Statutory interest on delayed tax payment treated as revenue expenditure and allowed as a business deduction.

Interest paid on arrears of sugarcane purchase tax was treated as an inseparable accretion to the statutory tax liability, not as a penalty for breach of law. The court applied the same character to the interest as to the principal tax, noting that the delayed-payment interest was incidental to the revenue outgoing and therefore expenditure laid out wholly and exclusively for business purposes. On that basis, the interest was held to be an allowable deduction in computing business income under the Income-tax Act, 1961.

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Issues: Whether interest paid on arrears of sugarcane purchase tax under the U.P. Sugarcane Purchase Tax Act, 1961, was an allowable deduction under the Income-tax Act, 1961.

Analysis: The liability to pay interest on delayed payment of sugarcane purchase tax was treated as incidental to and inseparable from the tax liability itself. The provisions of the U.P. Sugarcane Cess Act, 1956, particularly section 3(3), and Rule 4 of the U.P. Sugarcane Cess Rules, 1956, were regarded as in pari materia with the purchase tax provisions. On that basis, the interest was held to be an automatic accretion to the statutory liability, not a penalty for infraction of law. Since the tax itself was a revenue outgoing, the interest payable on its arrears bore the same character and was expenditure laid out wholly and exclusively for the purposes of business.

Conclusion: Interest paid on arrears of sugarcane purchase tax was an allowable deduction and not a penal liability.

Ratio Decidendi: Where statutory interest on delayed payment is an inseparable accretion to the principal tax liability and not a penalty, it assumes the same revenue character as the principal liability and is deductible in computing business income.

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