1984 (3) TMI 8 - HC - Income Tax

Interest under Rajasthan Sales Tax Act deductible as revenue expenditure under Income Tax Act.

The High Court of Rajasthan held that interest paid under s. 11B of the Rajasthan Sales Tax Act is deductible as a revenue expenditure under s. 37(1) of ... Deductibility of interest as revenue expenditure - Expenditure laid out wholly and exclusively for the purposes of business - Revenue expenditure versus penalty - Interest under section 11B of the Rajasthan Sales Tax Act treated as deductible under section 37(1) of the Incometax Act - Precedential effect of Rajasthan Central Stores (P) Ltd. v. CITDeductibility of interest as revenue expenditure - Expenditure laid out wholly and exclusively for the purposes of business - Revenue expenditure versus penalty - Interest under section 11B of the Rajasthan Sales Tax Act treated as deductible under section 37(1) of the Incometax Act - Whether the sum paid as interest under section 11B of the Rajasthan Sales Tax Act is an expenditure laid out wholly and exclusively for the purposes of business and therefore deductible under section 37(1) of the Incometax Act. - HELD THAT: - The court held that the interest payable under section 11B of the Rajasthan Sales Tax Act is not a penal payment but a revenue expenditure. Relying on this court's earlier decision in Rajasthan Central Stores (P) Ltd. v. CIT, which had considered and rejected reliance on the Delhi High Court decision in CIT v. Mahalaxmi Sugar Mills Ltd. (the latter having been reversed by the Supreme Court), the court concluded that such interest falls within the ambit of deductible business expenditure under section 37(1) of the Incometax Act. The Tribunal's contrary conclusion, based on the Delhi High Court decision, was thus displaced by the binding view adopted by this court that the payment is deductible as interest/revenue expenditure.The interest paid under section 11B is a revenue expenditure deductible under section 37(1); the Tribunal's disallowance was not justified.Final Conclusion: The reference is answered in favour of the assessee and against the Revenue: the sum paid as interest under section 11B of the Rajasthan Sales Tax Act for the assessment year 1969-70 is deductible as an expenditure laid out wholly and exclusively for the purposes of business under section 37(1) of the Incometax Act; no order as to costs. The High Court of Rajasthan held that interest paid under s. 11B of the Rajasthan Sales Tax Act is deductible as a revenue expenditure under s. 37(1) of the Income Tax Act. The Tribunal was not justified in disallowing the deduction. The decision favored the assessee.