COMMISSIONER OF INCOME TAX Vs. JAMIYATRAI RAJPAL

JUDGEMENT

(1.) THIS is an income-tax reference under Section 256(1) of the Income-tax Act at the instance of the Revenue and the following question of law has been referred by the Tribunal for the answer of this court :

(2.) THE brief facts giving rise to this reference are thus : THE assessee had imported palm kernel seeds weighing 3776.32 mt. THE consignment was covered under S.T.C./H.V. D.C. and not under the open general licence.

(3.) NONE appeared on behalf of the assessee despite service. Therefore, the question is whether disallowance made under Section 37 of the Act is permissible or not. Before we advert to this fact, it may be relevant to go to the decision of the Supreme Court given in Haji Aziz and Abdul Sha-koor Bros. v. CIT [1961] 41 ITR 350, and in that their Lordships have taken a view that such kind of fine or penalty cannot be allowed. The question before the Supreme Court was under the Indian Income-tax Act, 1922 and in that case, the assessee, who carried on the business of importing dates from abroad and selling them in India, imported dates from Iraq partly by steamer and partly by country craft, at a time when import of dates by steamer was prohibited. The dates which were imported by steamer were confiscated by the Customs authorities under Section 167 of the Sea Customs Act (item 8), and the assessee, being given an option under Section 183 of that Act to pay a fine, paid the fine and had the dates released. In computing its profits the assessee sought to deduct the amount paid as fine as an allowable expenditure under Section 10(2)(xv) of the Income-tax Act, but it was negatived. A similar view was taken in Raghubir Prasad Gupta [1979] 120 ITR 789, by the Calcutta High Court. There also, the question arose whether the amount paid to the Customs authorities by way of fine in lieu of confiscation of goods imported without valid licence cannot be said to be expenditure incurred wholly and exclusively for the purpose of the business of an assessee and is not deductible under Section 37(1) of the Act. In this connection, their Lordships further observed that an infraction of law is not a normal incidence of business and a penalty paid for an infraction of the law is not a business loss in the commercial sense. Therefore, such a payment is not deductible in computing the profits or gains of business under Section 28(i) of the Income-tax Act, 1961. Similarly in CIT v. Mihir Textiles ltd. [1976] 104 ITR 167, their Lordships of the Gujarat High Court have taken a view that the betterment charges paid under a Town Planning Act is in the nature of capital expenditure and, it is not, therefore, deductible under Section 37 of the Income-tax Act. It was further observed that damages can be recovered from an employer who makes a default in payment of any contribution to the provident fund. An amount paid as damages for delay in making provident fund contributions is not deductible as business expenditure.