Deductibility of Income Tax & Interest

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RAJU (Querist)
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04 June 2010 Dear Members,

Section 40(a)(ii) provides that any sum paid on a/c of rate or tax levied on the profits or gains of any business or profession.... are not deductible. In view of this provisions, would like to know the following;

1. Whether interest paid on Income-tax U/s.234A, 234B and 234C is deductible?

2. Whether Interest paid on late remittance of TDS by the payee/employer is a deductible expenditure?

3. Whether income-tax on Income from Other sources is deductible? Section 40(a)(ii) provides that only tax levied on profits & gains of any business or profession is not deductible. By logic and practice, I can understand that income-tax is not a deductible payment. But would like to know the basis and relevant provision in respect of non-allowability of Income-tax paid on Income from other sources...

Thanks in Advance

Dharmaraju

CA. BIJENDER KR. BANSAL

CA. BIJENDER KR. BANSAL (Expert)
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04 June 2010
Court : High Court

Brief : : The levy under section 234B is compensatory in nature and is not in the nature of penalty

Citation :

Judgment :

Nature of levy under section 234B of IT Act, 1961

The levy under section 234B is compensatory in nature and is not in the nature of penalty

HIGH COURT OF DELHI

CIT

v.

Anand Prakash

ITA No. 116/2007

February 27, 2009

iNTEREST U/S 234A/B/C IS DEDUCTIBLE .

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Guest

Guest (Expert)

04 June 2010 Let me take the chance of answering 3rd one:

You are very sure that 40(a)(ii) is under the head BorP,

hence it was no way associated with Income from other sources.

The Basis is if u have any deductible expenditure but not involved in Business/Profession it become personal expenditure also you have income from other sources. these cannot be deducted.

For example, consider you had paid your telephone bill of Rs.20000/- but u r not engaged in any business, also you have interest on Bank Deposits for 25000/-. here the phone bill becomes personal expenditure and the Interest is charged under "Income from Other Sources"
Since personal expenditure cannot be deducted under any head it was not deductible.

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RAJU

RAJU (Querist)
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04 June 2010 Dear sir,

Section 57 provides for deductions from Income from other sources. Hence, an assessee can have income from other sources and claim expenses relating to such income. In such case, whether tax on such income is deductible?

If income-tax were to fall within the definition of `personal expenses`, the Act would not have provided for the disallowance in section 40(a)(ii) in respect of Income-tax, separately.

Guest

Guest (Expert)

05 June 2010 Interest on borrowals for tax payments - Interest paid on amounts borrowed for meeting tax liabilities is not deductible, since the liability to pay income-tax and wealth-tax is a personal one - Smt. Padmavati Jaikrishna v. Addl. CIT [1987] 166 ITR 176 (SC).

In the above case law it was clearly mentioned by the highcourt as the Income tax is personal expense.

Sorry for the late reply, as I had done thorough reference to many case laws.

Thanks