SATISH CHANDRA, J. - (1.) 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 ITO 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 AAC.
(2.) 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 CIT, the Tribunal has referred the following two questions for our opinion :-- 1. Whether on the facts and in the circumstances of the case, the sum of Rs. 25,000 being interest paid to Kolhapur Sugar Mills, was an allowable deduction under S. 37(1) of the IT Act, 1961 ? 2. 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 purchases tax was allowable expenditure in computing the total income of the assessee-company?
(3.) IN respect of the first questions the Supreme Court in State of Madras vs. G.L. Goelho (1964) 53 ITR 186 (SC) and Bombay Steam Navigation Co. Ltd. vs. CIT (1965) 56 ITR 52 (SC) has up held the view pointed of the Tribunal. This question has, therefore, to be answered in favour of the assessee and against the Department.;