TMI Blog1991 (9) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... of goods-for sale as per section 8(3)(b) of the Central Sales Tax Act. However, the assessee used the said goods in the execution of works contract (i.e., printing beedi labels) of the assessee's sister concern called Messrs. Bharath Beedi Works ; this diversion of the goods for a different purpose, other than the one declared under 'C' forms, contravened the provisions of the Central Sales Tax Act ; consequently, penalties were imposed on the assessee under section 10A of the Central Sales Tax Act for different years. This penalty was ultimately reduced by the appellate authority under the said Act to an amount equivalent to the sales tax that should have been paid by the assessee. As the law then stood as declared by the High Court (in S. S. Umadi v. State of Mysore [1974] 34 STC 228 (Kar)), this levy was perfectly legal and the assessee paid the same. Thereafter, for the purposes of Income-tax Act, 1961, the claimed this sum paid, as a deduction. According to the assessee, the levy of penalty under the Central Sales Tax Act was illegal in the light of a subsequent decision of the Supreme Court, and, therefore, the order levying penalty should not be considered as imposing a pena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd, thus, whether the authorities under the Income-tax Act could ignore the real or purported nature of such an order. For the due working and implementation of the various taxing laws, the Legislature or Parliament has to create an appropriate hierarchy of authorities. The particular statute invariably creates appellate or revisional forums to examine the legality or the correctness of such statutory orders. The need to maintain comity amongst various jurisdictions is the essence of such jurisdictions. Finality achieved by an order made by an authority acting under one statute cannot be defeated by the decision of another authority acting under a different law, unless such law clearly confers a power to examine the validity or correctness of the order made by the former authority. Orders of assessment and orders imposing penalty under the taxing statutes are quasi-judicial orders and, apart from the remedy under the statute in question, such orders are to be challenged only by recourse to writ jurisdiction. When an authority created under the provisions of the Income-tax Act has no power of judicial review, to examine the validity of an order made by another officer under the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e penalty under section 10A is exonerated from paying the tax which escaped assessment. It may be that, in a given case, the discovery of tax evasion may be too late to recover it by recourse to the tax-collecting provisions, but that is an altogether different question. If the levy under section 10A is compensatory in nature, a corresponding exoneration from tax liability would have been provided for. .A. ceiling on the penalty leviable with reference to the quantum of tax would not alter the character of the imposition as a compensatory levy; the reason for the action under section 10A, the nature of the proceedings thereunder and the judicial discretion required to be exercised in quantifying the levy are some of the matters to be considered to arrive at the true nature of the imposition. We have no hesitation to conclude that, irrespective of the quantum of the particular imposition in a given case, every order levying a penalty under section 10A is a penal levy and it is not a substitute for tax. The above conclusion of ours actually concludes the question referred to us against the assessee. However, it is necessary to refer to a few decisions cited before us by respective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted in a manner which has rendered him liable to penalty, it cannot be claimed as a deductible expense. It must be commercial loss and in its nature must be contemplable as such.Such penalties which are incurred by an assessee in proceedings launched against him for an infraction of the law cannot be called commercial losses incurred by an assessee in carrying on his business. Infraction of the law is not a normal incident of business and, therefore, only such disbursements can be deducted as are really incidental to the business itself. They cannot be deducted if they fall on the assessee in some character other than that of a trader. Therefore, where a penalty is incurred for the contravention of any specific statutory provision, it cannot be said to be a commercial loss falling on the assessee as a trader, the test being that the expenses which are for the purpose of enabling a person to carry on trade for making profits in the business are permitted but not if they are merely connected with the business. " As Lord Sterndale has pointed out, there is a difference between commercial loss in trading and a penalty imposed upon a person for contravening the law which contraventio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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