JUDGMENT
1. In this reference made by the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur (hereinafter referred to as “the Tribunal”), under Section 256(1) of the I.T. Act, 1961 (hereinafter referred to as “the Act”), the Tribunal has referred the following question of law for the opinion of this court:
“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the sum of Rs. 4,175 paid as interest under Section 11B of the Rajasthan Sales Tax Act, 1954, was not an expenditure laid out wholly and exclusively for the purposes of the business, and as such was not allowable as a deduction ?”
2. In respect of the assessment year 1969-70, corresponding to the previous year ending on December 31, 1968, the petitioner, G. G. Sanghi (hereinafter referred to as ” the assessee”), paid a sum of Rs. 4,175 as interest to the Sales Tax Department for late payment of tax. The asses-see claimed deduction of the aforesaid amount of Rs. 4,175. The ITO did not allow the said deduction on the ground that the interest was paid on account of the assessee’s default for non-payment of sales tax in time. The AAC, on appeal, however, allowed the deduction under Section 37(1) of the Act. The Tribunal, on appeal, restored the order passed by the ITO and disallowed the deduction. In coming to the aforesaid view, the Tribunal placed reliance on the decision of the Delhi High Court in CIT v. Maha-laxmi Sugar Mills Ltd. [1972] 85 ITR 320. Being aggrieved by the aforesaid order of the Tribunal, the assessee moved the Tribunal for referring the question of law arising out of the said order to this cotirt. Hence, this reference.
3. We have heard Shri S. M. Mehta, the learned counsel for the assessee, and Shri R. N. Surolia, the learned counsel for the Revenue.
4. In Rajasthan Central Stores (P) Ltd. v. CIT (D. B. Income-tax Reference No. 26 of 1973 decided on February 29, 1984–[1985] 156 ITR 90), this court has considered a similar question wherein also the interest paid by the assessee for late payment of sales tax under Section 11B of tho Rajasthan Sales Tax Act, 1954, was disallowed under Section 37(1) of the I.T. Act. In that decision, we have taken note of the decision of the Delhi High Court in CIT v. Mahalaxmi Sugar Mills Ltd. [1972] 85 ITR 320, on which reliance has been placed by the Tribunal in the present case and we have pointed out that the decision of the Delhi High Court has been reversed by the Supreme Court in Mahalakshmi Sugar Mills Co. v. CIT [1980] 123 ITR 429 (SC). In that case, we have also taken note of the decision of the Calcutta High Court in Balrampur Sugar Co. Ltd. v. CIT [1982] 135 ITR 227 (Cal) and of the Full Bench decision of the Allahabad High Court in Triveni Engineering Works Ltd. v. CIT [1983] 144 ITR 732. After noticing the aforesaid decisions, it has been held by this court that the interest payable under Section 11B of the Sales Tax Act, is not a penalty but a revenue expenditure which is deductible as interest under Section 37(1) of the Act. The present case is fully covered by the aforesaid decision of this court in Rajasthan Central Stores (P) Ltd. v. CIT [1985] 156 ITR 90.
5. It is, therefore, held that on the facts and in the circumstances of the case, the Tribunal was not justified in holding that the sum of Rs. 4,175 paid as interest under Section 11B of the Rajasthan Sales Tax Act, was not an expenditure laid out wholly or exclusively for the purposes of business and as such was not allowable as deduction. The question referred to us is answered in the affirmative, i.e., in favour of the assessee and against the department. There will be no order as to costs.
