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Issues Involved:
1. Whether the interest of Rs. 24,500 paid to the Provident Fund Commissioner on account of delayed payment of provident fund was allowable as business expenditure. Issue-wise Detailed Analysis: 1. Nature of Payment: Interest or Damages - The court noted that the question was not well-worded as the assessee did not pay interest but damages under section 14B of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952. The Tribunal recorded that the amount was paid as damages for the default in the payment of the provident fund contribution, not as interest. The Tribunal concluded that the payment was by way of penalty and, therefore, not allowable as business expenditure. 2. Assessee's Argument: - The assessee's counsel argued that the payment was by way of interest and thus allowable as business expenditure. Several decisions were cited to support this contention. 3. Revenue's Argument: - The Revenue's counsel cited the Supreme Court's decision in Organic Chemical Industries v. Union of India, which considered the nature of damages under section 14B of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952. It was argued that damages being penal in nature could not be allowed as business expenditure. 4. Supreme Court's Precedent: - The court referred to Mahalakshmi Sugar Mills Co. v. CIT, where the Supreme Court held that interest on arrears of sugarcane cess was not a penalty but an accretion to the cess. However, the court distinguished this case from the present one, noting that under section 14B, the authority is empowered to recover damages for default in payment, which is synonymous with failure to pay. 5. Nature of Damages under Section 14B: - The Supreme Court in Organic Chemicals held that damages under section 14B are a penalty for breach of statutory obligation and serve both as a penalty and compensation for loss suffered by employees. The court emphasized that the term "damages" in section 14B must be understood in the context of the statutory scheme and is related to the employer's default. 6. Other Judicial Decisions: - The court reviewed several decisions, including those from the Rajasthan High Court and the Allahabad High Court, which distinguished between interest and damages. The consistent view was that damages under section 14B are penal and not compensatory. 7. Conclusion: - The court concluded that the payment made by the assessee, although termed as interest, represented damages under section 14B and thus could not be allowed as a deduction. The expression "damages" in section 14B is a penalty for the employer's default in fulfilling statutory obligations. Final Judgment: - The court answered the question in the affirmative, in favor of the Revenue and against the assessee, holding that the interest paid to the Provident Fund Commissioner on account of delayed payment was not allowable as business expenditure. There was no order as to costs.
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