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TMI Blog1953 (5) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. The clause of this agreement relevant to the present case is No. 11 which is as follows:- "11. That you will be responsible to extract rosin according to the specification and prescription prescribed in the standard books on the subject as is described in the schedule enclosed herewith. You will further be responsible to pay compensation for failure to observe the terms contained in the above paragraphs or for careless or intentional damage to the forest, either by fire or otherwise resulting from your action or the action of your staff or labourers." It appears that the assessee, the Himalya Rosin-Turpentine Manufacturing Company, was accused of having transgressed the terms of the agreement and on 31-10-1944 the Home Secretary on behalf of the Tehri Garhwal State wrote to the present assessee calling upon them to pay ₹ 5000/- by way of fine. In this letter it was said: "I am to inform you that it has been reported to the Durbar that against the rules you are making the channels as deep as 3", as broad as 5" and as long as 22" and that even small sapplinggs are being tapped. As such a compensation of ₹ 5,000/- (five thousand rupees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... affirmative. I would answer it accordingly. 4. The next question which arises for determination is whether the ₹ 5,000/- which has been paid by the assessee as fine under the penalty clause is a proper deduction within the meaning of Section 10 (2) (xv), Indian Income-tax Act. The question as framed to which no objection seems to have been taken shows that this ₹ 5,000/- was accepted by the assessee to have been paid as fine under the penalty clause of the terms of the lease. Counsel for the assessee has submitted that this was nothing more than amount expended in their usual course of business and that they had to pay more because they had extracted more rosin, but that is not what the question seems to contemplate. The question definitely puts it "as fine under the penalty clause of the terms of the lease". Apart from that the question to be deter-mined still remains whether it falls within the words of the statute and is therefore properly deductable. Section 10 (1) and 2 (xv) provides as under: "10. BUSINESS.-- (1) The tax shall be payable by an asses see under the head 'profits and gains of business, profession or vocation in respect of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision on an information exhibited by the Attorney-General under the provisions of the Customs Consolidation Act as extended by the Customs (War Powers) Act, 1915, for an offence alleged against them in breach of certain orders and proclamations relating to the requirements of the Board of Customs and Excise with respect to a consignment shipped by them to Norway. The action was settled in Court by consent and the assessee agreed to pay a mitigated penalty of £2,000/-, that sum to cover the costs of the Crown, and on all imputations as to the assessee's moral culpability being withdrawn and on it being made clear to the public that there was no intention on the part of the assessee to trade with the enemy. The question that arose for decision in this case was whether this sum of £ 2.000/-would fall under the words 'for the purpose of business, profession or vocation'. Rowlatt J., in giving the judgment said at p. 452: "But the question is whether, within the meaning of the rule, it is a loss connected with or arising out of their trade. I may shelter myself behind the authority of Lord Loreburn L. C., who in his judgment in the House of Lords, in -- &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctor of a company to the liquidator to compound proceedings it misfeasance started against him by the latter." 8. The test laid down by Lord Davey was applied by Wrottesley J., in -- 'Spofforth and Prince v. Golder', (1945) 1 All ER 363 (E). 9. In India a similar case was decided by the Madras High Court in -- 'Mask and Co., Panruti v. Commr. of Income-tax, Madras' AIR 1943 Mad 670 (F). In this case the assesset was a firm carrying on business in crackers It had entered into a contract with the other traders in the same business under which its goods were to be sold at a specified rate. In breach of that contract the assessee sold crackers at lower rates and the other parties filed a suit to recover damages by reason of the breach of contract on the part of the assessee The Court found the assessee to be liable in damages to a sum of ₹ 5,000/- which the assessee claimed to be entitled to deduct as E business expenditure. This contention was rejected. Leach C. J., said at page 671: "In the present case, the assessee was not fined for a breach of law, but was made to pay damages for a breach of the contract entered into. The assessee's action in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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