ADDL. COMMISSIONER OF INCOME TAX vs DHAMPUR SUGAR MILLS.

Satish Chandra, J. - The assessee carried on the business of manufacture and sale of sugar. The assessee debited an amount of Rs. 37,500/- as interest payable to Kolhapur Sugar Mills Ltd. on the price of second hand milling plant purchased by it on a deferred payment basis. The Income Tax Officer held that interest due up to February, 1962 should have been capitalised. He accordingly capitalised it in the sum of Rs. 25,000/- and added it back in the assessment for the year 1963-64. In appeal the view of the Department failed and the Tribunal upheld the view of the Appellate Assistant Commissioner of Income Tax.

Another question which is in dispute was an entry of Rs. 1,65,273/- being interest on the outstanding amount of cess and purchase tax due under the Uttar Pradesh Sugar Cane Cess Act, 1956. The Tribunal held that this was an allowable deduction.

At the instance of the Commissioner of the Income Tax, the Tribunal has referred the following two questions for our opinion :-

Whether on the facts and in the circumstances of the case, the sum of Rs. 25,000/- being interest paid to M/s. Kolhapur Sugar Mills, was an allowable deduction under S. 37(1) of the Income Tax Act, 1961 ?

Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the interest of Rs. 1,65,273/- payable on the outstanding amount of cess and purchase tax was allowable expenditure in computing the total income of the assessee company ?

In respect of the first question, the Supreme Court in State of Madras vs. G. L. Goelho, and in Bombay Steam Navigation Co. Ltd. vs. Commissioner of Income Tax, has upheld the view pointed of the Tribunal. This question has, therefore, to be answered in favour of the assessee and against the Department.

In respect of the second question, namely, interest payable on the outstanding amount of cess and purchase tax a Bench of this Court in M/s. Kamlapat Motilal vs. Commissioner of Income Tax, upheld the view that such an interest was an allowable deduction.

We, therefore, answer both the questions in the affirmative in favour of the assessee and against the Department. The assessee will be entitled to costs, which we assess at Rs. 200/-.