1983 (10) TMI 81 - AT - Income Tax

Summary

Issues:
Delay in payment of dues to Provident Fund Commissioner leading to interest payment as deduction for assessment years 1978-79 and 1979-80.

Analysis:
The case involves two appeals by the assessee-company regarding the delay in payment of dues to the Provident Fund Commissioner, resulting in interest payments claimed as deductions for the assessment years 1978-79 and 1979-80. The company had discussions with the Regional Provident Fund Commissioner, who directed the company to furnish a bank guarantee for the arrears and pay penal interest on delayed payments. The Commissioner (Appeals) rejected the deduction claim, citing the discretion of the Provident Fund Commissioner in levying interest and referring to a decision by the Allahabad High Court. The assessee argued that the interest was not penal but compensatory under section 14B of the Provident Fund Act, supported by a circular clarifying the nature of payments. The assessee relied on the Supreme Court decision in Mahalakshmi Sugar Mills Co. v. CIT to argue that the payment was not a penalty but part of the dues.

The Tribunal considered the nature of the payment in light of the Provident Fund Act provisions. Section 6 imposes a duty on employers to make contributions, with section 14 providing penalties for default, including imprisonment. Section 14B allows for the recovery of damages from employers for default, determined by the Provident Fund Commissioner, potentially equal to the arrears. The Tribunal noted that damages under section 14B were not termed as interest, were not a fixed percentage, and required an order from the Commissioner, indicating a breach of statutory duty and a penal nature. The absence of a separate penalty provision in the Act was considered relevant, with the Tribunal rejecting the argument that the Allahabad High Court decision was overruled by the Supreme Court. The Tribunal upheld the Commissioner (Appeals) order, dismissing the appeals and affirming the penal nature of the levy under section 14B.

In conclusion, the Tribunal found that the interest payments for delayed dues to the Provident Fund Commissioner were penal in nature under section 14B of the Provident Fund Act, rejecting the assessee's claim for deductions and upholding the Commissioner (Appeals) decision.