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TMI Blog1984 (10) TMI 203X X X X Extracts X X X X X X X X Extracts X X X X ..... 1967, an order known as " Rice Procurement (Levy) and Restriction on Sale Order, 1967 ". Under the order, rice-millers in the State were obliged to deliver a specified quantity of their turnover as levy rice to the Food Corporation of India-the agent of the State. The miller (assessee), defaulted to deliver the levy relevant to the period between November 1, 1972, and February 23, 1973. Thereupon, a specified quantity of rice was seized from the miller and subsequently, after an enquiry, under Act IO of 1955, the seized rice was confiscated. The value of the confiscated rice is shown to be Rs. 43,974. The miller before the taxing authorities under the I.T. Act, 1961 (the Act), claimed the sum of Rs. 43,974 as a trading loss incurred in bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h, the interest provided for under s. 3(3) is in the nature of compensation paid to the Government for delay in the payment of cess " and, therefore, was not a penalty. A like argument is sought to be advanced by the miller to adopt a similar investigation to conclude that the rice seized, later confiscated by the authorities from the miller under Act 10 of 1955, in truth, is not a penalty and should not be understood as a measure of punishment against the miller, for it is argued that the miller was not guilty of any infraction of the levy order. The attempt on the part of the miller cannot be countenanced in these proceedings. In the instant case, after the rice was seized, the confection order was affirmed in appeal by the Sessions Jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in rem. In another case, the discussion shows that when a fine is imposed it is a judgment in personam. (vide Sewpujanrai Indrasanarai Ltd. v. Collector of Customs [1959] SCR 821 ; AIR 1958 SC 845. The distinction elucidated in the two cases were relied on by the miller to infer that the loss of rice in the instant case arose in a judgment in rem and, therefore, the loss be allowed as a commercial loss or business loss. The views expressed in the above two cases by the Supreme Court were not stated in tax cases. When the two distinctions were offered in a tax case for acceptance, the Supreme Court rejected them outright as "erroneous distinctions", in Haji Aziz and Abdul Shakoor Bros. v. CIT [1961] 41 ITR 350 (SC) at page 360. Instead, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT v. Piara Singh [1980] 124 ITR 40 (SC). The cases arising in lawful business due to infraction of law underwent a series of undulations. The history of the tests prescribed shows the tests with reference to the orders in rem when " compensation " paid in lieu of confiscation was not approved in later cases. When a judgment is in personam, the penalty order was not allowed as business loss. The test of " commercial practice" and " trading principles ", the two principles remained for long obscure and esoteric; The principle of public policy is yet to be assimilated in " unlawful business ". It is seen that in one of the earliest cases of the Madras High Court in Marks and Co. v. CIT [1943] 11 ITR 454 (Mad), the assessee was found to have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt case, the test of public policy governs the facts of the case. The miller in the instant case defaulted in delivering the levy rice between November 1, 1972, and February 23, 1973. As a consequence thereof, rice worth Rs. 43,974 was seized and confiscated. The loss suffered by the miller, we hold, resulted due to infraction of law and, therefore, under s. 28 of the Act, such a loss cannot be treated as a business loss and also not as an " expense " under sub-s. (1) of s. 37 of the Act. For the aforesaid reasons, we remit the answer in favour of the Revenue, that is to say, against the assessee. No costs. After we have pronounced the judgment in this case, the learned counsel for the assessee sought oral leave to the Supreme Court of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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