Rohit Pulp and Paper Mills Ltd. vs Commissioner of Income Tax

Dr. B.P. Saraf, J.—By this reference the following five questions of law have been referred by the Tribunal for the opinion of this Court u/s 256(1) of the income tax Act, 1961 (''the Act'') at the instance of the assessee: 1. Whether, on the facts and in the circumstances of the case, any amount paid to the employee-directors of the assessee-company which is beyond the amount of Rs. 72,000 is taxable under clauses (i) and (ii) of section 40(c) of the income tax Act, 1961, irrespective of whether the expenditure is excessive or unreasonable having regard to the legitimate business needs of the company, and also irrespective of whether the remuneration has been approved by the Government of India u/s 310 of the Companies Act, 1956?

Whether, on the facts and in the circumstances of the case, the commission paid to the managing director of the assessee-company partakes of the character of the salary and is, therefore, subject to the limits prescribed u/s 40(c)(i) and (ii) of the income tax Act, 1961?

Whether, on the facts and in the circumstances of the case, the penalty paid by the assessee to the customs authority is allowable as a business expenditure u/s 37 of the income tax Act, 1961?

Whether, on the facts and in the circumstances of the case, the additional expenditure of Rs. 47,173 incurred by the assessee due to difference in exchange rates in remitting instalments of foreign currency loans repaid by the assessee is allowable in view of section 43A(1) of the income tax Act, 1961?

Whether, on the facts and in the circumstances of the case, the sum of Rs. 11,076 being the gratuity liability of the assessee relating to its managing director, executive director and other officers and not covered under the Payment of Gratuity Act, 1972, is admissible in view of section 40A(7) of the income tax Act, 1961?

The counsels for the parties are agreed that all the questions except question No. 3 are covered by the decisions of this Court and the Supreme Court and they may be decided in the light thereof. We, therefore, answer the said questions as follows:

First question is covered by the decision of this Court in Commissioner of Income Tax Vs. Hico Products (P.) Ltd., . Following the same, this question is answered in the affirmative and in favour of the revenue.

Second question is covered by the decision of the Supreme Court in Commissioner of Income Tax, Bombay Vs. M/s. Indian Engineering and Commercial Corporation Pvt. Ltd., . Following the same, it is also answered in the affirmative and in favour of the revenue.

Fourth question is covered by the decision of the Supreme Court in Sutlej Cotton Mills Limited Vs. Commissioner of Income Tax, Calcutta, . Following the same, it is answered in the negative and in favour of the revenue.

Fifth question is also covered in favour of the revenue by the decision of the Supreme Court in Shree Sajjan Mills Ltd. Vs. Commissioner of Income Tax, M.P., Bhopal and Another, . This question is, therefore, answered in the negative and in favour of the revenue.

So far as question No. 3 is concerned, the learned counsel for the assessee submits that the amount paid by the assessee as penalty to the customs authorities was allowable as business expenditure inasmuch as the goods in question, on which the penalty was imposed, were imported by the assessee under the bona fide belief that the goods were covered by the import licence.

The learned counsel for the revenue submits that the penalty imposed in this case in lieu of confiscation is a penalty simplicitor and is not allowable as a deduction u/s 37 of the Act.

We have carefully considered the rival submissions. We find that the goods valued at Rs. 51,673 imported by the assessee were found by the customs authorities to be not covered by the valid licence, which is an offence u/s 111(d) of the Customs Act, 1961 read with section 3 of the Imports and Exports (Control) Act, 1947. The Deputy Collector of Customs ordered confiscation of the goods under the above provisions and gave an option to the assessee u/s 125 of the Customs Act to pay in lieu of confiscation a fine of Rs. 35,000. It is this amount which is claimed as a deduction.

We do not find that the above amount paid by the assessee is anything else than penalty. It is, therefore, not allowable as deduction under the Act. The ITO and other authorities were justified in not allowing any deduction u/s 37 on account of the same. The third question is, therefore, answered in the negative and in favour of the revenue. On the facts and circumstances of the case, there shall be no order as to costs.