ARUNA MILLS LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS reference raises the question with regard to the liability of the assessee company to pay tax on interest received by it in respect of advance payment of tax. Under Section 18A(5) the assessee company received interest in the sum of Rs. 7,519/ - in respect of advance payment of tax. Under Section 18 -A the assessee company, which is under a statutory obligation to make this advance payment receives interest which is calculated at the rate of interest mentioned in Sub -Section (5) from the date of payment till the date of assessment, and this amount aggregated to Rs. 7,519/ -.

(2.) NOW , if we consider these two amounts separately, then the assessee company has to satisfy us that the sum of Rs. 4,554/ - was a permissible deduction under the Income -tax Act.

(3.) IT is then said that from the commercial and technical point of view the payment of interest by Government and the payment of interest by the assessee stands on the same footing. Mr. Palkhivala says that both constitute interest in the technical sense and you cannot tax interest which is received without giving credit for the interest which is paid out by the assessee. Our attention was drawn to the definition of "interest" which was given by Lord Wright in a judgment of the House of Lords reported in Westminster Bank Ltd v. Riches, (1947) 28 Tax Cas 159 at p. 189 (A). Lord Wright says :