Madhya Pradesh High Court
Commissioner Of Income-Tax vs S.S. Ratanchand Bholachand (Huf) on 22 January, 1992
Equivalent citations: [1994]206ITR72(MP)
JUDGMENT B.C. Varma, J.
1. In exercise of the jurisdiction under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), the Income-tax Appellate Tribunal (Jabalpur Bench), Jabalpur, has referred the following question for the opinion of this court :
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that an amount of Rs. 30,246, being interest paid on arrears of sales tax, was an allowable deduction for the assessment year 1975-76, when the liability to pay interest was statutory and was ascertainable to the assessee for the earlier years, vide Commissioner of Sales Tax's order dated October 8, 1971 ?"
2. The assessee, a joint Hindu family firm, assessed to income-tax, claimed deduction of Rs. 30,246 for the calendar year 1974 on account of interest paid to the Sales Tax Department. This deduction was not allowed by the Income-tax Officer on two counts : (1) that the interest did not relate to the calendar year 1974, and (2) that this amount of interest was paid on belated payment of sales tax for earlier years. The appeal to the Appellate Assistant Commissioner was allowed observing that, for the previous years, the assessee was allowed to pay arrears of sales tax in instalments subject to payment of interest, the demand notice for payment of tax was received in the year 1974 and the liability would be for the calendar year 1974. The Tribunal, in further appeal, upheld the decision of the Appellate Assistant Commissioner on both the counts. In the view of the Tribunal, the interest was paid not as penalty but as an accretion to sales tax. The aforesaid question has been referred to this court in the aforesaid circumstances.
3. In our opinion, the answer to the question must be in favour of the assessee and against the Department.
4. Section 37(1) of the Act appearing in Chapter IV allows deduction of certain income of the assessee in computing the income chargeable under the head "Profits and gains of business or profession". It lays down that any expenditure (not being expenditure of the nature described in Sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession is an allowable expenditure. Thus, if any expenditure is found to have been incurred by the assessee wholly and exclusively for the purposes of business or profession, the assessee shall be allowed deduction of the amount so spent in computing his income chargeable as profits and gains of business or profession. Section 22(4A) of the Madhya Pradesh General Sales Tax Act, 1958, authorises the Commissioner of Sales Tax to permit the assessee to pay the tax demanded in instalments subject to such conditions as may be imposed. It further provides that if such instalments are granted, the dealer shall be liable to pay interest on such amount from the last date on which the tax or penalty was due to be paid in accordance with such notice of demand. The rate of interest is also specified. This clearly means that interest to be paid in terms of Section 22(4A) of the Madhya Pradesh General Sales Tax Act cannot be said to be paid by way of penalty. The dealer has been afforded a facility, of course, with the leave of the Commissioner, to make payment by instalments and it is in that event that he has to suffer payment of interest. It must, under these circumstances, be held that the interest so payable in terms of Section 22(4A) of the M. P. General Sales Tax Act is an expenditure incurred exclusively for the purpose of business or profession. It must, therefore, be held as an allowable expenditure.
5. The view that we have taken finds support from the decision of the Supreme Court in Mahalakshmi Sugar Mills Co. v. CIT [1980] 123 ITR 429. There the court was concerned with the interest payable on arrears of entry tax on entry of sugarcane into a factory for use, consumption or sale. The interest payable on arrears of cess was held as allowable business expenditure, since the interest so paid could not be held as penalty for any infringement of law. The Supreme Court observed that, in reality, the interest so paid could be treated only as a liability to pay cess. It would only mean an accretion to cess. The enlargement of cess liability by adding the amount of interest was held only to be an extension of liability to pay cess.
6. In the instant case also, in view of Section 22(4A) of the M. P. General Sales Tax Act, the liability to pay interest because of the postponement of payment of sales tax assessed by making it payable by instalments cannot be treated in the light of that decision as penalty but only as an addition to the amount of liability of sales tax. In our opinion, the decision rendered by the Supreme Court in Mahalakshmi Sugar Mills Co.'s case [1980] 123 ITR 429, fully supports our view.
7. For the reasons stated above, we answer the question referred to us in favour of the assessee and against the Department and hold that the Tribunal was justified in holding that the amount of Rs. 30,246, being interest paid on arrears of sales tax, was an allowable deduction for the assessment year 1975-76 when the liability to pay interest was statutory and was ascertainable to the assessee for the earlier years, vide Commissioner of Sales Tax's order dated October 8, 1971. Parties shall bear their own costs of this reference.