HASIMARA INDUSTRIES LTD Vs. COMMISSIONER OF INCOME-TAX

JUDGEMENT

(1.) In this reference under Section 256(1) of the Income-tax Act, 1961, at the instance of the assessee, the following question of law has been referred to this, court :

(2.) At the outset, it must be stated that the question is not happily worded. The assessee did not pay interest but only damages under Section 14B of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, and the assessee claimed Rs. 24,500 stated to have been paid as and by way of interest to the Provident Fund Commissioner on account of delayed payment of the provident fund contribution, the Income-tax Officer disallowed it on the ground that it was in the nature of penal interest and was not a business expenditure. This conclusion was upheld by the Commissioner of Income-tax (Appeals). On second appeal before the Tribunal, the Tribunal firstly recorded that "it was conceded on behalf of the assessee that this amount really was not by way of interest but as damages for the default in the payment of contribution to the provident fund." Before the Tribunal, the contention was that the payment was not by way of penalty but by way of interest. The Tribunal proceeded on the admission of the assessee that the assessee paid the aforesaid amount by way of damages under Section 14B of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952. According to the Tribunal, the payment was by way of penalty and, accordingly, it was not allowed. Out of the aforesaid facts, the question as mentioned above has been referred to this court.

(3.) Mr. Dey, learned counsel for the assessee led by Mr. N.K. Poddar, has submitted that the payment made in this case was in fact by way of interest and, accordingly, allowable. He has relied on several decisions in support of his contentions.