Disallowance u/s 37 of interest paid on delayed payment of...

Disallowance u/s 37 of interest paid on delayed payment of additional Customs Duty was challenged, contending that it was not penal in nature but compensation for delay in payment of taxes, hence allowable as revenue expenditure. Relying on Supreme Court rulings in Mahalakshmi Sugar Mills Company Ltd., Lachmandas Mathuradas, and Karnataka High Court's decision in Mysore Electrical Industries Ltd., it was held that since interest is calculated at a certain percentage on a time basis for delayed payment of customs duty, it is compensatory in nature. The interest expenses were incurred wholly and exclusively for business purposes, neither personal nor capital, and cannot be treated as a penalty. Interest due to delayed payment of customs duty is deductible u/s 37 as an accretion to the main payment, not a penalty, and therefore allowable as a deduction. The assessee's appeal was allowed.