TaxTMI 
TaxTMI 
2016 (8) TMI 511
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....ate Tribunal has erred in law in not construing the provision of section 37 of the Income Tax Act, 1961 in passing the impugned order?" At the hearing of the appeal after the learned advocates were heard, we were inclined to think that the question which falls for determination is as follows:- "Whether the expenditure of a sum of Rs. 12,50,000/- incurred by the assessee consequent to invocation of the bank guarantee furnished in favour of the West Bengal Pollution Control Board is an allowable expenditure ? The assessing officer disallowed the expenditure for the following reasons :- "In the course of assessment proceedings the assessee was asked to explain the nature of penalty charges debited in the Profit & Loss account. The amount of Rs. 12,50,000/- was on account of penalty charges paid to Pollution Control Board for non installation of pollution control equipment at the factory premises. The assessee claimed that this amount was deducted by Pollution Control Authorities on account of failure of the assessee for installation of pollution control equipment. The submission of the assessee is pursued and a sum of Rs. 12,50,000/- on account of penalty charges claimed in the....
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....wdhury, learned advocate appearing for the assessee submitted that payment of a sum of Rs. 12,50,000/- was by way of compensation because the assessee had failed to install the requisite devise within the prescribed time, as per the performance guarantee furnished by him, which so far as material for our purpose is as follows:- "1. We, Oriental Bank of Commerce, Princep Street Branch, 2B, Ganesh Chandra Avenue, Kolkata - 700 013 (hereinafter referred to as Guarantor Bank term include it's successor or assignee) with it's Head Office at Harsha Bhawan, E-Block, Connaught Place, New Delhi - 110 001, hereby agree unequivocally to pay within 1(One) year, on demand in writing from the Member Secretary, West Bengal Pollution Control Board (hereinafter referred as the Board), which term included his successor or assignee or any officer authorised by this Board in this behalf any amount up to and not exceeding Rs. 10,00,000/- (Rupees Ten Lacs only) only to Board on behalf of M/s Shyam SEL Limited, formerly M/s Shayma Cast Limited, Regd. Office at 29, Ganesh Chandra Avenue, Kolkata - 700 013 (hereinafter called the industry, which term shall include it's successor or assignee). 2. Where a....
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....xemplary damages so that it may act as a deterrent for others not to cause pollution in any manner. Unfortunately notice for exemplary damages was not issued to M/s. Span Motel although it ought to, have been issued. The considerations for which "fine" can be imposed upon a person guilty of committing an offence are different from those on the basis of which exemplary damages can be awarded. While withdrawing the notice for payment of pollution fine, we direct a fresh notice be issued to M/s. Span Motel to show cause why in addition to damages, exemplary damages be not awarded for having committed the acts set out and detailed in the main judgment. This notice shall be returnable within six weeks. This question shall be heard at the time of quantification of damages under the main judgment." Mr. Chowdhury submitted that the learned Tribunal held that it was a penalty imposed and, therefore, not deductible. He contended that no proceedings were initiated against the assessee. There is no finding that the assessee committed any offence. There is no order imposing penalty upon him. From the order passed by the CIT (A), it will appear that payment was made pursuant to an order of Sen....
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....ord 'penalty' in reference to a law, the context in which it is used is significant." Mr.Lodh, learned advocate, appearing for the revenue drew our attention to the judgment of the learned Tribunal and reiterated that the payment made by the assessee was in the nature of a penalty and, therefore, should not be deductible under section 37. We have considered the rival submissions advanced by the learned advocates. It would be fruitful to notice section 37 and Explanation I thereto, which are as follows:- "37. (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 [***] and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". [Explanation 1]- For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance ....