Interest on delayed sales tax payment treated as compensatory business expenditure and allowed as a deductible outgoing.

Interest paid for delayed payment of sales tax was treated as compensatory rather than penal because the liability arose under a provision imposing interest on overdue tax, while a separate provision governed penalty for non-payment. On that basis, the statutory interest was held to form part of business expenditure, since the underlying sales tax itself was a business outgoing and the delay-related interest attached to its payment. The cited authority on interest for delayed income-tax payment was distinguished, and the adjustment disallowing the amount was deleted.

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Issues: Whether interest paid for delayed payment of sales tax was allowable as a business expenditure and deductible in computing income.

Analysis: The liability arose under section 22A of the Assam Finance (Sales-tax) Act, 1956, which provided for interest on overdue sales tax, while a separate provision governed penalty for non-payment. The interest was therefore compensatory for delay and not penal in character. Since sales tax itself was a business outgoing, the statutory interest attached to delayed payment formed part of the business expenditure. The provision in section 36(1)(iii) of the Income-tax Act, 1961, was not an obstacle on these facts, and the cited authority concerning interest on delayed income-tax payment was distinguishable.

Conclusion: The interest on delayed payment of sales tax was allowable as a business expenditure and the deletion of the addition was .

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