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TMI Blog2016 (8) TMI 511X X X X Extracts X X X X X X X X Extracts X X X X ..... of business or is in consequence of business carried on by the assessee and is thus covered by section 37. For the aforesaid reasons, the order passed by the learned Tribunal is set aside. - Decided in favour of assessee. - ITA NO.850 OF 2008 - - - Dated:- 19-7-2016 - GIRISH CHANDRA GUPTA AND ARINDAM SINHA, JJ. FOR THE APPELLANT : MR.R.K.CHOWDHURY, ADVOCATE FOR THE RESPONDENT : MR.MRINAL KANTI LODH, ADVOCATE The Court : The subject matter of challenge is a judgment and order dated 31st July 2008 passed by the learned Income Tax Appellate Tribunal A Bench, Kolkata in ITA No. 1699/KOL/2007 pertaining to the assessment year 2003-04 by which the learned Tribunal allowed an appeal preferred by the revenue. The aggrieved assessee has come up in appeal. The questions of law formulated at the time of admission of the appeal on 12th January, 2009 are as follows:- (a) Whether in the present case the Income Tax Appellate Tribunal has erred in law in disallowing the expenditure of ₹ 12,50,000/- incurred by the petitioner on account of payment of penalty and in not upholding the order of the Commissioner of Income Tax (Appeals)? (b) Whether on the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Pollution Control Board to fulfill its statutory obligation of installing the pollution control equipment before the prescribed time limit. The submission of the assessee that it could not fulfill its statutory obligation because of lack of funds and there was no intention to violate the statutory provisions or that the pollution control equipment was finally installed, are of no relevance to the issue because the State Govt. had levied the penalty after considering all the relevant facts and circumstances of the case and what is relevant for us is to decide whether the payment was in the nature of statutory penalty imposed by way of punishment for breach or infraction of the law or compensation in exercise of an option, as held by the Hon ble Supreme Court in the case of Ahmedabad Cotton Mfg. Co. Ltd. (supra). Since in this case neither any option was given to the assessee nor there was any commercial expediency involved and the penalty was levied for violation of the statute, the amount of ₹ 12,50,000/- had been rightly disallowed as inadmissible expenditure and added back to the income of assessee by the A.O. We, therefore, reverse the order of the ld. CIT(A) on this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llution. Their Lordships in that case held that :- A fine is to be imposed upon the person who is found guilty of having contravened any of the provisions of the Act. He has to be tried for the specific offence and then on being found guilty, he may be punished either by sentencing him to undergo imprisonment for the period contemplated by the Act or with fine or with both. But recourse cannot be taken to Article 142 to inflict upon him this punishment. Their Lordships held that notice was bad. The notice should have been a notice to show cause, why exemplary damages should not be awarded for having caused pollution. The aforesaid direction is contained in the paragraph 24 of the report which reads as follows:- 24. Pollution is a civil wrong. By its very nature, it is a Tort committed against the community as a whole. A person, therefore, who is guilty of causing pollution has to pay damages (compensation) for restoration of the environment and ecology. He has also to pay damages to those who have suffered loss on account of the act of the offender. The powers of this Court under Article 32 are not restricted and it can award damages in a PIL or a Writ Petition as h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d or prohibited but is permitted to carry on subject to compliance with the conditions imposed. Thus, it clearly falls in the domain of regulatory regime as opposed to prohibitory or closure regime. In support of his submission that the amount recovered from the assessee was in the nature of compensation and not penalty, Mr. Chowdhury relied upon paragraph 38 of the judgment, which reads as follows:- Being punitive is the essence of penalty . It is in clear contradistinction to remedial and/or compensatory . Penalty essentially has to be for result of a default and imposed by way of punishment. On the contrary, compensatory may be resulting from a default for the advantage already taken by that person and is intended to remedy or compensate the consequences of the wrong done. For instance, if a Unit has been granted conditional consent and is in default of compliance, causes pollution by polluting a river or discharging sludge, trade affluent or trade waste into the river or on open land causing pollution, which a Board has to remove essentially to control and prevent the pollution, then the amount spent by the Board, is thus, spent by encashing the bank guarante ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or any part of any one of several considerations for a single object, is unlawful, the agreement is void. Illustration A promises to superintend, on behalf of B, a legal manufacture of indigo, and an illegal traffic in other articles. B promises to pay to A a salary of 10,000 rupees a year. The agreement is void, the object of A s promise, and the consideration for B s promise, being in part unlawful It would appear from the statutory Illustration that the promise to pay a sum of ₹ 10000/- by way of salary is partly for illegal trafficking consequently the agreement is void and not enforceable in law. The Illustration throws light upon the question to be determined by us. The payment of the sum of ₹ 12,50,000/- would not be deductible if the same had been made for the purpose of achieving an illegal object or for an illegal purpose. Such payment is opposed to public policy which presumably is the reason why the same is not deductible. The payment in this case was for the purpose of compensating the damage to the environment and this compensation has been recovered on the polluter pays principle adopted by the Organization for Economic Cooperation a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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