{"id":239568,"date":"1980-04-09T00:00:00","date_gmt":"1980-04-08T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/mahalaxmi-sugar-mills-co-ltd-vs-commissioner-of-income-tax-on-9-april-1980"},"modified":"2016-08-17T13:38:59","modified_gmt":"2016-08-17T08:08:59","slug":"mahalaxmi-sugar-mills-co-ltd-vs-commissioner-of-income-tax-on-9-april-1980","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/mahalaxmi-sugar-mills-co-ltd-vs-commissioner-of-income-tax-on-9-april-1980","title":{"rendered":"Mahalaxmi Sugar Mills Co. Ltd vs Commissioner Of Income-Tax, … on 9 April, 1980"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Mahalaxmi Sugar Mills Co. Ltd vs Commissioner Of Income-Tax, … on 9 April, 1980<\/div>\n
Equivalent citations: 1980 AIR 754, \t\t 1980 SCR (3) 421<\/div>\n
Author: R Pathak<\/div>\n
Bench: Pathak, R.S.<\/div>\n
           PETITIONER:\nMAHALAXMI SUGAR MILLS CO. LTD.\n\n\tVs.\n\nRESPONDENT:\nCOMMISSIONER OF INCOME-TAX, DELHI, NEW DELHI\n\nDATE OF JUDGMENT09\/04\/1980\n\nBENCH:\nPATHAK, R.S.\nBENCH:\nPATHAK, R.S.\nUNTWALIA, N.L.\nVENKATARAMIAH, E.S. (J)\n\nCITATION:\n 1980 AIR  754\t\t  1980 SCR  (3) 421\n 1980 SCC  (3) 475\n CITATOR INFO :\n R\t    1992 SC 847\t (62)\n\n\nACT:\n     Indian Income  Tax Act 1922-Section 10(2) (xv)-Interest\npaid on\t arrears of  sugarcane cess-Whether penalty-Interest\nif a permissible deduction.\n\n\n\nHEADNOTE:\n     Section 3(2)  of the  U.P.\t Sugarcane  Cess  Act,\t1956\nprovides that the owner of a sugar factory shall pay cess on\nsugarcane coming  into the  premises of\t a factory  for\t use\ntherein,  on   such  date  and\tat  such  place\t as  may  be\nprescribed. Sub-section (3) provides that if the cess is not\npaid by\t the specified\tdate, interest\tat six\tper cent per\nannum is  payable on  the arrears from the specified date to\nthe date  of payment. Where a person is in default in making\nthe payment  of the  cess, sub-section\t(5) provides that in\naddition to the amount of the arrears and interest a sum not\nexceeding ten  per cent\t shall\tbe  recoverable\t by  way  of\npenalty from the person liable to pay the cess.\n     In respect\t of three  assessment years  the  appellant-\nassessee, a manufacturer of sugar, in its income tax returns\nclaimed deduction  of certain  sums paid  by it\t by  way  of\ninterest on  arrears of\t cess due  under the  U.P. Sugarcane\nCess Act, 1956. The Income Tax Officer disallowed the claim.\nThe Appellant  Assistant Commissioner, whose view was upheld\nby the Appellate Tribunal, held that the payment of interest\nconstituted a permissible deduction.\n     On reference the High Court held that the interest paid\non the\tarrears did  not fall  within the  scope of s. 10(2)\n(xv) of\t the Indian Income Tax Act, 1922 for the reason that\nit was\tpaid by\t way of\t penalty for  an infringement of the\nlaw.\n     Allowing the appeal,\n^\n     HELD :  The interest paid under s. 3(3) of the Cess Act\ncannot be described as a penalty paid for an infringement of\nthe law.  The assessee\tis entitled  to claim  the sum\tas a\ndeduction under\t section 10(2)\t(xv)  of  the  1922  Act  as\nexpenditure laid  out wholly  or exclusively for the purpose\nof the business. [427E]\n     (a) The  interest payable\ton arrears  of cess under s.\n3(3) is\t in reality  part and parcel of the liability to pay\ncess. It  is an\t accretion to  the cess.  