Interest on payment of delayed tax is not a permissible deduction as it is not incurred in the carrying on of the business and is not connected with the business of the assessee.

1. The Income-tax Appellate Tribunal, Chandigarh Bench, have referred the following question of law for our opinion :

"Whether, on the facts and in the circumstances of the case, the interest of Rs. 6,733 was a permissible deduction as a revenue expenditure?"

2. The assessee is a private limited company. It manufactures woollen cloth and carpets. These items are also exported out of India. Tn the year 1966-67, the assessee could not pay the provisional demand of tax in respect of earlier assessment and approached the Income-tax Officer for time which was allowed. In respect of these delayed payments, the assessee was charged interest and he paid a sum of Rs. 6,733. This payment of interest has been claimed by the assessee as permissible deduction under Sections 37 and 36(1)(iii) of the Income-tax Act, 1961. The Income-tax Officer disallowed this claim and held that the assessee was not entitled to claim it as a permissible deduction under the Act.

3. On appeal before the Appellate Assistant Commissioner, a claim was made that the Income-tax Officer was wrong in not allowing the amount of interest paid as a permissible deduction. This contention was rejected by the Appellate Assistant Commissioner as follows :

"The assessee did not borrow any capital for the purposes of its business. The question of allowing the deduction under Section 36(1)(iii), therefore, does not arise. Even otherwise, the claim is not admissible under Section 37(1) inasmuch as it cannot be said to bean expenditure incurred, laid out or expended wholly and exclusively for the purposes of the business and, in any case, it is an expenditure of personal nature."

4. The Assistant Commissioner in support of his view followed the decisions of the Bombay, Patna and the Calcutta High Courts in Bhai Bhuriben Lallubhai v. Commissioner of Income-tax, [1956] 29 I.T.R. 543 (Bom.), Maharajadhiraj Sir Kameshwar Singh v. Commissioner of Income-tax, [1961] 42 I.T.R. 774 (Pat.) and Mannalal Ratanlal v. Commissioner of Income-tax, [1965] 58 I.T.R. 84 (Cal.) respectively.

5. The assessee took up the matter in further appeal to the Income-tax Appellate Tribunal and the Tribunal allowed the assessees claim. On this part of the case, the Tribunal made the following observations:

"Thus, the income-tax paid is not an admissible charge only because of this prohibition (section 40). We find that there is no prohibition on allowance of interest. Interest and tax, in our opinion, are two different items of altogether different character and apparently there is no prohibition against allowance of interest. Incidentally, we may point out that when an assessee receives any interest on the excess amount paid under the advance tax payments, such interest is included in the total income. We think that such inclusion also is correct in law."

6. The department then moved the Tribunal under Section 256(1) of the Income-tax Act requiring the Tribunal to state the question of law, already referred to, for opinion of this court and that is how the said question of law has been referred for our opinion.

7. Mr. Awasthy, learned counsel lor the department, contended that the payment of interest on delayed payment of income-tax, is not a permissible deduction and the learned counsel relied upon the three decisions relied on by the Appellate Assistant Commissioner, already referred to, and also on the decision in Dalmia Dadri Cement Ltd. v. Commissioner of Income-tax, (1972] 86 I.T.R 577 (Punj.) (Income-tax Reference No. 19 of 1970, decided on 1st February, 1971), to which I was a party, and also our later decision in Dalmia Dadri Cement Ltd. v. Commissioner of Income-tax, [1973] 90 I.T.R. 297 (Punj.) (Income-tax Reference No. 33 of 1970, decided on 24th August, 1971). In the latter decision, we merely followed the previous decision which in turn is based on the Patna and Calcutta decisions. The question that fell for consideration in the two Dalmia Dadri Cement Ltd. cases (Dalmia Dadri Cement