TMI Blog2000 (5) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... on belated payment of royalty to the Forest Department during the assessment year 1972-73 was an admissible deduction ?" As is evident from the question, the controversy in this case pertains to the allowability of interest payable on belated payments of royalty to the Forest Department as a deduction under section 37(1) of the Act. The material facts of the case, giving rise to this reference, are as follows : The assessee, who is a forest contractor, took lease of certain forests from the Forest Department of the Government of Jammu and Kashmir for which it was required to pay royalty to the Forest Department. In terms of clause 7 of the lease deed, in case of delay in payment of royalty, the assessee was also liable to pay interest at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Forest Department on belated payment of royalty was an allowable deduction as the assessee had not violated the provisions of any statute but entered into a lease agreement in the course of its business for which certain amount of royalty was payable in instalments and the contract of lease itself envisaged possible default in timely payment of royalty and provided for the charging of interest for delayed payments. Aggrieved by the above order, the Revenue is before us by way of this reference. We have heard Mr. Anil Bhan, learned counsel for the Revenue. Mr. Bhan fairly stated that if, on the facts and in the circumstances of this case, the payment of interest under clause 7 of the lease deed can be regarded as payment of compensation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rved : ". . . the interest payable on an arrear of cess under section 3(3) is in reality part and parcel of the liability to pay cess. It is an accretion to the cess. The arrear of cess 'carries' interest ; if the cess is not paid within the prescribed period a larger sum will become payable as cess. The enlargement of the cess liability is automatic under section 3(3). No specific order is necessary in order that the obligation to pay interest should accrue. The liability to pay interest is as certain as the liability to pay cess. As soon as the prescribed date is crossed without the payment of the cess, interest should accrue ... In truth, the interest provided for under section 3(3) is in the nature of compensation paid to the Governme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he above legal position, we may now examine the facts of the present case to decide whether the interest payable by the assessee for delay in payment of royalty to the Forest Department is allowable as a deduction under section 37(1) of the Act. For that purpose, we shall have to ascertain the real nature of "interest" in the present case. In other words, whether the amount payable as "interest" under clause 7 of the lease deed, is in truth "interest" or "penalty" in the garb of interest. "Interest", as understood in the commercial world, is the return or compensation for the retention by one person of a sum of money belonging to or owed to another. The essence of interest is that it is a payment that becomes due because the creditor has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agination, can it be regarded as penalty. It is obvious from the above discussion that the interest payable under clause 7 of the lease deed to the Forest Department for delayed payment of royalty is compensatory in nature. As there is no dispute in the instant case that the payment of interest represents expenditure laid out wholly and exclusively for the purpose of the business, it is allowable as a deduction under section 37(1) of the Act. We are, therefore, of the clear opinion that, on the facts and in the circumstances of this case, the Tribunal was justified in law in holding that the amount of interest payable on belated payment of royalty to the Forest Department during the assessment year 1972-73 was an admissible deduction un ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
