TMI Blog1990 (12) TMI 117X X X X Extracts X X X X X X X X Extracts X X X X ..... ee had claimed deduction for these amounts, which was denied by the ITO. 3. In the appeal before the CIT(A), it was contended for the assessee that although labelled as damages and penalties for the delayed payment of the P.F. dues And ESIC dues, the payments cannot be treated as penalty for infraction of statutory provisions. It was contended that the levy in fact represents interests charged by the Government for delayed payment and is, therefore, an admissible deduction under section 37(1) of the Income-tax Act, 1961. In support of this contention reliance was placed on a Special Bench decision of the Tribunal in the case of Second ITO v. Bisleri (I) (P.) Ltd. [1985] 12 ITD 116 (Bom.). The contention of the assessee found favour with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder of the CIT (Appeals) merits reversal. 6. As against the above submission advanced for the revenue, the learned counsel for the assessee has supported the order of the CIT(A). He has argued that the expression used in section 14B of the Act is 'damages' and not 'penalty'. He has further argued that the damages are levied with a view to compensate the employees for the late payment of the dues and such levy cannot be equated with penalty. It was contended that the principle laid down by the Tribunal in the case of Bislery (I) (P.) Ltd. is correct and still holds good. He has pointed out that in the instant case we are not concerned with the penalty imposed under the provisions of the Bombay Sales Tax Act. He has pointed out that in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dering the scheme of the Act and conflicting view of the various High Courts on the point, the Supreme Court has held that the expression 'damages' occurring in section 14B is, in substance, the penalty imposed on the employer for the breach of the statutory obligation. It was observed that the predominant object is to penalise, so that an employer may be thwarted or deterred from making any further default. In this connection, it would be of advantage to quote paragraph 46 of the order, which reads as under : " The traditional view of damages as meaning actual loss, does not take into account the social content of a provision like section 14B contained in a socio-economic measure like the Act in question. The word 'damages' has different ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt had not been brought to the notice of the Tribunal, inasmuch as, the same does not find any mention in the decision rendered in the case of Bislery (I) (P.) Ltd. The law declared by the Supreme Court is the law of the land and has to be followed irrespective of any decision of any authority to the contrary. In this view of the matter, we feel that the assessee fails to derive any support from the aforesaid decision of the Tribunal. 11. It may be argued that the Supreme Court in Organo Chemical Industries' case has not interpreted the word 'damages' under the Income-tax Act but only under the Employees Provident Fund and Miscellaneous Provisions Act, 1952 and, therefore, that interpretation has nothing to do with the assessments under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovident Fund Contribution and the contributions under the Insurance Act are allowable as deductions. It was also held that the penalty under section 36(3) of the Bombay Sales-tax and damages under section 14B of the Provident Fund Act are also allowable as deductions, because (i) the levies in both the cases are in the nature of interest, and (ii) the assessees are not found to be at fault in not making the payment in time. The observations to this effect are to be found in para 16 of the order. These observations go to indicate that the findings of the Tribunal were based on appreciation of the facts of those cases. As regards the imposition of penalty the observations are to be found in para 17 of the order which is as under : " In shor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indicated earlier, has held that the damages levied under section 14B of the Act comprises both an element of penal levy as well as compensatory allowance. This being so, it would be appropriate to determine as to what proportion should be treated as penal and what proportion as compensatory. While determining the proportion we have to bear in mind that the Supreme Court has held that the expression 'damages' occurring in section 14B is in substance a penalty. Keeping in view what has been held by the Supreme Court and the special facts of the present case as per para 6 above, we think it reasonable to treat 60% of the amount paid under section 14B of the Act as penalty and the remaining 40% as compensatory in nature and we hold accordingl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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