Statutory interest on delayed remittance was treated as compensatory liability, making it deductible as business expenditure.

Interest automatically accruing on delayed remittance under section 23 of the Additional Emoluments (Compulsory Deposit) Act, 1974, was treated as part of the statutory liability and not as a penalty for infraction of law. The provision operated as a recovery mechanism for default, with interest payable at twice the rate specified under section 7(1), and the liability arose without any separate penal order. On that basis, the amount paid, including the interest component and the sum remitted to the deposit account, was considered compensation for delay and allowable as business expenditure rather than a disallowable penalty.

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Issues: Whether the amount paid under section 23 of the Additional Emoluments (Compulsory Deposit) Act, 1974, including the sum described as interest and the amount required to be remitted to the deposit account, was deductible as business expenditure and not a penalty for infraction of law.

Analysis: The statutory scheme required compulsory deposits of additional wages and dearness allowance, and section 23 provided that any amount not credited or remitted within time would carry interest at twice the rate specified under section 7(1). The liability to pay such interest arose automatically on default and did not depend on any separate penal order. The provision was treated as one for recovery of arrears and the interest was regarded as part of the statutory liability, in the nature of compensation for delay, rather than a penalty under section 14. The reasoning was held to be in pari materia with the interest provision considered by the Supreme Court in relation to cess arrears, where such interest was treated as an accretion to the primary liability and allowable as revenue expenditure.

Conclusion: The amount paid under section 23 was not a penalty for infraction of law, but a statutory liability allowable as business expenditure; the disallowance was rightly deleted.

Ratio Decidendi: Interest that automatically accrues on delayed statutory remittance, and functions as compensation for default rather than punishment, is part of the underlying liability and is deductible as business expenditure.

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