Compensatory interest on delayed purchase tax payment was treated as an allowable income-tax deduction.

Interest paid for delayed non-payment of purchase tax under the U.P. Sugarcane (Purchase Tax) Act, 1961 was treated as compensatory rather than penal in nature. Applying the Supreme Court principle on interest under sugarcane cess legislation, the amount was therefore held to be an admissible deduction for income-tax purposes.

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Issues: Whether interest paid for non-payment of purchase tax under the U.P. Sugarcane (Purchase Tax) Act, 1961 was in the nature of penalty, and whether the amount so paid was an allowable deduction.

Analysis: The reference was controlled by the principle already laid down by the Supreme Court that interest charged for delayed payment under the relevant sugarcane cess legislation is compensatory in character and not a penalty for breach of law. On that basis, the payment was treated as an admissible deduction for income-tax purposes.

Conclusion: The interest was not penalty and the sum paid was a permissible deduction.

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