Kerala High Court
Commissioner Of Income-Tax vs K. Natarajan on 31 July, 1989
Equivalent citations: [1990]185ITR352(KER)
Author: K.S. Paripoornan
Bench: K.S. Paripoornan
JUDGMENT K.S. Paripoornan, J.
1. At the instance of the Revenue, the Income-tax Appellate Tribunal has referred the following two questions of law for the decision of this court:
"1. Whether, on the facts and in the circumstances of the case, the assessee is entitled to claim deduction of the interest paid ?
2. Whether, on the facts and in the circumstances of the case, the assessee is entitled to claim deduction of interest paid for non-payment of 'kist' after the 20th of the month ?"
The respondent is an assessee to income-tax. We are concerned with the assessment year 1973-74. The assessee is a dealer in foreign liquor. He delayed payment of the kist amount due to the Government. So, he had to pay Rs. 48,738 as interest. The said interest was claimed as deduction in the income-tax assessment. The assessing authority disallowed the claim. It was held that the interest paid was penal in nature. In appeal, the Commissioner of Income-tax (Appeals) allowed the deduction and deleted the addition made on that account. The Appellate Tribunal adverted to the decision of this court in CIT v. T.M. Chacko and Partners [1978] 115 ITR 40 and held that the payment of interest on the kist amount was under a contract, that it can never be due to infraction of law and that the payment of interest was only as a consequence of non-payment of contractual dues and so not penal or punitive in character. In this view, the deduction allowed by the Commissioner of Income-tax (Appeals) was sustained. Thereafter, at the instance of the Revenue, the Income-tax Appellate Tribunal has referred the above-formulated questions of law for the decision of this court.
2. We heard counsel. Counsel for the Revenue argued that payment of interest was for infraction of the law and so the deduction should not have been permitted. We are unable to accept this plea. In identical circumstances, in the decision CIT v. T.M. Chacko and Partners [1978] 115 ITR 40, this court, held that the payment of interest was only under a contract. The Supreme Court had also taken the same view in Mahalakshmi Sugar Mills Co. v. CIT [1980] 123 ITR 429. The finding of the Tribunal that the payment of interest was only under a contract is not challenged. The said finding is based on material. We have no reason to depart from the said finding. On this basis, it has to be held that the payment of interest was not for infraction of any law. It is a permissible deduction. We answer question No. 1, referred to us, in the affirmative, against the Revenue and in favour of the assessee.
3. There is no dichotomy in the interest paid whether it is before the 20th or after the 20th of the month. The obligation to pay interest was under a contract. On this basis, we have only to hold that the claim for interest is a permissible deduction. It does not appear that the Revenue produced any material to show that the non-payment of kist was after the 20th of the month. So, the question whether the assessee is entitled to claim deduction of interest paid for non-payment of "kist" after 20th of the month, does not really arise. In the light of our finding that the payment of interest is an obligation incurred under a contract, the further aspect as to whether the non-payment of kist was before or after 20th of the month is irrelevant. We answer question No. 2 in the affirmative, against the Revenue and in favour of the assessee.
4. A copy of this judgment, under the seal of this court and the signature of the Registrar, shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.