U.L.Bhat, CJ.— The following question has been referred at the instance of the Revenue to this Court by the Income-Tax Appellate Tribunal, Guwahati Bench, Guwahati under section 256 (1) of the Income-tax Act, 1961 (for short, the Act): "Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the payment to interest of Rs. 31,988/- of by the assessee on account of delayed payment under the Assam Finance Tax and of Rs. 2,319/- for delayed payment of instalments to the Divisional Forest Officer is not penal in nature ?" Respondent is absent. We have heard Shri DK Talukdar, learned counsel for the Revenue. 2. The assessee is a private limited company. The dispute relates to the assessment year 1977-78. During the previous year corresponding to assessment year 1977-78, assessee paid interest on sales tax due to the State Government under the provisions of the Assam Finance (Sales Tax) Act, 1956 as also interest for delayed payment of forest kist amount due to the Government for some prior years. Assessee claimed deduction for the amount paid as such interest. Income-tax Officer disallowed deduction of this amount from the assessable income on the ground that interest was paid for delayed payment and penal in nature akin to interest under section 220(2) of the Act and the same is not covered by section 36 (1) (iii) of the Act. The Appellate Commissioner reversed this decision and allowed deduction and this order was confirmed by the Appellate Tribunal. 3. There can be no controversy that the interest paid on sales tax due under the Assam Finance (Sales Tax Act, 1956, or on forest dues are not deductible under section 36 (1) (iii) of the Act. The question for consideration is whether deductions are allowable under sub-section (I) of section 37 of the Act, which reads thus : "37. 3. There can be no controversy that the interest paid on sales tax due under the Assam Finance (Sales Tax Act, 1956, or on forest dues are not deductible under section 36 (1) (iii) of the Act. The question for consideration is whether deductions are allowable under sub-section (I) of section 37 of the Act, which reads thus : "37. General: (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head 'Profits and gains of business or profession'." It is see - that the Board has held that interest payable on unpaid purchase price of plant and machinery is deductible under section 37 (1). Supreme Court in M/s Mahalaxmi Sugar Mills Co. Ltd. vs. Commissioner of Income-tax, Delhi, AIR 1980 SC 754 . has held that the interest paid on sugarcane cess under section 3 (3) of the UP Sugarcane Cess Act, 1956 can be claimed as deduction under section 10 (2) (xv) of the Income-tax Act, 1922 corresponding to section 37 of the Act. Following this decision this Court has held in Commissioner of Income-tax, NE Region, Shilloog vs. Pheros & Co. Private Ltd. Gauhati, (1989) 1 GLR165, that interest paid under section 35A of the Assam Sales Tax Act, 1947 is deductible under section 37 of the Act. 4. The Supreme Court in M/s Mahalaxmi Sugar Mills Co. case (supra) considered the provisions of the UP Sugarcane Cess Act, 1956. Section 3 is the charging section. Sub-section (2) requires the owner of the factory to pay cess on such date and at such place as may be prescribed. Sub-section (3) states that any arrear of cess not paid on the date prescribed under sub-section (2) shall carry interest at 6 per cent per annum from such date to date of payment. Sub-section (5) authorises the authority empowered to collect the cess and in case of default in making the payment of the cess to direct that in addition to the amount of the arrears and interest a sum not cxceding 10 per cent thereof shall by way of penalty be recovered from the person liable to pay the cess. Sub-section (5) authorises the authority empowered to collect the cess and in case of default in making the payment of the cess to direct that in addition to the amount of the arrears and interest a sum not cxceding 10 per cent thereof shall by way of penalty be recovered from the person liable to pay the cess. Sub-section (6) contemplates recovery of the amount of arrears including interest due from any person as if it were an arrear of land revenue. Sub-section (7) contains a similar provision regarding recovery of penalty amount. Considering these provisions Supreme Court held : "Now the interest payable on an arrear of cess under section 3 (3) is in reality part and parcel of the liability to pay cess. It is an accretion to the cess; The arrear of cess 'carries' interest; if the cess is not paid within the prescribed period a larger sum will become payable as cess. The enlargement of the cess liability is automatic under section 3 (3). No specific order is necessary in order that the obligation to pay interest should accrue. The liability to pay interest is as certain as the liability to pay cess. As soon as the prescribed time is crossed without payment of the cess, interest begins to accrue. It is not a penalty, for which provision has been separately made by section 3 (5). Nor is it a penalty within the meaning of section 4 ... ...The penalty payable under section 3 (5) lies in the discretion of the collecting officer or authority ... ... The words used in section 3 (6) are 'specifying the amount of arrears including interest', that is to say that the interest is part of the arrear of cess … ... In truth, the interest provided for under section 3 (3) is in the nature of compensation paid to the Government for delay in the payment of cess. It is not by way of penalty .