Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1974-75 - Whether interest paid by assessee on arrears of sales tax was an admissible deduction - Held, yes FACTS The assessee paid interest to the sales tax department on the arrears of sales tax due and claimed the same as expenditure deductible under section 37. The ITO rejected the assessee's claim, which was, however, allowed on appeal by the AAC. The Tribunal affirmed the view taken by the AAC. On reference: HELD In view of the decision of the Supreme Court in Mahalakshmi Sugar Mills Co. v. CIT [1980] 123 ITR 429, the Tribunal was justified in treating the interest paid by the assessee on the arrears of sales tax as an admissible deduction under section 37. Note: The decisioin was in favour of assessee. CASES REFERRED TO Mahalakshmi Sugar Mills Co. v. CIT [1980] 123 ITR 429 (SC) and CIT v. Western Indian State Motors [1987] 167 ITR 395 (Raj.) D.P. Govil for the Applicant. JUDGMENT This is a reference under section 256(1) of the Income-tax Act, 1961, at the instance of the Revenue to answer the following question of law, namely: "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in holding that interest paid by the assessee to the sales tax department on the arrears of sales tax was an admissible deduction under section 37 of the Income-tax Act, 1961?" The relevant assessment year is 1974-75. The assessee derives income from the sale of motor vehicles. It also has income from the sale of petrol and petroleum products. During the previous year pertaining to the relevant assessment year, the assessee paid a sum of Rs. 41,010…

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