18 August 2010
Interest payable under the provisions of the Act is also covered - Payment of income-tax is not deductible as per section 40(a)(ii); hence, interest under sections 139, 215 and 217 which is to be regarded as accretion to tax, cannot also be allowed to be deducted - Assam Forest Products (P.) Ltd. v. CIT [1989] 180 ITR 478 (Gauhati).
Note : On the same principle, interest payable under sections 234A, 234B or 234C is also not deductible.
18 August 2010
Arthur Anderson & Co. vs ACIT, 190 Taxman 279 (Bom) S. 147 : A.Y. 2003-04 : In its return of income, assessee disclosed certain interest income as income from other sources. In notes to computation of income, it was disclosed that said interest income represented difference between interest received u/s. 244A and interest paid u/s. 220. During the course of assessment, AO had raised a query regarding said income and after considering assessee’s reply, passed an assessment order. Later AO had issued a notice u/s. 148 on the ground that entire interest u/s. 244A was required to be offered for taxation. On writ, it was held that, since assessee has disclosed fully and truly all material facts, reopening of assessment could not be sustained. Further, referring to SC decision in the case of Harshad Shantilal Mehta, it was held that interest paid u/s. 220(2) could not be considered as tax for the purpose of business disallowances.
18 August 2010
Interest paid u/s 234B is compensatroy nature ,it is allowed as expenses. Please find the below extract of high court judgement.
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
RELEVNAT EXTRACTS:
11. We have examined the decisions cited by the counsel on both sides and after considering the submissions made by them, we agree with the learned counsel for the Revenue that the levy under Section 234B of the said Act is compensatory in nature and is not in the nature of penalty. We may also note the decision of the Bombay High Court in the case of CIT v. Kotak Mahendra Finance Ltd: 265 ITR 119 (Bom), wherein the Bombay High Court observed that it was well settled that interest under Section 234B was compensatory in character and that it was not penal in nature. Another decision which would be relevant is of a Division Bench of this Court in the case of Dr Prannov Roy v. Commissioner of Income-tax and Another : 254 ITR 755 (Del.). In that case, the provisions of Section 234A were in issue. The question before the court was whether interest could be charged under Section 234A when, though the return had not been filed in time, the tax had been paid. The argument raised on behalf of the Revenue that such payment of tax did not strictly comply with the meaning of advance tax and would therefore, have to be disregarded for the purposes of charging interest under Section 234A, was rejected. The * Court also held that interest under section 234A was compensatory in nature and unless any loss was caused to the Revenue, the same could not be charged from the assessee. It may be relevant to point out that the matter was taken up in appeal before the Supreme Court and by its decision dated 17.09.2008 in CIT v. Prannov Roy /Civil 'Appeal No. 448/2003L the Supreme Court noted that: "the High Court, while accepting the writ petition and setting aside the interest charged under section 234A of the Act, has come to the conclusion that interest is not a penalty and that the interest is levied by way of compensation to compensate the revenue in order to avoid it from being deprived of the payment of tax on the due dale.
"Having heard counsel on both the sides we entirely agree with the finding recorded by the High Court as also the interpretation of Section 234'A of the Act as it stood at the relevant time. "
12. Coming back to the present appeals, we are of the view that Section 234A, Section 234B and Section 234C are of the same class. On going through these provisions, it is clear that interest' is sought to be charged on account of the fact that the Government is deprived of its revenue. Under Section 234A, interest is charged if tax whichever to be paid at the time of filing of the return is not paid at that point of time, Section 234B provides for levy of interest for default in payment of advance tax and Section 234C stipulates the charging of interest for default in the payments of advance tax on the appointed dates of payment. It is clear that under the said Act tax is payable at different dates and, through different modes. Where specific dates of payment of tax are not adhered to, it can be said that the Government is deprived of tax on those dates. Interest is chargeable under the provisions of the Act such a Sections 234A, 234B and 234C in order to compensate the Government for such deprivation. It is clear from the scheme of the Act and the nature of these provisions that they are compensatory and not penal. We, therefore, conclude that the levy of interest under Section 234B of the Income Tax Act is compensatory in nature. The Tribunal, having taken a contrary view has clearly erred.
18 August 2010
As per last paragraph of judgement , Interst u/s 234A/B & C are all in compensatroy nature, not in penal nature, hence they will be allowed as expenses.
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