S.K. Mal Lodha, J. - (1.) THE Income-tax Appellate Tribunal, Jaipur Bench, Jaipur (for short " the Tribunal "), has referred the following question for the opinion of this court, which has arisen out of its order dated April 12, 1977, passed in I.T.A. No. I45/JP/76-77, in respect of the assessment year 1972-73; " Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in holding that the interest paid to the Sales Tax Department on the arrears of sales tax under Section 11B of the Rajasthan Sales Tax Act, 1954, was an admissible deduction under Section 37 of the Income-tax Act, 1961 ? "
(2.) IT is not necessary to recount the facts in detail, for, it is sufficient to state that the assessee had claimed interest paid on the delayed payment of sales tax as allowable expenditure under Section 37 of the Income-tax Act, 1961 (No. 43 of 1961) (for short " the Act "). The Income-tax Officer by his order dated January 24, 1975, rejected the claim of the assessee (non-petitioner) with respect to the amount, of interest paid by it on delayed payment of sales tax. On appeal, the Appellate Assistant Commissioner, in his order dated February 20/28, 1976, held that the Income-tax Officer was not justified in disallowing the assessee's claim for deduction of interest paid on the delayed payment of sales tax. He, therefore, allowed the assessee's claim in that respect. The Department filed further appeal. The Tribunal was of the view that the payment of interest on the delayed payment of sales tax is an allowable deduction as the said interest has been paid by the assessee wholly and exclusively for the purpose of its business and the payment has not been made by it in any capacity other than that of a trader. An additional reason was given by the Tribunal in support of its conclusion that the payment of interest to the Sales Tax Department on its outstanding dues is qualitatively not different from what the assessee has to pay on delayed payments to his suppliers. An application under Section 256(1) of the Act was submitted by the Commissioner of Income-tax. In the opinion of the Tribunal, a question of law arose from its order and, therefore, it has referred the aforesaid question. We have heard Mr. B. R. Arora, learned counsel for the Revenue, and Mr. Rajendra Mehta for the assessee (non-petitioner). In order to examine the question whether the amount of interest paid on delayed payment of sales tax is an allowable deduction, it is necessary to find out the nature of the expenditure and for this purpose, we may notice Section 11B(1)(a) of the Rajasthan Sales Tax Act, 1954 (XXIX of 1954) (hereinafter referred to as " the Act of 1954 "), which is as under : " 11B. Interest on failure to pay tax, fee or penalty.--(1)(a) Where any registered dealer or any other dealer has furnished returns but has not paid the tax as per return or within the time allowed by or under the provisions of this Act, he shall be liable to pay interest on the whole or that part of the amount of tax which was not paid as per returns within the time as aforesaid, at the rate of one and a quarter per cent. per month from the date by which he was required to pay the tax by or under the provisions of this Act for a period of three months and at one and a half per cent. per month thereafter until the date of payment. " " Dealer " has been defined in Section 2(f) of the Act of 1954 to mean any person who carries on the business of buying, selling, supplying or distributing goods, directly or otherwise, whether for cash, or for deferred payment, or for commission, remuneration or other valuable consideration. The definition given in Section 2(f) is an inclusive one and it enumerates certain types of dealers. Section 11B of the Act of 1954 applies to a dealer who has to furnish the return and is required to pay sales tax. Section 11B of the Act of 1954 provides for payment of interest on the failure of the dealer to pay sales tax, fee or penalty. It is clear from Section 11B that the payment of interest in accordance with its terms is automatic. No specific order is required for payment of interest. The rates of interest have also been provided in it. Having considered the provisions of Section 11B of the Act of 1954, now we proceed to notice Section 37 of the Act. Section 37 of the Act is a residuary provision and it lays down what expenditure incurred by the assessee can be claimed as an allowable deduction in respect of income derived from business or profession, where such expenditure is not expressly covered by any other specific provision of the Act. The important words in Section 37(1) of the Act are " laid out or expended wholly and exclusively for the purposes of business or profession ".
(3.) IF any amount is laid out or expended or incurred wholly and exclusively for carrying on of the business, then, it is a permissible deduction under Section 37 of the Act at the time of computation of income. This expression " wholly and exclusively " has been considered by the Supreme Court in various decisions and for the limited purpose before us, it is not necessary to make a detailed reference to them and also to the decisions of the various High Courts of the country. In CIT v. Delhi Safe Deposit Co. Ltd. 1982] 133 ITR 756 (SC), their Lordships of the Supreme Court have made the following illuminating observations (at p. 760) : " The true test of an expenditure laid out wholly and exclusively for the purposes of trade or business is that it is -incurred by the assesses as incidental to his trade for the purpose of keeping the trade going and of making it pay and not in any other capacity than that of a trader. " (emphasis* supplied) Reference was made to the observations of Subba Rao J. (as he then was), in CIT v. Malayalam Plantations Ltd. 1964] 53 ITR 140 (SC) (at p. 150): " The aforesaid discussion leads to the following result: The expression ' for the purpose of the business' is v/ider in scope than the expression ' for the purpose of earning profits '. Its range is wide : it may take in not only the day to day running of a business but also the rationalization of its administration and modernisation of its machinery ; it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile title; it may also comprehend payment of statutory dues and taxes imposed as a pre-condition to commence or for carrying on of a business ; it may comprehend many other acts incidental to the carrying on a business. However wide the meaning of the expression may be, its limits are implicit in it. The purpose shall be for the purpose of the business, that is to say, the expenditure incurred shall be for the carrying on of the business and the assessee shall incur it in his capacity as a person carrying on the business. " (Underlying* is ours). ;