Sales-tax penalty as business deduction: payment linked to trading activity and not to an infraction of law was allowable.

Sales-tax penalty paid under section 36(3) of the Bombay Sales Tax Act was treated as a deductible business expenditure where it arose from delayed tax payment in the course of trading and not from any infraction of law. The controlling test applied was whether the amount was suffered by the assessee in its capacity as a trader and was connected with the conduct of business. On that basis, the payment was allowed as a revenue deduction and the Department's objection failed.

---

---

Issues: Whether the sales-tax penalty paid under section 36(3) of the Bombay Sales Tax Act was allowable as a business deduction.

Analysis: The Tribunal relied on its earlier view in the assessee's own case and on the Special Bench decision in Bisleri, together with the later Bombay High Court understanding that the levy under section 36(3) is a penalty, but one imposed in the context of delayed payment of sales-tax dues. The controlling test applied was whether the amount was suffered by the assessee in its capacity as a trader and not as a consequence of any infraction or violation of law. On that basis, the payment was treated as expenditure incurred in the course of business.

Conclusion: The sales-tax penalty was held to be an admissible business expenditure and the issue was decided against the Department and in favour of the assessee.

Ratio Decidendi: A sales-tax penalty incurred by a trader, where it is not incurred for an infraction of law and is connected with the conduct of business, is allowable as a revenue deduction.

---