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TMI Blog1982 (8) TMI 119X X X X Extracts X X X X X X X X Extracts X X X X ..... he loan. On failure on the part of the assessee to adhere to the deadlines for payment of instalments, the assessee was liable to pay 16 1/2 per cent interest. The assessee could not keep up its instalments. However, it had provided only for 11 per cent interest in the accounts for the accounting year 1976-77. When the accounts for the accounting year 1977-78 became the subject-matter of Audit, it was pointed out by the Audit that the assessee should have made provision at the higher rate. So, the assessee provided for interest at the higher rate for this year and also made good the omission for interest difference for the immediately preceding year. Interest for this year at 16 1/2 per cent (18 per cent in respect of later loans) came to R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation. There was obviously no reason for disallowance of interest even at the lower rate even in the view held by the authorities. The learned departmental representative relied upon the orders of the authorities below. He further pointed out that the assessee had asked the Government for rescheduling the repayments. If that were done, the assessee may not be liable to pay any penal interest. He further pointed out that the interest includes the difference between the lower and the higher rate of interest chargeable for the accounting year 1976-77. 3. We have carefully considered the records as well as the arguments. The transaction between the assessee and the State Government is as between any borrower and lender. In substance, the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The very fact that the Government order envisages delayed payment and provides for it would make it appear that there is not even a breach of contract and much less an infringement of law. Such an arrangement is common in all business transactions and such differential rates are provided to encourage prompt payment of dues. It will be too much to hold that the mere additional interest due to delayed payment loses its character as interest and becomes a penalty merely because the lender is State Government. We do not find any justification for the rigid view taken by the authorities. We do not, therefore, discuss the citations given by both the sides as they are far off the mark and deal with situations which are not analogous to the facts o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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