Vildirect: IncomeTax-caselaws-1981-VIL-23-ITAT-DEL

1981-VIL-23-ITAT-DEL

Income Tax Appellate Tribunal DELHI

IT APPEAL NOS. 3913 AND 3914 (DELHI) OF 1980 AND 620 (DELHI) OF 1981

Date: 21.08.1981

R.N. AGGARWAL

INCOME-TAX OFFICER

BENCH

V.P. SHARMA, ACCOUNTANT MEMBER AND T.V. RAJGOPALA RAO, JUDICIAL MEMBER

JUDGMENT

Per Sharma –

These appeals by the same assessee relating to the assessment years mentioned above have been heard together and are being disposed of by this common order for the sake of convenience.

2. The assessee in this case dervish income from an lce Factory and from Cold Storage. The assessments under appeal for the assessment years 1975-76 to 1977-78 and for these the relevant previous years ended 31st March immediately preceding such assessment year.

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7. The last two issues which arise in the appeal for the assessment year 1976-77 only are with regard to trading account addition of Rs. 14,000 and non-allowance of deduction in respect of interest paid under section 220(2) of the Income-tax Act, 1961 (hereinafter referred to "the Act"), out of interest received by the assessee from the Government on delayed payment of refund in terms of section 244 of the Act.

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12. Regarding non-allowance of the interest paid under section 220(2), the facts briefly are that the assessee paid Rs. 18,597 under section 220(2) for delayed payment of income-tax dues. The assessee also received from the Government under section 244 Rs. 19,490 representing interest on delayed payment of refund due to the assessee from the Government. The claim of the assessee was that only the net amount of Rs. 893 (Rs. 19,490 – Rs. 18,597) should be assessed and not the entire amount of Rs. 19,490. The ITO does not appear to have considered this claim of the assessee and he seems to have assessed the entire amount of interest received, i.e., Rs. 19,490. The AAC, however, considered the claim of the assessee and rejected the same on the view that the interest charged from the assessee under section 220(2) was on account of contravention of the statutory provision and, therefore, the same could not be allowed.

13. The assessee has come up in appeal before us. It is urged by the learned counsel, Shri C.S. Aggarwal, relying upon the Supreme Court decision in the case of Poona Electric Supply Co. Ltd. v. CIT [1965] 57 ITR 521 that the income-tax was to be charged on the real income of an assessee and that it would not be proper if the interest paid by the Government on refund due to the assessee was taxed but deduction was not made out of it in respect of the interest paid by the assessee on tax paid beyond the time allowed by the authorities. Both, the interest received from the Government and the interest paid to the Government, the learned counsel submitted, were of the same nature and unless interest paid was deducted from the interest received, real income from interest would not be arrived at. He stated further that the interest paid by the assessee was expenditure which was admissible under section 57(iii) of the Act also.

On behalf of the revenue, Shri M.M. Prasad, argued that the interest paid on delayed payment of income-tax was not deductible in the computation of income from business in view of the decision of the Punjab and Harayana High Court in the case of CIT v. Oriental Carpet Manufacturers (India) (P.) Ltd. [1973] 90 ITR 373 . It was not also deductible under section 57(iii) since it could not be said that the amount in question represented expenditure incurred for the making or earning of income chargeable under the head "income from other sources". The learned departmental representative pleaded that the AAC had rightly rejected that assessee’s claim.

14. We have considered the facts and the rival submissions. It is true that in view of the decision of the Punjab and Haryana High Court in Oriental Carpets’ case (supra), interest paid by the assessee on delayed payment of tax could not be deducted under section 37(1) of the Act as business expenditure. But, if the facts of the case are taken into consideration, it would appear that it is not the assessee’s case that deduction for the interest paid should be allowed in the computation of income from business. It is also not seriously urged before us that deduction for the amount should be made in terms of section 57(iii). The case of the assessee merely is that only the net income from interest which is thee real income should be assessed. To us this argument seems to be plausible. The assessee was to receive from the Government certain amount of refund obviously because excess tax had been paid. On that account the Government paid interest under section 244. On the other had, the assessee retained the Government money by delaying payment of tax and accordingly interest became payable by the assessee to the Government. If the interest paid by the assessee on delayed payment of tax could not be treated as business expenditure, as held by the Punjab and Haryana High Court in Orient Carpets’ case (supra), interest received from the Government on delayed payment of refund, for the same reasons, could not be treated as income from business. In fact both, the interest received and the interest paid, are to be assessed under the head "Income from other sources" although the ITO seems to have assessed the amount received as income from business. The position thus is that while the Government retained the assessee’s money and paid interest thereon, the assessee, in the same way, retained the Government’s money and paid interest thereon. Both had the same character and, therefore, if the interest received from the Government exceeded the interest paid by the assessee, then only net amount could be taxed. Similarly, if the interest received was less than the interest paid difference only should be allowed, while computing the income for other sources. The real income from interest has to be determined in this manner and to be considered while making the assessment. If the issue is considered from this angle which seems to us to be the proper approach, neither the Punjab and Haryana High Court decision in Orient Carpets’ case (supra) would stand in the assessee’s way nor the plea that the interest paid by the assessee is not expenditure contemplated under section 57(iii), could deprive the assessee the benefit of the adjustment of the interest paid against interest received from the Government. We direct the interest paid under section 220(2) amounting to Rs. 18,597 be adjusted against the interest received under section 244 amounting to Rs. 19,490 and the net amount only should be taxed.

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