HAJI AZIZ AND ABDUL SHAKOOR BROS Vs. COMMISSIONER OF INCOME TAX BOMBAY CITY II
LAWS(SC)-1960-11-43
SUPREME COURT OF INDIA (FROM: BOMBAY)
Decided on November 24,1960

HAJI AZIZ AND ABDUL SHAKOOR BROS. Appellant
VERSUS
COMMISSIONER OF INCOME TAX,BOMBAY CITY II Respondents


Referred Judgements :-

M/S. HAJI AZIZ AND ABDUL SHAKOOR BROS.,V. THE COMMISSIONER OF INCOME-TAX [AFFIRMED . (PARAS 7,17) AN EXPENDITURE IS NOT DEDUCTIBLE UNLESS IT IS A COMMERCIAL LOSS IN TRADE AND]
MASK AND CO. V. COMMR. OF INCOME-TAX [REFERRED]
MAQBOOL HUSSAIN VS. STATE OF BOMBAY [REFERRED]
COMMISSIONER OF INCOME TAX WEST BENGAL VS. H HIRJEE [REFERRED]
LEO ROY FREY THOMAS DANA VS. SUPERINTENDENT DISTRICT JAIL AMRITSAR:SUPERINTENDENT DIST JAIL AMRITSAR [REFERRED]
SEWPUJANRAI INDRASANARAI LIMITED VS. COLLECTOR OF CUSTOMS [REFERRED]
THOMAS DANA LEO ROY FREY VS. STATE OF PUNJAB [REFERRED]