Under s. 3(3) this\nenlargement of\tthe  cess  liability  is  automatic  and  no\nspecific order\tis necessary in order that the obligation to\npay interest  under  this  sub-section\tshould\taccrue.\t The\nliability to  pay interest is as certain as the liability to\npay the\t cess. The  interest payable  is in  the  nature  of\ncompensation paid to the Government for delay in the payment\nof cess. It is not by way of penalty. [425G-H]\n422\n     (b) Interest  on arrears  of  cess\t is  not  a  penalty\nbecause\t provision   for  imposing  penalty  has  been\tmade\nseparately by  s. 3(5).\t It is also not a penalty within the\nmeaning of  s. 4  which provides  for criminal liability and\ncriminal prosecution. The penalty payable under s. 3(5) lies\nin the\tdiscretion of  the collecting  officer or authority.\nFor imposing  penalty under  s.\t 4  no\tprosecution  can  be\ninstituted unless  a complaint\tis  made  by  or  under\t the\nauthority of the Cane Commissioner under s. 5(1) of the Cess\nAct. [426A-B]\n     (c) The procedure for collecting interest on arrears is\ndifferent from\tthe procedure for recovering penalty imposed\nunder s.  3(5). The Collector proceeds to recover the arrear\nof cess\t as if\tit were an arrear of land revenue on receipt\nfrom the  authority concerned of a certificate under s. 3(6)\nspecifying the amount of arrears including interest due. The\nwords \"specifying  the amount of arrears including interest\"\nshow that  the interest\t is part  of the arrears of cess. In\nthe case  of  penalty  imposed\tunder  s.  3(5)\t a  separate\nprovision for recovery has been made under s. 3(7). Although\nthe manner of recovery of penalty provided by s. 3(7) is the\nsame as\t the manner  for recovery  provided by\ts. 3(6)\t the\nLegislature has\t dealt with  it as  some thing distinct from\nthe recovery of arrears of cess including interest. [426C-E]\n\n\n\nJUDGMENT:\n<\/pre>\n
     CIVIL APPELLATE  JURISDICTION : Civil Appeal Nos. 2440-
\n2442 of 1972.\n<\/p>\n
     From the  Judgment and  Order dated  25-10-1971 of\t the
\nDelhi High  Court in  Income Tax  Reference Nos.  40 & 41 of
\n1970.\n<\/p>\n
     A. K. Sen and Mr. Bishamber Lal for the Appellant.
\n     P.\t G.   Ghokhale\tand   Miss  A.\tSubhashini  for\t the
\nRespondent.\n<\/p>\n
     The Judgment of the Court was delivered by
\n     PATHAK, J.-This  appeal by\t certificate granted  by the
\nDelhi High  Court raises  the question whether interest paid
\non arrears of cess under s. 3 (3) of the U.P. Sugarcane Cess
\nAct, 1956 is a permissible deduction under s. 10 (2) (xv) of
\nthe Indian Income Tax Act, 1922.\n<\/p>\n
     The assessee is a public limited company engaged in the
\nbusiness of  the manufacture  and  sale\t of  sugar.  In\t its
\nincome-tax return  for\tthe  assessment\t year  1959-60\t(the
\nprevious year  being the  period ending 30th June, 1958) the
\nassessee claimed  a deduction  of  Rs.\t1,20,859\/-  paid  as
\ninterest on  arrears of\t cess due  under the  U.P. Sugarcane
\nCess Act, 1956. The Income-tax Officer disallowed the claim,
\nbut the\t Appellate  Assistant  Commissioner  held  that\t the
\npayment of  interest constitute\t a permissible deduction and
\nthis view was affirmed by the Income Tax Appellate Tribunal.
\nFor the\t next assessment  year 1960-61,\t (the previous\tyear
\nending 30th  June, 1959),  the assessee claimed a sum of Rs.
