Business expenditure deduction denied for interest on excess realisation liability where the Act imposed no statutory interest obligation

Interest on a transferred liability for excess realisation under the Levy Sugar Price Equalisation Fund Act was held not deductible as business expenditure because the statutory scheme required only credit of the excess realisation to the Fund when interim judicial protection ended. The purchaser of the distillery division stepped into the vendor's position, but that did not create any separate obligation to pay interest for the period covered by the interim order. The absence of a book entry was immaterial, yet no statutory liability to interest arose under the Act, so the deduction failed.

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Issues: Whether interest claimed on the transferred liability relating to excess realisation under the Levy Sugar Price Equalisation Fund Act, 1976 was deductible as business expenditure for the assessment years in question.

Analysis: The assessee had purchased the distillery division along with its assets and liabilities and thereby stepped into the shoes of the vendor as a producer for the purposes of the Act. The liability to credit excess realisations to the Fund under section 3 was considered in the setting of sub-sections (4) and (5), which deal with amounts covered by interim court orders. On the scheme of the provision, where the amount had remained under interim judicial protection, the final obligation on disposal of the proceedings was only to credit the amount representing excess realisation to the Fund, and not to pay interest for the period during which the interim order operated. The absence of a debit entry in the books was held to be immaterial, but that did not create a statutory liability to pay interest where none arose under the Act.

Conclusion: The interest claimed was not deductible, as no liability to pay such interest arose under the Act for the relevant period.

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