1988 (10) TMI 65 - AT - Income Tax

Tribunal allows interest deduction on delayed sales tax under Gujarat Sales Act

The Tribunal allowed the appeal in favor of the assessee, directing the ITO to allow the interest paid on delayed sales tax under sec. 47(4A) of the ... Assessment Year, Sales Tax Act, Total Income Issues:1. Disallowance of interest on delayed payment of sales tax under sec. 47(4A) of the Gujarat Sales Act.Analysis:The sole issue in this case was the disallowance of Rs. 2,23,267 as interest paid on delayed sales tax under sec. 47(4A) of the Gujarat Sales Act. The assessee argued that the payment was compensatory and not a penalty, citing the decision in Bisleri India (P.) Ltd. The assessee contended that the payment was made due to extreme financial difficulties and was granted by the Asstt. Commissioner of Sales Tax. The Tribunal noted that the absence of the words 'by way of penalty' in sec. 47(4A) indicated that the payment was compensatory, following the decision in Mahalakshmi Sugar Mills Co. Ltd. The assessee also relied on various case laws to support its position.The Departmental Representative, however, relied on the decision in Jairamdas Bhagchand v. CIT, where the Bombay High Court held that interest under sec. 36(3) of the Bombay Sales Tax Act was not deductible. It was argued that despite the absence of the words 'by way of penalty' in sec. 47(4A), the provisions were similar to sec. 36(3) of the Bombay Sales Tax Act, making the interest non-deductible. The Departmental Representative emphasized that the High Court's decision would be binding on the Tribunal.After hearing both parties, the Tribunal analyzed the provisions of sec. 36(3) and sec. 47(4A) in detail. It noted that under sec. 36(3), interest was payable if the dealer failed to pay tax without reasonable cause, and the levy was considered a penalty. In contrast, sec. 47(4A) of the Gujarat Sales Tax Act mandated automatic interest payment on delayed tax, without considering reasonable cause. Drawing parallels with the U.P. Sugarcane Cess Act, the Tribunal concluded that the interest paid under sec. 47(4A) was compensatory in nature and should be allowed as a deduction. Therefore, the Tribunal reversed the CIT(A)'s decision and directed the ITO to allow the interest paid as a deduction in the computation of the total income of the assessee.In conclusion, the appeal was allowed in favor of the assessee based on the distinction between the compensatory nature of interest payment under sec. 47(4A) and the penal nature under sec. 36(3) of the Bombay Sales Tax Act.