1974 (8) TMI 25 - HC - Income Tax

Assessee denied deductions for penalties, extra-shift allowance, and political party contribution. Commissioner awarded costs.

Shadi Lal Sugar And General Mills Limited Versus Commissioner Of Income-Tax, Delhi

The court ruled against the assessee on all issues. Penalties for belated payments and fines were not deductible as business expenses. The assessee was ... Business Expenditure, Income Tax Act, Political Party Issues Involved:1. Allowability of penalties as deductions for computing business profits.2. Entitlement to extra-shift allowance for double shift working.3. Deductibility of contributions to a political party.Detailed Analysis:Issue 1: Allowability of Penalties as DeductionsThe primary question was whether penalties for belated payment of sugarcane cess and fines under the Factories Act are allowable deductions under section 10(1) of the Indian Income-tax Act, 1922, and section 28 of the Income-tax Act, 1961. The court noted that the penalties were imposed for infractions of statutory provisions, not as part of normal trading activities. Citing precedents like Badridas Daga v. Commissioner of Income-tax and Haji Aziz and Abdul Shakoor Bros. v. Commissioner of Income-tax, the court emphasized that penalties for legal infractions are not commercial losses and cannot be deducted as business expenses. The court concluded that such penalties are not incurred in the capacity of a trader and are not incidental to business operations.Issue 2: Entitlement to Extra-Shift AllowanceThe second issue concerned the assessee's claim for extra-shift allowance at the full rate of 50% of normal depreciation for a seasonal factory working less than 300 days. The court referenced Ganesh Sugar Mills Ltd. v. Commissioner of Income-tax and Raza Sugar Co. v. Commissioner of Income-tax, which established that seasonal factories are entitled to proportionate, not full, extra-shift depreciation. Consequently, the court held that the assessee was not entitled to the full 50% extra-shift allowance and answered the question in the negative.Issue 3: Deductibility of Contributions to a Political PartyThe third issue was whether a contribution of Rs. 43,051 to the Congress Parliamentary Board was deductible as a business expense. The court observed that the contribution was made to influence the general election outcome, aiming to ensure the Congress party's return to power. Referring to J. K. Cotton Spg. & Wvg. Mills Ltd. v. Commissioner of Income-tax, the court ruled that there was no direct nexus between the contribution and the business operations. The expenditure was not incurred for earning business profits but for political purposes, making it non-deductible. The court answered question 3(a) affirmatively, indicating the Tribunal's decision was correct, and did not address question 3(b) as it was contingent on a negative answer to 3(a).Conclusion:1. Question 1: Penalties for belated payment of sugarcane cess and fines under the Factories Act are not allowable deductions. (Negative, in favor of the department)2. Question 2: The assessee is not entitled to the full 50% extra-shift allowance for a seasonal factory. (Negative, in favor of the department)3. Question 3(a): The contribution to the Congress Parliamentary Board is not deductible as a business expense. (Affirmative, in favor of the department)4. Question 3(b): Not addressed due to the affirmative answer to 3(a).The assessee was ordered to pay Rs. 200 as costs to the Commissioner of Income-tax.