9911796707
|
Home
Issues involved: Whether the penalty paid by the assessee u/s 10A of the Central Sales Tax Act is an admissible deduction in computing the income from the business of the assessee.
The assessee, a private limited company engaged in constructing buildings, obtained a "C" form and availed of a concessional rate of sales tax at 3%, even though not entitled to it. This led to a penalty u/s 10A of the Central Sales Tax Act, calculated as the difference between the actual tax paid and the proper payable rate. The claim that this penalty was business expenditure was initially rejected but later reversed by the Tribunal. The Supreme Court's view in Malwa Vanaspati Chemical Co. v. CIT (1997) 225 ITR 383, emphasized that the term "penalty" in a statute does not solely determine its character; a levy without a compensatory element is considered a penalty. In a similar case, the Supreme Court found a penalty under the Madhya Pradesh General Sales Tax Act to have both compensatory and penal elements. The authority must determine if a levy termed as a penalty is solely penal. The decision in Maddi Venkataraman and Co. (P.) Ltd. v. CIT (1998) 229 ITR 534 highlighted penalties u/s the Foreign Exchange Regulation Act, where no compensatory element existed. The case of Swadeshi Cotton Mills Co. Ltd. v. CIT (1998) 233 ITR 199 emphasized that penalties with a compensatory element can be considered as business expenditure. Section 10A of the Central Sales Tax Act allows penalties not exceeding 1.5 times the tax that would have been levied if no violation occurred. In this case, the penalty was the difference between the actual and proper tax rates, making it compensatory rather than purely penal. The Tribunal correctly held that the penalty paid by the assessee is deductible while computing its business income. Therefore, the question raised by the revenue is answered in favor of the assessee, allowing the deduction of the penalty paid u/s 10A. The assessee is awarded costs of Rs. 1,000.
|
