SANGHI BROS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, has referred the following question arising out of its judgment under Section 256(1) of the Income-tax Act, 1961 :

(2.) THE brief facts of the case are that the assessee is a dealer in Tata motor parts. Certain motor parts were purchased by the assessee from within the State of Rajasthan, on which Rajasthan sales tax was paid. While supplying such parts to the Government Departments, the assessee has charged sales tax in addition to the value of the goods. THE amount of sales tax so collected was not deposited in the Government Treasury and the entire amount of sales tax was credited in mal khata along with the sale price of the goods. THE Sales Tax Department levied penalties of Rs. 50,000 and Rs. 75,075 in respect of the assessment years 1978-79 and 1979-80 under Section 16(1)(j) of the Rajasthan Sales Tax Act, 1954. THE assessee claimed these amounts as deduction from its income before the Income-tax Officer and its claim was rejected. THE Commissioner of Income-tax (Appeals) held that the penalty levied in this case had a dual character. One was sales tax which the assessee had collected and credited in the mal khata and/therefore, in his opinion, to the extent of the sales tax collected, it should be allowed as a deduction on the basis of trade outgoings and only the remaining penalty portion should be disallowed. THE matter was taken up before the Income-tax Appellate Tribunal and the Tribunal has held that the Commissioner of Income-tax (Appeals) has erred in bifurcating the figure of penalties. Accordingly, it was held that the penalty cannot be allowed as a deduction. THE appeal of the Revenue was allowed.

(3.) IT has been held by the Hon'ble Supreme Court in Haji Aziz and Abdul Shahoor Bros v. CIT [1961] 41 ITR 350 that infraction of the law is not a normal incident of business and, therefore, only such disbursements can be deducted as are really incidential to the business itself. They cannot be deducted if they fall on the assessee in some character other than that of a trader. Therefore, where a penalty is incurred for the contravention of any specific statutory provision, it cannot be said to be a commercial loss falling on the assessee as a trader, the test being that the expenses which are for the purpose of enabling a person to carry on trade for making profits in the business are permitted but not if they are merely connected with the business.