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Commissioner of Income-tax, Karnataka-ii Bangalore Vs. Mandya National Paper Mills Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKarnataka High Court
Decided On
Case NumberIncome-tax Reference Case No. 146 of 1979
Judge
Reported in(1985)46CTR(Kar)100; ILR1985KAR1298; [1984]150ITR26(KAR); [1984]150ITR26(Karn)
ActsIncome Tax Act, 1961 - Sections 37(1); Karnataka Sales Tax Act, 1957 - Sections 3(2)
AppellantCommissioner of Income-tax, Karnataka-ii Bangalore
RespondentMandya National Paper Mills Ltd.
Appellant AdvocateK. Srinivasan, Adv.
Respondent AdvocateG. Sarangan, Adv.
Excerpt:
- [s. abdul nazeer, j.] code of civil procedure, 1908 — order 23 rule 3-b -representative suit — compromise of — leave of the court - the suit in question is a representative suit which comes within the explanation(d) of order 23 rule 3-b of c.p.c. — the explanation to order 23 rule 3-b of cpc explains the meaning of the words ‘representative suit’ employed in sub-rule (1) of order 23 rule 3-b of cpc. explanation (d) of order 23 rule 3-b of cpc states that a representative suit means, any other suit in law in which the decree passed may, by virtue of the provisions of cpc or of any other law for the time being in force, bind any person who is not named as party to the suit. bombay public trust act comes within the expression ‘any other law for..........of any law. the provisions of s. 3(3) of the u.p. sugarcane cess act, 1956, are similar to the provisions of s. 13(2) of the karnataka sales tax act, 1957. the ratio of the decision of the supreme court is, therefore, applicable to facts of the case on hand. 7. in view of this enunciation, it must be held that the penalty paid under s. 13(2) of the karnataka sales tax act, 1957, was not a penalty in the real sense of the term and it is only a compensation for delay in payment of the tax due. clearly, therefore, it must be allowed as a deduction under s. 37(1) of the i.t. act, 1961. 8. in the result, we answer the question in the affirmative and against the revenue.
Judgment:

Jagannatha Shetty, J.

1. This is a reference under s. 256(1) of the I.T. Act, 1961. The question referred is :

'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that an amount of Rs. 52,944 paid by the assessee as penalty for non-payment of sales tax is an allowable deduction in computing its business income ?'

2. The assessee is a public limited company. The assessment year is 1972-73, the relevant previous year being the year ending June 30, 1971. Under the Karnataka Sales Tax Act, 1957, the assessee was a defaulter in payment of tax. Consequently, it has to pay a penalty of Rs. 52,944 under s. 13(2) of the Karnataka Sales Tax Act, 1957. The said amount was claimed as allowable deduction under s. 37(1) of the I.T. Act, 1961. The ITO dis allowed that claim on the ground that it was not a business expenditure. The assessee appealed to the AAC, who also upheld the order of the ITO.

3. The assessee next appealed to the Tribunal. There it was urged that the penalty collected under s. 13(2) of the Karnataka Sales Tax Act, 1957, should not be construed as a penalty levied for any infraction of law and it represented only damages paid to the Government for the belated payment of tax due. That contention was accepted by the Tribunal and it directed the deletion of the addition of Rs. 52,944 from the taxable income.

4. The answer to the question raised turns on the nature of the penalty leviable under s. 13(2) of the Karnataka Sales Tax Act, 1957.

5. In Sterling Construction & Trading Co. v. Commercial Tax Officer [1973] 32 STC 235, a Bench of this court held that under s. 13(2) the amount payable by the assessee is a statutory liability and it is not for the infraction of any law. The Act gives no discretion to the authorities to waive or reduce that penalty. Obligation is case on the defaulting assessee to make payment of the penalty computed in the manner provided by s. 13(2).

6. In Mahalakshmi Sugar Mills Co. v. CIT : [1980]123ITR429(SC) , the Supreme Court, while examining the scope of s. 3(3) of the U.P. Sugarcane Cess Act, 1956, providing for interest payable on arrears of cess, held that such interest should be allowed as business expenditure, since it is an accretion to cess and not a penalty payable for infringement of any law. The provisions of s. 3(3) of the U.P. Sugarcane Cess Act, 1956, are similar to the provisions of s. 13(2) of the Karnataka Sales Tax Act, 1957. The ratio of the decision of the Supreme Court is, therefore, applicable to facts of the case on hand.

7. In view of this enunciation, it must be held that the penalty paid under s. 13(2) of the Karnataka Sales Tax Act, 1957, was not a penalty in the real sense of the term and it is only a compensation for delay in payment of the tax due. Clearly, therefore, it must be allowed as a deduction under s. 37(1) of the I.T. Act, 1961.

8. In the result, we answer the question in the affirmative and against the Revenue.


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