TMI Blog1983 (10) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... ble deduction under the Income-tax Act, 1961, and in deleting thereby the disallowance of interest of Rs. 3,08,800 ? " The Tribunal held that payment of interest was an allowable deduction on the basis of the decision of this court in Kamlapat Motilal v. CIT [1976] 104 ITR 783 (All). Learned counsel for the Department invited our attention to a subsequent Full Bench decision of this court in Saraya Sugar Mills (P.) Ltd. v. CIT [1979] 116 ITR 387 (All) [FB]. The Full Bench overruled the Division Bench decision and held that the payment of interest was not an allowable deduction. Learned counsel for the assessee, however, invited our attention to a subsequent Supreme Court decision in Mahalaxmi Sugar Mills Co. v. CIT [1980] 123 ITR 429 (SC) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are bound by the decision of a Full Bench of this court. Since we find that the Supreme Court has declined to deal with the Full Bench decision of our court but, at the same time, has expressed an opinion on the provisions of the U. P. Sugar Cess Act which are in pari materia, we think it will be feasible if this question engages the attention of a larger Full Bench. We, therefore, refer the question " whether the aforesaid F.B. lays down correct law ", to a Full Bench of five judges. Let the papers be laid before the Hon'ble the Chief justice for appropriate orders. JUDGMENT OF FULL BENCH SATISH CHANDRA C.J.-One of the questions referred by the Income-tax Appellate Tribunal for the assessment year 1971-72, at the instance of the Rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o discharge his financial commitments in time, and as a result may become liable to pay damages or interest. Such a situation is a normal incident of business, and any loss incurred by an assessee under such circumstances is deductible under section 37(1). (2) Payment of purchase tax was a statutory exaction and so was interest payable thereon. If the principal (i.e., purchase tax) is a permissible deduction, the interest payable thereon would also be equally permissible, because principal and interest together constitute the assessee's liability, and so interest, like the principal, represented a loss incidental to the carrying on of business and deductible while computing the assessable profits under section 28(1). " For the reasons m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period a larger sum will become payable as cess. The enlargement of the cess liability is automatic under s. 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 payment of the cess, interest begins to accrue. It is " not a penalty for which provision has been separately made by s. 3(5). Nor is it a penalty within the meaning of s. 4, which provides for a criminal liability and a criminal prosecution." The court then went on to consider s. 3(6), which provides that the officer is empowered to forward to the Collector a certificate specifying the amount of arrears including ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the U P. Sugarcane Purchase Tax Act on the question of accrual of liability to interest on arrears of sugarcane purchase tax. It is thus apparent that interest payable on arrears of sugarcane purchase tax is in reality part and parcel of the liability of purchase tax. It is not penalty paid for an infraction of the law. In this view it is evident that it will be deductible in the same way as the purchase tax itself. That is to say, it will be a revenue expenditure and the payment of interest would, in the circumstances, represent expenditure laid out wholly or exclusively for the purpose of the business. Learned counsel for the Revenue emphasized that in Mahalakshmi Sugar Mills case [1980] 123 ITR 429, the Supreme Court at one place ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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