TMI Blog1969 (3) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee carried on business in the manufacture and sale of sugar. It had its mill at Deoria, Uttar Pradesh, and its registered office at Calcutta. For the assessment year 1958-59, by its letter dated 25th November, 1961, the assessee claimed a deduction of Rs. 34,355 as interest paid for arrears of sugarcane Cess under the Uttar Pradesh Sugarcane Cess Act, 1956. The Income-tax Officer rejected this claim. His first ground was that the liability related to the assessee's accounting year which ended on the 31st August, 1957, and the assessee had not made any provisions for the said sum in its accounts for that year though the assessee's method of accounting was mercantile. Secondly, he said that the amount in question was not allowable as a de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been incurred for commercial expediency. He, however, allowed the deduction of the first item, namely, the sum of Rs. 16,443.68. It would be convenient at this stage to set out the provisions of sections 3 and 4 of the Uttar Pradesh Sugarcane Cess Act, 1956. These provisions are as follows : " 3. (1) The State Government may by notification in the Official Gazette impose a cess not exceeding four annas per maund on the entry of the cane into the premises of a factory for use, consumption or sale therein : Provided that the State Government may likewise remit in whole or in part such cess in respect of cane used or to be used in a factory for any limited purpose specified in the notification. Explanation.-If the State Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion (5) shall be recoverable in the manner provided in sub-section (6) for the recovery of the arrears 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. " Before the Tribunal the assessee contended that the penalty under the Cess Act was imposed under section 4 and what was conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cess in due time. Learned counsel for the assessee draws our attention to the assessee's submission before the Tribunal that the assessee was unable to pay the cess as it had not sufficient funds at its disposal and it should not be said that the assessee was guilty of any crime or any violation of law for which he was subjected to any penal provision under the law. Learned counsel then says that it was, therefore, found to be commercially expedient to pay the additional amount under section 3(5) to enable the assessee to make payment when sufficient funds were available. Counsel for the assessee submits that the Tribunal misdirected itself in law by not taking into account these important factors. Alternatively, Mr. Debi Pal, learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the business of the assessee within the meaning of section 10(2)(xv) of the Income-tax Act. At page 360 their Lordships of the Supreme Court observed " The distinction sought to be drawn between a personal liability and a liability of the kind now before us is not sustainable because anything done which is an infraction of the law and is visited with a penalty cannot on grounds of public policy be said to be a commercial expense for the purpose of a business or a disbursement made for the purposes of earning the profits of such business. " To our mind the case before us has to be decided in the light of these observations of the Supreme Court. In fact, there is a direct authority of the Allahabad High Court on this point. In Maha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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