TaxTMI 
TaxTMI 
TaxTMI 
1995 (7) TMI 18
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....the sales tax penalty of Rs. 50,151 paid by the assessee under section 36(3) of the Bombay Sales Tax Act as deduction under the Income-tax Act for the assessment year 1979-80 ? 2. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is correct in allowing the sales tax penalty paid by the assessee holding that the payment was made only and exclusively for the purpose of business of the assessee ? " The facts giving rise to these questions may be briefly noted here. In the assessment year 1978-79, for which the previous year of the assessee ended on December 31, 1978, the question of deductibility of Rs. 50,156 which represented penalty under section 36(3) of the Bombay Sales Tax Act fell for consid....
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....radesh High Court in Hyderabad Allwyn Metal Works' case [1988] 172 ITR 113 had taken the view that section 36(3) of the Bombay Sales Tax Act is a composite provision and that the view has been upheld by the Supreme Court in Prakash Cotton Mills (P.) Ltd. v. CIT [1993] 201 ITR 684 and as such the contentions raised by the Revenue have to be rejected. It is now well-settled that under section 37(1) of the Income-tax Act, if any amount is spent for payment of interest or as compensation, it would amount to an allowable deduction and if it is paid as penalty imposed for infraction of law, it would be impermissible to allow deduction of the amount thus paid. It is equally well-settled that the nomenclature used in any provisions of law to descr....
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....ese indicate that the imposition, though called a penalty, is a composite one comprising both a penalty and a compensation for delayed payment. The Tribunal, therefore, was not right in treating the entire payment as merely interest for delayed payment. As already indicated while discussing question No. (1), the nomenclature of the levy as interest, damages or penalty may not be conclusive. " In Prakash Cotton Mills' case [1993] 201 ITR 684 (SC), among other questions, the Supreme Court considered the question of permissibility of deduction of penalty paid under section 36(3) of the Bombay Sales Tax Act. The judgment of this court in Hyderabad Alwyn's case [1988] 172 ITR 113 was quoted and approved by the Supreme Court thus (at page 690) :....
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....Act fell for the consideration of the Bombay High Court. After referring to the judgment of this court in Hyderabad case [1988] 172 ITR 113 and the judgment of the Supreme Court in Prakash Cotton Mills' case [1993] 201 ITR 684, the Bombay High Court distinguished the said judgments observing that the Supreme Court in its judgment had throughout referred to the payment made under section 36(3) of the Bombay Sales Tax Act as interest and in view of the decision of the Andhra Pradesh High Court in Hyderabad Allwyn's case [1988] 172 ITR 113, remitted the question to the Tribunal for deciding whether the amount contained any element of compensation or penalty and give deduction accordingly. But the Bombay High Court after examination of the sche....