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Issues:
Assessment of penalty under section 45 of the Gujarat Sales Tax Act, 1969 for late payment of tax. Deductibility of penalty amount as revenue expenditure. Analysis: The judgment pertains to two references arising from assessment proceedings for the years 1973-74 and 1974-75, where the assessee was penalized for failing to pay tax on time under section 45 of the Gujarat Sales Tax Act, 1969. The Income-tax Officer disallowed the deduction claimed by the assessee, considering the penalty payment as non-allowable expenditure. However, the Appellate Assistant Commissioner allowed the deduction, leading to appeals by the Revenue before the Tribunal. The Tribunal held that the penalty payments were for infringing the law and not compensatory interest, hence not allowable as revenue expenditure or trade loss. The Tribunal was asked to refer questions of law to the High Court, which included the interpretation of section 45 of the Act and the nature of interest paid for late tax payment. The Tribunal failed to make separate references for the two assessment years, leading the High Court to direct separate registrations for each year. The High Court referred to a similar case where it was held that payments under section 45 were penalties, not compensatory interest, and thus not deductible as they were for law violation. Based on the precedent, the High Court answered questions 1 and 2 against the assessee and in favor of the Revenue, confirming that penalty payments under section 45 were not deductible as revenue expenditure. Questions 3 and 4 were not answered in light of the previous judgment. The references were disposed of with no order as to costs.
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