\n1,83,731\/- paid\t by way\t of interest on the arrears of cess.
\nThe claim  met with  the same  fortune,\t disallowed  by\t the
\nIncome Tax  Officer but\t upheld by  the Appellate  Assistant
\nCommissioner and the Appellate Tribunal. At the instance of
\n423<\/span>
\nthe Revenue,  the Appellate  Tribunal referred the following
\nquestion of  law to  the Delhi\tHigh Court in respect of the
\nassessment years 1959-60 and 1960-61:\n<\/p>\n
\t  “Whether, on the facts and in the circumstances of
\n     the case,\tthe Tribunal  was justified  in allowing the
\n     interest of  Rs. 1,20,859\/- and Rs. 1,83,731\/-, paid by
\n     the assessee  on the  arrears of cess in the assessment
\n     years 1959-60  and\t 1960-61  respectively,\t as  revenue
\n     expenditure ?”<\/p><\/blockquote>\n
     For the  assessment year 1961-62 also the previous year
\nof which  ended 30th  June,  1960  the\tassessee  claimed  a
\ndeduction of  Rs. 2,00,439\/-  on account of interest paid by
\nit on  arrears of  cess. This claim also was rejected by the
\nIncome Tax  Officer but\t allowed by  the Appellate Assistant
\nCommissioner  and   the\t Appellate   Tribunal.\tThe  Revenue
\nobtained a reference to the High Court on the question:\n<\/p>\n
\t  “Whether, on the facts and in the circumstances of
\n     the case,\tthe Tribunal  was justified  in allowing the
\n     interest of Rs. 2,00,439\/-, paid by the assessee on the
\n     arrears of cess, as revenue expenditure?”<\/p><\/blockquote>\n
     The references  were disposed  of by  the High Court by
\nits judgment  dated 25th  October 1971.\t The questions\twere
\nanswered in  the negative. The High Court took the view that
\nthe claim  of the assessee did not satisfy the provisions of
\ns. 10  (2) (iii)  of the Indian Income Tax Act, 1922 because
\nit was not interest paid on borrowed capital, and it did not
\nfall within the scope of s.10 (2) (xv) of the Act because it
\nwas paid  by way  of penalty for an infringement of the Act.
\nThe High Court than certified under s. 66 (A) (2) of the Act
\nthat the cases were fit for appeal to this Court.\n<\/p>\n
     Learned counsel for the assessee has made no attempt to
\njustify the  claim  under  s.  10  (2)\t(iii)  and  we\tare,
\ntherefore,  relieved  of  the  necessity  of  examining\t the
\nvalidity of  the claim\tby reference  to that provision. The
\ncase has  been argued  before us  on the basis that it falls
\nunder s. 10 (2) (xv).\n<\/p>\n
     The validity of the U. P. Sugarcane Cess Act, 1956 (the
\n“Cess Act”) was challenged by the assessee and several other
\nsugar manufacturing companies by petitions under Article 226
\nof the\tConstitution in\t the Allahabad\tHigh Court. The High
\nCourt admitted\tthe writ  petitions  and  granted  an  order
\nsuspending the\toperation of  the Act.\tThe High  Court,  on
\nfinal\thearing,   dismissed   the   writ   petitions.\t But
\nsubsequently on\t appeal this  Court declared  the  Cess\t Act
\nultra vires on
\n424<\/span>
\nthe ground  that the  Act fell\tbeyond the competence of the
\nState Legislature.\n<\/p>\n
     Thereafter,  on   31st  January,  1961,  the  President
\npromulgated the\t U.P. Sugarcane Cess (Validation) Ordinance,
\n1961 validating\t the cess  imposed, assessed or collected by
\nthe Government\tof Uttar  Pradesh  during  the\tperiod\t26th
\nJanuary, 1950  to  the\tdate  of  the  commencement  of\t the
\nOrdinance (3rd\tFebruary, 1961).  The ordinance was replaced
\nby the\tU.P. Sugarcane\tCess  (Validation)  Act,  1961\t(the
\n“Validation Act”).\n<\/p>\n
     The question  whether the interest paid by the assessee
\nunder s. 3(3) of the Sugarcane Cess Act, 1956 can be allowed
\nunder s.  10(2) (xv)  of the  Income Tax  Act requires us to
\nexamine the relevant provisions of the Cess Act. The Act, as
\nits long  title states,\t is “an Act to amend and consolidate
\nthe law\t relating to  the imposition  of cess  on  sugarcane
\nintended for  use, consumption in or sale to a factory”. The
\nrelevant provisions of s.3 declare:\n<\/p>\n
\t  “3. Imposition  of cess-(1)  The State  Government
\n     may by  notification in  the official  Gazette impose a
\n     cess not exceeding four annas per maund on the entry of
\n     the cane  into the\t premises  of  a  factory  for\tuse,
\n     consumption or sale therein. ..\t..   ..\t    ..
