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Section 37(1) of Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1975-76 - Assessing Officer disallowed assessee's claim for deduction of interest paid to Electricity Board for late payment of bills - On appeal, Tribunal, however, taking view that there was no infraction of law, and thus, interest paid due to belated payment of bill could not be regarded as penal interest, allowed assessee's claim - Whether, since exact provision of law under which assessee was obliged to pay interest for not paying bills in time had not been shown, this court was not in position to answer question of Allowability of said interest - Held, yes ( - Matter remanded to Tribunal for disposal afresh) FACTS The respondent was a public limited company. It was engaged in the business of manufacture and sale of chemicals. For the relevant assessment year, for which the accounting period ended on 31-3-1975, the assessee claimed deduction of a sum of Rs. 15,455 being the amount paid as interest to the Kerala State Electricity Board during the relevant accounting period for belated payment of the bills. The ITO held that it was penal interest and so not a permissible deduction. On appeal, the Tribunal held that the interest was paid for late payment of bills to the Kerala State Electricity Board, that there was no infraction of law and so the interest paid was not a penal interest. The claim was, therefore, allowed. On reference : HELD The court had not been shown the exact provision of law under which the assessee was obliged to pay interest for not paying their bills in time. In the above circumstances, this Court was not in a position to answer the questions of law referred to it satisfactorily. It, therefore, declined to answer the question referred. At the same time, the Tribunal was directed to restore the appeal to file and decide this aspect of the matter, regarding the question whether the assessee was entitled to deduction of the interest paid for not paying the bills in time. Note: The matter was remanded to the Tribunal. CASES REFERRED TO CIT v. T.M. Chacko & Partners [1978] 115 ITR 40 (Ker.), CIT v. K. Natarajan [1990] 185 ITR 352 (Ker.) and…

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