9911796707
TMI Blog2003 (10) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed a sum of Rs. 89,960 paid as compounding fine to the Bangalore City Corporation as an expenditure under section 37 of the Act. However, the Assessing Officer disallowed the said claim. Aggrieved by the said order, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals). The Commissioner (Appeals) by means of his order dated October 10, 1988, allowed the appeal and held that the assessee is entitled for deduction of allowances claimed and granted the said claim made by the assessee under section 37 of the Act by treating it as an expenditure incurred by the assessee during the course of its business. The Revenue took up the matter in appeal to the Tribunal. The Tribunal by means of its order dated July 16, 1996, confirmed the order passed by the Commissioner relying upon the judgment of the Delhi High Court in the case of CIT v. Loke Nath and Co. (Construction) [1984] 147 ITR 624, wherein the Delhi High Court took the view that the payment of compounding fine by the assessee to regularise the construction of the building made in violation of the building regulations must be regarded as an integral part of the profit earning process of the assessee. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on on the provision which would not encourage violation of law and the construction to be placed must serve the object of the law. He also pointed out that the decision in the case of CIT v. Loke Nath and Co. (Construction) [1984] 147 ITR 624 (Delhi), referred to by the Tribunal cannot have any application to the present case as the said decision was rendered prior to the incorporation of the Explanation to section 37 of the Act by means of amendment made to the Act. However, Sri Ashok Kulkarni, learned counsel appearing for the assessee, strongly supported the order passed by the Tribunal and also the Commissioner. It is his submission that construction of a building in violation of the sanctioned plan cannot be treated as a violation of a serious nature which is prohibited by law or amounting to commission of an offence. He submitted that the principle laid down by the Supreme Court in the case of Haji Aziz and Abdul Shakoor Bros. [1961] 41 ITR 350 and in the case of Maddi Venkataraman and Co. (P.) Ltd. [1998] 229 ITR 534 (SC) has no application to the facts of the present case. In the light of the rival submissions made by learned counsel appearing for the parties, the only que ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny offence committed in breach of the provisions of the Act, rules, bye-laws or regulations which may by rules made by the Government be declared compoundable. Therefore, from the scheme of the several provisions in the Act referred to above, it is clear that nobody can put up any new construction or proceed to reconstruct the existing building without there being a sanctioned plan or permission granted by the Commissioner on that behalf; the putting up any construction without there being a sanctioned plan is made an offence under the Act and it is treated as an act prohibited by law. No doubt, as noticed by us earlier, clause (b) of section 483 of the Corporation Act empowers the Commissioner to compound the offence. Bye-law 5.6 framed by the Corporation in exercise of the power conferred under it under section 428 of the Act enables the Commissioner to set out the circumstances under which he could compound an offence. It is useful to refer to the said bye-law which reads as hereunder: "5.6.1. Wherever any construction is in violation/deviation of the sanctioned plan, the Commissioner may, if he considers that the violation/deviations are minor, viz., only when the deviations/v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irector of Town Planning, referred to above, in unmistakable terms states that he had pennitted for compounding of the "offences of unauthorised construction" of eighth floor in two blocks of the premises belonging to the assessee. The language employed in clause (b) of section 483, referred to above, also says that the Commissioner is empowered to "compound the offence". Under these circumstances, there cannot be any doubt what has been done is to permit the assessee to "compound the offence" committed by it by putting up unauthorised construction of eighth floor in the building in question on payment of compounding fine of Rs. 89,960. The Explanation given to section 37 of the Act, as noticed by us earlier, makes it clear that the assessee who incurs expenditure for any purpose which is an offence or which is prohibited by law is not entitled for deduction of such expenditure incurred by him. The Explanation declares that such an expenditure "shall not be deemed to have been incurred" for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure. It is useful to refer to the Explanation given to section 37 of the Act which re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thus made would be deemed to have been erected without a proper sanction. Th.;! Committee, however, has the power to sanction revised plans so as to regularise the deviations or give ex post facto sanction for the constructions made after the sanction had lapsed by accepting by way of compensation such sum as it may deem reasonable. It is at that stage that the assessees had to consider the question of payment on the principles of ordinary commercial trading or on grounds of commercial expediency. . . The expenditure of payment of compensation incurred by the assessee has to be regarded as an integral part of the profit-earning process of the assessees." In our view, the above observation made by the Delhi High Court cannot be of any assistance to learned counsel for the respondent to support his case as the said decision was rendered prior to the amendment to section 37 of the Act by incorporating the Explanation referred to above by means of the Finance (No. 2) Act, 1998, which is made retrospective effect with effect from April 1, 1962. When the section itself declares the expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be an amount wholly and exclusively laid out for the purpose of the business. The distinction sought to be drawn between a personal liability and a liability of the kind now before us is not sustainable because anything done which is an infraction of the law and is visited with a penalty cannot on grounds of public policy be said to be a commercial expense for the purpose of a business or a disbursement made for the purposes of earning the profits of such business." Further, a similar view is taken by the Supreme Court in the case of Maddi Venkataraman and Co. (P.) Ltd. [1998] 229 ITR 534. At page 545 of the judgment, the Supreme Court has observed thus: "In the instant case, the assessee had indulged in transactions in violation of the provisions of the Foreign Exchange (Regulation) Act. The assessee's plea is that unless it entered into such a transaction, it would have been unable to dispose of the unsold stock of inferior quality of tobacco. In other words, the assessee would have incurred a loss. Spur of loss cannot be a justification for contravention of law. The assessee was engaged in tobacco business. The assessee was expected to carry on the business in accordance w ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
