JUDGMENT K. Shivashankar Bhat, J.—The questions that are referred to us under the provisions of the Income Tax Act, 1961, read thus : "1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in coming to the conclusion that the assessee has paid compensation for loss of interest to the trust arising on account of late remittance of funds and the late remittance of funds was not due to any wilful act on the part of the assessee ? 2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in coming to the conclusion that the principles laid down in the Supreme Court's decision in the case of Mahalaxmi Sugar Mills Co. Vs. Commissioner of Income Tax , Delhi, AIR 1980 SC 754 , would apply to the facts of the case and accordingly directing the Income Tax Officer that the deduction of Rs. 2,04,426 be allowed ?" 2. Both the question are actually and substantially the same. 3. The assessee in the instant case failed to pay the contribution under the provisions of the Employees' Provident Funds Act to the concerned trust. Consequently, the company had to pay interest thereon. This interest is now claimed as a deduction by the assessee under section 37 of the Income Tax Act, 1961, as if it is an expenditure. The contention of the Revenue is that the payment of interest was actually a penalty not deductible and that the payment was to penalise the assessee for the delayed payment. This contention was not accepted by the Appellate Tribunal. Hence, this reference. 4. There is no serious dispute that the payment in question by the assessee was as interest. This payment was obviously under section 7-Q of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, under which the liability to pay interest on the delayed payment fastens itself. The liability of the employer thereon is to pay simple interest as the very provision states. There are other provisions under the said Act to penalise the employer for the delayed payment. In such social welfare legislations,it is usual to find similar provisions - one for the payment of interest for delayed payment and the other to penalise the contributor for the delay. There are other provisions under the said Act to penalise the employer for the delayed payment. In such social welfare legislations,it is usual to find similar provisions - one for the payment of interest for delayed payment and the other to penalise the contributor for the delay. The latter is to enforce as a matter of deterrent against frequent delays, while the former is to compensate the receiver of the contribution of the payments in view of the delay involved. The two concepts are distinct and separate. The compensatory payment has been held to be deductible, because it is an accretion to the main payment as observed by the Supreme Court in Mahalaxmi Sugar Mills Co. Vs. Commissioner of Income Tax , Delhi, AIR 1980 SC 754 . The above decision of the Supreme Court was followed by the Appellate Tribunal. In the said, case, there was certain delay in the payment of sugarcane cess. The payer had to pay interest for the delayed payment. This interest was held by the Supreme Court to be compensatory in nature and not a penalty and consequently deduction was permitted. We do not find any difference in principle between the said decision of the Supreme Court and the facts of the instant case. 5. The decision of this court in Commissioner of Income Tax, Karnataka-II Bangalore Vs. Mandya National Paper Mills Ltd., ILR (1985) KAR 1298, again highlights these principles. Under section 13(2) of the Karnataka Sales Tax Act, for delayed payment of sales tax, "penalty" is levied. This penalty under section 13(2) of the Sales tax Act was held to be interest payable for delayed payment and, consequently, this court held that the same was deductible under section 37 of the Income Tax Act, 1961. We are of the view that this is a stronger case in favour of the assessee, applying the principle stated by the Supreme Court in Mahalaxmi Sugar Mills Co. Vs. Commissioner of Income Tax , Delhi, AIR 1980 SC 754 . 6. Consequently, we are of the view that the questions referred to us are to be answered in the affirmative and against the Revenue. Reference is answered accordingly.