1978 (4) TMI 95

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....ectively. The assessee carries on the business of manufacture and sale of sugar. The sugar factory is situated at Harknua in the district of Saran, North Bihar. Since the assessee did not pay the cess within the due date, the Bihar Government charged interest for the delayed payment of cess. The assessee-company claimed such interest amounting to Rs. 45,102 in the assessment year 1967-68. It also claimed Rs. 66,000 in the assessment year 1969-70 as admissible deductions before the Income-tax Officer. It was, however, held by the Income-tax Officer that the delayed payment of cess could not be treated as normal incident to the assessee's business and the levy of interest for irregular payment of cess was in the nature of penal measure. Th....

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....ly for the purpose of business. For nonpayment of cess within the prescribed date penal interest was leviable due to infraction of law and so the interest paid could not be allowed, in the opinion of the Tribunal, as a business expenditure. The Tribunal relied on the decision of the Supreme Court in the case of Haji Aziz and Abdul Shakoor Bros. v. Commissioner of Income-tax [1961] 41 ITR 350. The Tribunal also relied on the decision of the Delhi High Court in the case of Commissioner of Income-tax v. Mahalaxmi Sugar Mills Ltd. [1972] 85 ITR 320, wherein it was held that the interest paid for the delayed payment of cess could not be said to be incidental to the carrying on of the business and as such could not be allowed as a deduction. The ....

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....the decision of the Delhi High Court in Commissioner of Income-tax v. Mahalaxmi Sugar Mills Ltd. [1972] 85 ITR 320. It was held therein that, as the penal interest was paid by the assessee as penalty for omission on the part of the assessee to deposit the cess in time, the amount could not be treated as a legitimate business expense either under section 10(1) or under section 10(2)(xv) of the Indian Income-tax Act, 1922. It was further held that the interest paid by the assessee could not be deducted under section 10(2)(iii) as no capital was borrowed by the assessee and no relationship of creditor and debtor came into existence whereby the assessee undertook to pay interest to the creditor. The learned counsel for the revenue also refer....