1994 (4) TMI 2 - SC - Income Tax

Statutory impost paid by an assessee by way of damages or penalty or interest is claimed as an allowable expenditure - Wherever such impost is found to be of a composite nature, that is, partly of compensatory nature and partly of penal nature, the authorities are obligated to bifurcate the two components of the impost and give deduction to that component which is compensatory in nature and refuse to give deduction to that component which is penal in nature

Summary

The Supreme Court allowed the petitioner's special leave petition, setting aside the Income Tax Appellate Tribunal's order and remitting the appeal for fresh disposal to determine the apportionment of the amount claimed as a deduction in accordance with the law. The Court held that the levy under section 36(3) of the Bombay Sales Tax Act is composite in nature and must be bifurcated into compensatory and penal components for deduction purposes.