Cited Judgements :-

STATE TRADING CORPORATION OF INDIA LIMITED VS. COMMISSIONER OF INCOME TAX [LAWS(DLH)-1973-8-15] [REFERRED]
J K COTTON SPG AND WVG MILLS COMPANY LIMITED VS. COMMISSIONER OF INCOME TAX [LAWS(ALL)-1966-4-11] [REFERRED TO]
SHADI LAL SUGAR AND GENERAL MILLS LIMITED VS. COMMISSIONER OF INCOME TAX [LAWS(ALL)-1974-8-20] [REFERRED TO]
KAMLAPAT MOTILAL VS. COMMISSIONER OF INCOME TAX [LAWS(ALL)-1975-5-36] [REFERRED TO]
UPPER DOAB SUGAR MILLS LIMITED VS. COMMISSIONER OF INCOME TAX [LAWS(ALL)-1978-1-76] [REFERRED TO]
SARAYA SUGAR MILLS P LIMITED VS. COMMISSIONER OF INCOME TAX [LAWS(ALL)-1978-5-22] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. RELIABLE WATER SUPPLY SERVICE OF INDIA P LIMITED [LAWS(ALL)-1979-1-15] [REFERRED TO]
NANHOOMAL JYOTI PRASAD VS. COMMISSIONER OF INCOME TAX [LAWS(ALL)-1979-8-25] [REFERRED TO]
COMMISSIONER OF INCOME-TAX VS. J K COTTON SPINNING AND WEAVING MILLS CO [LAWS(ALL)-1980-1-80] [REFERRED TO]
COMMISSIONER OF INCOME-TAX VS. BRITISH INDIA CORPORATION [LAWS(ALL)-1982-8-50] [REFERRED TO]
COMMISSIONER OF INCOME-TAX VS. MUIR MILLS CO LTD [LAWS(ALL)-1984-1-45] [REFERRED TO]
SADI RAM GANGA PRASAD VS. COMMISSIONER OF INCOME TAX [LAWS(ALL)-1987-11-5] [REFERRED TO]
CAWNPORE SUGAR WORKS LIMITED VS. COMMISSIONER OF INCOME TAX [LAWS(ALL)-1991-4-33] [REFERRED TO]
AGRA LEATHERIES LIMITED VS. COMMISSIONER OF INCOME TAX [LAWS(ALL)-1992-4-92] [REFERRED TO]
ISHWAR DAS VS. COMMISSIONER OF INCOME TAX [LAWS(ALL)-1999-4-20] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. DHANRAJGIRIJI RAJA [LAWS(APH)-1969-9-11] [REFERRED TO]
SONI HINDUJI KUSHALJI AND CO VS. COMMISSIONER OF INCOME TAX [LAWS(APH)-1971-4-3] [REFERRED TO]
SATYANARAYANA RICE MILL VS. COMMISSIONER OF INCOME TAX [LAWS(APH)-1984-10-12] [REFERRED TO]
LIBERTY CINEMA VS. COMMISSIONER OF INCOME TAX [LAWS(CAL)-1963-2-11] [REFERRED TO]
IMPERIAL CHEMICAL INDUSTRIES INDIA PRIVATE LTD VS. COMMISSIONER OF INCOME TAX [LAWS(CAL)-1964-9-15] [REFERRED TO]
DEORIA SUGAR MILLS LTD VS. COMMISSIONER OF INCOME TAX [LAWS(CAL)-1969-3-24] [REFERRED TO]
PARSHVA PROPERTIES LTD VS. COMMISSIONER OF INCOME TAX CENTRAL [LAWS(CAL)-1974-12-19] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. DIPAK CORPORATION PVT LTD [LAWS(CAL)-1975-9-33] [REFERRED TO]
APEEJAY PRIVATE LIMITED VS. COMMISSIONER OF INCOME TAX CENTRAL [LAWS(CAL)-1978-2-33] [REFERRED TO]
RAGHUBIR PRASAD GUPTA VS. COMMISSIONER OF INCOME TAX [LAWS(CAL)-1978-11-31] [REFERRED TO]
ADDITIONAL COMMISSIONER OF INCOME-TAX M P BHOPAL VS. KUBER SINGH BHAGWANDAS [LAWS(MPH)-1978-10-14] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. MALWA VANASPATI AND CHEMICAL COMPANY LIMITED [LAWS(MPH)-1981-2-4] [REFERRED TO]
SIMPLEX STRUCTURAL WORKS VS. COMMISSIONER OF INCOME TAX [LAWS(MPH)-1982-5-6] [REFERRED TO]
COMMISSIONER OF INCOME TAX PATIALA VS. PIARA SINGH [LAWS(SC)-1980-5-4] [RELIED ON]
VENKATA SATYANARAYANA RICE MILL CONTRACTORS CO VS. COMMISSIONER OF INCOME TAX A R II [LAWS(SC)-1996-10-176] [REFERRED TO]
DHARAMVIR DHIR VS. COMMISSIONER OF INCOME TAX BIHAR AND ORISSA [LAWS(SC)-1961-1-23] [REFERRED]
COMMISSIONER OF INCOME TAX KERALA VS. MALAYALAM PLANTATION LTD [LAWS(SC)-1964-4-22] [REFERRED]
MADDI VENKATARAMAN AND COMPANY PRIVATE LIMITED VS. COMMISSIONER OF INCOME TAX [LAWS(SC)-1997-12-148] [RELIED ON]
FREE WHEELS INDIA LIMITED VS. COMMISSIONER OF INCOME TAX [LAWS(DLH)-1987-2-60] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. BHARAT STEEL TUBES LIMITED [LAWS(DLH)-1995-11-78] [REFERRED TO]
RAM SARAN NAR SINGH PRASAD VS. COMMISSIONER OF INCOME TAX [LAWS(ALL)-2001-1-48] [REFERRED TO (SC) : TC 16R.514,]
