AJIT K. SENGUPTA J. - This is a reference under s. 256(1) of the I.T. Act, 1961. The assessee is a company. The assessment year involved is 1971-72. As the assessee had failed to make contributions under the Employees Provident Funds and Family Pension Fund Act, 1952, a certificate proceeding was started under the Bengal Public Demands Recovery Act, 1913, for the recovery of arrears. As per the provisions of s. 16 of the Bengal Public Demands Recovery Act, the assessee was also required to pay interest of Rs. 7,217 which was paid in the accounting year relevant to the assessment year under reference. In its return as well as at the time of assessment proceedings, the assessee claimed deduction of Rs. 7,217 while computing its total income under the Act. The ITO disallowed the assessees claim. The AAC accepted the assessees claim for deduction of Rs. 7,217. The Tribunal, following the decision of the Gujarat High Court in the case of CIT v. Mihir Textiles Limited : 104ITR167(Guj) , held that such deduction was not allowable.
At the hearing before us, it has been contended by the learned advocate for the assessee that the Tribunal was not right in placing reliance on the decision of Gujarat High Court in the case of Mihir Textiles Ltd. : 104ITR167(Guj) , inasmuch as in that case, the Gujarat High Court was concerned with the damages under the Employees Provident Funds Act. The principles laid down in the said decision would have no application to the facts of this case, as deduction in respect of the interest payable under the Bengal Public Demands Recovery Act stands on a different footing. Thus, it is contended that the Tribunal erred in law in rejecting the claim for the deduction.
In Mihir Textiles Ltds case : 104ITR167(Guj) , the Gujarat High Court was concerned with the question whether the payment of damages for delay in the payment of provident fund contributions was allowable as business expenditure. There, the Gujarat High Court considered the judgment of the Patna High Court in R. B. H. M. Jute Mills Private Limited v. Regional Provident Fund Commissioner ilr  pat 47. In that case the Patna High Court held that the object of the legislature in enacting s. 14B of the Employees Provident Funds Act is clearly to punish recalcitrant employers and not to provide compensation for the employees. It was held that the expression 'damages' occurring in s. 14B is in substance, a penalty imposed on the employer for the breach of the statutory obligation. The Gujarat High Court followed the said decision of the Patna High Court and held that the damages under s. 14B of the Employees Provident Funds Act, 1952, have to be paid for an infraction of law and, in that sense, it is a penalty. An amount paid as damages for delay in making provident fund contributions is not deductible as business expenditure.
In this case, the payment made by the assessee was not in respect of damages under s. 14B. The assessee paid interest under the Bengal Public Demands Recovery Act, 1913. The certificated demand carries interest under the provisions of the Public Demands Recovery Act. Thus, the interest is not paid because of any infraction of law but because of the delay in making the payment of the certificated debt. Section 16 of the Public Demands Recovery Act, inter alia, provides as follows :
'There shall be recoverable, in the proceedings in execution of every certificate filed under this Act -
(a) interest (calculated in such manner as may be prescribed) upon the public demand to which the certificate relates, at the rate of six and a quarter percent per annum from the date of the signing of the certificate up to the date of realisation :
Provided that -
(i) no interest shall be charged if the amount of public demand is less than twenty-five rupees or if the period from the date of signing the certificate up to the date of realisation does not exceed three months;
(ii) no interest shall be charged for the period during which the execution proceedings are stayed under an order passed by the Certificate Officer at the instance of the certificate holder; and
(iii) no interest shall be charged for the period during which the execution proceedings are stayed under an order passed in appeal or in revision or by a court at the instance of the certificate holder or any person other than the certificate debtor,
(b) such costs as are directed to be paid under section 45, and
(c) all charges incurred in respect of -
(i) the service of notice under section 7 and of warrants and other processes, and
(ii) all other proceedings taken for realising the demand.'
When a certificate is validly filed, it has got the force and effect of a civil court decree. Certificate proceedings are in the nature of execution. Thus, the interest under the Public Demands Recovery Act is payable in the proceedings in the execution of the certificate. The interest payable under the said Act is in the nature of interest upon judgment. This interest is recoverable in view of the provisions of s. 16 of the said Act from the date of making the certificate up to the date of realisation. This is not recoverable for infraction of law. It is not even a penalty. It may be that for non-payment of the provident fund contributions by the employer, the Provident Fund Commissioner has resorted to special procedure under the Public Demands Recovery Act which provides a speedy mode of realisation of dues. The interest payable under the said Act cannot, however, be equated with damages payable under s. 14B of the Employees Provident Funds Act.
Our attention has been drawn to the decision of the Supreme Court in the case of Mahalaxmi Sugar Mills Co. Ltd. v. CIT : 123ITR429(SC) where the Supreme Court construed the provisions of Sugarcane Cess Act, 1956. There, the Supreme Court held that under the said Act, both penalty and interest were payable. It was held that the interest payable under the said Act is in the nature of compensation paid to the Government for delay in the payment of cess. It is not by way of penalty. The interest paid cannot be described as a penalty paid for an infringement of law.
It appears that following the aforesaid decision of the Supreme Court in a similar case, this court held that the interest paid for late payment of royalty to the Government is an allowable deduction in computing the total income. There, the assessee failed to pay the royalty as per the term of the agreement and certificates were issued and, consequently, the assessee had to pay interest under the Public Demands Recovery Act. The said decision is Bhowra Kankanee Collieries Limited v. CIT : 156ITR201(Cal) .
For the reasons aforesaid, we are of the view that the Tribunal was not right in equating the interest payable under s. 16 of the Public Demands Recovery Act with the damages payable under s. 14B of the Employees Provident Funds Act.
We, therefore, answer the question in this reference in the negative and in favour of the assessee.
There will be no order as to costs.
DIPAK KUMAR SEN J. - I agree.