Interest on Sugarcane Tax Arrears: Deductible Revenue Expenditure, Not Penalty

The Supreme Court held that interest paid on sugarcane purchase tax arrears is deductible as revenue expenditure, not a penalty. The Full Bench decision, which stated interest was not deductible, was overruled. The Court determined that interest on arrears is part of the liability and upheld the Division Bench decision allowing the deduction.

---

---

Issues involved: Interpretation of whether interest paid on sugarcane purchase tax arrears is an allowable deduction under the Income-tax Act, 1961.

Judgment Summary:

Division Bench Judgment:
The Tribunal sought the court's opinion on the allowability of interest paid on sugarcane purchase tax arrears. The Tribunal held it as an allowable deduction based on precedent. However, a subsequent Full Bench decision overruled this, stating interest was not deductible. The Supreme Court differentiated the Full Bench decision, indicating interest on arrears is part of the liability. The Calcutta High Court later held that the Supreme Court decision overruled the Full Bench decision. The Division Bench referred the matter to a larger Full Bench for consideration.

Full Bench Judgment:
The Full Bench considered whether interest on sugarcane purchase tax arrears is an allowable deduction. The Revenue relied on the Full Bench decision overruled by the Supreme Court. The Court analyzed the provisions of the U.P. Sugarcane Cess Act and held that interest is part of the liability, not a penalty. The Court concluded that interest on arrears is deductible as revenue expenditure. The Full Bench determined that the earlier Full Bench decision did not lay down the correct law, and the Division Bench decision was upheld as correct.

---