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TMI Blog1988 (3) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... d deductions was made by the assessee in the course of its business and was deductible in computing the assessee's total income ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the payment of Rs. 32,259 being interest under section 5(3) of the Sugarcane Cess Act was deductible in computing the assessee's total income ? (3) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the payment of Rs. 86,263 being interest on purchase tax was deductible in computing the assessee's total income ? " First, we take up question No. (1). The assessee claimed deduction of Rs. 31,572 representing damages for the late payment of provident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... racter of " damages " paid by an employer who makes default in the payment of any contribution to the fund or in the transfer of accumulations required to be transferred by him under section 14B ? This question came up for consideration before the Supreme Court in Organo Chemical Industries v. Union of India, AIR 1979 SC 1803. The question as formulated by the Supreme Court for consideration in paragraph 2 on page 1804 was : " Whether section 14B of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, is unconstitutional and, if not, what is the semantic-juristic sweep of the expression 'damages' used therein ? " Before this question was decided by the Supreme Court in Organo Chemical's case, AIR 1979 SC 1803, there was co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 14B are simply to recompense the beneficiaries of the Scheme from the loss they suffered, remarked (p. 1816, para 46) : " The traditional view of damages as meaning actual loss, does not take into account the social content of a provision like section 14B contained in a socio-economic measure like the Act in question. The word ' damages ' has different shades of meaning. It must take its colour and content from its context, and it cannot be read in isolation, nor can section 14B be read out of context. The very object of the legislation would be frustrated if the word 'damages' appearing in section 14B of the Act was not construed to mean penal damages. The imposition of damages under section 14B serves a two-fold purpose. It re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... more stringent and to make defaults cognizable offences. From this authority which finally resolved the conflict of opinion between the two sets of High Courts, one taking the view that " damages " paid under section 14B are nothing but compensation awarded to the employees for the loss they suffered and the other holding the view that " damages " are penal in nature, it is manifest that damages have a deterrent effect on the erring employers and are penal in character. It is trite law that an amount of penalty is not incidental to the business and hence is not deductible or allowable as business expenditure. We do not consider it necessary to unnecessarily burden this order by citing endless authorities on this point. Sri Swarup, lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erpreted the word " damages " under the Act, 1952, only, without adverting to the Income-tax Act. We fail to understand how when the Supreme Court clearly held that " damages " under section 14B are penal in nature, the damage paid to compensate the employees from the loss can be appropriated or segregated from that part of the damages which are transferred to the general revenues of the Government. There is no bar to making two separate provisions relating to penalties covering two different situations, though it may be a drafting expediency. The Supreme Court having clearly held that damages are penal in nature, the argument that the word " damages " in section 14B is not penalty in the true sense of the term as it is used in section 14, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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