MAHALAXMI SUGAR MILLS CO. LTD. versus COMMISSIONER OF INCOME-TAX, DELHI, NEW DELHI

Citation: [1980] 3 S.C.R. 421 · Decided: 09-04-1980 · Supreme Court of India · Bench: N.L. UNTWALIA · Disposal: Appeal(s) allowed

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Judgment (excerpt)

421 
MAHALAXMI SUGAR MILLS CO. LTD. 
v. 
COMMISSIONER OF INCOME-TAX, DELID, NEW DELHI 
• 
April 9, 1980 
[N. L. UNTWALIA, R. S. PATHAK AND E. S. VENKATARAMIAH, JJ.] 
a· 
" 
Indian Income Tax Act 1922-Section 10(2) (xv)-Inter""t paid on arrears 
• 
of mgarcane cess-Whether penalty-Interest if a permissible deduction. 
Section 3(2) of the U.P. Sugarcane Cess Act, 1956 provides 
that the 
owner of a sugar factory shall pay cess on sugaroone coming into the pre-
mises of a factory for use therein, on mch date and at such place as 
may 
be prescribed. 
Sub-section (3) provides that if the cess is not paid by the 
specified date, interest at six per cent per annum is payable on the arrears 
from the specified date to the date of payment. Where a person is in default 
in making the payment of the cess, sub-section (5) provides that in addition 
to tbC amount of the arrears and interest a sum not exceeding ten per cent 
shall be recoverable by way 
of penalty from the person liable to pay the 
cess. 
In respect of three assessment years the appellant-assessee, a manufactu-
rer of sugar, in its income tax returns claimed deduction of certain sums 
paid by it by way of interest on arrears of cess due under the U.P. Sugar-
cane c·ess Act, 1956. The Income Tax Officer disallowed the clain1. 
The 
Appellant Assistant Commissioner, whose view was upheld by the Appellate 
Tribunal, held that the payment of interest constituted a permissible deduc--
tion. 
On reference the High Court held that , the interest paid on the arrears 
did not fall within the scope of s. 10(2) (xv) of the Indian Income Tax 
Act, 1922 for the reason that it was paid by way of penalty for an infringe-
ment of the law. 
Allowina the appeal, 
HEID : The interest paid under s. 3 (3) of the Cess Act cannot be de .. 
cribed as a penalty paid for an 
infringement of the law. 
The assessee is 
entitled to claim the sum as a deduction uoder section 10(2) (xv) of the 
1922 Act es expenditure laid out wholly or exclusively for the purpose of 
the business. 
[427E] 
(a) The interest payable on arrears of cess under s. 3(3) is in reality 
part and parcel of the liability to pay cess. 
It is an accretion to the cess. 
Under s. 3 (3) this enlargement of the cess 
liability is automatic and no 
specific order is necessary in order that the obligation to pay interest under 
this sub-section should accrue. The liability to pay interest is as certain as 
the liability to pay the cess. The interest payable is in the nature of com· 
pensation paid to the Government for delay in the 
payment of cess. It is 
not by way of penalty. [425G·Hl 
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422 
SUPREME COURT REPORTS 
[1980] 3 S.C.R.. 
· A 
(b) Interest on arrears of cess is t;tot a 
penalty because 
provision for 
c 
imposing penalty 
has been made 
separately by s. 3(5). 
It is also not a 
penalty within the meaning of s. 4 which provides for criminal liability and 
criminal prosecution. The penalty payable under s. 3 ( 5) 
lies in the discre-
tion of the collecting officer or authority. For imposing penalty under s. 4 
no prosecution oon be instituted unless a complaint is made by or under the 
authority of the Cane Commissioner under s. 5(1) of the Cess Act. 
[426A-BJ 
(c) The procedure for collecting interest on arrears is different from the 
procedure for recovering penalty imposed under s. 3(5). The Collector pro-
ceeds to recover the arrear of cess as if it were an arrear of land revenue 
on receipt from the authority concerned of a certificate under s. 3 (6) speci-
fying the aIDDunt of arrears including interest 
due. 
The words "specifying 
the amount of arrears including interest" show that the interest is part of 
the arrears of cess. 
In the case of penalty imposed under s. '3(5) a separate 
provision for recovery has been made under s. 3(7). Although the manner 
of recovery of penalty provided by s. 3 (7) is the same as the manner fpr 
recovery provided by s. 3(6) the Legislature has dealt with it aS some thin& 
diitinct from the recovery of arrears of cess including interest. 
[426C-EJ 
CML APPELLATE JURISDICTION : Civil Appeal Nos. 2440-2442 o~ 
D 
1972. 
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From the Judgment and Order dated 25-10-1971 of the Delhi High. 
Court in Income Tax Reference N06. 40 & 41 of 1970. 
A. K. Sen and Mr. Bishamber Lal for tl]_e Appellant. 
P. G. Ghokhale a"nd Miss A. Subhashini for the Respondent. 
The Judgment of the Court was delivered by 
PATHAK, J.-This appeal by certificate granted by the Delhi Hig

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