\n\t  (2) The  cess imposed under sub-section  (1) shall
\n     be payable\t by the\t owner of  the factory\tand shall be
\n     paid  on  such  date  and\tat  such  place\t as  may  be
\n     prescribed.\n<\/p><\/blockquote>\n
\t  (3) Any  arrear of  cess  not\t paid  on  the\tdate
\n     prescribed under  sub-section (2)\tshall carry interest
\n     at 6  per cent  per annum\tfrom such  date to  date  of
\n     payment.\n<\/p><\/blockquote>\n
\t  (4) The  State Government  may, for the purpose of
\n     assessment and collection of the cess, appoint officers
\n     and authorities  and may  also prescribe  the manner in
\n     which the cess shall be assessed and collected.
\n\t  (5) Where  any person\t is in default in making the
\n     payment of the cess, the officer or authority empowered
\n     to collect\t the cess may direct that in addition to the
\n     amount of\tthe arrears and interest a sum not exceeding
\n     10\t per  cent  thereof  shall  by\tway  of\t penalty  be
\n     recovered from the person liable to pay the cess.
\n\t  (6) The  officer or authority empowered to collect
\n     the cess  may forward  to the  Collector a\t certificate
\n     under his\tsignature specifying  the amount  of arrears
\n     including inte-\n<\/p><\/blockquote>\n
425<\/span><\/p>\n
     rest due  from any\t person,  and  on  receipt  of\tsuch
\n     certificate the  Collector shall proceed to recover the
\n     amount specified  from such  person as  if it  were  an
\n     arrear of land revenue.\n<\/p><\/blockquote>\n
\t  (7) Any  sum imposed\tby way of penalty under sub-
\n     section (5) shall be recoverable in the manner provided
\n     in sub-section  (6) for  the recovery  of the arrear of
\n     cess”.\n<\/p><\/blockquote>\n
Then follows s.4 and it provides:\n<\/p>\n
\t  “4.  Penalties-If   any  person  defaults  in\t the
\n     payment of cess imposed under sub-section (1) of See.3,
\n     or, contravenes  any provision  of any  rule made under
\n     this Act,\the shall  without prejudice to his liability
\n     therefor under  sub-section (5)  of Sec.3\tbe liable to
\n     imprisonment  up  to  six\tmonths\tor  to\ta  fine\t not
\n     exceeding rupees  five thousand or both and in the case
\n     of continuing  contravention  to  a  further  fine\t not
\n     exceeding rupees one thousand for each day during which
\n     the contravention continues”.<\/p><\/blockquote>\n
     It is  apparent that  section 3(2) requires the payment
\nof cess\t on the\t date prescribed  under the rules. Rule 4 of
\nthe U.P.  Sugarcane Cess  Rules, 1956 provides that the cess
\ndue on\tthe sugarcane  entering into the premises during the
\nfirst fortnight\t of each  calendar year must be deposited in
\nthe Government\ttreasury by  the twenty\t second day  of that
\nmonth and  the cess  due for the remainder of the month must
\nbe deposited  before the  seventh day  of the next following
\nmonth. If  the cess  is not paid by the specified date, then
\nby virtue  of s.3(3)  the arrear of cess will carry interest
\nat the\trate of\t six per  cent per  annum from the specified
\ndate to\t the  date  of\tpayment.  Section  3(5)\t is  a\tvery
\ndifferent provision. It does not deal with the interest paid
\non the\tarrears of  cess but  provides for an additional sum
\nrecoverable by\tway of penalty from a person who defaults in
\nmaking payment\tof cess.  It is a thing apart from an arrear
\nof cess and the interest due thereon.\n<\/p>\n
     Now the  interest payable on an arrear of cess under s.
