1991 (9) TMI 37 - HC - Income Tax

Summary

Issues:
1. Whether the amount paid under section 14B of the Employees' Provident Funds Act as damages for default in making payment of provident fund contributions can be considered as an admissible expenditure for tax purposes.

Analysis:
The judgment addressed the question of whether the amount paid under section 14B of the Employees' Provident Funds Act, as damages for default in provident fund contributions, should be treated as a penal levy or an admissible expenditure for tax purposes. The Supreme Court's interpretation in Organo Chemical Industries v. Union of India highlighted that the damages imposed under section 14B include a punitive sum quantified based on the circumstances of each case. The purpose of such penalties is not only to compensate for the default but also to act as a deterrent against future defaults. The court emphasized that the levy under section 14B is primarily a penal levy imposed by the Commissioner, with judicial discretion conferred on the authorities to decide on the imposition based on the case's circumstances.

Furthermore, the judgment referred to a previous case, Haji Aziz and Abdul Shakoor Bros. v. CIT, which dealt with a similar issue of non-deductible expenditure related to penal levies under the Central Sales Tax Act. The court also noted the decision of a Full Bench of the Allahabad High Court in Saraya Sugar Mills (P.) Ltd. v. CIT, which held a similar view regarding the non-deductibility of levies under section 14B of the Provident Funds Act. These references supported the conclusion that penal levies under section 14B should not be considered as admissible expenditures for tax purposes.

In conclusion, the court answered the question referred in the negative, ruling against the assessee. The judgment emphasized that if a levy is considered a penal levy, it cannot be claimed as a deduction for computing taxable income under section 37 of the Income-tax Act. The decision highlighted the legislative intent behind such penalties, focusing on deterrence and compensation for defaults, rather than allowing them as deductible expenses in tax calculations.