Kerala High Court rules that interest paid on delayed Agricultural Income Tax is not deductible as a business expense under Section 37 of the Income Tax Act.
Saloni Kumari | Dec 2, 2025 |
Interest on Delayed Agricultural Income Tax Not Deductible; Rules Kerala High Court
The appeal had been filed by Aspinwall and Company Limited in the Kerala High Court, challenging an order passed by the Income Tax Appellate Tribunal (ITAT), Cochin Bench, in I.T.A. No. 128/Coch/2017 on May 19, 2020. The case is related to the assessment year 2012-13.
The tax department, while processing the taxpayer’s return, said this interest cannot be claimed as an expense for income tax purposes and added 35% of it (Rs. 32,90,063) to the company’s taxable income.
Basically, the company had delayed paying Agricultural Income Tax (AIT) under the Kerala AIT Act. Because of this delay, it had to pay interest of Rs. 94,00,179. When the taxpayer approached the first appellate authority, the authority agreed with the claims of the tax department; however, it said the correct section to apply was Section 37, not Section 40(a)(ii). The authority directed that the entire interest on the delayed AIT payment should be disallowed.
The dissatisfied taxpayer, thereafter, filed an appeal before the ITAT; however, the tribunal again agreed with the tax department. Then, the taxpayer approached the Kerala High Court. The court had to decide on, “Is the interest paid on delayed payment of Agricultural Income Tax a deductible business expense under Section 37 of the Income Tax Act, 1961?”
The court noted that the agricultural income is exempt under Section 10(1) of the Income Tax Act. Hence, Agricultural Income Tax (AIT) is not an allowable deduction, and if AIT itself is not deductible, then interest paid for delaying AIT also cannot be deducted. Additionally, Section 37 allows deductions only when expenses are incurred for business purposes. Paying interest because of delaying a statutory tax payment is not a business expense.
In the final decision, the high court dismissed the appeal, ruling that interest on delayed AIT payments cannot be deducted as a business expense under Section 37. The decision of the Tribunal and the lower authorities was correct. The issue is decided in favour of the Income Tax Department.
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