TMI Blog1969 (1) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of Rs. 25,700 paid by the assessee by way of penalty to the Government of Orissa was an admissible deduction under section 10(1) of the Income-tax Act, 1922 ? " This court by its judgment dated January 22, 1963, while dealing with this question, considered the provisions of section 10(2) of the Income-tax Act and held that the deduction claimed by the assessee was not admissible as it amounted to a penalty imposed on the assessee for his dishonest action in supplying sub-standard quality goods and, as such, it could not be said to be an expenditure incurred wholly and exclusively for the purpose of his business. The facts and circumstances in which the question was referred to the High Court are these : During the calendar year 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lls of the assessee could not be taxed in view of section 10(1) of the Income-tax Act. Thereupon, the Commissioner of Income-tax asked for a reference to the High Court and the Tribunal, under section 66(1) of the Act, referred the aforesaid question for opinion to the High Court who answered the same in the negative and against the assessee, that is to say, that the said sum of Rs. 25,700 paid by way of penalty by the assessee to the Government of Orissa was not an admissible deduction. There was an appeal from the said decision to the Supreme Court on a certificate granted by the High Court. The Supreme Court, by their judgment dated September 15, 1966, allowed the appeal and the case was sent back to this court for answering the questi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Government of Orissa as a penalty from the amount due to the appellant for the supplies made by him in pursuance of the agreement. The High Court, therefore, in answering the question referred to it, should not have gone into the question of the applicability of section 10(2)(xv) of the Act at all, and should have confined itself to deciding whether this amount deducted from the claims of the assessee by the Government of Orissa was liable to be excluded when computing the income under section 10(1) of the Act. " After remand by the Supreme Court, the High Court is to now consider the question in the aspect as explained in the Supreme Court judgment, confined to the provisions of section 10(1) of the Income-tax Act, which reads as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Tribunal on facts is final unless it could be successfully assailed on the ground that there was no evidence for the conclusion on facts recorded by the Tribunal. It is, therefore, the duty of the High Court to start by looking at the facts found by the Tribunal and answer the question of law on that footing. Any departure from this rule of law will convert the High Court into a fact-finding authority which it is not under the advisory jurisdiction (Commissioner of Income-tax v. Calcutta Agency Ltd.). The relevant findings of the Tribunal in their order dated July 20, 1960, purporting to indicate the real nature of the transaction in which the assessee had to pay penalty are in paragraph 3 of the said order, which reads as follows : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nse that they are really incidental to the trade itself. The nature of the trade is to be considered. In the present case it is an inevitable consequence of the assessee's business as a paddy procuring agent that as a result of the goods delivered not being of contract quality, breach of warranty, with the risk of liability to pay damage, should at times be committed and payment of such damages as a result of breach of warranty in the course of or as a consequence of earning profits and gains of business is incidental to the carrying out of the assessee's business as a paddy procuring agent ; it was an unavoidable loss arising as one of the consequences of carrying on such business. It is clear from section 59 of the Sale of Goods Act, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is an elementary principle of income-tax law that a man is taxed only on the profits he actually receives and not on the profits he might have, but has not received. In the present case the real effect of deductions from the bills of the assessee was to reduce the price of paddy and rice paid or payable to the assessee under the contract. The Tribunal found that there was no evidence that the assessee either mixed foreign materials or passed off inferior quality of rice to the Government as the f.a.q. ; indeed he might have bona fide believed that the supply he made to the Government was in conformity with the contract standard. The Tribunal also did not find that there was any misbehavior on the part of the assessee regarding the quality ..... X X X X Extracts X X X X X X X X Extracts X X X X
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