Compensatory deduction for delayed supply and full annual section 80J relief upheld on ordinary business and statutory construction grounds.

A contractual deduction for delayed supply was treated as compensatory, not penal, because it reflected the customer's loss caused by belated delivery and arose in the ordinary course of trade; it was therefore allowable in computing income. Relief under section 80J was held to be an annual statutory allowance expressed as a per annum percentage, so it could not be proportionately reduced merely because the undertaking worked only part of the year; the assessee was entitled to the full relief. On both issues, the assessee succeeded.

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Issues: (i) Whether the amount deducted from the assessee's bill for delayed supply was a penalty disallowable in computation of income or a compensatory deduction arising in the ordinary course of business. (ii) Whether relief under section 80J of the Income-tax Act, 1961 was to be restricted proportionately to the number of days the undertaking actually worked during the year.

Issue (i): Whether the amount deducted from the assessee's bill for delayed supply was a penalty disallowable in computation of income or a compensatory deduction arising in the ordinary course of business.

Analysis: The deduction arose from the supply contract and was occasioned by belated delivery. Its real character was compensation for the customer's loss due to delay, not a penal exaction. The nature of the payment depended on the facts and circumstances, and on those facts it represented an amount foregone in the course of trade rather than a penalty.

Conclusion: The deduction was not a penalty and was allowable.

Issue (ii): Whether relief under section 80J of the Income-tax Act, 1961 was to be restricted proportionately to the number of days the undertaking actually worked during the year.

Analysis: The expression "per annum" was taken to mean an annual statutory relief of 6 per cent. On that construction, the provision did not contemplate proportionate reduction merely because the unit worked for part of the year.

Conclusion: Proportionate relief was not contemplated and the assessee was entitled to the full annual relief under section 80J.

Final Conclusion: The assessee succeeded on both grounds and the appeal was allowed.

Ratio Decidendi: A contractual deduction for delayed supply is compensatory, not penal, where it represents business loss to the customer, and relief expressed as an annual percentage is not to be proportionately curtailed absent express statutory provision.

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