1996 (10) TMI 5

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....n 37(1) of the Income-tax Act, 1961, amounts that it had paid to the Madhya Pradesh sales tax authorities under the provisions of sections 8(2) and 17(3) of the Madhya Pradesh General Sales Tax Act, 1958. The matter was carried by the assessee up to the Income-tax Appellate Tribunal, which held that it was entitled to the deduction. Arising from out of the order of the Tribunal, the following question was referred to the High Court of Madhya Pradesh under the provisions of section 256 of the Income-tax Act : " Whether, on the facts and in the circumstances of the case, the penalty levied under sections 8(2) and 17(5) of the Madhya Pradesh General Sales Tax Act paid by the assessee is allowable expenditure in the computation of total inco....

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....e, there can be no doubt that the provision is intended to have penal consequences upon an assessee who fails to comply with the provisions of the statute without sufficient cause. There is no element of compensation involved and, therefore, the High Court was right in the view that it took, namely, that the assessee was not entitled to a deduction under section 37(1) of the Income-tax Act in respect of the amounts that it had been required to pay under the provisions of section 17(3). Section 8, so far as it is relevant, reads thus : " Rate of tax for raw material.--(1) Notwithstanding anything contained in section 6 or section 7 but subject to such restrictions and conditions as may be prescribed, the rate of tax payable on the sale....

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....um amount or the aforesaid maximum amount or something in between is for the Commissioner to determine, having regard to the circumstances in which such use was made. Clearly, sub-section (2) comprises both the elements of compensation and penalty, compensation in so far as payment of tax at the full rate is obligatory, and something more, up to 25 per cent. thereof, is payable should the Commissioner so deem fit, having regard to the circumstances in which the use of the raw material was made : to that extent the amount would partake of the character of a penalty. Now, it does not appear from the record that there had at any stage been a bifurcation, if at all a bifurcation was required, of the amounts paid under the provisions of secti....