1979 (8) TMI 38 - HC - Income Tax

Summary

Issues involved: Whether demurrage charges paid by the assessee are admissible as a deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922 in computing business profits.

Summary:

The High Court of Allahabad was presented with the question of whether demurrage charges amounting to Rs. 19,119 paid by the assessee were deductible under section 10(2)(xv) of the Income-tax Act, 1922. The assessee, a registered firm operating a rolling mill, had imported goods under a license which were later found to be different from the licensed goods. The goods were confiscated by the customs authorities, and the assessee paid a fine to clear the goods for home consumption. Subsequently, demurrage charges were imposed by the port authorities for delayed clearance of the goods. The Income Tax Officer and the Appellate Authority had disallowed the deduction of demurrage as a business expenditure. The Tribunal also rejected the claim, stating that demurrage was paid due to the contravention of Import Control Orders, similar to the fine paid by the assessee. However, the High Court analyzed the nature of demurrage, emphasizing that it is a compensation for delay in clearing goods beyond the free period allowed under port rules, not a fine for criminal acts. The court concluded that the demurrage payment was made for commercial expediency to preserve the stock-in-trade and utilize it for the business, thus qualifying as a deductible business expenditure. The court distinguished this case from fines paid for infractions of the law, as demurrage was not a penalty but compensation for using port facilities beyond the free period. The court ruled in favor of the assessee, allowing the deduction of demurrage charges as a business expense.

In conclusion, the High Court answered the question in the negative, affirming that the demurrage charges were admissible as a deduction under section 10(2)(xv) of the Income-tax Act, 1922. The assessee was granted costs amounting to Rs. 200, with counsel fees assessed at the same figure.