Penalty for delayed sales tax payment is not a deductible business expense when it arises from statutory default.

Payment under section 45 of the Gujarat Sales Tax Act for delayed tax remittance was treated as penal, not compensatory, because it arose from breach of the statutory obligation to pay on time. As a result, the amount could not be claimed as revenue expenditure or a trade loss and was not deductible in computing business income. The Court followed its earlier ruling on the same issue and reiterated that a payment described as interest remains non-deductible where its true character is a penalty for infraction of law.

---

---

Issues: Whether the amount paid under section 45 of the Gujarat Sales Tax Act, 1969, for delayed payment of sales tax was a penalty for infraction of law and therefore not allowable as a deduction as revenue expenditure.

Analysis: The Court followed its earlier decision on the same point and held that payment made under section 45 was in the nature of penalty, not compensatory interest. Since the payment was made for breach of the statutory obligation to pay tax within time, it could not be treated as an admissible revenue outgoing or as a trade loss.

Conclusion: The amount paid under section 45 was held to be penalty for infraction of law and was not allowable as a deduction; the conclusion was against the assessee and in favour of the Revenue.

Ratio Decidendi: A payment imposed for default in timely payment of sales tax, though described as interest, is deductible only if it is compensatory in character; where it is penal and arises from infraction of law, it is not an allowable business deduction.

---