Commissioner of Income Tax vs Bharat Steel Tubes Ltd.

Y.R. Sabharwal, J.—The following questions relating to the assessment years 1967-68 and 1968-69 have been referred for the opinion of this court :

Assessment year 1967-68 :

"Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was correct in law in holding that the provisions of section 40A(5) do not apply to the cash allowance paid by the employer to the employees for meeting house rent expenses and thereby deleting disallowance of Rs. 4,227 made by the Income Tax Officer u/s 40A(5) of the Income Tax Act ?"

Assessment year 1968-69 :

"(i) Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was correct in law in holding that the provisions of section 40A(5) do not apply to the cash allowance paid by the employer to the employees for meeting house rent expenses and thereby deleting the disallowance of Rs. 8,289 made by the Income Tax Officer u/s 40A(5) of the Income Tax Act ?"

(ii) Whether, on the facts and circumstances of the case, the payment of Rs. 2,150 claimed as deduction for delayed payment of sales tax was as a result of infraction of law or it was a discharge of a civil liability ?"

This court in Commissioner of Income Tax Vs. Shriram Refrigeration Industries Ltd., , has held that cash payment made by the assessed to an employee by way of car allowance or house rent allowance may not be regarded as "perquisite" but can well be regarded as payment of salary as given in section 17 of the Income Tax Act and can, Therefore, be taken into account for calculating the excess amount to be disallowed in section 40A(5) of the Act in the assessment of the assessee.

We are in agreement with the aforesaid decision in the case of Commissioner of Income Tax Vs. Shriram Refrigeration Industries Ltd., . Accordingly, the aforesaid question in respect of the assessment year 1967-68 and question No. (i) in respect of the assessment year 1968-69 are answered in the affirmative, against the Department and in favor of the assessed (sic).

As regards question No. (ii) arising out of the assessment year 1968-69, the Tribunal has clearly noticed in paragraph 10 that "The first objection in this cross-objection is regarding the disallowance of Rs. 2,150 paid as penalty for delayed payment of sales tax". In Haji Aziz and Abdul Shakoor Bros. Vs. The Commissioner of Income Tax, Bombay City II, , it was held that no expense which was paid by way of penalty for a breach of law, even though it might involve no personal liability, could be said to be an amount wholly and exclusively laid out for the purpose of the business of the assessed within the meaning of section 10(2)(xv) of the Indian Income Tax Act, 1922, and the fine paid by the assessed was not an allowable deduction under that section. The position is the same in the Act of 1961.

Reference may also be made to the decision of the Bombay High Court in Commissioner of Income Tax Vs. Bharat Barrel and Drum Mfg. Co. Pvt. Ltd., . In the said decision, the Bombay High Court was concerned with deduction claimed as penalty payable for non-payment of sales tax as in the present case. The Bombay High Court held that the penalty payable for non-payment of sales tax within the prescribed time is not interest for late payment of tax and is not deductible as business expenditure u/s 37 of the Income Tax Act, 1961. From the facts found by the Tribunal, it is evident that the payment of Rs. 2,150 was as a result of infraction of law and not in discharge of a civil liability. The question is answered accordingly.

No costs.