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TMI Blog2007 (4) TMI 200X X X X Extracts X X X X X X X X Extracts X X X X ..... towards the shortfall within the maturity period is allowable as deduction under section 37 of the Income-tax Act (hereinafter referred to as 'the Act'). Elaborating this submission learned counsel pointed out that the amount payable by the assessee for shortfall in the maturity period was treated as additional levy by this court and therefore, the said amount partakes of the character of penalty; and therefore in the light of the Explanation given to section 37 of the Act, the said amount is not deductible towards the expenditure incurred by the assessee. In this connection, he referred to us the discussion made by the Assessing Officer in the order of assessment. Secondly, he submitted that though the amount paid by the assessee towards shortfall of maturity period has been treated as additional levy by this court, the said amount should be treated either as a fee or as excise duty within the meaning of section 43B(a) of the Act; and since the question whether additional amount should be treated as fee or excise duty, was not considered by this court in the case of Ugar Sugar Works Ltd., the reliance placed by the Tribunal on the said decision of this court is totally erroneous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contended before this court that the issue has not been determined by the Appellate Tribunal. In support of his submission he also relied upon a decision of the Bombay High Court in the case of CIT v. Tata Chemicals Ltd. reported in [2002] 256 ITR 395. Before we proceed to consider the contentions urged by Sri Seshachala on the merits, we find that it is convenient to first deal with the preliminary objections raised by Sri Prasad that counsel for the appellant, having not urged before the Tribunal that the payment made by the assessee towards the shortfall of maturity period is in the nature of a penalty, cannot be permitted to raise the said contention. No doubt, the contention of Sri Seshachala that the payment made by the assessee towards the shortfall of maturity period is in the nature of penalty was not urged before the Tribunal. However, the question is, whether the combined reading of sub-sections (1) and (2) and (6)(a) of section 260A of the Act, on which strong reliance is placed by Sri Prasad, would support his contention. On a careful consideration of section 260A of the Act, we are unable to accede to the submission of Sri Prasad. No doubt, the decision of the Bomba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f such a question. Therefore, as noticed by us earlier, the language employed under subsection (1) of section 260A of the Act is that the case should involve a substantial question of law. The meaning attached to the words "substantial question of law", in our view, should not be given a restricted meaning to understand it as it should involve substantial error of law in the order. While interpreting a provision which provides for a right of appeal, the court should not narrow down the scope of the right of appeal provided to the parties. Sub-section (2) of section 260A of the Act cannot be read de hors sub-section (1) of section 260A of the Act. Sub-section (1) of the said section confers power on the High Court to entertain an appeal against every order passed by the Appellate Tribunal. Sub-section (2) of the said Act provides for a right to a party to file an appeal. Therefore, a reading of sub-sections (1) and (2) of section 260A of the Act makes it clear that if the Appellate Commissioner or the assessee is aggrieved by an order passed by the Tribunal, he could prefer an appeal to the High Court provided the case involves a substantial question of law. As noticed by us earlier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e General Clauses Act. This is our interpretation on the circular.' Further, in the case of CIT v. Ahmedabad Cotton Mfg. Co. Ltd. reported in [1994] 205 ITR 163, the Supreme Court while considering the question that when a mill is made liable to pay to the Central Government certain amount on the shortfall in its export of sanforized cloth could be considered as penalty has taken the view that though the amount required to be paid was described as penalty, having regard to the substance of the transaction between the parties, it cannot be considered as penalty. This is clear from the observation made by the court, which reads thus: 'It is no doubt true that the word used in the scheme which we have set out above for the sum to be paid in default of fulfilling in the export obligation has been described as a penalty but in the ultimate analysis it is the substance of the transaction between the parties which has to be considered for purpose of determining what is the nature and import of the scheme and the bond executed in pursuance thereof. The exercise of option, as stated above, may be the result of commercial expediency as well as certain extraneous factors over which the manu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bels to the Government, as contended by Sri Seshachala. In our view, there is also no merit in this submission of learned counsel for the appellant. Sub-rule (8) of rule 15 of the Rules imposes an obligation on every licensee, to have the sealed bottles affixed with excise label at his cost, in the presence of the Warehouse Officer, and not to take out any bottle without excise label being affixed, from the warehouse. However, the said rule confers discretion on the Commissioner, on an application being made by the licensee, to allow release of the bottled arrack for sale without labels on payment of the cost of labels to the Government, in case, if he is satisfied that the labels were not available. It is useful to extract the said rule, which reads as hereunder: 'The sealed bottles shall have in addition an excise adhesive label and no bottle without excise label shall be issued from the warehouse. Such labels shall be affixed by the licensee at his cost in the presence of Warehouse Officer. In case for any reason labels are not available, allow release of bottled arrack for sale without labels on payment of cost of labels to the Government.' Therefore, in the absence of labels ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before bottling the same." A period of 15 days, thus, had been prescribed for the aforementioned purpose. A question, however, arose as to what would happen to the excise article, if for circumstances beyond one's control, the said directives cannot be carried out. With a view to meet that contingency, it was stated: "In case the bottling unit for any reason beyond his control is not able to mature the arrack in the manner and to the extent specified above, the unmatured arrack may be bottled with the prior permission of the officer in-charge of the bottling unit. The penalty for supplying unmatured arrack as specified above would be 29 paise per bulk litre." Indisputably, the respondent obtained permission of the appropriate authority in terms thereof as he was not in a position to comply with the first part of the said circular on paying certain additional amount therefor. He, in his income-tax return, claimed deduction for the said amount from his gross income. The assessing authority was of the opinion that as the amount payable by the assessee was in the nature of penalty, he was not entitled to any deduction. It was further opined that even if the expenditure is deductib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able, if the assessee was made liable to pay the amount to the Department towards the cost of the labels for getting the bottled arrack released, it is not possible to take the view that such payment was made by way of fees as contended by Sri Seshachala. The language employed in the rule makes it explicit that the amount required to be paid to get the bottled arrack released for sale without labels is by way of cost of labels to the Government. When the language in the rule in explicit terms provides that the amount required to be paid towards the cost of labels and the rule also imposes an obligation on the licensee to get the labels affixed at his cost in the presence of the Warehouse Officer, it will not be correct to consider that the amount paid is not as a cost towards the value of labels, but as a fee. Therefore, the third submission of Sri M.V. Seshachala is also liable to be rejected." Mr. Mohan Parasaran, learned Additional Solicitor General appearing on behalf of the appellants, submitted that the Tribunal and consequently the High Court went wrong in passing the impugned judgment in so far as they failed to take into consideration that the amount in question having be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not as a tax on manufacture. This aspect of the matter has been considered by a Constitution Bench of this court in State of Kerala v. Maharashtra Distilleries Ltd. [2005] 11 SCC 1 stating: "79. In this connection we may usefully refer to the decision of this court in State of Punjab v. Devans Modern Breweries Ltd. In that case the State of Kerala was also a party. The State had imposed tax on import of potable liquor manufactured in other States. The stand of the State was that it was within the province of the State to impose restriction on import of potable liquor by imposing import duty. The aforesaid duty had not been imposed by the State in exercise of its statutory power conferred upon it in terms of Entry 51, List II of the Seventh Schedule to the Constitution but regulatory power as envisaged in Entry 8 thereof. The contention raised on behalf of the respondents was that the requirements of articles 301 and 304 of the Constitution were to be complied with in view of the fact that the duty of import must conform to the provisions of Entry 51 of List II. The submission of the respondents was rejected and those advanced, on behalf of the State of Kerala were accepted. This ..... X X X X Extracts X X X X X X X X Extracts X X X X
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