872 (Ahd.) upheld the decision of the ITO. Hence, this appeal.
3. It may be stated that though the controversy is fairly covered by the decision of the Special Bench in Arvind Mills Ltd.'s case (supra) to which one of us (the Accountant Member) was a party, Shri H.M.Talati attempted to distinguish the said decision. His submission was that under Section 80V of the Act an assessee was allowed deduction of interest on amounts borrowed for the purpose of payment of income-tax.
Thus, though the income-tax is a personal liability, the interest payment, in respect of amount borrowed to meet the same was an allowable deduction. On parity of reasoning Shri Talati submitted that when the interest is paid on the tax which was outstanding, the assessee could be said to have incurred an expenditure in course of business inasmuch as he would be otherwise required to liquidate its funds which were yielding higher interest or income. Thus, the assessee as a prudent businessman thought fit to pay interest to the department rather than reduce its own investment which yield higher rate of interest. The claim for deduction, therefore, should be allowed either under Section 37(1) or under Section 28(i) of the Act. The learned departmental representative, on the other hand, relied on the orders of the authorities below and in particular the reasoning adopted by the Tribunal in the special Bench decision in Arvind Mills Ltd.'s case (supra).
4. We have considered the rival submissions. In our opinion, the contention raised by Shri Talati is wholly without substance, Section 80V is a special deduction provided for under Chapter VIA of the Act.
These deductions come into play after the gross total income is determined. These deductions are not the part of normal expenditure allowable to an assessee in computing its income under various heads but a special type of relief provided by Legislature. Thus, in respect of the deductions allowable under Chapter VIA, the Legislature in their wisdom have agreed to forego a portion of the tax recovery. The special deduction, therefore, cannot be equated with the expenditure which an assessee is required to incur in order to earn income from a given source. It cannot be equated with the expenditure wholly and necessarily incurred for the purpose of business nor the said claim be allowed on the ground of commercial expediency. It cannot be said that it is an act of prudence to withhold a tax liability and invite levy of interest. Shri Talati has fairly agreed that the amount of unpaid tax cannot be equated with the amount borrowed for the purpose of business.
Again payment of income-tax is a personal liability and the said liability arises only after the profits come into existence. Thus, unless there are profits, there cannot be any liability to tax.
Therefore, a liability which comes into existence after the profits are determined cannot be allowed as a deduction in computing the business profits. Now if the income-tax payments are not allowable as a deduction in computing the business profits, it is difficult to accept the submission that the interest paid for delayed payment of income-tax should be allowed as an expenditure incurred for the purpose of business by an assessee. We, therefore, reject this contention placed before us by Shri Talati and uphold the disallowance.
5 to 8. [These paras are not reproduced here as they involve minor issues.]