INCOME TAX

Inadmissibility of certain interest payments as deduction under section 37(1)/57(iii) of the Income-tax Act, 1961

Circular No. 651

Dated 11/6/1993

To

All Chief Commissioners of Income-tax/

All Directors-General of Income-tax.

Sir,

A Central Act called the "Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 (No. 32 of 1993)**", has been enacted with effect from September 23, 1992, which provides for payment of certain amount of mandatory interest to the buyers of goods and services from small scale industrial undertakings and ancillary industrial undertakings in respect of delayed payments for such goods and services. A copy of the Act is enclosed.

2. The salient features of the Act are :

(i) In case any supplier supplies any goods or renders any services to any buyer, the buyer shall make payment therefor on or before the date agreed to in writing, or, where there is no such agreement, before the appointed day ;

(ii) Where any buyer fails to so make the payment, the buyer shall be liable to pay interest compounded at monthly rests, to the supplier on that amount from the appointed day or from the date immediately following the date agreed upon, at 5 per cent. above the highest of the minimum lending rates charged by scheduled banks ; and

(iii) Notwithstanding anything contained in the Income-tax Act, 1961, the amount of such interest payable or paid by any buyer shall not, for the purposes of computation of income under the Income-tax Act, be allowed as deduction.

The term " supplier " has been defined to mean an ancillary industrial undertaking or a small scale industrial undertaking defined respectively under clause (aa) and clause (j) of section 3 of the Industries (Development and Regulation) Act, 1951.

3. Accordingly, for the assessment year 1993-94 and later years, the Assessing Officers are directed to ascertain and disallow the inadmissible interest claims in the assessments of the buyers.

Yours faithfully,

(Sd.) Ajay Kumar,

Under Secretary (ITA.II),

Central Board of Direct Taxes.