TMI Blog1990 (9) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... it on the ground that it was in the nature of penal interest and was not a business expenditure. This conclusion was upheld by the Commissioner of Income-tax (Appeals). On second appeal before the Tribunal, the Tribunal firstly recorded that " it was conceded on behalf of the assessee that this amount really was not by way of interest but as damages for the default in the payment of contribution to the provident fund. " Before the Tribunal, the contention was that the payment was not by way of penalty but by way of interest. The Tribunal proceeded on the admission of the assessee that the assessee paid the aforesaid amount by way of damages under section 14B of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952. According to the Tribunal, the payment was by way of penalty and, accordingly, it was not allowed. Out of the aforesaid facts, the question as mentioned above has been referred to this court. Mr. Dey, learned counsel for the assessee led by Mr. N. K. Poddar, has submitted that the payment made in this case was in fact by way of interest and, accordingly, allowable. He has relied on several decisions in support of his contentions. On the other hand, Mr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rson, and on receipt of such certificate, the Collector is required to proceed to recover the amount specified from such person as if it were an arrear of land revenue. The words used in section 3(6) are 'specifying the amount of arrears including interest', that is to say that the interest is part of the arrear of cess. In the case of a penalty imposed under section 3(5)), a separate provision for recovery has been made under section 3(7). Although the manner of recovery of a penalty provided by section 3(7) is the same as the manner for recovery provided by section 3(6) of the arrears of cess, the Legislature dealt with it as something distinct from the recovery of the arrears of cess including interest. In truth, the interest provided for under section 3(3) is in the nature of compensation paid to the Government for delay in the payment of cess. It is not by way of penalty. The provision for penalty as a civil liability has been made under section 3(5) and for penalty as a criminal offence under section 4. The Delhi High Court proceeded entirely on the basis that the interest bore the character of a penalty. It was, according to the learned judges 'penal interest'. The learned j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the light of para 38 of the Scheme which provides that the payment of contribution has got to be made by the 15th of the following month and, therefore, the word `default' in section 14B must mean `failure in performance' or 'failure to act'. At the same time, the imposition of damages under section 14B is to provide reparation for the amount of loss suffered by the employees. It is, therefore, clear that the Supreme Court did not accept the contention that the award of damages under section 14B must be, in essence, the pecuniary reparation for loss or injury sustained by one person through the fault or negligence of another. The Supreme Court further observed as follows (at page 303 of 55 FIR): "With respect, these High Courts have obviously fallen into an error in reading the word 'damages' in section 14B in isolation, by trying to construe the word in a purely legalistic sense. These High Courts have overlooked that we are not concerned in interpreting what damages means in the realm of contract or tort but the word had to be given its true meaning, in consonance with the objects and purpose of the legislation. " It is true that the damages contemplated under section 14B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een drawn to the decision of the Rajasthan High Court in Rajasthan Central Stores (P) Ltd. v. CIT [1985] 156 ITR 90. There the question was whether the payment of penal interest on sales tax collections withheld by the assessee and utilised for the purpose of his own business was an admissible deduction or not. There, the Rajasthan High Court, on a perusal of the provisions contained in section 11B of the Rajasthan Sales Tax Act, held that the interest was payable automatically if the amount of tax payable under sub-sections (2) and (2A) of section 7 of the Act was not paid within the period allowed or, if the amount specified in any notice of demand, whether for tax, fee or penalty was not paid within the period specified in such notice, or in the absence of such specification within 30 days from the date of service of such notice. The Rajasthan High Court observed that the aforesaid provisions contained in section 11B of the Rajasthan Sales Tax Act were not much different from the provisions contained in section 3(3) of the U. P. Sugarcane Cess Act which came up for consideration before the Supreme Court in Mahalakshmi Sugar Mills Co. [1980] 123 ITR 429, Balrampur Sugar Co. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court in Organic's case [1979] 55 FJR 283 ; AIR 1979 SC 1803, has set at rest the question as to the nature of the damages payable under section 14B. It cannot be contended that the damages levied under section 14B are merely compensatory in nature. The Gujarat High Court in CIT v. Mihir Textiles Ltd. [1976] 104 ITR 167, held that section 14 of the Employees' Provident Funds and Family Pension Fund Act, 1952, lays down that damages can be recovered from an employer who makes a default in the payment of any contribution to the provident fund. The same Act also exposes the employer concerned to an action in a criminal court where he can be tried and punished. The fact that one and the same action exposes the offender to two different penalties does not mean that only one out of the two is a penalty and the other is not. In any event, this amount has to be paid for an infraction of law and, in that sense, it is a penalty. An amount paid as damages for delay in making provident fund contribution is not deductible as business expenditure. The Allahabad High Court in CIT v. Kamlapat Motilal [1988] 172 ITR 438, following the decision of the Supreme Court in Organic Chemical Indu ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
