Statutory penalty for delayed cess payment is not deductible as business expenditure under income-tax law.

A statutory payment made for delayed cess was treated as a levy imposed for default in payment, not as an ordinary business outgoing. Applying the principle that a penalty for breach of law is not a commercial expense, the Court held that it was neither laid out wholly and exclusively for business purposes nor incidental to the carrying on of business. The deduction was therefore not allowable under either section 10(1) or section 10(2)(xv) of the Indian Income-tax Act, 1922.

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Issues: Whether the amount paid under section 3(5) of the Uttar Pradesh Sugarcane Cess Act, 1956, for delayed payment of cess was allowable as a deduction under section 10(1) or section 10(2)(xv) of the Indian Income-tax Act, 1922.

Analysis: The payment under section 3(5) was treated as a levy imposed on default in time and not as an outgoing arising in the ordinary course of business. Applying the settled principle that an amount paid as a penalty for breach of law is not a commercial expense, the Court held that such a payment cannot be regarded as laid out wholly and exclusively for business purposes. It also held that the payment could not be brought within section 10(1), because an infraction of law is not a normal incident of trade and the expenditure was not incidental to the carrying on of the business.

Conclusion: The deduction was not allowable under either section 10(1) or section 10(2)(xv), and the answer to the referred question was in the negative.

Ratio Decidendi: A payment made as a statutory penalty for breach of law is not a business expenditure and cannot be deducted as an amount laid out wholly and exclusively for business or as an expense incidental to the carrying on of the business.

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