MEDIWALA AND COMPANY VS. COMMISSIONER OF INCOME TAX [LAWS(MPH)-1985-8-32] [REFERRED TO]
SUNEETA LABORATORIES LIMITED VS. COMMISSIONER OF INCOME TAX [LAWS(MPH)-1985-12-44] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. S S RATANCHAND BHOLANATH [LAWS(MPH)-1986-1-20] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. DURGA JEWELLERS [LAWS(MPH)-1987-11-6] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. BHARAT MINING CORPORATION LTD [LAWS(CAL)-1986-3-20] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. RAJDEV KIRANA STORES [LAWS(MPH)-1989-9-18] [REFERRED TO]
P K RATNAVELU VS. S MURUKESAN PILLAI [LAWS(KER)-1968-1-10] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. RAMAKRISHNA MILLS COIMBATORE LIMITED [LAWS(MAD)-1972-12-24] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. BHARAT PRINTERS [LAWS(KAR)-1991-9-45] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. AMALGAMATIONS P LIMITED [LAWS(MAD)-1976-3-62] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. SUTLEJ COTTON MILLS LTD [LAWS(CAL)-1989-12-22] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. JAMIYATRAI RAJPAL [LAWS(MPH)-1996-5-40] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. T M CHACKO AND PARTNERS [LAWS(KER)-1978-4-10] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. STANDARD FURNITURE COMPANY LIMITED IN LIQUIDATION [LAWS(KER)-1978-8-33] [REFERRED TO]
S D SHARMA VS. COMMISSIONER OF INCOME TAX BOMBAY CITY BOMBAY [LAWS(BOM)-1961-9-6] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. SYNDICATE BANK [LAWS(KAR)-2002-12-49] [REFERRED TO]
COMMISSIONER OF INCOME-TAX VS. MAMTA ENTERPRISES [LAWS(KAR)-2003-10-44] [REFERRED TO]
BIMAL KUMAR DAMANI VS. COMMISSIONER OF INCOME-TAX [LAWS(CAL)-2003-1-27] [REFERRED TO]
COMMISSIONER OF INCOME TAX AND THE INCOME TAX OFFICER VS. JAYARAM METAL INDUSTRIES [LAWS(KAR)-2006-7-12] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. PACHI PHILIP AND CO [LAWS(KER)-1994-10-46] [REFERRED TO (SC)]
MUNEENDRA VS. SRINIVASAPPA [LAWS(KAR)-2010-9-51] [REFERRED TO]
COMMISSIONER OF INCOME TAX, BOMBAY CITY VS. ANIL M GEHI [LAWS(BOM)-2005-8-209] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. PIARA SINGH [LAWS(P&H)-1970-11-30] [REFERRED TO]
CINERAMAS VS. COMMISSIONER OF INCOME-TAX [LAWS(P&H)-1976-11-9] [REFERRED TO]
LAKSHMI NARAYAN GOURI SHANKAR VS. COMMISSIONER OF INCOME TAX [LAWS(PAT)-1974-8-5] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. INDIAN COPPER CORPORATION LIMITED [LAWS(PAT)-1986-4-41] [REFERRED TO]
SANGHI BROS VS. COMMISSIONER OF INCOME TAX [LAWS(RAJ)-1992-10-15] [REFERRED TO]
ASSAM ROLLER FLOUR MILLS VS. COMMISSIONER OF INCOME TAX [LAWS(RAJ)-1996-4-35] [REFERRED TO]
Commissioner of Income Tax VS. A. Albuquerque and Sons [LAWS(KAR)-1991-9-66] [REFERRED TO]
COMMISSIONER OF INCOME TAX - III VS. KAYPEE MECHANICAL INDIA (P.) LTD. [LAWS(GJH)-2014-4-52] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. KULDEEP SINGH [LAWS(ALL)-2006-11-277] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. HERO CYCLES LTD. [LAWS(P&H)-2008-12-150] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. JAGDISH CHAND GUPTA [LAWS(P&H)-2010-8-163] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. HOSHIARI LAL KEWAL KRISHAN [LAWS(P&H)-2006-10-541] [REFERRED TO]
DEPUTY COMMISSIONER OF INCOME TAX VS. ACHIEVER BUILDERS (P) LTD. [LAWS(IT)-2014-5-83] [REFERRED TO]
ASSAM FOREST PRODUCTS (P) LTD., DIBRUGARH VS. COMMISSIONER OF INCOME [LAWS(GAU)-1989-1-22] [REFERRED TO]
PRINCIPAL COMMISSIONER OF INCOME TAX -17, MUMBAI VS. SUSHIL GUPTA [LAWS(BOM)-2019-2-63] [REFERRED TO]


