Interest on delayed sales tax payment treated as revenue expenditure and allowed as a business deduction.

Interest paid for delayed payment of sales tax under section 11B of the Rajasthan Sales Tax Act was treated as revenue expenditure, not as a penalty, and was therefore deductible under section 37(1) of the Income-tax Act. The court followed its earlier view and noted that the contrary Delhi High Court position had been reversed by the Supreme Court. Applying that principle, interest paid for delayed tax remittance could not be disallowed merely because it arose from late payment of sales tax, and the deduction was allowed in favour of the assessee.

---

---

Issues: Whether interest paid under section 11B of the Rajasthan Sales Tax Act, 1954, for delayed payment of sales tax was an allowable deduction under section 37(1) of the Income-tax Act, 1961.

Analysis: The question was covered by an earlier decision of the same court, which had considered the nature of interest payable for late payment of sales tax under section 11B and had held it to be revenue expenditure rather than penalty. The court noted that the contrary view earlier taken by the Delhi High Court had since been reversed by the Supreme Court, and that the interest paid for delayed tax payment was deductible as expenditure incurred for the purposes of business under section 37(1). Applying that principle, the amount of Rs. 4,175 paid as interest could not be disallowed merely because it arose from delayed payment of sales tax.

Conclusion: The interest was an allowable deduction under section 37(1) of the Income-tax Act, 1961, and the question was answered in favour of the assessee.

Ratio Decidendi: Interest paid for delayed payment of sales tax under section 11B of the Rajasthan Sales Tax Act, 1954, is revenue expenditure and not a penalty, and is deductible under section 37(1) of the Income-tax Act, 1961.

---