Law:

Section:

Section 37(1) of the income-tax act, 1961-business expenditure-assessee-firm purchased goods at concessional rate of sales tax applicable for certain specified purposes-since assessee did not so utilize them difference between full rate of tax and concessional rate had to be paid by assessee as penalty-whether impugned amount paid as penalty was really balance of sales tax and could not be termed as penalty for infraction of law-held, on facts, yes-whether impugned payment allowable as business expenditure-held, on facts, yes Facts In its sales tax assessment, the assessee-firm paid a certain amount as penalty (being equal to the difference of tax at the full rate and tax at concessional rate) under section 10(a), read with section 10(d) of the Central Sales Tax Act and under section 8(2) of the M.P. General Sales Tax Act since the assessee failed to utilize the goods for the purposes for which the concessional rate of sales tax was permissible. The assessee-firm claimed that the penalty amount paid should be allowed as business expenditure. The ITO disallowed the assessee's claim but the AAC took a contrary view and allowed the amount as business expenditure. On further appeal, the Tribunal, however, restored the ITO's orders. On reference: Held A perusal of the schemes of the relevant provisions of the State Act and the Central Act goes to show that a registered dealer gets the benefit of concessional rate of tax if he purchases the goods for the purposes mentioned in section 8(1) of the State Sales Tax Act and section 8(3) of the Central Sales Tax Act. In case he is unable to utilize the goods for these purposes after purchasing them at a concessional rate of tax, he becomes liable to penalty. The amount of penalty imposed in the instant case was only the difference between the tax payable at the full rate and the tax payable at the concessional rate. Had the assessee purchased the goods without giving out that it was purchasing the goods for the purposes for which the concessional rate was admissible, it would have been required to pay the tax at the full rate as part of the price and the amount of tax so paid would have been undoubtedly allowed to it as…

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