Interest for CRR and SLR default held compensatory, not penal, so deduction was allowable.

Interest paid for non-maintenance of the cash reserve ratio and statutory liquidity ratio was treated as compensatory in nature, not as a penalty under the Banking Regulation Act, 1949 and the Reserve Bank of India Act, 1934. On that basis, the expenditure was held allowable as a deduction. The Tribunal's view was left undisturbed because no independent ground was advanced to displace it, and the issue was stated to be covered by the cited precedent. The claim was therefore accepted in favour of the assessee.

---

---

Issues: Whether interest paid for non-maintenance of the cash reserve ratio and statutory liquidity ratio under the Banking Regulation Act, 1949 and the Reserve Bank of India Act, 1934 constitutes a penalty so as to be disallowable as a deduction.

Analysis: The Tribunal had held that the amount paid to the Reserve Bank of India was not penal in nature but was interest paid for default in maintaining the prescribed reserves, and therefore the expenditure was allowable. The appeal raised no independent ground to displace that view, and the same issue had already been dealt with consistently in the cited precedent.

Conclusion: The amount was not a penalty and the interest claim was allowable; the issue was decided in favour of the assessee.

---