\n3(3) is\t in reality  part and parcel of the liability to pay
\ncess. It  is an\t accretion to  the cess.  The arrear of cess
\n“carries” interest;  if the  cess is  not  paid\t within\t the
\nprescribed period  a larger sum will become payable as cess.
\nThe enlargement\t of the cess liability is automatic under s.
\n3(3). No  specific order  is necessary\tin  order  that\t the
\nobligation to  pay interest  should accrue. The liability to
\npay interest  is as certain as the liability to pay cess. As
\nsoon as\t the prescribed\t date is  crossed without payment of
\nthe cess, interest begins to accrue.\n<\/p>\n
426<\/span><\/p>\n
It  is\t not  a\t penalty,  for\twhich  provisions  has\tbeen
\nseparately made\t by s.3(5).  Nor is  it a penalty within the
\nmeaning of  s.4, which provides for a criminal liability and
\na criminal  prosecution. The  penalty payable  under  s.3(5)
\nlies  in   the\tdiscretion  of\tthe  collecting\t officer  or
\nauthority.  In\tthe  case  of  the  penalty  under  s.4,  no
\nprosecution  can  be  instituted  unless,  under  s.5(1),  a
\ncomplaint is  made by  or under\t the authority\tof the\tCane
\nCommissioner or\t the District  Magistrate. There  is another
\nconsideration  distinguishing  the  interest  payable  under
\ns.3(3) from  the penalty  imposed under s.3(5). Section 3(6)
\nprovides that  the officer or authority empowered to collect
\nthe cess  may forward  to the  Collector a certificate under
\nhis signature  specifying the  amount of  arrears  including
\ninterest due  from  any\t person,  and  on  receipt  of\tsuch
\ncertificate the\t Collector is required to proceed to recover
\nthe amount  specified from  such person\t as if\tit  were  an
\narrear of  land\t revenue.  The\twords  used  in\t s.3(6)\t are
\n“specifying the\t amount of arrears including interest”, that
\nis to  say that\t the interest is part of the arrear of cess.
\nIn the\tcase of\t a penalty  imposed under s.3(5), a separate
\nprovision for  recovery has been made under s.3(7). Although
\nthe manner  of recovery\t of a  penalty provided by s.3(7) is
\nthe same  as the  manner for  recovery provided by s.3(6) of
\nthe arrears  of cess,  the   Legislature dealt\twith  it  as
\nsomething distinct  from the recovery of the arrears of cess
\nincluding interest.  In truth,\tthe  interest  provided\t for
\nunder s.3(3)  is in  the nature\t of compensation paid to the
\nGovernment for\tdelay in  the payment  of cess. It is not by
\nway of\tpenalty.  The  provision  for  penalty\tas  a  civil
\nliability has  been made  under s.3(5)\tand for penalty as a
\ncriminal offence  under s.4.  The Delhi High Court proceeded
\nentirely on  the basis\tthat the interest bore the character
\nof a penalty. It was, according to the learned Judges “penal
\ninterest”. The\tlearned Judges\tfailed to  notice s.3(5) and
\ns.4 and the other provisions of the Cess Act.\n<\/p>\n
     We have  been referred  by the Revenue to Mahabir Sugar
\nMills (P)  Ltd. v.  Commissioner of  Income Tax, U.P.(1) and
\nCommissioner of\t Income-Tax West Bengal v. A. K. Das,<\/a>(2) but
\nin those  two cases  the Delhi\tHigh Court  and the Calcutta
\nHigh Court  respectively were  concerned  with\ta  claim  to
\ndeduction on  account of  penalty paid\tunder s.3(5)  of the
\nCess Act.  Reliance  was  also\tplaced\ton  Commissioner  of
\nIncome-Tax  v.\tOriental  Carpet  Manufacturers\t (India)  P.
