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2016 (8) TMI 511 - HC - Income TaxDisallowance u/s 37 - compensating the damage to the environment - Held that:- The payment of the sum of ₹ 12,50,000/- would not be deductible if the same had been made for the purpose of achieving an illegal object or for an illegal purpose. Such payment is opposed to public policy which presumably is the reason why the same is not deductible. The payment in this case was for the purpose of compensating the damage to the environment and this compensation has been recovered on the “polluter pays principle” adopted by the Organization for Economic Cooperation and Development which has been recognized in M.C. Mehta Vs. Kamal Nath and Others [1996 (12) TMI 352 - SUPREME COURT] It is nobody’s case that the business pursued by the assessee was illegal. The compensation was paid because the assessee had failed to install the pollution control device within the time prescribed. Therefore, payment of the sum of ₹ 12,50,000/- is not hit by explanation-1 to Section 37 of the Income Tax Act. The payment is undoubtedly for the purpose of business or is in consequence of business carried on by the assessee and is thus covered by section 37. For the aforesaid reasons, the order passed by the learned Tribunal is set aside. - Decided in favour of assessee.
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