Business expenditure treatment for occupation damages: compensation for wrongful use of premises was held allowable, not a penalty.

Damages paid to the Delhi Development Authority for wrongful use and occupation of business premises were treated as compensation, not a penalty or fine, because the liability arose under an Estate Officer's order under the Public Premises (Eviction of Unauthorised Occupation) Act. The payment was held allowable as business expenditure since it was incurred wholly and exclusively for business purposes. The fact that the compensation related to an earlier period did not, by itself, defeat the claim, as the character of the payment had to be determined by its true nature rather than its label. The disallowance was therefore not justified.

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Issues: Whether damages paid to the Delhi Development Authority for use and occupation of business were allowable as business expenditure in the assessment year in question, and whether the payment was to be treated as penalty or compensation.

Analysis: The amount was paid pursuant to an order of the Estate Officer under section 7(2) of the Public Premises (Eviction of Unauthorised Occupation) Act, 1971. On that footing, the payment represented compensation for wrongful use and occupation and not a penalty or fine. The order giving rise to the liability was passed during the relevant accounting period. The fact that the compensation related to an earlier period did not by itself disqualify the claim. The character of the payment was to be gathered from its true nature, and not from its nomenclature. Applying the test that expenditure incurred wholly and exclusively for the purposes of business is allowable, the claim satisfied the statutory requirement.

Conclusion: The damages were allowable as business expenditure and the disallowance was not justified.

Ratio Decidendi: A payment made as compensation for wrongful use and occupation of business premises, incurred wholly and exclusively for business, is allowable as business expenditure even if described as damages or assessed with reference to an earlier period.

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