Judgment:
1. The only ground of appeal in this case is, that the CIT(A) was in error in confirming the disallowance of Rs. 2,23,267 being the amount paid by way of interest on delayed payment of sales-tax by the assessee.
2. It is contended on behalf of the assessee that the payment was under Section 47(4A) of the Gujarat Sales Act for delayed payment of sales-tax. The assessee was facing extreme financial difficulties and the assessee had" approached the Asstt. Commissioner of Sales Tax to allow it to pay the sales Tax in installments and the prayer of the assessee was granted by the Asstt. Commissioner of Sales Tax. The payment made having regard to the provisions of Section 47(4A) of the Gujarat Sales Tax Act was in the nature of a compensatory payment and there was no infraction of law, and the same should have been allowed by the CIT(A) as admissible deduction. The Tribunal in the case of Bisleri India (P.) Ltd. 1 SOT 673 (sic) has held that such payments were compensatory in nature and, therefore, the claim for deduction was unexceptionable. The CIT(A) was in error in observing that provisions of Section 36(3) of Bombay Sales Tax Act were in pari materia with the provisions of Section 47(4A) of Gujarat Sales Tax Act. He made a cardinal error in ignoring that the words "by way of penalty" as appearing in Section 36(3) of the Bombay Sales Tax Act were missing in Section 47(4A) of the Gujarat Sales Tax Act. Such omission would clearly go to show that the payment under Section 47(4A) of Gujarat Sales Tax Act was not by way of penalty but by way of compensation for withholding the dues of the Government. Our attention is invited to the decision of the Supreme Court in the case of Mahalakshmi Sugar Mills Co. Ltd. v. CIT [1980] 123 ITR 429 wherein it has been held that interest on delayed payment of cess under the U.P. Sugarcane Cess Act was not a payment for any infraction of law but was compensatory in nature and, therefore, admissible as a deduction in the computation of the total income of the assessee. The assessee relied on the decisions in CIT v. Mandya National Paper Mills Ltd. [1984] 150 ITR 26 (Kar.), Chetan Kotan (P.) Ltd. v. ITO [1982] 1 ITD 652 (Bom.) and various ITAT decisions in support of its contentions.
3. The learned Departmental Representative, on the other hand, contends that the controversy stands settled by the decision of the Bombay High Court in Jairamdas Bhagchand v. CIT [1988] 171 ITR 545 (Bom.) in that case the Bombay High Court has held that interest paid under Section 36(3) of the Bombay Sales Tax Act cannot be allowed as an admissible deduction. The Bombay High Court had also adverted to the decision of Mahalakshmi Sugar Mills Co. (supra) on which lot of reliance has been placed by the learned counsel of the asssssee and had opined that the decision of the Supreme Court would not be applicable to the payment made under Section 36(3) of the Bombay Sales Tax Act. It is further submitted that it would be futile for the assessee to argue that provisions of Section 47(4A) of Gujarat Sales Tax Act and Section 36(3) of Bombay Sales Tax Act are not in pari materia merely because of the absence of the words "by way of penalty" in the relevant provisions of the Gujarat Act. The provisions are identical in their import and the decision of the jurisdictional High Court would be binding on the" Tribunal.
4. We have heard the parties to the dispute, in our opinion, the claim of the assessee has to succeed. Under the provisions of Section 36(3) as it existed at the material time interest is payable if the dealer does not without reasonable cause pay tax within the time it is required by or under the provisions of Sales Tax Act. There was a provision for the Commissioner for giving the dealer an opportunity of being heard before the imposition of interest. Thus, it would be clear that the payment of interest is conditional on the assessee not showing any reasonable cause for paying the tax within the time allowed by the statute. The levy under Section 36(3) therefore, is not automatic and it cannot be said that such interest goes to enlarge the tax payable by the assessee. We may further mention that levy of interest under Section 36(3) is by way of penalty and this aspect has been clearly brought out in the statute itself. It was probably for this reason the Bombay High Court took the view that interest payable under Section 36(3) is not compensatory in character but it is in the nature of penalty. This has been emphasised in the penultimate para of the Bombay High Court decision in Jairamdas Bhagchand's case (supra) which is as follows: In the matter of imposition of penalty, the element of willfulness is relevant. Section 36(3) speaks of this element and only because the rate is computed on interest basis, it cannot be said that the penalty imposed is in effect interestan allowable deduction.
The provisions of Section 47(4A) of the Gujarat Sales Tax Act under which interest was demanded and paid by the assessee is different in its content. For the sake of convenience the same is produced: Section 47(4A) : If a dealer does not pay any amount of tax within the time prescribed for its payment under Sub-section (1) (2) or (3) on or before the date specified in a notice issued under Sub-section (4) in respect of the amount of tax falling under Sub-clause (ii) of Clause (a) thereof there shall be paid by such dealer for the period commencing on the date of expiry of the aforesaid prescribed time or the specified date and ending on the date of payment of the amount of tax, simple interest at the rate of twenty-four per cent per annum on the amount of tax not so paid or any less amount thereof remaining unpaid during such period : Provided that where a penalty is levied under Sub-section 6 of Section 45 in respect of the difference and the period referred to in that sub-section no interest shall be payable under this sub-section on such difference for such period.
It would appear from the above provisions that the levy of interest is automatic no sooner there is a delay. The assessee cannot get away with the plea that it was prevented by reasonable cause as in Section 36(3).
In this respect these provisions of Gujarat Sales Tax Act are analogous to the provisions of Section 3(3) of U.P. Sugarcane Cess Act which the Supreme Court had an occasion to consider in the case of Mahalakshmi Sugar Mills Co. (supra). In the said case the Supreme Court has held after a careful consideration of the relevant provisions that if the cess was not paid by the specified date then by virtue of Section 3(3) the arrear of cess becomes larger by carrying interest at the rate of 6 per cent per annum from the specified date to the date of payment. In that context the Supreme Court further observed that interest payable on arrears under Section 3(3) was in reality part and parcel of the liability to pay cess. It is for this reason that the Supreme Court held that interest payable under Section 3(3) of U.P. Sugarcane Cess Act was allowable as a deduction in the computation of the total income of the assessee.
The provisions of Section 47(4A) of Gujarat Sales Act Tax being more or less in pari materia with the provisions of Section 3(3) of U.P.Sugarcane Cess Act, there can be no escape from the conclusion that the interest paid under those provisions have to be allowed as a deduction in the computation of the total income of the assessee. In this view of the matter, we shall reverse the findings of the CIT(A) and direct the ITO to allow the interest paid of Rs. 2,23,267 in the computation of the total income of the assessee.