04 August 2014
Interest is compensatory in nature and hence allowable as business expenditure. Penalty is for contravention of the provisions of an act and,therefore, not allowable as a business expenditure. The Apex Court in 'Swadeshi Cotton Mills Co. Ltd., V. Commissioner of Income Tax' 2008 - Supreme Court was dealing with the question as to whether damages paid for delayed payment of employees contribution to employees' provident fund was compensatory or penal. The court following the judgment in 'Prakash Cotton Mills Ltd.,' - 2008 - Supreme Court remitted the matter to the High Court for reconsideration in the light of the observation made therein. Also refer the following article in this regard--
04 August 2014
The interest paid on late payment of service tax is compensatory in nature and cannot be held to be penal in character; therefore it is a permissible deduction under Income Tax. Refer to link http://www.taxindiaonline.com/RC2/print_story.php?newsid=10324
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