INCOME TAX ACT, 1961

Section 37(1)

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

Assessee-company was engaged in business of human resources development. It claimed expenses on account of interest on late payment of service tax. According to AO, such interest on late payment of service tax could not be allowed as deduction and accordingly, he made disallowance of the same. However, CIT(A) took the view that the interest on late payment of service tax being compensatory in nature, would be allowable as deduction and hence, the said disallowance was deleted by him.Held: Payment of interest on late deposit of service tax with the government account is compensatory in nature and has the same character, i.e., of service tax. Since the service tax is permissible deduction; the interest paid for late deposit of the same is also a permissible deduction and should be allowed in the same manner. Further, CIT(A) relied on various decisions of the coordinate Benches of Tribunal; wherein it had been consistently held by the Tribunal that interest paid for late deposit of service tax is a permissible deduction. Hence, the CIT(A) was justified in holding that the interest on late payment of service tax being compensatory in nature, would be allowable as deduction.