TMI Blog2017 (4) TMI 164X X X X Extracts X X X X X X X X Extracts X X X X ..... ourse of carrying on of the business by the assessee. In the instant case, there was a specific requirement to complete the work in time and a clause for imposing punitive charges was included for any default. These rights and obligations arose in course of carrying on of the business of the respondent. Therefore, this payment made under a contractual obligation is to be allowed under section 37(1) of the Act. We find that the payments in the form of punitive charges made by the assessee could under no circumstances be regarded as illegal payments or payments which were opposed to public policy. We find that as long as the payment made is not by way of default on account of infraction of any law and/or opposed to public policy, the same would be allowable as deduction. We hold that in the instant case, the punitive charges paid are only compensatory in nature pursuant to the contractual obligation which is directly connected or intrinsically related with the carrying on of its business which unequivocally qualifies as an allowable deduction under section 37(1) of the Act. - Decided in favour of assessee. - I. T. A. No. 2223/Kol/2013 - - - Dated:- 23-9-2016 - M. Balaganesh (Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and penalty charge (imposed by Steel Authority of India Ltd. and Central Coal Fields Ltd.) respectively since these are penal in nature and under the Income-tax Act, 1961, penalty of any sort is not an allowable expense. 4. The learned Departmental representative vehemently relied on the order of the learned Assessing Officer. In response to this, the learned authorised representative argued that the issue is squarely covered in favour of the assessee in the assessee's own case by the order of the co-ordinate Bench of this Tribunal in I. T. A. No. 240/Kol/2012 dated June 27, 2014 for the assessment year 2008-09 ; covered by the honourable jurisdictional High Court in the case of CIT v. Jiyajeerao Cotton Mills Ltd. reported in [1992] 103 CTR (Cal) 426 ; Nanhoomal Jyoti Prasad v. CIT reported in [1980] 123 ITR 269 (All) ; [1980] 3 Taxman 60 (All) ; Mahalaxmi Sugar Mills Co. Ltd. v. CIT reported in [1986] 157 ITR 683 (Delhi) ; [1984] 19 Taxman 447 (Delhi) and accordingly argued that there interference need to be made in the order of the learned Commissioner of Income-tax (Appeals). 5. We have heard the rival submissions and perused the materials available on record inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw as being opposed to public policy. Where demurrage charged by port authorities is in the nature of compensation for delay in clearing the goods from the godowns of the port authorities which includes amount chargeable for storage and safe custody of the goods by the port authorities beyond the free period allowed under port rules, therefore, the demurrage paid by the assessee was not a fine paid for any criminal act but compensation for use the part facilities beyond the permissible free period and the impugned expenditure is a permissible revenue deduction. It is further settled that payment of demurrage is not in the nature of penalty and that it is merely charge made by the railway administration to compensate itself for keeping the goods of the assessee in its custody beyond a particular time and therefore, the payment of demurrage is incidental to business and was an allowable deduction. Further, the contracts entered into by the assessee had specific clause for imposition of penalty in case it failed to make progress as per their requirement mentioned in the work rate chart. The contractees, Steel Authority of India and Central Coalfields Limited imposed the instant puniti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e goods must be delivered and to stipulate that if there is any failure to deliver the goods within the contracted period, extra money will have to be paid to compensate the buyer for non-delivery of the goods in time. 13. In the instant case, there was specific requirement to deliver the goods in time and a penalty clause for default. These rights and obligations arose in course of carrying on of the business of buying and selling goods. I fail to see how this payment made under a contractual obligations cannot be allowed as business expenditure. 7. We find that the payments in the form of punitive charges made by the assessee could under no circumstances be regarded as illegal payments or payments which were opposed to public policy. We find that as long as the payment made is not by way of default on account of infraction of any law and/or opposed to public policy, the same would be allowable as deduction. We hold that in the instant case, the punitive charges paid are only compensatory in nature pursuant to the contractual obligation which is directly connected or intrinsically related with the carrying on of its business which unequivocally qualifies as an allowable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 (All) wherein it was held demurrage charged by port authorities is in the nature of compensation for delay in clearing the goods from the godowns of the port authorities and it includes amount chargeable for storage and safe custody of the goods by the port authorities beyond the free period allowed under port rules. It was further held that the demurrage paid by the assessee was not a fine paid for any criminal act but compensation for use of the port facilities beyond the permissible free period. 10. We also find that the decision of the honourable Delhi High Court in the case of Mahalaxmi Sugar Mills Co. Ltd. v. CIT reported in [1986] 157 ITR 683 (Delhi) ; [1984] 19 Taxman 447 (Delhi) it was held that payment of demurrage is not in the nature of damage or penalty and it is merely a charge made by the railway administration to compensate itself for keeping the goods of the assessee in its custody beyond a particular time. Payment of demurrage is incidental to business and its impact is to increase the cost to the assessee of the goods transported. Therefore, the expenditure on this account can be said to be laid out wholly and exclusively for the assessee's business. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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