Commissioner of Income Tax vs Jolly Steel Industries Pvt. Ltd.

B.P. Saraf, J.—By this reference u/s 250(1) of the Income Tax Act, 1961, the Income Tax Appellate Tribunal has referred the following question of law to this court for opinion at the instance of the Revenue :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law that penalty levied u/s 36(3) of the Sales Tax Act will not be for infraction of law and will be an expenditure wholly or exclusively laid out for the purpose of the business ?"

Heard Mr. Desai, learned counsel for the Revenue. None appears for the assessee.

It is submitted by Mr. Desai that the controversy in this case is squarely covered by the decision of this court in Commissioner of Income Tax Vs. Vegetable Vitamin Foods Co. Pvt. Ltd., . In that case, on a careful consideration of the provisions of Section 36 of the Bombay Sales Tax Act, 1959 (the "Act"), as it stood at the material time, it was held that penalty levied u/s 36(3) of that Act for delayed payment of sales tax was not an allowable deduction in the computation of income under the Income tax Act, 1961 (the "Act"). Learned counsel further submits that the above decision was rendered by this court after duly considering the decision of the Supreme Court in Prakash Cotton frills P. Ltd. v. CIT [1993] 201 ITR G84, wherein it was observed that whenever any statutory impost paid by an assessee by way of damages or penalty or interest is claimed as an allowable expenditure u/s 37(1) of the Income Tax Act, 1961, the assessing authority is required to examine the scheme of the provisions of the relevant statute providing for payment of such impost notwithstanding the nomenclature of the impost as given by the statute, to find whether it is compensatory or penal in nature.

We have perused the decision of this court in Commissioner of Income Tax Vs. Vegetable Vitamin Foods Co. Pvt. Ltd., . In that case, on consideration of the decision of the Supreme Court in M/s. Prakash Cotton Mills Pvt. ltd. Vs. Commissioner of Income Tax (Central), Bombay, , and perusal of the scheme of the Bombay Sales Tax Act, 1959, in particular Section 36(3) thereof, as it stood at the material time, it was held (page 848) :

"As far as this court is, concerned, it has, after examination of the scheme of the provisions of the Act, held in a number of cases that the penalty which is levied u/s 36(3) is penal in character and contains no element of interest. The Tribunal is bound by these decisions and as far as this jurisdiction is concerned. In view of this position it is futile for us to remit the question to the Tribunal in order to decide whether the penalty which is levied for delayed payment of sales tax is compensatory in nature either in part or in full as would entitle it for a deduction u/s 37(1) of the Income Tax Act. Therefore, while we respectfully agree with the ratio laid down by the Supreme Court in the case of Prakash Cotton Mills P. Ltd, v. CIT [1993] 201 ITR 684, it is not necessary to remit the question to the Tribunal in the present case as was done by the Supreme Court in the case before it."

In our opinion, the controversy in this case stands concluded by the above decision of this court wherein this court has clearly held that no part of the penalty u/s 36(3) of the Bombay Sales Tax Act, as it stood at the material time, is compensatory.

In view of the above, the question referred to us is answered in the negative, i.e., in favour of the Revenue and against the assessee.

Reference disposed of accordingly with no order as to costs.