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1990 (1) TMI 114

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..... purpose of Central Sales Tax as well as the State General Sales Tax. The view taken by the authorities was that as the sale price of cement has been fixed under the Cement Control Order, 1967 on for destination basis which included freight, the amount of freight formed a part of the sale price. As the Cement Control Order had statutory force, it prevailed over the contracts of sale under which freight was payable by the buyers and, therefore, sales tax was chargeable on the element of freight included in the sale price. On this basis the authorities were levying sales tax year after year. The company had been appealing against such levy but it was unsuccessful. 4. In the matter of Central Sales-tax the Supreme Court had upheld the view of the Department in their decision in Hindusthan Sugar Mills Ltd. v. State of Rajasthan [1979] 43 STC 13. However, it was the assessee's case that there was a distinction in statutory provisions and rules between Central Sales-tax Act and the Tamil Nadu General Sales Tax Act. The assessee along with other cement companies had taken up this matter by way of revision before the Madras High Court and the High Court in their order in Ramco Cement Dis .....

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..... itted as a business expenditure. He further held that it was not for the Income-tax Department to go into the question whether the levy of penalty was justifying on the facts or not. He, therefore, rejected the claim for deduction of the expenditure. 9. The assessee appealed. The Commissioner of Income-tax (A) also agreed with the Income-tax Officer. According to him, principle set down by the Supreme Court in the case of Haji Aziz Abdul Shakoor Bros. v. CIT [1961] 41 ITR 350 would govern this case. If a sum is paid by an assessee conducting his business because in conducting it he had acted in a manner which rendered him liable for penalty, it cannot be claimed as a deductible expenditure. He further agreed with the Income-tax Officer that the Income-tax authorities cannot go into the merits of the circumstances leading to the imposition of penalty under different statute. Thus, he upheld the disallowance. 10. The assessee is on further appeal before us. Shri Hari Har Lal, learned counsel for the assessee, submitted that the real ratio to be followed in such cases is given by the Supreme Court in the case of CIT v. H. Hirjee [1953] 23 ITR 427. What we have to see is the natu .....

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..... e breach would not be allowable as a deduction. The Supreme Court in Haji Aziz Abdul Shakoor Bros.' case has held as follows : " If a sum is paid by an assessee conducting his business, because in conducting it he has acted in a manner which has rendered him liable to penalty, it cannot be claimed as a deduction expense. It must be a commercial loss and in its nature must be contemptible as such. Such penalties which are incurred by an assessee in proceedings launched against him for an infraction of the law, cannot be called commercial losses incurred by an assessee in carrying on his business. Infraction of the law is not a nor mal incident of business and, therefore, only such disbursements can be deducted as are really incidental to the business itself. They cannot be deducted if they fall on the assessee in some character other than that of a trader. Therefore, where a penalty is incurred for the contravention of any specific statutory provision, it cannot be said to be a commercial loss falling on the assessee as a trader, the test being that the expenses which are for the purpose of enabling a person to carry on trade, for making profits in the business are permitted bu .....

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..... ases where a claim for deduction of a penalty had failed. In the case of CIT v. Malwa Vanaspati Chemical Co. Ltd. [1982] 135 ITR 221 (MP) the assessee was penalised for evasion of sales-tax. Therein the assessee was levied a penalty under section 8(2) of the Madhya Pradesh Sales Tax Act which stipulates that where any raw material purchased by a registered dealer for manufacture of goods within the State is used for a different purpose, then the assessee shall pay a penalty. It would be seen that here also the assessee had paid less purchase tax on raw materials on the pretext of using it in its own manufacture within the State but acted contrary. There was, therefore, deliberation and volition involved. It was open for the assessee to have avoided such a transac tion. The Gujarat High Court has taken a similar view in the case of CIT v. Mihir Textiles Ltd. [1976] 104 ITR 167. The assessee had imported certain spare parts on a general licence under which they could not have done so. The penalty levied was clearly for a breach of the Sea Customs Act. The Gujarat High Court affirmed the same stand in another case, i.e., Garden Silk Weaving Factory v. CIT [1983] 144 ITR 613 wherein .....

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..... er, the view of the Sales-tax Department including the Sales Tax Tribunal and the Board of Revenue was that element of freight in the price is subject to sales-tax. It may be that the assessee had a different view. It may be, they were pursuing their remedies. But when the entire department was of the view that it was taxable, the assessee had no alternative but to collect the equal amount from the customers and passed it on to the Government as sales-tax. They can refuse to do so only at their own peril. They could not have ignored the repeated findings of the sales-tax authorities on this point. Therefore, when they were collecting the amount and paying sales-tax thereon, they were only discharging their obligations as a dealer under the Tamil Nadu Sales-tax Act should do. Contemporaneously, when these events happened, no body could say that the assessee had committed a default. The scenario changed after the decision of the Madras High Court. Only then the Sales-tax Department dropped the idea of collecting sales-tax thereon. So, the Sales-tax Department has turned round and accused the assessee of having collected unauthorisedly and in contravention of section 21 of the Sales-t .....

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..... ,750 being unclaimed wages and bonus. In our opinion, it is not possible to bring to tax Rs. 1,750 because the liability of the assessee to pay this amount to the employees is preserved under other statutes. Therefore, it cannot be brought to tax under sec. 41 (1). With regard to Rs. 20,429, the analysis given by the Income-tax Officer shows that Rs. 13,985 represents advances received from the customers and Rs. 6,445 as expenses already charged to the Profit Loss Account but not paid to the creditors. As far as the advances received in excess are concerned, it is quite clear that the assessee had collected advances towards the sale of his goods and the excess over the sale price has not been paid back to them. Apparently there is also no claim. Under these circumstances, following the decision of the Bombay High Court in the case of CIT v. Batliboi Co. (P.) Ltd. [1984] 149 ITR 604/18 Taxman 299, we hold that the amounts were correctly brought to tax. With regard to Rs. 6,443, these were clearly liabilities and the mere fact that they were written back to Profit Loss Account would not justify an inference that the liabilities had ceased. Therefore, this would be deleted. 2 .....

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