1999 (3) TMI 108 - AT - Income Tax

Summary

Issues Involved:
1. Rectification of Tribunal's order regarding the disallowance of Rs. 10,090 on account of fines and penalties under section 14B of the Provident Fund Act.
2. Applicability of relevant case laws and judicial precedents.
3. Nature of the payment under section 14B of the Provident Fund Act-whether compensatory or penal.

Detailed Analysis:

1. Rectification of Tribunal's Order:
The assessee sought rectification of the Tribunal's order dated 26-2-1997, which disallowed the deduction of Rs. 10,090 for fines and penalties under section 14B of the Provident Fund Act. The Tribunal had relied on the Special Bench decision in Second ITO v. Bisleri (I)(P.) Ltd., which was purportedly in favor of the assessee. The assessee argued that the Tribunal inadvertently mentioned that the ground taken by the assessee failed instead of stating that it should be allowed.

2. Applicability of Relevant Case Laws:
At the hearing of the Miscellaneous petition, the Departmental Representative (D.R.) argued that the issue was covered by various High Court decisions, such as Saraya Sugar Mills (P.) Ltd. v. CIT and Swadeshi Cotton Mills Co. Ltd. v. CIT, which were in favor of the Revenue. The Tribunal initially dismissed the assessee's petition based on these precedents.

However, the Accountant Member disagreed, noting that the Special Bench decision in Bisleri (I)(P.) Ltd. supported the assessee's position. This decision, in turn, relied on the Supreme Court's ruling in Mahalakshmi Sugar Mills Co. v. CIT, which allowed such deductions. The Accountant Member argued that the Tribunal made a mistake in adjudicating the ground against the assessee.

3. Nature of the Payment under Section 14B:
The core issue was whether the payment under section 14B of the Provident Fund Act was compensatory or penal. The Special Bench decision in Bisleri (I)(P.) Ltd. and the Supreme Court's ruling in Mahalakshmi Sugar Mills Co. treated damages under section 14B as allowable deductions, viewing them as compensatory rather than penal.

The Third Member reviewed the case laws and found that the decisions cited by the Department were either overruled or not directly relevant. Specifically, the decision in Saraya Sugar Mills (P.) Ltd. was overruled by the Full Bench of the Allahabad High Court in Triveni Engg. Works Ltd. v. CIT. The Supreme Court in Mahalakshmi Sugar Mills Co. also supported the compensatory nature of such payments.

Conclusion:
The Third Member concluded that the entire amount of Rs. 10,090 paid by the assessee was compensatory and deductible under section 37(1) of the Income-tax Act, 1961. This conclusion was based on the Supreme Court's decisions in Mahalakshmi Sugar Mills Co., Organo Chemical Industries v. Union of India, and Prakash Cotton Mills (P.) Ltd. v. CIT.

Final Order:
The Third Member agreed with the Accountant Member, allowing the Miscellaneous Petition filed by the assessee. The matter was referred to the Division Bench for passing an order in conformity with the majority opinion, thereby allowing the deduction of Rs. 10,090 as an expenditure.