JUDGEMENT

KAPUR, J.: - (1.)THE following Judgment of the court was delivered by
(2.)THIS is an appeal by special leave against the judgment and order of the High court of Bombay answering the question submitted to it. against the assessee firm who is the appellant before us, the respondent being the Commissioner of Income-tax.
The appeal relates to the assessment year 1949-50, the accounting year ended on 25/07/1948. The appellant is a firm doing the business of importing dates from abroad and selling them in India. During the accounting year the appellant imported dates from Iraq. At the relevant time the import of dates by steamers was prohibited by two notifications dated 12/12/1946, and 4/06/1947, but they were permitted to be brought by country craft. Goods which had been ordered by the appellant were received partly by steamer and partly by country craft. Consignments, which were imported by steamer and were valued at Rs. 5 lacs were confiscated by the Customs Authorities under s. 167, item 8 of the Sea Customs Act but under s. 183 of that Act the, appellant was given an option to pay fines aggregating Rs. 1,63,950.00 which sum on appeal was reduced to Rs. 82,250.00. This sum was paid and the dates were released. On the sale of the goods certain profits accrued out of which it sought to deduct Rs. 82,250.00 paid as penalty on ordinary principles of commercial accounting. The Income-tax Officer disallowed this claim which was also disallowed by the Appellate Assistant Commissioner. On appeal to the Income-tax Appellate tribunal this sum was held to be allowable by a majority of two to one. At the instance of the respondent the tribunal referred the following question to the High court for its opinion:'Whether on the facts and in the circumstances of the case, the payment of Rs. 82,250.00 is an allowable expenditure under Section 10(2) (xv) of the Indian Income-tax Act?' The High court held that the above amount of Rs. 82,250.00 could not be said to have been paid for salvaging the goods but was paid as a penalty incurred in consequence of an illegal, act on the part of the appellant and was therefore not an allowable item under s. 10(2)(xv) of the Income-tax Act. Against this judgment the appellant firm has come in appeal to this court by special leave.

It was argued on behalf of the appellant firm that it bad specifically instructed the shippers in Iraq to send the goods by country craft and we have been referred to certain correspondence but it does not appear that that correspondence in any way helps the appellant firm and the Income-tax authorities and the High court have rightly proceeded on the basis that the appellant firm imported the goods contrary to the regulations.

Three questions were raised by counsel for the appellant; (1) that an expenditure does not become inadmissible because it is occasioned by an infraction of the law not involving moral turpitude; (2) in any event the expenditure incurred was as the result of an order in rem against the stockin-trade of the appellant firm and was therefore allowable as a deduction; (3) on the facts of this case there was no infraction by the appellant firm. The last question was not seriously pressed and it is without substance. The correspondence which has been placed on the record does not support the contention of the appellant firm. It was really the second point which was pressed by counsel although the first point was not given up.

It was argued that the order of confiscation, as a consequence of which the amount was paid to get the goods released, was an order in rem without any liability on the appellant firm or on the person of the partners; that it was not sufficient that there should be mere infraction of the law because the allowability of expense item depended on the nature of the proceedings and not on the consequence that followed. The consequences of the breach of the law, it was contended, can be three; (1) confiscation or a fine in lieu of confiscation; (2) personal penalty; (3) prosecution in a criminal court or it may be all three of them. It was submitted that if the purpose of the expenditure is to save or salvage the goods then it is an allowable item of expenditure but if it is for the purpose of saving the person of the assessee then it is not. Therefore as the order passed was against the stock-in-trade and not against the person of the appellant firm it was an item expended for the release of the stock-in-trade of the appellant firm and it would be an allowable expenditure.

