Commissioner of Income Tax vs Travancore Titanium Products Ltd. (No. 2)

K.S. Paripoornan, J.—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, and also in view of the statutory provisions contained in Rule 27E of the Regulation framed under, the Electricity (Supply) Act, the Tribunal was right in law and fact in holding that there was no infraction of law and this was not any penal interest ?

Whether, on the facts and in the circumstances of the case, and also in view of the decision of the Supreme Court in Indian Aluminium Co. Ltd. Vs. Commissioner of Income Tax, West Bengal I, the asses-see is entitled to claim deduction of the ''interest'' paid or payable ?"

The respondent-assessee is a public limited company. In this reference, we are concerned only with question whether the respondent-assessee is entitled to deduction of a sum of Rs. 18,081 being penalty paid for belated payments made to the Kerala State Electricity Boad under protest. The Income Tax Officer as also the Commissioner of Income Tax (Appeals) held that the respondent-assessee was not entitled to the deduction of Rs. 18,081 since it represented penalty for belated payments and it was so levied for infraction of the law. But in second appeal, the Appellate Tribunal, in paragraph 7.2 of its order dated February 19, 1985, held that the payment of interest of Rs. 18,081 cannot be said to be by way of penalty for violation of the law, and so the assessee is entitled to deduction of the said amount. The addition of the amount was directed to be deleted. It is thereafter at the instance of the Revenue that the two questions of law formulated hereinabove have been referred for the decision of this court.

We heard counsel. Admittedly, the sum of Rs. 18,081 was paid by the assessee by way of interest. The sole question that arose for consideration was whether the payment of the said amount was for infraction of the law ? It was so held by the assessing authority as also by the first appellate authority. The Appellate Tribunal declined to accept the said plea of the Department. The Tribunal held that there was nothing to show that the interest was levied or imposed by the authority constituted under the relevant enactment, and so it cannot be said to be a payment for violation of the law. Though the matter has been dealt with in detail in paragraph 7.2 of the order, the exact statutory provision under which the interest was payable and paid has not been adverted to by the Appellate Tribunal. Statutory regulations have been framed imposing conditions for supply of electric energy by the Kerala State Electricity Board as per B. C. No. TRII. 30634/70 dated August 16, 1972. Clause 27(e) is relevant in this context and it reads as follows :

"If the bills are not paid on or before the due date, penalty will be levied at 12% per annum (1% per mensem) subject to a minimum of 25 ps. per invoice. Part of a month will be treated as one month for the purpose of calculating penal interest."

The Appellate Tribunal has not referred to the relevant statutory provision under which interest was levied and paid. The adjudication of the issue that arose before the Appellate Tribunal is far from satisfactory. We should state that the discussion and conclusion arrived at in paragraph 7.2 are only surmises and not based on any material. Therefore, we decline to answer the questions referred to this court, but at the same time, we direct the Appellate Tribunal to restore the appeal to file on the above limited aspect and decide the question afresh in accordance with law. We took a similar view in I. T. R. No. 40 of 1987 Commissioner of Income Tax Vs. Travancore Cochin Chemicals Ltd., wherein we held that the exact statutory provision under which the interest was payable and was paid was not noticed by the Appellate Tribunal. We also emphasised the point that it was for the Appellate Tribunal to consider whether the payment of interest was for infraction of any law. The decision of this court in CIT v. T. M. Chacko and Partners [1978] 115 ITR 40 and an unreported decision in I. T. R. No. 352 of 1985, (CIT v. K. Natarajan--since reported in [1980] 185 ITR 352) lay down that if the payment of interest is not for infraction of any law, it is a permissible deduction. But the very question that is to be decided is whether the payment of interest is for infraction of any law. That depends upon the interpretation of the relevant statutory provision. The relevant statutory provision has not been adverted to by the Appellate Tribunal, and so we direct that the Appellate Tribunal shall, in rehearing the appeal, advert to the relevant statutory provision and adjudicate on the question in accordance with law, The reference is disposed of as above.

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.