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TMI Blog1981 (2) TMI 219X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Act". The assessee was also required to pay Rs. 1,28,000 on account of penalty imposed on the assessee under section 8(2) of the Sales Tax Act. The assessee contended before the Income-tax Officer that the amount of penalty paid by the assessee as aforesaid was allowable expenditure. The Income-tax Officer rejected that claim. On appeal, the Appellate Assistant Commissioner upheld the order passed by the Income-tax Officer. On further appeal, the Tribunal, however, held that the amount of penalty paid by the assessee was an allowable deduction in computing its total income. The Tribunal was of the view that the penalty imposed on the assessee under section 8(2) of the Sales Tax Act was in the nature of an extra payment of sales tax. The Tribunal further held that the penalty imposed under section 17(3) of the Sales Tax Act on the assessee could not be equated to a penalty imposed for an economic offence or for an offence involving moral turpitude. According to the Tribunal, the assessee had committed merely technical violations for the breach of which the assessee was required to pay a compensation. In this view of the matter, the Tribunal upheld the claim of the assessee for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y for the purpose of the business of the assessee. 5. It is well-settled that the amount of sales tax or cess which an assessee is required to pay is allowable under section 37(1) of the Act. It is in the nature of a revenue expenditure laid out wholly and exclusively for the purpose of the business of the assessee. Similarly, in view of the decision of the Supreme Court in Mahalakshmi Sugar Mills Co. v. Commissioner of Income-tax [1980] 123 ITR 429 (SC), the interest payable on arrears of sales tax or cess would also be allowable under section 37(1) of the Act as it is in reality part and parcel of the liability to pay the tax or cess. It is not a penalty. The following observations of the Supreme Court in Mahalakshmi Sugar Mills Co. v. Commissioner of Incometax [1980] 123 ITR 429 (SC), while considering the provisions of section 3(3) of the U.P. Sugarcane Cess Act, 1956, dealing with a liability to pay interest on arrears of cess, are pertinent: "Now the interest payable on an arrear of cess under section 3(3) is in reality part and parcel of the liability to pay cess. It is an accretion to the cess. The arrear of cess 'carries' interest; if the cess is not paid within the pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Commissioner of Income-tax [1961] 41 ITR 350 (SC), and it was observed as follows: "A review of these cases shows that expenses which are permitted as deductions are such as are made for the purpose of carrying on the business, i.e., to enable a person to carry on and earn profit in that business. It is not enough that the disbursements are made in the course of or arise out of or are concerned with or made out of the profits of the business but they must also be for the purpose of earning the profits of the business. As was pointed out in von Glehn's case [1920] 2 KB 553 (CA) an expenditure is not deductible unless it is a commercial loss in trade and a penalty imposed for breach of the law during the course of the trade cannot be described as such. 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 deductible expense. It must be a commercial loss and in its nature must be contemplable 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f such raw material at the full rate mentioned in column (3) of Schedule II and the amount of tax payable under sub-section (1) and not exceeding one and one-quarter times the amount of tax at such full rate as the Commissioner may determine having regard to the circumstances in which such use was made: Provided........................ 17. Returns...................... (3) If a dealer fails without sufficient cause to comply with the requirements of a notice issued under sub-section (1) or a registered dealer fails without sufficient cause to furnish under the said sub-section his return for any period, the Commissioner may, after giving such dealer a reasonable opportunity of being heard, direct him to pay, by way of penalty, a sum not exceeding one-fourth of the amount of the tax which may be assessed on him under section 18 or where no tax is payable a sum not exceeding one hundred rupees." A penalty is imposed under section 8(2) of the Sales Tax Act where any raw material purchased under section 8(1) is utilised for a purpose other than a purpose specified in section 8(1). The amount of penalty to be imposed is in the discretion of the Commissioner, but the minimum an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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