COMMISSIONER OF INCOME TAX Vs. CHEMICAL CONSTRUCTIONS

JUDGEMENT

(1.) THE question referred at the instance of the Revenue is as follows :

(2.) THE assessment year is 1977-78.

(3.) IT is, therefore, necessary for the authority to ascertain as to whether the levy termed penalty can only be regarded as such and not in any other manner. Reliance was placed by counsel on the decision of the Supreme Court in the case of Maddi Venkataraman and Co. (P.) Ltd. v. CIT [1998] 229 ITR 534. That was a case where penalty had been levied under the provisions of the Foreign Exchange Regulation Act for the violation of the relevant provisions of the Act and no question of compensatory element being part of such penalty arose for consideration in that case. Reliance was also placed on the decision of the apex court in the case of Swadeshi Cotton Mills Co. Ltd. v. CIT [1998] 233 ITR 199. In that case, the court observed that on the facts of that case there was "nothing on the record to show that the amount of penalty had a compensatory element in it." IT is clear from the observation that the compensatory element in a levy termed as penalty is eligible for being regarded as business expenditure. IT is only that part, which is purely penal, that has to be excluded.