ROHTAK TEXTILES MILLS LTD. VS COMMISSIONER OF INCOME-TAX
1999 P T D 1471
[226 I T R 485]
[Delhi High Court (India)]
Before Y. K. Sabharwal and D. K. Jain, JJ
ROHTAK TEXTILES MILLS LTD.
Versus
COMMISSIONER OF INCOME-TAX
Income-tax Reference No.475 of 1983, decided on 03/04/1997.
Income-tax---
----Business expenditure---Fines and penalties---Damages paid under S.14-B of Employees' Provident Funds Act are penal in nature---Not deductible as business expenditure---Indian Income Tax Act, 1961, S.37---Indian Employees' Provident Funds and Miscellaneous Provisions Act, 1952, S.14-B.
The predominant object of section 14-B of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, is to penalise the employer so that he may be deterred from making any further default. The damages imposed by section 14-B include a punitive sum quantified according to the circumstances of the case and the levy under section 14-B is penal in nature. Hence, the same cannot be allowed as a deduction under section 37 of the Income Tax Act, 1961.
Organo Chemical Industries v. Union of India (1979) .55 FJR 283; (1979) AIR 1979 SC 1803 applied.
Saray Sugar Mills (P.) Ltd. v. CIT (1979) 116 ITR 587 (All) (FB); CIT v. Albuquerque & Sons (1992) 198 ITR 609 (Kar.) and Hasimara Industries Ltd. v. CIT (1993) 200 ITR 659 (Cal.) fol.
Haji Aziz and Abdul Shakoor Bros. v. CIT (1961) 41 ITR 350 (SC) ref.
Nemo for the Assessee. R.D. Jolly and Mrs. Prem Lata Bansal for the Commissioner.
JUDGMENT
At the instance of the assessee, in respect of the assessment year 1977-78, the question referred for the opinion of this Court is as follows:
"Whether, on the facts and in the circumstances of the case, the sum of Rs.6,078 being damages paid under section 14-B of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, is deductible under Chapter IV-D of the Income Tax Act, 1961?"
The real question to be determined would be whether damages paid under section 14-B of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, are penal in nature or not. The answer to this question would determine whether the damages paid under section 14-B can be allowed as deduction under section 37 of the Income Tax Act, 1961. In Haji Aziz and Abdul Shakoor Bros. v. CIT (1961) 41 ITR 350, the Supreme Court has held that no expense which was paid by way of penalty for a breach of the 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 assessee within the meaning of section 10(2)(xv) of the Indian Income-tax Act and the fine paid by the assessee was not an allowable deduction under that section. Section 37 of the Income Tax Act, 1961, corresponds to section 10(2)(xv) of the Indian Income-tax Act, 1922.
The Supreme Court in Organo Chemical Industries v. Union of India (1979) 55 FJR 283; AIR 1979 SC 1803, while considering the Constitutional validity of section 14-B of the aforesaid Act, has observed that the predominant object of section 14-B is to penalise the employer so that he may be deterred from making any further default. The Court has also opined that damages as imposed by section 14-B include a punitive sum quantified according to the circumstances of the case and the levy under section 14-B is penal in nature.
The Allahabad, Karnataka and Calcutta High Courts have also expressed the view that damages paid under section 14-B are penal in nature (see Saraya Sugar Mills (P.) Ltd. v. CIT (1979) 116 ITR 387 (All) (FB), CIT v. A. Albuquerque & Sons (1992) 198 ITR 609 (Kar) and Hasimara Industries Ltd. v. CIT (1993) 200 ITR 659 (Cal)).
In view of the aforesaid it has to be held that damages paid under section 14-B of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, are penal in nature and the same cannot be allowed as deduction under section 37 of the Income Tax Act, 1961. Accordingly, the question is answered in the negative, in favour of the Revenue and against the assessee. No costs.
M.B.A./1993/FC???????????????????????????????????????????????????????????????????????????????? Reference answered