Law: Income Tax Act, 1961

Section: 37

Income-tax----Business expenditure---Fines and penalties---Sales tax---Penalty levied for delayed payment of sales tax---Not compensatory---Not expenditure laid out wholly and exclusively for purposes or business---Not an allowable deduction---Indian Income Tax Act, 1961, S.37---Bombay Sales Tax Act, 1959, S.36(3). No part of the penalty levied for delayed payment of sales tax under section 36(3) of the Bombay Sales Tax Act, 1959, is compensatory and hence it is not an allowable deduction in computing income under section 37(1) of the Income Tax Act, 1961, as the expenditure is not wholly or exclusively laid out for purposes of business. CIT v. Vegetable Vitamin Foods Co., (P.) Ltd. (1994) 209 ITR 840 (Bom.) and Prakash Cotton Mills. (P.) Ltd. v. CIT (1993) 201 ITR 684 (SC) fol. JUDGMENT DR. B. P. SARAF, J.---By this reference under section 256(1) of the Income Tax Act, 1961, the Income-tax Appellate Tribunal has referred the following question of law to this Court for opinion at the instance of the Revenue: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law that penalty levied under section 36(3) of the Sales Tax Act will not be for infraction of law and will be an expenditure wholly or exclusively laid out for the purpose of the business.?" Heard Mr. Desai, learned counsel for the Revenue. None appears for the assessee. It is submitted by Mr. - Desai that the controversy in this case is squarely covered by the decision of this Court in CIT v. Vegetable Vitamin Foods Co. (P.) Ltd. (1994) 209 ITR 840. In that case, on a careful consideration of the provisions of section 36 of the Bombay Sales Tax Act, 1959 (the "Act"), as it stood at the material time, it was held that penalty levied under section 36(3) of that Act for delayed payment of sales tax was not an allowable deduction in the computation of income under the Income Tax Act, 1961 (the "Act"). Learned counsel further submits that the above decision was rendered by this Court after duly considering the decision of the Supreme Court in Prakash Cotton Mills (P.) Ltd. v. CIT (1993) 201 ITR 684, wherein it was observed that whenever any statutory impost paid by an…

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