- (1.) These appeals relate to the Assessment Years 1971-72, 1972-73 and 1973-74. In its income tax returns for these assessment years the assessee claimed as deduction of expenditure for the purpose of business under Section 37 (1 of the Income Tax Act, 1961, amounts that it has paid to the Madhya Pradesh Sales Tax authorities under the provisions of S. 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 Madha 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 S. 8 (2 and 17 (3 of the Madhya Pradesh General Sales Tax Act paid by the assessee is allowable expenditure in the computation of total income -
(2.) Section 17 (3 of the State statute reads as follows: "If a dealer fails without sufficient cause to comply with the requirements of a notice issued under Ss. (1 or a registered dealer fails without sufficient cause to furnish under the said section 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 a sum not exceeding one hundred rupees. "
(3.) The amount that the assessee is required to pay thereunder is by reason of the fact that he has, without sufficient cause, failed to comply with the requirements of a notice or to furnish a return. Then, after giving the assessee a reasonable opportunity of being heard, the Commissioner may direct him to pay a sum that does not exceed one-fourth of the tax that is assessed or, if no tax is found payable, a sum not exceeding rupees one hundred. It is for the Commissioner to determine whether the assessee has so failed without sufficient cause and he must do after giving the assessee an opportunity of being heard. He is empowered, to direct the assessee to pay and the upper limit of such payment is prescribed. Where no tax is found to be payable he can direct the assessee to pay a sum not exceeding Rs. 100. 00. The use of the word penalty in the provision is neither here not there. Read as a whole, 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 compensationinvolved 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.;