Interest on delayed kist payment under a statutory liquor licence can qualify as deductible business expenditure.

Interest paid on delayed instalment payment of kist under a statutory liquor licence was treated as business expenditure deductible under section 37 of the Income-tax Act, 1961. The licence and the Abkari Act permitted payment in instalments with interest for payment made after the due date but before the later cut-off date, so the payment was not an infraction of law or a penal outlay arising from wrongful conduct. Decisions disallowing deductions for unlawful or penal payments were therefore inapplicable, and the interest was regarded as expenditure incurred wholly and exclusively for carrying on the business.

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Issues: Whether interest paid on delayed payment of kist under the statutory liquor licence was expenditure laid out wholly and exclusively for the purposes of business and allowable under section 37 of the Income-tax Act, 1961.

Analysis: The rental or kist was payable under the Abkari Act and the statutory licence permitted payment in instalments, with interest charged for payment made after the due date but before the later cut-off date. In that setting, payment of interest was not treated as an infraction of law or a consequence of any wrongful default beyond the licence terms. The decisions disallowing deductions for penal payments arising from unlawful conduct were held inapplicable because the present payment was contemplated by the licence itself and was necessary for carrying on the business.

Conclusion: The interest was allowable as business expenditure under section 37 and the answer was in favour of the assessee.

Ratio Decidendi: Where a statutory licence itself permits delayed payment on interest and the payment does not involve any illegality or wrongful default, the interest is expenditure laid out wholly and exclusively for the purposes of business and is deductible under section 37.

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