\nLtd.(3) In  that case,\tthe High Court of Punjab and Haryana
\nlaid down that
\n427<\/span>
\ninterest paid  by an assessee on account of delay in payment
\nof the\t provisional  demand of\t tax is\t not  a\t permissible
\ndeduction under\t s.36 (1)  (iii) and  s.37 of the Income Tax
\nAct. The  learned Judges observed that the liability to tax,
\nalthough arising  out of  a business  activity, could not be
\nsaid to\t be a liability related to the assessee’s, business.
\nIt is  not necessary  for us  to express  any opinion on the
\ndecision.  The\t case  is  distinguishable  because  we\t are
\nconcerned with a particular statutory scheme enacted in ss.3
\nand 4 of the Cess Act before us. Our attention has also been
\ninvited to  Suraya Sugar  Mills (P)  Ltd. v. Commissioner of
\nIncome-Tax,(1) where  a Full  Bench of\tthe  Allahabad\tHigh
\nCourt has  held that the payment of interest under s.3(3) of
\nthe U.P.  Sugarcane  Purchase  Tax  Act,  1961\tis  a  penal
\nliability which accrues on an infraction of the law. Section
\n3(3) of\t the U.P. Sugarcane Purchase Tax Act, 1961 does seem
\nto be  in pari\tmateria with s. 3(3) of the Cess Act. But we
\nthink we.  should resist the blandishment to sit in judgment
\nover that  decision when  it is\t not in appeal before us. We
\nare concerned solely with the nature of the liability to pay
\ninterest under\ts.3(3) of  the Cess  Act. A  court should be
\nslow to\t succumb to  the temptation of deciding questions on
\nthe construction of a statute not directly before it.\n<\/p>\n
     In our  opinion, the  interest paid under s.3(3) of the
\nCess Act  cannot be  described as  a  penalty  paid  for  an
\ninfringement of the law. As that is the only ground on which
\nthe Revenue resists the claim of the assessee to a deduction
\nof the interest under s.10(2)(xv) of the Income-Tax Act, the
\nassesee is entitled to succeed. There is no dispute that the
\npayment of  interest represents\t expenditure laid out wholly
\nor exclusively\tfor the\t purpose of  the business.  There is
\nalso no\t dispute  that\tit  is\tin  the\t nature\t of  revenue
\nexpenditure.\n<\/p>\n
     In the  result, the  appeal is  allowed,  the  judgment
\ndated 25th  October, 1971  of the  Delhi High  Court is\t set
\naside and  the question referred by the Income Tax Appellate
\nTribunal are  answered in  the affirmative, in favour of the
\nassessee and  against the  Revenue.  The  assessee  will  be
\nentitled to its costs of these appeals.\n<\/p>\n
P.B.R.\t\t\t\t\t     Appeal allowed.\n428<\/span>\n\n\n\n<\/pre>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Mahalaxmi Sugar Mills Co. Ltd vs Commissioner Of Income-Tax, … on 9 April, 1980 Equivalent citations: 1980 AIR 754, 1980 SCR (3) 421 Author: R Pathak Bench: Pathak, R.S. PETITIONER: MAHALAXMI SUGAR MILLS CO. LTD. Vs. RESPONDENT: COMMISSIONER OF INCOME-TAX, DELHI, NEW DELHI DATE OF JUDGMENT09\/04\/1980 BENCH: PATHAK, R.S. BENCH: PATHAK, […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-239568","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nMahalaxmi Sugar Mills Co. 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