TMI Blog1990 (8) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... re, it cannot be taken into account while computing the disallowance under section 37(3A) of the Income-tax Act, 1961 ? " 2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in upholding the order of the Commissioner of Income-tax (Appeals) directing the Income-tax Officer to allow the expenditure of Rs. 19,058 paid as penalty under section 5C of the Rajasthan Sales Tax Act ?" Shortly stated, the facts relating to the first question are that the assessee claimed deduction of Rs. 17,37,497 as selling commission. The Income-tax Officer disallowed 15% of this amount under section 37(3A) treating it as sales promotion expenditure. The matter was carried in appeal before the Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this question came up for consideration before this court in Income-tax Reference No. 134 of 1985-CIT v. Hindustan Motors Ltd. [1991] 192 ITR 619, where the judgment was delivered on February 23, 1990. In that case, it was held that the commission and brokerage payment could not be equated with sales promotion expenses and, accordingly, the expenditure could not be disallowed under section 37(3A) of the Income-tax Act, 1961. Following the said decision, we answer this question in the affirmative and in favour of the assessee. Shortly stated, the facts relating to the second question are that the Income-tax Officer disallowed the assessee's claim for deduction in respect of a sum of Rs. 19,058 on the ground that the amount was paid by way ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decision of the Madhya Pradesh High Court in Simplex Structural Works [1983] 140 ITR 782. To appreciate the contention, it is necessary for us to set out the relevant provisions of the Rajasthan Sales Tax Act. The relevant provisions are as follows : "5C. Concessional rate of tax for raw materials. - (1) Notwithstanding anything contained in this Act, but subject to such restrictions and conditions as may be prescribed, the rate of tax payable on the sale to or purchase by a registered dealer of any raw material for the manufacture in the State of goods for sale within the State or in the course of inter-State trade or commerce shall be at a concessional rate of 1 % of the sale or purchase price of such raw material. (2) Where any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the dealer would be liable to pay over and above the difference in the rates of taxes which is given by way of concession. In our view, two separate contingencies have been provided in section 50(2), the first contingency is that a dealer has to compensate the Government for the benefit which he has obtained in the course of purchase of the raw materials for the manufacturing of the goods and, in that event, the dealer shall be liable to pay as and by way of penalty an amount not less than the difference between the amount of tax on the sale of such raw material at the full rate applicable thereto under section 5 and the amount of tax payable under subsection (1). The second contingency is when a dealer may be asked to pay more than the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on not been allowed to the dealer would arise. In our view, therefore, the charging of the difference which amounts to the full rate of tax cannot be equated with penalty. It is no doubt true that the sales tax authorities are empowered to charge at their discretion in excess of the difference in rates. If, in a case, anything more is levied than the difference in rates, in that event that excess will come within the purview of a penalty as not only the full rate of tax is recouped but also a further sum by way of penalty for contravention of the obligations imposed under section 5C. However, that question does not arise on the facts of this case as, admittedly in this case, the assessee paid the difference between the amount of tax on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for sale. If a person, after purchasing any goods at concessional rate of tax under section 8(1), fails without reasonable cause to make use of the goods for any of the aforesaid purposes, he becomes liable to punishment under section 10(d). Instead of prosecution, however, penalty may be imposed on such a person under section 10A. Minimum penalty is not prescribed by this section. Maximum penalty is one and half times of the tax at the full rate .... If the amount of penalty is such an expenditure which the assessee would have been required to incur, even if he had not broken the law, such an expenditure cannot in the true sense be termed as penalty for infraction of the law. As pointed out by us, the assessees here would have been requi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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