N.N. Mathur, J.
1. The Income-tax Appellate Tribunal, Jaipur Bench, Jaipur (hereinafter referred to as 'the ITAT'), has referred the following question for the opinion of this court which has arisen out of the order of the Tribunal in I. T. A. No. 2322/JP of 1994, dated April 30, 1996, in respect of the assessment year 1987-88 :
'Whether, on the facts and in the circumstances of the case, and proper interpretation of law, the Tribunal was legally justified in holding that the interest payable to the Sales Tax Department is also 'tax' and the provisions of Section 43B of the Act are applicable therein ?'
2. The brief facts of the case are that the assessee, Mewar Motors, Udaipur, is a partnership firm engaged in purchase and sale of scooters, motor-cycles, cars and accessories. The assessee filed the return showing total income of Rs. 1,96,045. The assessment was completed at the returned income. A notice under Section 148 was issued on March 26, 1991, in response to which the assessee-firm submitted a reply. The assessment was completed on a total income of Rs. 16,29,378. The assessee had collected sales tax from various constituents for onward deposit with the local Sales Tax Department. The said amount was credited in a separate account. The sales tax outstanding as on March 31, 1987, amounted to Rs. 23,59,187. At the time of filing the return, the assessee claimed interest of Rs. 2,77,578 on the unpaid sales tax for which the necessary adjustment in the books of account was made on the mercantile system of accounting and as per the assessee's version the same was allowable under Section 36(1)(iii). During the course of reassessment proceedings the assessee made a further claim for a sum of Rs. 5,80,293. The Assessing Officer treated the said amount of unpaid interest as part of the sales tax and disallowed the same under Section 43B of the Income-tax Act. The Commissioner of Income-tax (Appeals) arrived at the conclusion that the order under Section 143(3) read with Section 148 was erroneous and prejudicial to the interests of the Revenue on account of the following mistakes :
(1) The Assessing Officer failed to disallow under Section 43B, the amount of Rs. 2,77,578 representing outstanding sales tax interest.
(2) The Assessing Officer wrongly accepted the assessee's claim for allowing sales tax liability of Rs. 10,29,293 which was outstanding as on March 31, 1987, but paid by July 31, 1987, in total disregard of the provisions of Section 43B as it stood before the amendment of the Finance Act, 1987, which provided disallowance of such liability.
3. On appeal the Income-tax Appellate Tribunal analysing the provisions of Section 43B and relying on the decision of this court in CIT v. Udaipur Distillery , held that interest paid is the part of the sales tax. Accordingly, the Income-tax Appellate Tribunal upheld the view of the Commissioner of Income-tax to the effect that the order of the Assessing Officer allowing the claim of the assessee is erroneous and prejudicial to the interests of the Revenue. The Tribunal accordingly rejected the claim of the assessee to that extent.
4. None has appeared for the assessee in spite of service. We have heard Mr. Bhandawat, learned counsel for the Revenue. The question referred stands answered by the decision of this court in CIT v. Udaipur Distillery wherein it is held that the amount of interest for all purposes be considered to be an amount spent wholly and exclusively for the purpose of business. It is neither necessary nor reasonable to allow deduction of expenditure spent wholly and exclusively for the purpose of business. Thus, the liability to pay interest is an allowable deduction. The object of Section 43B is to curb the activities of those taxpayers who do not discharge their statutory liability of payment of sales tax or excise duty for long periods but claim deduction in that regard from the income on the ground that the liability to pay this amount had been incurred by them in relevant previous year.
5. In view of aforesaid, the question is decided in favour of the Revenue and against the assessee.