Compensatory interest on delayed sales tax payment was deductible where the levy was automatic and not penal.

Interest on delayed payment of sales tax under section 47(4A) of the Gujarat Sales Tax Act was treated as an automatic statutory levy linked to delay, not as a penalty for wilful default. On that basis, the amount was characterised as compensatory and part of the tax liability itself, rather than a penal disallowance. The interest was therefore deductible in computing total income, and the disallowance was deleted in favour of the assessee.

---

---

Issues: Whether interest paid on delayed payment of sales tax under section 47(4A) of the Gujarat Sales Tax Act was compensatory in nature and allowable as a deduction in computing the assessee's total income.

Analysis: The levy under section 47(4A) was treated as automatic upon delay and unlike section 36(3) of the Bombay Sales Tax Act, it did not depend upon any finding of reasonable cause or an imposition in the nature of penalty for wilful default. The provision was held to be analogous to the interest levy considered in relation to the U.P. Sugarcane Cess Act, where interest on arrears was regarded as part of the tax liability itself. On that reasoning, the payment was characterised as compensatory and not as a penal disallowance. The interest was therefore regarded as part of the statutory liability incurred for delayed payment of the tax.

Conclusion: The interest paid under section 47(4A) of the Gujarat Sales Tax Act was allowable as a deduction, and the disallowance was deleted in favour of the assessee.

Ratio Decidendi: Where a statutory levy of interest for delayed tax payment is automatic and compensatory, and is not imposed as a penalty for wilful default, the amount is deductible in computing taxable income.

---