Interest on Sales Tax Arrears Deductible under Income-tax Act

The High Court of Rajasthan held that interest paid by the assessee to the Sales Tax Department on arrears of sales tax is deductible under section 37 of the Income-tax Act, 1961, based on precedent. The court referred to a previous case and followed the decision that interest paid on sales tax collections withheld and used for business purposes is admissible as a deduction. The court ruled in favor of the assessee, allowing the deduction for the interest paid to the Sales Tax Department.

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Issues Involved:
The judgment addresses the admissibility of interest paid by the assessee to the Sales Tax Department on arrears of sales tax as a deduction under section 37 of the Income-tax Act, 1961.

Judgment Details:
The High Court of Rajasthan considered a question of law referred by the Income-tax Appellate Tribunal regarding the deductibility of interest paid by the assessee to the Sales Tax Department on arrears of sales tax under section 37 of the Income-tax Act, 1961. The court referred to a previous case, Rajasthan Central Stores (P.) Ltd. v. CIT [1985] 156 ITR 90 (Raj), where a similar issue was addressed. In that case, the court held that interest paid on sales tax collections withheld by the assessee and utilized for its business was admissible as a deduction. The court relied on the decision in Mahalakshmi Sugar Mills Co. v. CIT [1980] 123 ITR 429, where the Supreme Court had allowed deduction for interest paid under a similar provision. Therefore, the court in the present case agreed with the previous decision and held that the interest paid to the Sales Tax Department was indeed deductible under section 37 of the Income-tax Act, 1961. The question was answered in the affirmative, in favor of the assessee and against the Revenue.

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