Provident fund damages under section 14B are penal, not compensatory interest, and therefore not deductible.

Damages paid under section 14B of the Employees' Provident Funds and Family Pension Fund Act, 1952, for delayed provident fund contributions were held to be penal in character, not compensatory interest. The levy arose from breach of the statutory duty to make timely contributions, and the scheme separately provided penal consequences under sections 14 and 14AA. Because section 14B depends on a discretionary determination by the Provident Fund Commissioner after hearing the employer, is not an automatic interest charge, and may extend up to the amount of arrears, the amount was treated as a penalty and not deductible.

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Issues: Whether the amount payable under section 14B of the Employees' Provident Funds and Family Pension Fund Act, 1952, on delayed provident fund contributions is deductible as compensatory interest or is a penal levy.

Analysis: The liability arose from default in making provident fund contributions, a statutory obligation under section 6. The Act separately provides penal consequences under section 14 and enhanced punishment under section 14AA, while section 14B authorises recovery of damages for default, to be determined by the Provident Fund Commissioner after giving the employer an opportunity of being heard. The levy is not expressed as automatic interest, is not fixed as a simple percentage of arrears, may extend up to the amount of arrears, and depends on a discretionary order. These features show that the charge is connected with breach of statutory duty and is penal in character rather than a mere compensatory payment.

Conclusion: The amount paid under section 14B is a penal levy and is not allowable as a deduction.

Ratio Decidendi: A levy imposed for default in complying with a statutory obligation, determined at the discretion of the authority and not as automatic compensatory interest, is penal in nature and is not deductible.

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