TaxTMI 
TaxTMI 
1981 (2) TMI 28
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....provisions of s. 17(3) of the Madhya Pradesh General Sales Tax Act, 1958, hereinafter referred to as the "Sales Tax Act ". The assessee was also required to pay Rs. 1,28,000 on account of penalty imposed on the assessee under s. 8(2) of the Sales Tax Act. The assessee contended before the ITO that the amount of penalty paid by the assessee as aforesaid was allowable expenditure. The ITO rejected that claim. On appeal, the AAC upheld the order passed by the ITO. On further appeal, the Tribunal, however, held that the amount of penalty paid by the assessee was an allowable deduction in computing its total income. The Tribunal was of the view that the penalty imposed on the assessee under s. 8(2) of the Sales Tax Act was in the nature of an extra payment of sales tax. The Tribunal further held that the penalty imposed under s. 17(3) of the Sales Tax Act on the assessee could not be equated to a penalty imposed for an economic offence or for an offence involving moral turpitude. According to the Tribunal, the assessee had committed merely technical violations, for the breach of which the assessee was required to pay a compensation. In this view of the matter, the Tribunal upheld the cl....
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.... that the amount of sales tax or cess which an assessee is required to pay is allowable under s. 37(1) of the Act. It is in the nature of a revenue expenditure laid out wholly and exclusively for the purpose of the business of the assessee. Similarly, in view of the decision of the Supreme Court in Mahalakshmi Sugar Mills Co. v. CIT [1980] 123 ITR 429, the interest payable on arrears of sales tax or cess would also be allowable under s. 37(1) of the Act as it is in reality part and parcel of the liability to pay the tax or cess. It is not a penalty. The following observations of the Supreme Court in Mahalakshmi Sugar Mills Co. v. CIT, while considering the provisions of s. 3(3) of the U.P. Sugarcane Cess Act, 1956, dealing with a liability to pay interest on arrears of cess, are pertinent (p. 433): " Now the interest payable on an arrear of cess under s. 3(3) is in reality part and parcel of the liability to pay cess. It is an accretion to the cess. The arrear of cess 'carries' interest; if the cess is not paid within the prescribed period a larger sum will become payable as cess. The enlargement of the cess liability is automatic under s. 3(3). No specific order is necessary in....
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....purpose of carrying on the business, i. e., to enable a person to carry on and earn profit in that business. It is not enough that the disbursements are made in the course of, or arise out of or are concerned with or made out of the profits of the business but they must also be for the purpose of earning the profits of the business. As was pointed out in von Glehn's case [1920] 2 KB 553 (CA), an expenditure is not deductible unless it is a commercial loss in trade and a penalty imposed for breach of the law during the course of trade cannot be described as such. If a sum is paid by an assessee conducting his business, because in conducting it he has acted in a manner which has rendered him liable to penalty, it cannot be claimed as a deductible expense. It must be a commercial loss and in its nature must be contemplatable as such. Such penalties which are incurred by an assessee in proceedings launched against him for an infraction of the law cannot be called commercial losses incurred by an assessee in carrying on his business. Infraction of the law is not normal incident of business and, therefore, only such disbursements can be deducted as are really incidental to the business i....
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.... such use was made:... 17. Returns.-(3) If a dealer fails without sufficient cause to comply with the requirements of a notice issued under sub-section (1) or a registered dealer fails without sufficient cause to furnish under the said subsection his return for any period, the Commissioner may, after giving such dealer a reasonable opportunity of being heard, direct him to pay, by way of penalty, a sum not exceeding one-fourth of the amount of the tax which may be assessed on him under section 18 or where no tax is payable sum not exceeding one-hundred rupees. " A penalty is imposed under s. 8(2) of the Sales Tax Act where any raw material purchased under s. 8(1) is utilised for a purpose other than a purpose specified in s. 8(1). The amount of penalty to be imposed is in the discretion of the Commissioner, but the minimum and the maximum amounts are specified. The amount of penalty imposed in the instant case is Rs. 1,28,000. The assessee did not produce any material to show that the penalty imposed on it under s. 8(2) of the Sales Tax Act was the minimum and that it, therefore, comprised only the difference in tax between the amount of tax at the full rate and the amount of....