TaxTMI 
TaxTMI 
1995 (3) TMI 160
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....e assessee. The interest so charged was of compensatory nature and hence was allowable under section 37(1) of the Act. This is as held in various decisions of both the Supreme Court as well the High Courts. To name a few they are :--- (1) Mahalakshmi Sugar Mills Co. v. CIT [1980] 123 ITR 429 (SC) ; (2) G. G. Sanghi v. CIT [1985] 156 ITR 95 (Raj.) ; (3) Prakash Cotton Mills (P.) Ltd. v. CIT [1993] 201 ITR 684 (SC) ; (4) CIT v.UdaipurDistillery [1986] 160 ITR 444 (Raj.). 3. According to the learned Departmental Representative on the other hand, the allowability of interest, fines and penalty under section 37 of the Act in such cases is dependent on the nature of the payment whether compensatory or penal. Their Lordships of Supreme Court in the case of Standard Batteries Ltd. v. CIT [1995] 211 ITR 444 have reiterated their earlier stand as taken in the case of Prakash Cotton Mills (P.) Ltd. which is that " The deduction under section 37(1) of the Income-tax Act is allowable in case it is found that the same is of purely compensatory in nature. However, where such impost is found to be a composite nature, i.e., partly of compensatory nature and partly of penal nature, the same hav....
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....; 12 months 18,400 3,220 4th 30-4-1982 9 months 2,18,548.61 28,418 Penalty under section 9(2) of the Act -- 3,000 Assessment Year 1982-83 Interest for first quarterly payment 22,365 Interest for second quarterly payment 31,490 Interest for third quarterly payment 30,966 Interest for fourth quarterly payment (Rs. 13+40) 53 Interes....
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....ting to offences and penalties (including provisions relating to penalties in lieu of prosecution for an offence or in addition to the penalties or punishment for an offence but excluding the provisions relating to matters provided for in sections 10 and 10A) of the general sale tax law of each State shall, with necessary modifications, apply in relation to the assessment, re-assessment, collection and the enforcement of payment of any tax required to be collected under this Act in such State or in relation to any process connected with such assessment, re-assessment, collection or enforcement of payment as if the tax under this Act were a tax under such sales tax law. " As per the provisions, the State authorities are to assess, re-assess, collect and enforce payment of tax including any penalty payable under the Act as it is a tax or penalty payable under the General Sales-tax Law of the State. For this they may exercise all powers they have under the General Sales-tax Law of the State. This includes power to impose penalty along with other powers namely, review, revision, reference and compounding of offences, etc. Thus section 9(2) of the Central Sales-tax Act adopts the State....
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....ult. It is compensatory in nature, the same having been provided for speedy and prompt collection of revenue. For this we would rely on decisions of the various Courts. In the case of Associated Cement Co. Ltd. v. CTO [1981] 48 STC 466, their Lordships of Supreme Court have held that such interest is compensatory in character and not penal. Furthermore in case of CIT v. Udaipur Distillery [1986] 63 STC 126 (as given at p. 1.274 in the Commentary of the General Sales-tax Law in Haryana (1989) 3rd Edition by B.L. Gulati) it was held by Rajasthan High Court, " the liability of interest on delayed payment of sales tax is a statutory obligation of the dealer and is automatic, and no specific order is required. Thus, it is a part of sales tax and as the sales tax is paid by a dealer for the purpose of carrying on business, the amount of interest will for all purposes be considered to be an amount spent wholly and exclusively for the purpose of business. A particular amount is an allowable deduction, if it is spent wholly and exclusively for the purposes of business. It is well-settled that neither necessity nor motive nor reasonableness is the test for allowing deduction of expenditure ....