INCOME TAX ACT, 1961

Section 37(1)

Business expenditure - Allowability - Interest on late deposits of service tax -

Assessee debited certain amount as interest on late payment of service tax under the head interest. DR submitted that the AO had rightly rejected the said claim as it is the duty of the assessee to deposit the service tax deducted within the time allowed as per the provision of the Income Tax Act. The DR further submitted that the Commissioner (Appeals) deleted this amount on the sole ground that interest charged for deleted payment of Sales Tax does not have the character of penalty for an offence and hence allowable as deduction as it is merely compensation for money withheld. Held: Payment of interest on late deposit of service tax with the government account was compensatory in nature and has the same character, i.e., of service tax. This aspect was rightly taken into account by the CIT(A) in its finding. Since the service tax was permissible deduction the interest paid for late deposit of the same was also a permissible deduction and should be allowed in the same manner.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2011-12

INCOME TAX ACT, 1961

Section 37(1)

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