Statutory interest on delayed sales tax payment was deductible on actual payment because the liability arose automatically by law.

Interest paid on delayed payment of additional sales tax was treated as a statutory liability arising automatically under the sales tax law, because section 17-A(2) made interest payable once the tax was not paid within time. That liability was not dependent on a separate demand notice. As section 43B permits deduction only on actual payment of sums payable by way of tax, duty, cess or fee, the interest payment was held to be allowable as a deduction when paid.

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Issues: Whether interest paid on delayed payment of additional sales tax was deductible under section 43B of the Income-tax Act, 1961 when interest became payable automatically under section 17-A(2) of the Himachal Pradesh General Sales Tax Act, 1968.

Analysis: Section 43B allows deduction only on actual payment of a sum payable by way of tax, duty, cess or fee. The decisive question was whether the amount paid as interest on delayed sales tax was a liability that had arisen by operation of the sales tax law. Section 17-A(2) of the Himachal Pradesh General Sales Tax Act, 1968 made interest automatically payable once the tax demand was not met within the stipulated time. The Tribunal had disallowed the claim on the footing that no separate demand for interest had been raised, but that approach ignored the statutory consequence flowing from the tax default. The liability to interest arose from the statute itself and was not dependent on a fresh demand.

Conclusion: The interest payment was a sum payable by law and was allowable as a deduction under section 43B.

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