TMI Blog1996 (9) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... learned counsel for the parties and also in our judgment, the other questions (questions Nos. 2 and 3) are only facets of question No. 1. Even learned senior tax counsel made it clear that we need answer only question No. 1, in the circumstances. Therefore, we reproduce only question No. 1 hereinafter : "Whether, on the facts and in the circumstances of the case,--- (i) the Tribunal is right in law and fact in holding that 40 per cent. of the damages of Rs. 92,025 + Rs. 65,518 + Rs. 10,005 has to be allowed as compensation and deductible under section 37(1) of the Income-tax Act? (ii) the assessee is entitled to any deduction out of the damages?" We make it clear that although for the assessment year 1983-84 the question is slightly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gard to contributions as specified thereunder. The statutory provisions of the said enactments provide for consequences in the event of infraction of the concerned statutory provisions. It is also required to be emphasised that for the purpose of the present taxation proceedings, these orders have received finality, with regard to the aspect of infraction of the law. In fact, it is also elementary that the order imposing penalty could not be understood in the absence of infraction of law on the part of the employer to comply with the liabilities under the legislation. With regard to both the years, by orders dated January 25, 1985, and March 11, 1986, respectively, the Income-tax Officer proceeded on the situation of finality that the exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of finance were also frozen. The company could not pay creditors and in the result the creditors filed petitions for winding up of the company in the High Court of Kerala. A list is attached of some of the instances which the company had to face. The company had also other problems like strike, etc. As the appellant-company was attending to all these matters particularly relating to winding up petitions, there has been delay in remittance of contributions to provident fund and Employees' State Insurance. We submit that the damages paid are in the nature of compensation to the Government for having withheld the money to be remitted to the Government. Therefore, the amount paid by way of damages by the appellant was not on account of infra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be seen that the first appellate authority has emphasised this obvious aspect in its reasoning that in the case of provident fund contributions, the amounts are already deducted by the assessee from the payments to the employees. It is thereafter held that the money which has to be remitted to the provident fund authorities was already in the seisin of the assessee. The first appellate authority referred to the decision of the apex Court dealing with the question of cess levied by the Uttar Pradesh Government authorities, which was undisputedly the payment to the Government. The decision was considered to be non-applicable to the factual matrix in the proceedings. The first appellate authority considered the merits of the situation and has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the employees' provident fund contributions of their employees including their own contributions and the administrative charges thereon (sic). We have carefully gone through the reasoning of the apex court, under the above circumstances. The apex court was essentially concerned with the question as to whether the power under section 14B to impose damages is a guided power or not. Even in this connection, the apex court has observed that the action under section 14B of the Act and the amount awarded thereunder would have to be understood as belonging to the employees' provident fund and not the general revenue of the State. In our judgment, the Organo Chemical Industries's case [1979] AIR 1979 SC 1803; [1979] 55 FJR 283, would not be o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Act, the situation was clear enough to the apex court that the payment of interest did not have any kind of connection with the penal aspect of the situation leaving to the court to reach conclusion that it was an allowable deduction. In our judgment, apart from the situation that all orders have received finality there being no dispute that the orders proceeded on the basis of the infraction of law, the situation would neither be governed by Mahalakshmi Sugar Mills Co.'s case [1980] 123 ITR 429 nor by Organo Chemical Industries' case [1979] AIR 1979 SC 1803; [1979] 55 FJR 283. The amount of Rs. 4,33,480.33 arises out of undisputable liability as a result of infraction of law in the nature of resort to the penal provisions of both the E ..... X X X X Extracts X X X X X X X X Extracts X X X X
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