Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1972-73 - On 3-2-1970, STO issued a letter to assessee calling upon him to pay interest on sales tax remaining unpaid for period commencing from 1-2-1964 - Against this demand, assessee approached High Court and having got no relief, further approached Supreme Court and in pursuance of order of Supreme Court paid Rs. 32,992 towards interest in previous year relevant to assessment year 1972-73 - Assessee maintained accounts on mercantile basis - Whether amount of interest in question was not deductible in relevant assessment year 1972-73 - Held, no FACTS On 3-2-1970, the STO issued a letter to the assessee calling upon him to pay the interest on the sales-tax remaining unpaid for the period commencing from 1-2-1964. Against this demand, the assessee approached the High Court and having got no relief, further approached the Supreme Court and in pursuance of the order of the Supreme Court paid Rs. 32,992 towards interest in the previous year relevant to the assessment year 1972-73 and claimed deduction for the same. The ITO rejected the assessee's claim, which was confirmed by the Tribunal. The Tribunal held that the said amount of interest was not deductible in the assessment year 1972-73. On reference : HELD The liability to pay the said amount of interest had not arisen in the assessment year 1972-73. The liability did not arise on the date the intimation of dues was given. It was, therefore, not right to contend that because an intimation of the said dues was given in the previous year relevant to the assessment year 1972-73, the amount had fallen due in the assessment year 1972-73. Further, the assessee was maintaining his accounts on mercantile basis. If so, what was relevant was the date of accrual of interest and not the date of actual payment. The mere fact that the assessee paid the said interest amount in pursuance of an order of the Supreme Court could not shift the date of accrual. Therefore, the Tribunal was justified in not allowing the deduction of interest paid by the assessee towards sales tax arrears. CASES REFERRED TO Haji Lal Mohammed Biri…

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