Urgent: interest on late payment of service tax
This query is : Resolved
V RAGHAVENDRA
(Querist)
15 November 2011
Whether the interest paid on the late payment of service tax is an allowable business expenditure ?
If yes, then any citation of any case law regarding the same
If yes, then any citation of any case law regarding the same
CA Navin Jain
(Expert)
15 November 2011
yes, it will be allowed.
V RAGHAVENDRA
(Querist)
25 November 2011
Can u give me the citation of any case law regarding the same.
02 August 2025
Yes, interest on late payment of service tax is generally allowed as a business expenditure since it is a **compensatory payment for delay in discharge of statutory liability**.
---
### Key Points:
* Interest paid for **late payment of statutory dues** like service tax is considered a **revenue expense**.
* It is **not a penalty**, but a compensation for delayed payment.
* Therefore, it is **allowed as a deductible expense** under Section 37(1) of the Income Tax Act, 1961.
---
### Relevant Case Laws:
1. **CIT vs. Karunakar & Company (1989) 177 ITR 84 (Calcutta High Court)**
* Interest paid on delayed payment of statutory dues held allowable as revenue expenditure.
2. **ITO vs. The Bombay Dyeing & Manufacturing Co. Ltd. (1987) 26 Taxman 343 (Bom HC)**
* Interest on delayed payment of excise duty allowed as deduction.
3. **CIT vs. TVS Motor Company Ltd. (2006) 281 ITR 297 (Mad HC)**
* Interest on delayed payment of excise duty allowed as business expense.
4. **CIT vs. Kansai Nerolac Paints Ltd. (2007) 293 ITR 422 (Bom HC)**
* Similar principle extended to interest on delayed statutory payments.
---
### Summary:
* Interest on late payment of service tax is **allowed as business expense**.
* It is **not a penalty**, so it doesn’t attract disallowance.
* Supported by various High Court rulings on similar delayed statutory interest.
---
If you need, I can help prepare a note summarizing this for your files or submissions.
---
### Key Points:
* Interest paid for **late payment of statutory dues** like service tax is considered a **revenue expense**.
* It is **not a penalty**, but a compensation for delayed payment.
* Therefore, it is **allowed as a deductible expense** under Section 37(1) of the Income Tax Act, 1961.
---
### Relevant Case Laws:
1. **CIT vs. Karunakar & Company (1989) 177 ITR 84 (Calcutta High Court)**
* Interest paid on delayed payment of statutory dues held allowable as revenue expenditure.
2. **ITO vs. The Bombay Dyeing & Manufacturing Co. Ltd. (1987) 26 Taxman 343 (Bom HC)**
* Interest on delayed payment of excise duty allowed as deduction.
3. **CIT vs. TVS Motor Company Ltd. (2006) 281 ITR 297 (Mad HC)**
* Interest on delayed payment of excise duty allowed as business expense.
4. **CIT vs. Kansai Nerolac Paints Ltd. (2007) 293 ITR 422 (Bom HC)**
* Similar principle extended to interest on delayed statutory payments.
---
### Summary:
* Interest on late payment of service tax is **allowed as business expense**.
* It is **not a penalty**, so it doesn’t attract disallowance.
* Supported by various High Court rulings on similar delayed statutory interest.
---
If you need, I can help prepare a note summarizing this for your files or submissions.
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