Judgment:
B.P. Jeevan Reddy, C.J.
1. Under Section 256(2) of the Income-tax Act, 1961, the Tribunal has referred the following question to this court :
'Whether, on the facts and circumstances of the case, the Tribunal was right in disallowing an amount of Rs. 32,235 claimed by the assessee to be deductible on account of payment of interest towards sales tax arrears ?'
2. The assessee is a registered firm and the assessment year concerned herein is 1972-73. The assessee was also a sales tax payee. For the assessment years 1956-57 and 1957-58, a certain amount of sales tax was levied upon him under assessment orders dated July 25, 1958, and February 4, 1959, respectively. He did not pay the whole tax determined as due from him. He paid part of it and part of it was outstanding against him. On February 1, 1964, the U. P. Sales Tax Act was amended. The amended provisions provide for levying interest at the rate of 18 per cent, per annum on tax remaining unpaid with effect from February 1, 1964. Part of the amount of sales tax due from him for the said assessment years remained unpaid till some date in or about 1959. On February 3, 1970, the Sales Tax Officer issued a letter to the assessee calling upon him to pay the interest on tax remaining unpaid for the period commencing from February 1, 1964. Against this demand, the petitioner filed a writ petition in this court and obtained stay on August 3, 1970. Later, the writ petition was dismissed and the stay vacated. The petitioner obtained special leave to appeal to the Supreme Court on March 16, 1971. This court also stayed realisation of part of the interest amount demanded and directed payment of the other part. Presumably, in pursuance of this order, the assessee paid Rs. 32,992 (towards interest) in the previous year relevant to the assessment year 1972-73 (concerned herein) and claimed deduction of the same. It was rejected by the Income-tax Officer, but, on appeal, it was allowed by the Commissioner of Income-tax (Appeals). The Tribunal, in turn, allowed the departmental appeal and held that the said amount was not deductible in the assessment year in question, namely, 1972-73.
3. Interest on unpaid tax accrues by virtue of the statutory provisions contained in the U. P. Sales Tax Act. It does not require an order of assessment, vide Haji Lal Mohammad Biri Works v. State of U. P. [1973] 32 STC 496 ; [1973] U. P. T. C. 690 (SC). The said decision lays down further that there is nothing in the language of Section 8(1A) which stops the accrual of interest because of a stay order. It reiterates that liability to pay interest accrues by operation of statutory provisions and that it requires not even a notice of demand to make it payable.
4. The main question in this case is whether the aforesaid amount of Rs. 32,992 paid towards interest in the accounting year (relevant to the assessment year 1972-73) can be claimed as a deduction in this assessment year. We think not. The liability to pay the said amount had not arisen in this year. The liability does not arise on the date the intimation of dues is given. It is, therefore, not right to contend that because an intimation of the said dues was given in the previous year relevant to this assessment year, the amount had fallen due in this year. It must be remembered that the assessee was maintaining his accounts on the mercantile basis. If so, what is relevant is the date of accrual and not the date of actual payment.
5. The mere fact that the petitioner paid the said interest amount in pursuance of an order of this court cannot shift the date of accrual. The stay granted by this court or other orders are equally irrelevant. This is also the principle laid down in a decision of the Supreme Court in Kedarnath Jute . v. CIT : [1971]82ITR363(SC) .
6. Sri Vikram Gulati who assisted us as amicus curiae in this case brought to our notice certain decisions which on perusal, we find, turned on their own facts. The nearest case is the one in Addl. CIT v. Rattan Chand Kapoor : [1984]149ITR1(Delhi) . It was a case where the assessee was following a hybrid system of accounting.
7. The question referred is, accordingly , answered in the affirmative, i.e., in favour of the Revenue and against the assessee.