TMI Blog1964 (3) TMI 120X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia. This contract was executed with the Director General of Food, New Delhi, in 1943, for the supply of 100 tons of dehydrated onions by December 31, 1943. The contract contained a clause stipulating that, in the event of the assessee failing to deliver supplies in accordance with the terms of the contract, it would be liable to a penalty of 2 annas per pound on the quantity which it failed to deliver by the due date, unless its failure was due to reasons beyond its control. The assessee was able to supply only about 15 tons of onions by December 31, 1943. As the entire contract was not executed by it within the time stipulated, the Government cancelled the contract and imposed a penalty at the rate of one anna per pound on the balance re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and in the circumstances of the case, the sums of ₹ 13,517 and ₹ 3,723 relating to the assessment years 1945-46 and 1946-47 respectively are permissible deductions under section 10(2)(xv)of the Income-tax Act? It is apparent from the facts that the Government had originally cancelled the contract and imposed a penalty for the failure of the assessee to supply the entire bulk of onions by December 31, 1943. Subsequently, however, the Government cancelled this order and by modification of the terms of the original contract enabled the assessee to fulfil the contract within an extended period. The Government stipulated, and the assessee agreed, that liquidated damages would be paid if the original contract was to be ke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y on and earn profits in the trade... There can be little doubt that the payment was made by the assessee on the ground of commercial expediency. The principles laid down by the Supreme Court in Eastern Investments Limited v. Commissioner of Income-tax [1951] 20 ITR 1 ; [1951] SCR 594, which, though a decision in a case under section 12(2), apply equally to a case under section 10(2)(xv), appear to us to cover the case before us. In Commissioner of Income-tax v. Royal Calcutta Turf Club [1961] 41 ITR 414 ; [1961] 2 SCR 729, the Supreme Court held that an expenditure incurred for preventing the extinction of the assessee's business was expenditure wholly and exclusively laid out for the purpose of the business and was a permis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... damages, it was held that the payment was really akin to a penalty for committing an act opposed to public policy, an act which was found not to have been done in the course of the normal trading activities of the assessee. Learned counsel for the Commissioner also referred us to Haji Aziz and Abdul Shakoor Bros. v. Commissioner of Income-tax [1961] 41 ITR 350 ; [1961] 2 SCR 651, where the Supreme Court held that an amount paid by way of penalty for breach of the law was not an amount which could be allowed as a deduction under section 10(2)(xv). Clearly, the facts of the case before the Supreme Court are distinguishable from those in the instant case. The facts in Sree Meenakshi Mills Ltd. v. Commissioner of Income-tax [1963] 49 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
