FEDERAL BANK LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) AT the instance of the assessee, the Tribunal has referred the following question of law for the decision of this Court:

(2.) THE assessee is a banking company. The respondent is the Revenue. For the asst. year 1978 79 (year ending December 31, 1977), amongst others, the assessee claimed a sum of Rs. 28,308 as interest paid for delayed payment of income tax due as deduction. The ITO rejected the claim. He held that the said interest is not an expenditure laid out wholly and exclusively for the purpose of the business. It was confirmed, in appeal, by the CIT (Appeals). In second appeal, the Tribunal held that the payment of interest by the assessee was not made in the character of a trader. The interest was paid only as an assessee and nothing more. The plea for deduction was negatived. Thereafter, at the instance of the assessee, the Income tax Tribunal has referred the question of law formulated herein above for the decision of this Court.

(3.) WE considered the rival contentions of the parties. The Tribunal has positively found that the payment of interest by the assessee was not in the character of a trader, but only as an assessee to income tax. This finding has not been challenged by framing an appropriate question in that regard. The interest paid for delayed payment of tax would also be part and parcel of the liability to pay income tax. It is conceded that amounts paid by way of income tax are not permissible deductions under S. 40 (a) (ii) of the IT Act. If any sum paid on account of any income tax levied on the assessee is not a permissible deduction, the interest payable for non payment of such tax would also assume the same role or character. It will have the same colour and content of the original amount which is liable to be paid as income tax. In this view of the matter, we are of the view that interest levied or paid due to delay in payment of income tax can never be a permissible deduction under S. 37(1) of the IT Act.