Law: Income Tax Act, 1961

Section: 37

Income-tax----Business expenditure---Interest on arrears or on outstanding balance of sales-tax---Not penal--- Compensatory in nature---Allowable as deduction---Indian Income Tax Act, 1961, S.37---[CIT v. Lachhman Das Mathura Das (1980) 124 ITR 411 reversed on this point]. CIT v. Lachhman Das Mathura Das (1980) 124 ITR 411 reversed on this point. Interest on arrears of sales tax or on the outstanding balance of sales tax is not penal: it is compensatory in nature-and is an allowable deduction in computing the profits of a business. Triveni Engineering Works Ltd. v. CIT (1983) 144 ITR 732 (All.) approved. Saraya Sugar Mills (P.) Ltd. v. CIT (1979) 116 ITR 387 (All.) ref. ORDER This appeal arises out of the Income-tax Reference No.54 of 1978 (see (1980) 124 ITR 411 (All.), wherein the Income-tax Appellate Tribunal, Delhi Bench, had referred the following questions to the Allahabad High Court for opinion (page 413): "(1) Whether, the Tribunal was in law justified in allowing the assessee's claim in respect of interest on the arrears of sales tax in computing the assessee's income for the year under consideration? (2) Whether, the interest on the outstanding balance of sales tax was an allowable deduction under the Income-tax Act? (3) Whether there was material on record justifying the Tribunal's finding that the liability of Rs.69,383 for damages had crystallized in the accounting period relevant to the assessment year under consideration? (4) Whether the claim of the assessee for damages could be held to be an allowable deduction computing the assessee's income liable to…

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