TaxTMI 
TaxTMI 
1981 (2) TMI 29
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....putation of the business profit. According to the Commissioner, the facts of the present case were similar to the facts in the case of CIT v. Mahalaxmi Sugar Mills Ltd. [1972] 85 ITR 320, wherein the Delhi High Court had held that the interest payable under the U.P. Sugarcane Cess (Validation) Act, 1961, was of a penal nature and was not an allowable expenditure in the computation of business profits for income-tax purposes. The Commissioner, therefore, set aside the assessments for the three years on the said grounds and certain other points which are not relevant for our present purpose and directed the ITO to make fresh assessments after carefully examining the question of allowability of the interest (paid under the) U. P. Sugarcane (Purchase Tax) Act, 1961. There was an appeal preferred by the assessee-company before the Tribunal and the Tribunal dealing with those contentions and after referring to the several decisions, viz., the decision of the Allahabad High Court in the case of Kamlapat Motilal v. CIT [1976] 104 ITR 783, the decision of the Delhi High Court in the case of CIT v. Mahalaxmi Sugar Mills [1972] 85 ITR 320 and the decision of the Allahabad Full Bench in the....
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....he entry of cane into the premises of factory for use either for consumption or sale thereof. The Tribunal in that case had held that interest on the arrears of cess constituted a permissible deduction but the High Court on a reference, inter alia, held that the interest did not fall within the scope of s. 10(2)(xv) of the Indian I.T. .Act, 1922, as it was applicable in that year, because it was paid by way of penalty for an infringement of the Cess Act. There was an appeal preferred by the assessee before the Supreme Court. The revenue did not dispute that the payment of cess represented expenditure laid out wholly and exclusively for the purpose of business and that it was in the nature of revenue expenditure. It was held by the Supreme Court reversing the decision of the Delhi High Court that the interest paid under s. 3(3) of the Cess Act was not a penalty paid for an infringement of law and was an allowable deduction under s. 10(2)(xv) of the Indian I.T. Act, 1922. The Supreme Court was of the view that the interest payable on arrear of cess under s. 3(3) was in reality a part and parcel of the liability to pay tax. It was an accretion to the cess. The arrear of cess carried i....
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....hat in addition to the amount of the arrears and interest, a sum not exceeding 10 per cent. thereof shall by way of penalty be recovered from the person liable to pay the cess. (6) The officer or authority empowered to collect the cess may forward to the Collector a certificate under his signature specifying the amount of arrears including interest due from any person, and on receipt of such certificate the Collector shall proceed to recover the amount specified from such person as if it were an arrear of land revenue. (7) Any sum imposed by way of penalty under sub-section (5) shall be recoverable in the manner provided in sub-section (6) for the recovery of the arrear of cess. 4. Penalties.-If any person defaults in the payment of cess imposed under sub-section (1) of section 3, or contravenes any provision of any rule made under this Act, he shall without prejudice to his liability therefor under sub-section (5) of section 3, be liable to imprisonment up to six months or to a fine not exceeding rupees five thousand or both and in the case of continuing contravention to a further fine not exceeding rupees one thousand for each day during which the contravention continues....
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.... If any person defaults in the payment of tax levied under subsection (1) of section 3, or contravenes any of the provisions of this Act, or of the rules made thereunder, he shall, without prejudice to his liability for the payment of interest or penalty, or both, as the case may be, under sub-section (3) or sub-section (4), of section 3, be liable, upon prosecution and conviction by a court of competent jurisdiction, to imprisonment up to six months, or to a fine not exceeding rupees five thousand, or both, and in the case of continuing contravention to a further fine not exceeding rupees one thousand for each day during which the contravention continues." The Supreme Court in analysing s. 3(2) of the Cess Act observed that the cess was payable on the date prescribed under the Rules. It was further observed by the Supreme Court that if any arrear of cess was not paid within the specified date then under s. 3(3) it would carry interest at 6 per cent. per annum from the specified date to the date of payment. Section 3(5), according to the Supreme Court, was a very different provision. It did not deal with interest paid on arrear of cess but provided for an additional sum recovera....
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....the interest provided for under s. 3(3) is in the nature of compensation paid to the Government for delay in the payment of cess. It is not by way of penalty. The provision for penalty as a civil liability has been made under s. 3(5) and for penalty as a criminal offence under s. 4. The Delhi High Court proceeded entirely on the basis that the interest bore the character of a penalty. It was, according to the learned judges, 'penal interest'. The learned judges failed to notice s. 3(5) and s. 4 and the other provisions of the Cess Act. " Reference was made to the several other decisions before the Supreme Court and also to the decision of the Full Bench of Allahabad High Court in the case of Saraya Sugar Mills (P.) Ltd. [1979] 116 ITR 387, where a Full Bench of the Allahabad High Court held that the payment of interest under s. 3(3) of the U.P. Sugarcane (Purchase Tax) Act, 1961, was a penal liability which accrued on an infraction of the law. The Supreme Court went on to say that although s. 3(3) of the Sugarcane (Purchase Tax) Act, 1961, did seem to be in pari materia with s. 3(3) of the Cess Act, their Lordships refrained from expressing any final opinion on this aspect. I....