-..." Supreme Court held in paragraph 12 : "In our opinion, the interest paid under section 3 (3) of the Cess Act cannot be described as a penalty paid for an infringement of the law. As that is the only ground on which the Revenue resists the claim of the assesses to a deduction of the interest under section 10 (2) (xv) of the Income-tax Act, the assessee is entitled to succeed. As that is the only ground on which the Revenue resists the claim of the assesses to a deduction of the interest under section 10 (2) (xv) of the Income-tax Act, the assessee is entitled to succeed. There is no dispute that the payment of interest represents expenditure laid out wholly or exclusively for the purpose of the business ... " 5. Analysing the corresponding provisions in the Assam Finance (Sales Tax) Act, 1956 we find that they are more or less similar to the provisions in the UP Sugarcane Cess Act, 1956. Section3 is the charging section-regarding tax. Section 22 states interalia, that tax payable shall be paid in the manner hereinafter provided that is, when the dealer furnishes the return or a revised return he shall pay into a Government treasury the full amount of tax due from him on the basis of such return and shall furnish along with the return a receipt from the treasury showing payment of such tax. The amount of tax due under the provisions of the Act, where no payment, has been made, shall be paid by the dealer by such date as may be specified in the notice of demand and where no such date is specified, It shall be paid within thirty days of the date of service, of the notice. Section 22A deals with interest, payable by dealer. If the tax is not, paid by the due date simple interest at the rate of twelve per cent per annum from the first day of the month next following the said date shall be payable by the dealer and If the amount is not paid within sixty days from the due .date, then in addition to the interest payable as above, simple; interest at the rate of iweniy four per cent per annum, shall be payable from the day commencing after the period of sjxty days. Mode of recovery is dealt with in section23. The dealer shall be deemed to be in default if the demand in respect of any dues under the Act is not paid on or before the date specified. The date for payment can be expended by the. Commissioner. Mode of recovery is dealt with in section23. The dealer shall be deemed to be in default if the demand in respect of any dues under the Act is not paid on or before the date specified. The date for payment can be expended by the. Commissioner. (Sub-section (2) states where a dealer is in default, the Commissioner may, in his discretion, direct that in addition to the amount due, a sum not exceeding that amount shall be recovered from the defaulter shall be recoverable as an arrear of land revenue. 6. The relevant provisions of the Assam Finance (Sales Tax) Act,, 1956 already referred to, would indicate that interest is provided therein as part and parcel of the liability to pay sales tax and as accretion thereto. This Act provides separately for penalty. While liability to pay interest is automatic and is a statutory mandate, liability to pay penalty depends on the discretion exercised by the authority, Having regard to these provisions there can be no doubt that the interest payable on the sales tax dues under the Assam Finance (Sales Tax) Act, 1956 is part of the sales tax liability. That being so, the amount so paid as interest is admissible as legitimate deduction under section 37 of the Act. 7. The same is the position regarding the interest paid on the forest dues. The contractor in a transaction relating to forest wealth is required to pay kist amount on the due dates prescribed and on his failure to so pay, he incurs the liability to pay interest. The interest in such a case also becomes part of the sale price which he has to pay and does not partake of the characteristics of penalty. The interest paid in such a case is also liable to be treated as legitimate expenditure expended for the purpose of business deductible under section 37 of the Act. 8. We therefore answer the question in the affirmative, that is, in favour of the assessee and against the Revenue. 9. A copy of this judgment under the seal of the High Court and the signature-of the Registrar will be transmitted to the Income-tax Appellate Tribunal, Guwahati Bench, Guwahati.