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Section 37(1) of the I ncome-tax Act, 1961 - Business expenditure - Whether interest paid for delay in paying sugarcane purchase tax under the U.P. sugarcane purchase tax Act, 1961 is an allowable deduction - Held, yes Facts The revenue sought reference on the question whether interest paid for the delay in paying sugarcane purchase tax under the U.P. Sugarcane Purchase Tax Act, 1961, was a permissible business deduction. While the revenue relied on the decision of a Full Bench of the same High Court in Saraya Sugar Mills (P.) Ltd. v. CIT [1979] 116 ITR 387, the assessee contended that this decision required reconsideration in the light of the subsequent Supreme Court decision inMahalakshmi Sugar Mills Co. v. CIT [1980] 123 ITR 429, which was rendered under the U.P. Sugarcane Cess Act, 1956. On reference: Held The provisions of the U.P. Sugarcane Cess Act, 1956, are in substance in pari materia with the U.P. Sugarcane Purchase Tax Act, 1961, at least in so far as accrual of liability and payment of interest is concerned. Therefore, the view taken by the Supreme Court in Mahalakshmi Sugar Mills' case (supra ) was applicable to the provisions of that Act also, and, hence, the interest on arrears of sugarcane purchase tax was in reality part and parcel of the liability towards purchase tax. The interest paid would thus be revenue in nature, and would represent expenditure laid out wholly and exclusively for the purpose of the business. It was deductible in the same way as the purchase tax it self. Case review Saraya Sugar Mills (P.) Ltd. v. CIT [1979] 116 ITR 387 (All.) overruled. Kamlapat Motilal v. CIT [1976] 104 ITR 783(All.) affirmed. Cases referred to Kamlapat Motilal v. CIT [1976] 104 ITR 783 (All.), Mahalakshmi Sugar Mills Co. v. CIT [1980] 123 ITR 429 (SC),Saraya Sugar Mills (P.) Ltd. v. CIT [1979] 116 ITR 387 (All.)(FB) and Balrampur Sugar Co. Ltd. v. CIT [1981] 6 Taxman 350 (Cal.). Judgment DIVISION BENCH Chandra, CJ. -One of the questions of law on which the Tribunal has solicited the opinion of this Court is: "Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that interestpaid on sugarcane purchase…

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