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TMI Blog1969 (3) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... med 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 deduction since it was penal in nature for non. payment of the cane cess on the due date. Before the Appellate Assistant Commissioner the assessee based the claim for deduction of the said sum of Rs. 34,355 either under section 10(1) or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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, in the case of any factory situated outside Uttar Pradesh, so declare, any place in Uttar Pradesh set apart for the purchase of cane intended or required for use, consumption or sale in such factory shall be deemed to be the premises of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 contemplated in section 3(5) was not penalty but an additional interest charged for nonpayment of the cess and interest in due time. The assessee did not dispute the proposition that payment by way of penalty could not be allowed as a deduction provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee 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 counsel for the assessee, urged that in computing commercial profit under section 10(1) expenses incidental to the carrying on of the assessee's business should be allowed as deductions even though no express provisions thereof had been made under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore 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 Mahabir Sugar Mills (P.) Ltd. v. Commissioner of Income-tax it has been held that penalty paid under section 3(5) of the U. P. Sugarcane Cess Act, 1956, for non-payment of arrears of sugarcane cess levied under the said Act, is not allowable as business expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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