CIT Vs. GUJARAT STATE FINANCIAL CORPORATION

JUDGEMENT

(1.) REVENUE is in appeal against the judgment of the Income -tax Appellate Tribunal ('the Tribunal' for short) dated 5 -10 -2012 raising following question for our consideration: -

(2.) SHORT issue is whether the Revenue is right in contending that the sum of Rs. 51.14 lakhs (rounded off) paid by the respondent assessee by way of interest on delayed payment of instalments can be treated to be in the nature of penalty and therefore not leviable by way of deduction under section 37(1) of the Act. Admitted facts are that the respondent assessee had paid the said sum of Rs. 51.14 lakhs to the Government of Gujarat on loans and advances made to the respondent assessee towards interest on delayed payment of instalments. The respondent assessee itself is a public sector undertaking. Having taken loan from the Government it also agreed to a repayment schedule. The terms of agreement provided that delayed payment would incur interest at the rate of 2% per month. When the assessee expended the sum of Rs. 15.14 lakhs towards such liability and claimed deduction thereof under section 37(1) of the Act, the Revenue contested the claim on the terms that such interest is penal in nature and the same cannot be permitted deduction of.

(3.) COMMISSIONER (Appeals) held in favour of the Revenue. Thereupon, the assessee approached the Tribunal. The Tribunal reversed the decision of Commissioner (Appeals) making following observations: -