TMI Blog1985 (7) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... that the interest paid to the Sales Tax Department on the arrears of sales tax under section 11 of the Rajasthan Sales Tax Act, 1954, was an admissible deduction under section 37 of the Income-tax Act, 1961 ? " It is not necessary to recount the facts in detail, for, it is sufficient to state that the assessee had claimed interest paid on the delayed payment of sales tax as allowable expenditure under section 37 of the Income-tax Act, 1961 (No. 43 of 1961) (for short " the Act "). The Income-tax Officer by his order dated January 24, 1975, rejected the claim of the assessee (non-petitioner) with respect to the amount of interest paid by it on delayed payment of sales tax. On appeal, the Appellate Assistant Commissioner, in his order dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to as " the Act of 1954 "), which is as under : " 11B. Interest on failure to Pay tax, fee or penalty. -(1)(a) Where any registered dealer or any other dealer has furnished returns but has not paid the tax as per return or within the time allowed by or under the provisions of this Act, he shall be liable to pay interest on the whole or that part of the amount of tax which was not paid as per returns within the time as aforesaid, at the rate of one and a quarter per cent. per month from the date by which he was required to pay the tax by or under the provisions of this Act for a period of three months and at one and a half per cent. per month thereafter until the date of payment. " " Dealer " has been defined in section 2(f) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 37 of the Act at the time of computation of income. This expression " wholly and exclusively " has been considered by the Supreme Court in various decisions and for the limited purpose before us, it is not necessary to make a detailed reference to them and also to the decisions of the various High Courts of the country. In CIT v. Delhi Safe Deposit Co. Ltd. [1982] 133 ITR 756 (SC), their Lordships of the Supreme Court have made the following illuminating observations (at p. 760): " The true test of an expenditure laid out wholly and exclusively for the purposes of trade or business is that it is incurred by the assessee as incidental to his trade for the Purpose of keeping the trade going and of making it pay and not in any o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of the Act of 1954, mentioned therein or within the period specified in the notice of demand. This is a statutory obligation cast under section 11B of the Act of 1954 and it is automatic. A somewhat similar question arose before their Lordships of the Supreme Court in Mahalakshmi Sugar Mills Co. v. CIT [1980] 123 ITR 429. In that case, section 3(3) of the U.P. Sugarcane Cess Act, 1956 (for short " the U.P. Act "), came up for examination. Under section 3(3) of the U.P. Act, there is a separate provision for recovery of penalty provided in section 3(5). Interest was paid by the appellant-company engaged in the business of the manufacture and sale of sugar under section 3(3) of the U.P. Act, on arrears of cess payable " on the en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been separately made by section 3(5). Nor is it a penalty within the meaning of section 4 which provides for criminal liability and criminal prosecution. The penalty payable under section 3(5) lies in the discretion of the collecting officer or authority. In the case of the penalty under section 4, no prosecution can be instituted unless, under section 5(1), a complaint is made by or under the authority of the Cane Commissioner or the District Magistrate ...... In truth, the interest provided for under section 3(3) is in the nature of compensation paid to the Government for delay in the payment of cess. " The question regarding payment of interest on sales tax also arose in Haji Lal Mohd. Biri Works v. State of U.P. [1973] 32 STC 496 (S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose of business. The liability of interest on delayed payment of sales tax is a statutory obligation of the dealer and is automatic and no specific order is required. Thus, it is a part of sales tax and as the sales tax is paid by a dealer for the purpose of carrying on business, the amount of interest will, for all purposes, be considered to be an amount spent wholly and exclusively for the purpose of business. It may be stated that it is well settled that neither necessity nor motive nor reasonableness is the test for allowing deduction of expenditure spent wholly and exclusively for the purpose of business under section 37 of the Act. It follows, therefore, that the, amount of interest paid by the assessee on the sales tax is an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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