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TMI Blog1997 (4) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... y penalty on two counts, one for cutting bigger sizes of blazes than permitted and second for putting blazes on trees which were not allotted to him. The total penalty levied was with reference to three assessment years, i.e., 1978-79, 1979-80 and 1980-81. In the course of assessment proceedings, the Income-tax Officer held that the payment of those sums had to be made because the assessee had acted in contravention of law and disallowed the claim of the assessee that it should be treated as business expenditure. When the matter came before the Tribunal it was held by the Tribunal that a distinction should be made with regard to the penalty or additional royalty levied for cutting bigger blazes on allotted trees and the penalty or additiona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es released. Thus, he paid the fine but claimed the same as allowable expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922. It was held that the expenditure incurred by him was by way of penalty for a breach of law, even though it might involve no personal liability and it cannot be said for the purpose of section 10(2)(xv) of the Income-tax Act as expenditure incurred wholly and exclusively for the business of the assessee. Thus, the claim of the assessee was disallowed. The principle was laid down by the Supreme Court in the following passage : " 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 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o carry on trade for making profits in the business are permitted but not if they are merely connected with the business." This principle has been reiterated by the Supreme Court in CIT v. Ahmedabad Cotton Mfg. Co. Ltd. [1994] 205 ITR 163 though on the facts of the case a distinction was made with regard to the claim made by the assessee in that case ; the assessee in that case paid certain sums of money by exercising an option available under clause 21C(1)(b) of the Cotton Textiles (Control) Order, 1948. The question was whether the payment of the said amount would amount to a business expenditure. Upholding the judgment of the High Court of Gujarat, the Supreme Court held that it was not a case of a breach of law and breach of infractio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thing akin to penalty, that is imposed by way of punishment for breach or infraction of the law or the statutory scheme. If the amount so paid is found to be not a penalty or something akin to penalty due to the fact that the amount paid by the assessee was in exercise of the option conferred upon him under the very law or scheme concerned, then one has to regard such payment as business expenditure of the assessee, allowable under section 37 of the Income-tax Act, as an incident of business laid out and expended wholly and exclusively for the purposes of the business. However, such payment of the assessee is one which is made in exercise of the option given to such assessee by the law or the statutory scheme and there arises no need for th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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