TMI Blog2006 (8) TMI 248X X X X Extracts X X X X X X X X Extracts X X X X ..... oan and the interest is charged for non-payment of sales tax within the time allowed. He further held that the interest charged on non-payment of the loan is also in the nature of sales tax as held by the Rajasthan High Court in the case of Mewar Motors v. CIT [2003] 260 ITR 218. He further held that payment of interest is covered by the provisions of section 43B of the Act and the amount claimed is therefore not allowable. He, therefore, concluded that the interest charged by the Government of Andhra Pradesh is penal and not compensatory in nature and as such not allowable, in view of the decision of the Supreme Court in the case of Swedeshi Cotton Mills Co. Ltd. v. CIT [1998] 233 ITR 199. 2.2 Aggrieved, inter alia, by the disallowance thus made by the Assessing Officer, assessee preferred appeal before the CIT(A), who, concurring with the reasoning given by the Assessing Officer upheld the disallowance made by the Assessing Officer in terms of section 43B of the Act. Hence, assessee is in second appeal before this Tribunal. 3. The learned counsel for the assessee submitted that: The Appellate Commissioner erred in sustaining the disallowance of interest of Rs. 2,04,250 payabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses relied upon by the assessee, viz. in Western Indian State Motors case and Western State Motors case decided the issue in favour of the assessee. Apart from this, the decisions of Calcutta and Gauhati High Court decisions relied upon by him earlier and noted above, are also in favour of the assessee. Therefore, there are conflicting decisions on the point at issue rendered not only by different High Courts, but rendered by the very same Hon'ble Rajasthan High Court and as such, the view that favours the assessee should be preferred. It is also respectfully highlighted that only for default of payment of loan, interest has been charged, which only is attributed as penal, whereas it is only compensatory in nature, and that, therefore, the decision of the Supreme Court relied upon by the revenue is distinguishable. 6.1 Rival submissions heard and relevant orders read, including the case laws cited. After doing so, I am of the opinion that the stand of the assessee has substantial force unlike the defence of the Revenue in this appeal, for the reasons following- 6.2 It is an undisputed fact that payment of interest in the instant case has arisen on account of default on the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... head-note in the context of provisions of section 43B of the Act as follows- "The object of section 43B of the Income-tax Act, 1961, is to curb the activities of those tax payers who do not discharge their statutory liability of payment of sales tax or excise duty for long periods but claim deduction in that regard from the income on the ground that the liability to pay this amount had been incurred by them in the relevant previous year. Interest paid is part of the sales tax. Interest payable to the Sales Tax Department is also 'tax' and the provisions of section 43B of the Act are applicable thereto." 6.5 As against the above decision of the Rajasthan High Court, the ratio of which appears to go in favour of the revenue on the point at issue, it appears that there are quite a few decisions rendered by the very same Rajasthan High Court, deciding this issue in favour of the assessee. 6.6 For that matter, one such decision was referred to in that case Mewar Motors case itself. That is in the case of CIT v. Udaipur Distillery [1986] 160 ITR 444 (Raj.), wherein it was held as follows:- "The liability to pay interest on the failure of an assessee (dealer) to pay tax fee or pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idering the nature of interest payable for outstanding municipal taxes and allowability of deduction in respect thereof, applying the ratio of the decisions of the Apex Court in Mahalakshmi Sugar Mills Co. and of the Calcutta High Court in Russel Properties (P.) Ltd. v. CIT [1982] 137 ITR 358, held that interest payable for arrears of municipal taxes is really compensatory in nature and not a penalty or tax. 6.11 As may be seen from the foregoing discussion, there appears at the most some divergence of judicial opinion on the nature of interest levied on the delayed payment of sales tax liability, which is akin to repayment of sales tax loan in the instant case. While the only decision of the Rajasthan High Court in the case of Mewar Motors, relied upon by the lower authorities in the orders impugned herein as well as by the learned Departmental Representative before me, is in favour of the revenue, in all other cases discussed above, out of which we have noted four decisions rendered by the Rajasthan High Court itself, including two of them cited by the assessee only, which decided the issue in favour of the assessee. 6.12 In all the above cases, reliance is placed on the deci ..... X X X X Extracts X X X X X X X X Extracts X X X X
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