Contractual interest on delayed kist payment was deductible because it was not a penalty for breach of law.

Interest paid on delayed kist payment was deductible because the liability arose under a contractual arrangement and was not shown to be penal or punitive in nature. The court treated the interest as a contractual outgoing, not a payment for infraction of law, and allowed the deduction in computing income. The timing distinction between default before or after the 20th day of the month was held irrelevant, as no material showed that it altered the character of the liability. Deductibility therefore remained unaffected by the date of default.

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Issues: (i) Whether interest paid on delayed payment of kist was an allowable deduction in computing taxable income. (ii) Whether the deduction differed depending on whether the default occurred before or after the 20th day of the month.

Issue (i): Whether interest paid on delayed payment of kist was an allowable deduction in computing taxable income.

Analysis: The liability to pay interest arose from the contractual arrangement governing the kist payment. The finding that the payment was under contract was supported by material and was not shown to be erroneous. On that basis, the interest was not paid for infraction of law and could not be treated as penal or punitive in character.

Conclusion: The deduction was allowable and the issue was decided in favour of the assessee.

Issue (ii): Whether the deduction differed depending on whether the default occurred before or after the 20th day of the month.

Analysis: The obligation to pay interest was contractual, and no material was shown to establish that the timing of the non-payment altered the nature of the liability. The distinction sought to be drawn between payment before or after the 20th of the month was therefore irrelevant to deductibility.

Conclusion: The deduction was allowable irrespective of the date of default, and the issue was decided in favour of the assessee.

Final Conclusion: Interest paid on delayed kist payment, being a contractual liability and not a penalty for breach of law, was held to be deductible in computing income.

Ratio Decidendi: Interest paid pursuant to a contractual obligation, and not by way of penalty for infraction of law, is an allowable deduction for income-tax purposes.

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