JAIPUR BENCH - (1.) THIS is a reference under section 256(1) of the Income-tax Act, 1961, at the instance of the Revenue to answer the following question of law, namely : "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in holding that interest paid by the assessee to the sales tax department on the arrears of sales tax was an admissible deduction under section 37 of the Income-tax Act, 1961 ?" The relevant assessment year is 1974-75. The assessee derives income from the sale of motor vehicles. It also has income from the sale of petrol and petroleum products. During the previous year pertaining to the relevant assessment year, the assessee paid a sum of Rs. 41,010 as interest to the sales tax department on the arrears of sales tax due to the department the assessee claimed deduction of this amount paid as interest on the sales tax arrears as expenditure laid out wholly for the purpose of the business on the basis that it was a permissible deduction under section 37 of the Act. The Income-tax Officer rejected the assessees claim, which was, however, allowed on appeal by the Appellate Assistant Commissioner. The Tribunal has affirmed the view taken by the Appellate Assistant Commissioner. Hence, this reference at the instance of the Revenue.
(2.) THE only point involved for decision is covered by the decision of the Supreme Court in Mahalakshmi Sugar Mills Co. v. CIT, 1980 123 ITR 429. Following that decision of the Supreme Court in respect of the same assessee, this court, for an earlier year of assessment, has held that the interest paid by the assessee to the sales tax department on arrears of sales tax is an admissible deduction under section 37 of the Income-tax Act, 1961 (See CIT v. Western Indian State Motors, 1987 167 ITR 95). Consequently, this reference also has to be answered in favour of the assessee and against the Revenue by holding that the Tribunal was justified in treating the interest paid by the assessee on the arrears of sales tax as an admissible deduction under section 37 of the Income-tax Act, 1961. No costs.;