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Section 37(1) of the Income-tax Act, 1961 – Business expenditure – Allowability of – Assessment years 1967-68 and 1969-70 – Whether interest paid by assessee-company for delayed payment of cess to Government was not allowable as business expenditure – Held, yes FACTS The assessee-company carried on business of manufacture and sale of sugar. Since the assessee did not pay the cess within the due date, the State Government charged interest for the delayed payment of cess. The assessee claimed deduction of such amounts as business expenditure. The ITO held that the delayed payment of cess could not be treated as normal incident to the assessee's business and the levy of interest for irregular payment of cess was in the nature of penal measure and, therefore, the claims preferred by the assessee were disallowed. The Tribunal held that penal interest paid for the delayed payment of cess could not be said to be incidental to the carrying on of the business or arising out of the business, nor could it be said that the same was paid wholly and exclusively for the purpose of business. It also held that for non-payment of cess within the prescribed date penal interest was leviable due to infraction of law and so the interest paid could not be allowed, as a business expenditure. On reference: HELD In view of the decision of the Supreme Court in Haji Aziz and Abdul Shakoor Bros. v. Commissioner of Income-tax[1961] 41 ITR 350 , it was to be held in the instant case that the interest paid for the delayed payment of cess, was not allowable as business expenditure. Note: The case has been decided in favour of the revenue. CASES REFERRED TO CIT v. Mahalakshmi Sugar Mills Ltd. [1972] 85 ITR 320 (Delhi), Deoria Sugar Mills Ltd. v. CIT [1970] 77 ITR 834(Cal.), Haji Aziz and Abdul Shakoor Bros. v. CIT [1961] 41 ITR 350 (SC) and Waldies Ltd. v. CIT [1977] 110 ITR 577 (Cal.). JUDGMENT Sudhindra Mohan Guha, J. —In the present reference under section 256(1) of the Income-tax Act, 1961, a very short point calls for our determination, namely, "whether the delayed payment of cess is allowable as business expenditure?" This reference relates to the assessment years 1967-68 and 1969-70 and…

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