By C. N. Vaze
Shailesh Kamdar
Jagdish T. Punjabi
Bhadresh Doshi
Chartered Accountants
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(2012) 143 TTJ 528 (Pune) (TM)
Sandvik asia Ltd. v. Dy. CiT
A.Y.: 1992-93. Dated: 13-9-2011
Sections 4, 28(i), 36(1) (iii) and 37(1) — Gross interest received from the income-tax Department and not the net interest remaining after the set-off of the interest paid to the income-tax Department is to be included in assessable income.
The assessee had credited only the net interest received from the Income-tax Department i.e., the interest paid to the Income-tax Department was deducted from the interest received on income-tax refund. This claim was made by the assessee on the basis of the following two Tribunal decisions:
(1) R. N. Aggarwal v. ITO, [ITA Nos. 3913 & 3914 (Delhi) of 1980 and 620 (Delhi) of 1981, dated 21-8-1981].
(2) Cyanamide India Ltd. v. ITO, [ITA No. 4561 (Bom.) of 1982, dated 23-5-1984].
The Assessing Officer rejected the assessee’s claim. He was of the view that interest charged on late payment of tax by the Department is not a business expense deductible for the purpose of computing income under the Income-tax Act and, therefore, interest charged by the Department was added to the income of the assessee. The CIT(A) directed the Assessing Officer to tax only the net interest in view of the above Tribunal decisions. Before the Tribunal, there was a difference of opinion between the two Members and the matter was referred to the third Member u/s.255(4). The third Member, did not concur with the decisions of the Tribunal (stated above) and relying on the decisions in the following cases, held that the assessee is assessable to tax on the gross interest received from the Department:
(1) Bharat Commerce and Industries Ltd. v. CIT, (1998) 145 CTR (SC) 340/(1998) 230 ITR 733 (SC).
(2) CIT v. Dr. V. P. Gopinathan, (2001) 166 CTR (SC) 504/(2001) 248 ITR 449 (SC).
(3) Aruna Mills Ltd. v. CIT, (1957) 31 ITR 153 (Bom.).
The third Member noted as under:
(1) Interest paid cannot be allowed u/s.36(1) (iii) because there is no borrowing by the assessee. There can be no two opinions on the same.
(2) The interest cannot also be claimed as a deduction u/s.37(1). Thus, the interest paid to the Income-tax Department under the provisions of the Act cannot be deducted while computing the business income of the assessee.
(3) The assessee’s argument based on the theory of real income has to be rejected. The rule of netting does not apply to the instant case and the assessee is assessable on the gross interest.
