Aspinwall And Company Limited Vs CIT (Kerala High Court)
The appeal before the Kerala High Court concerns the assessee’s challenge to an order dated 19.05.2020 of the Income Tax Appellate Tribunal, Cochin Bench, relating to the assessment year 2012-13. During scrutiny under Section 143(3) of the Income Tax Act, 1961, the Assessing Officer observed that the assessee had paid interest amounting to Rs.94,00,179 on delayed remittance of Agricultural Income Tax (AIT). Holding that the interest was not deductible, the Assessing Officer invoked Section 40(a)(ii) of the Income Tax Act read with Rule 7A of the Income Tax Rules and added back 35% of the interest amounting to Rs.32,90,063. In the first appeal, the Commissioner (Appeals) held that the disallowance should not have been made under Section 40(a)(ii) but should instead have been examined under Section 37 of the Act. The Assessing Officer was directed to verify if the entire interest related to delayed payment of AIT and, if so, to disallow the entire sum. On further appeal, the Tribunal upheld this view and dismissed the assessee’s appeal. The assessee then approached the High Court under Section 260A.
The High Court reframed the core issue for adjudication as whether interest paid on delayed AIT is allowable as a deduction under Section 37. The assessee’s counsel argued that the statutory scheme of the Kerala Agricultural Income Tax Act, 1991, had not been properly considered, particularly the fact that only simple interest is levied, demonstrating that the interest is compensatory rather than penal in nature. Relying on several judicial precedents—including Pratibha Processors, Mahalaxmi Sugar Mills, Consolidated Coffee Ltd., Prakash Cotton Mills, and Dhanalakshmi Bank Ltd.—he submitted that compensatory interest is ordinarily deductible under Section 37.
