- (1.) THE Income-tax Appellate Tribunal, Allahabad Bench, Allahabad, has referred the following question of law for opinion of this court under Section 256(1) of the Income-tax Act, 1961 : "Whether, on the facts and in the circumstances of the case, was the Tribunal legally correct in holding that the interest paid under Section 17(3) of the Sugarcane (Regulation of Supply and Purchase) Act, 1958, was not penal in nature for infringement of law and, therefore, it was allowable as deduction under the Income-tax Act, 1961 ?"
(2.) THE said question is stated to arise from the Tribunal's order dated January 9, 1981, in I. T. A. No. 866 (All) of 1980 for the assessment year 1978-79. The list has been revised. None appears for the assessee-respondent. We have heard Shri A.N. Mahajan, learned standing counsel for the Commissioner of Income-tax, and perused the Tribunal's order and annexures thereof.
(3.) THE assessee-respondent runs a sugar factory. For manufacture of sugar, it purchases sugarcane from the growers. THE purchase of sugarcane is regulated by the Sugarcane (Regulation of Supply and Purchase) Act, 1958. Section 17 of the said Act regulates the payment of the price of sugarcane purchased by the owner of a sugar factory, and it stands as under : "17. Payment of cane price.--(1) THE occupier of a factory shall make such provision for speedy payment of the price of cane purchased by him as may be prescribed. (2) Upon the delivery of cane the occupier of a factory shall be liable to pay immediately the price of the cane so supplied, together with all other sums connected therewith. (3) Where the person liable under Sub-section (2) is in default in making the payment of the price for a period exceeding fifteen days from the date of delivering he shall also pay interest at a rate of 7 1/2 per cent, per annum from the said date of delivering, but the Cane Commissioner may, in any case, direct, with the approval of the State Government, that no interest shall be paid or be paid at such reduced rate as he may fix : Provided that in relation to default in payment of price of cane purchased after the commencement of this proviso, for the figure '7 1/2' the figure '12' shall be deemed substituted." As provided in Sub-section (3), the petitioner paid interest on the price due for the purchase of sugarcane and claimed it as an expenditure in computing its income for the purpose of income-tax. The claim was disallowed by the Assessing Officer as well as by the Commissioner of Income-tax (Appeals) in whose view the interest paid was in the nature of penalty.;