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TMI Blog1982 (5) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... iness income of the assessee, Rs. 42,600 paid as penalty under section 10(d) read with section 10A of the Central Sales Tax Act? 2. Whether, on the facts and in the circumstances of the case, and particularly in view of the finding by the Sales Tax Officer that the penalty of Rs. 42,900 was imposed under section 10A at the difference of the tax at the prescribed rate minus the rate of tax paid by him (the assessee), was the Tribunal right in law in holding that, what was paid, was not in fact sales tax, but penalty ? " The question of law pertaining to M/s. Simplex Engineering Co. [R. A. No. 47 (Jab)/1976-77] are as below: " 1. Whether, the Tribunal was right in law in disallowing, while determining the business income of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penalty as business expenditure under s. 37(1). In appeal, the AAC took a contrary view and allowed these amounts as business expenditure. In further appeal, the Tribunal did not agree with the AAC and held, following the decision of the Supreme Court in Haji Aziz and Abdul Shakoor Bros. v. CIT [1961] 41 ITR 350, that the amounts of penalty could not be treated as a business expenditure allowable under s. 37(1). Section 8(1) of the Madhya Pradesh General Sales Tax Act provides for concessional rate of tax on the sale or purchase by a registered dealer of any raw material for the manufacture of other goods for sale in the State of Madhya Pradesh or in the course of inter-State trade or commerce or in the course of export out of the territo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ales Tax Act. In case be is unable to utilise the goods for these purposes after purchasing them at a concessional rate of tax, he becomes liable to penalty. The maximum amount of penalty under the State Act is one and one-quarter times the amount of tax payable at full rate, and under the Central Act one and a half times the amount of tax payable at the full rate. We are, however, here concerned with cases where the amount of penalty imposed is only the difference between the tax payable at the full rate and the tax payable at the concessional rate. Had the assessee purchased the goods without giving out that they were purchasing the goods for the purposes for which the concessional rate is admissible, they would have been required to pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, does not prohibit us from examining the true nature of penalty imposed in a given case. If the amount of penalty is such an expenditure which the assessee would have been required to incur, even if he had not broken the law, such an expenditure cannot in true-sense be termed as penalty for infraction of the law. As pointed out by us, the assessees here would have been required to pay the tax at the full rate as part of sale price had they, at the time of making the purchases, disclosed the purpose for which the goods were used. The amount of tax so paid would have been allowed as business expenditure under s. 37. The penalties imposed under s. 8(2) of the State Act and under s. 10A of the Central Act in the cases before us do not require ..... X X X X Extracts X X X X X X X X Extracts X X X X
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