Interest paid for delay in payment of tax is not a permissible deduction under Section 37 of the Income-tax Act.

( 1 ) THE Income-tax Appellate Tribunal, Delhi Bench c have referred the following question for our opinion :

"whether on the facts and in the circumstances of thecase the claim for deduction of interest levied undersection 139 to the extent of Rs. 11,4701- and in. terest levied under Section 215 to the extent ofrs. 1,04,339- was rightly rejected as not allowable.

( 2 ) THE assessee is a limited company. The income of theassessee is derived from yarn manufacture and helicopter operations. The Income-tax Officer completed the assessment forthe assessment year 1972-73 on 31-6-1972. He levied on thebasis of the assessment interest under Section 139 to the extentof Rs. 11,4701- and interest under Section 215 to the extentof Rs. 1,04,339, the total amount of interest being Rs. 1. 15,809. The assessee claimed deduction of this interest amount ofrs. 1,15,809 - under Section 37 of the Income-tax Act. 1961in computing the business profits. The Appellate Assistant Commissioner of Income-tax held that the interest was not paid inrespect of the capital borrowed for the purposes of the asscssecsbusiness. The assessee went in further appeal to the Tribunal. The Tribunal following the judgment of this Court in Commissioner of Income-tax v. Mahalakshmi Sugar Mills Limited. 85itr 32 (. l ). rejected the appeal filed by the assessee. The a. ssessee, therefore, by an application under Section 256 (1) requiredthe Tribunal to state a case and refer the above question foropinion to the High Court.

( 3 ) MR. Vaish. learned counsel for the assessee contendedbefore us that interest is compensation paid for the user of moneyand since the money was used by the assessee for the purposesof its business the interest paid under Section 139 and Section215 should be allowed as deduction under Section 37 of theincome-tax Act. Counsel submitted that the unpaid amount oftax was Rs. 34. 37. 819/ and the said amount was used bythe assessee for the purposes of its business. It was submittedthat if the tax amount was paid in time the assessee would havehad to borrow the said amount from other sources for the purposes of its business and the interest paid on this borrowed amountwould have been deductible under Section 36 (l) (iii) of the Income-tax Act. Counsel further contended that the intention ofthe Legislature was amply made clear by the subsequent insertion of Section 80v which permitted deduction of interest onmoney borrowed to pay tax. It was furthandr contended that tax,interest and penalty are three different concepts and though under (Section 40 (a) (ii) of) the Income-tax Act, tax paid is not deductible; interest paid for delay in payment of income-tax wouldbe deductible under Section 37 of the Act. It was submitted thatthe judgment of the Delhi High Court in Commissioner of Income-tax v. Mahalaxmi Sugar Mills Limited, (supra) was setaside by the Supreme Court and was no longer good. law.

( 4 ) REFERENCE was made to the judgment of the Supreme Courtin the case of Associated Cement Company Limited v. Commercial Tax Officer, Kota, AIR 1981 SC 1887 (2 ). The Supremecourt in its majority view observed :

"the contention of the assessee in the present case is thatas it had deposited the full amount of tax due onthe basis of the returns filed under sub-section (1)of Section 7 of the Act at the time when they werefiled, it had complied with sub-section (2) of Section 7 of the Act and that the question of levyinginterest on the amount of tax which it deposited onthe basis of the revised returns for the period priorto the date of the revised returns did not arise Onbehalf of the department it is urged before us thatthe words "on the basis of return" occurring in subsection (2) of Section 7 of the Act must be readas on the basis of a true and proper return in thecontext in which those words appear in the statuteand if they are so read, the assessee is liable to payinterest on the deficit amount of tax which was madegood on 20/10/1978, for the period