(3.)THE action taken against the appellants was one under S. 167, item 8 which is in Ch. XVI dealing with offences and penalties and provides :
S. 167-"THE offences mentioned in the first column of the following schedule shall be punishable to the extent mentioned in the third column of the same with reference to such offences respectively:
665 JUDGEMENT_663_AIR(SC)_1961Html1.htm
Option is given in cases governed by this section under S. 183 which provides :

S. 183 "Whenever confiscation is autho. rised by this Act, the officer adjudging it shall give the owner of the goods an option to pay in lieu of confiscation such fine as the officer thinks fit."
Enforcement of the payment of penalty is provided in S. 193 the second clause of which is relevant to the case and is as follows :
S. 193 cl., (2) "When an officer of Customs who has adjudged a penalty or increased rate of duty against any person under this Act is unable to realize the unpaid amount thereof from such goods, such officer may notify in writing to any Magistrate within the local limits of whose jurisdiction such person or any goods belonging to him may be, the name and residence of the said person and the amount of penalty or increased rate of duty unrecovered; and such Magistrate shall thereupon proceed to enforce payment of the said amount in like manner as if such penalty or increased rate had been a fine inflicted by himself."
These S. show the punishments provided for the breach of the prohibitions in regard to importation or exportation of goods under Ss. 18 and 19; the power of the Customs Authorities to give an option to pay in lieu of confiscation and how the penalties are to be imposed. Therefore when the appellants incurred the liability they did so as a penalty tor an infraction of the law; but it cannot, be said that the money which they had to pay was not paid as a penalty and in fact under S. 167 (8) it was a penalty.
In support of his argument counsel for the appellant firm referred to Maqbool Hussain etc. v. The State of Bombay etc. (1) and to the following passage at p. 742 where Bhagwati, J., said:- 'Confiscation is no doubt one of the penalties which the Customs Authorities can impose but that is more in the nature of proceedings in rem than proceedings in personam, the object being to confiscate the offending goods which have been dealt with contrary to the provisions of the law and in respect of the confiscation also an option is given to the owner of the goods to pay in lieu of confiscation such fine as the officer thinks fit. All this is for the enforcement of the levy of and safeguarding the recovery of the sea customs duties.' Similar observations were made by S. K. Das, J., in Shewpujanrai Indrasanrai Ltd. v. The Collector of Customs and Ors. (2) where it was said that a distinction must be drawn between an action in rem and proceeding in personam and that confiscation of the goods is a proceeding in rem and the penalties are enforced against the goods whether the offender is known or not. The view taken by this court in the other two cases cited by counsel for the appellants, i.e., Leo Roy Frey v. The Superintendent, District Jail, Amritsar (1) and Thomas Dana v. The State of Punjab (2) is the same. In Dana case (2) Subba Rao, J., said at p. 298:- 'If the authority concerned makes an order of confiscation it is only a proceeding in rem and the penalty is enforced against the goods. On the other hand, if it imposes a penalty against the person concerned, it is a proceeding against the person and he is punished for committing the offence. It follows that in the case of confiscation there is no prosecution against the person or imposition of a penalty on him.' In Maqbool Hussain's case (3) the question for decision was whether after proceedings had been taken under the Sea Customs Act an accused person could be prosecuted and could or could not rely upon the plea of double jeopardy, it was held that he could not. In Shewpujanrai's case (4) the contention raised was that after proceedings had been taken under the Foreign Exchange Regulation Act it was not open to the Customs Authorities to take any action under the Sea Customs Act. The other two cases were similar to Maqbool Hussain's case (3). The contention now raised before us is quite different. What is to be decided in the present case is whether the penalty which was paid by the appellant firm was an allowable deduction within s. 10(2)(xv) of the Income-tax Act which provides: S. 10(2)(xv) 'any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of such business, profession or vocation.' The words 'for the purpose of such business' have been construed in Inland Revenue v. Anglo Brewing Co. Ltd. (5) to mean 'for the purpose of keeping the trade going and of making it pay'. The essential condition of allowance is that the expenditure should have been laid out or expended wholly and exclusively for the purpose of such business.

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