COMMISSIONER OF INCOME TAX Vs. P SOMAN
HIGH COURT OF KERALA
COMMISSIONER OF INCOME TAX
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(1.) THE CIT, Trivandrum has filed this appeal against the order of the Tribunal. Cochin Bench in ITA No. 276/Coch/1996, dt. 16th Aug., 2000. The respondent is an assesses to income -tax under the IT Act, 1961 (for short the Act). The respondent -assessee is conducting a jewellery shop in the name and style of Mangalathu Jewellery at Vaikom. For the asst. yr. 1989 -90 the assessee filed a return disclosing an income of Rs. 14,930. The said return was processed under Section 143(1)(a) of the Act on 15th Feb., 1991. There was a search in the business premises of the assessee on 28th April, 1988, by the Central Excise Department and gold ornaments weighing 1,379.500 gms. and one piece of melted gold weighing 114.850 gms. were seized. Based on these materials the AO had issued a notice under Section 148 of the Act on 8th Jan., 1992 and the assessee filed a return on 30th March, 1992, pursuant thereto. In the said assessment proceedings the assessee claimed deduction of a total sum of Rs. 1,95,000 (Rs. 1,50,000 towards redemption fine and Rs. 45,000 towards penalty) under Section 37 of the Act. The AO rejected the claim holding that the payment was effected for infraction of law. The appellant filed appeal against the said order before the CIT(A) Cochin, who by his order dt. 10th Jan., 1996 (Annexure B) allowed the claim of the appellant regarding the redemption fine of Rs. 1,50,000 and the advocate fees incurred in connection with the proceedings before the Central Excise authorities. Being aggrieved by the order of the appellate authority both the Revenue and the assessee filed appeals before the Tribunal. The Tribunal had upheld the order of the CIT(A) and dismissed the appeal filed by the Revenue. The appeal filed by the assessee was also dismissed stating that it has become infructuous.
(2.) WHILE admitting the appeal notice was ordered on the following two questions of law :
'1. Whether, on the facts and in the circumstances of the case, the assessee is entitled to claim deduction of the amounts of Rs. 1,50,000 and Rs. 45,000 paid towards fine and penalty respectively ? 2. Whether, on the facts and in the circumstances of the case and since the fine and penalty were paid for infraction of law, the assessee is entitled to claim deduction for the same ?'
We have heard the learned counsel appearing for the parties. The learned standing counsel for the Revenue submitted that none of the authorities including the Tribunal had made any effort to find out the nature of payment of the sum of Rs. 1,50,000 by way of redemption fine and Rs. 45,000 by way of penalty with reference to the relevant provisions of the Central Excise Act and the Rules. The standing counsel submits that it is not the nomenclature which is given to the payment that matters, but the essential nature of the payment with reference to the statutory provisions. The standing counsel, in support of the said contention, has relied on the decision of the Supreme Court in Swadeshi Cotton Mills Co. Ltd. v. CIT : 233ITR199(SC) . The standing counsel further submitted that the question referred in this case is squarely covered by the decision of the Supreme Court in CIT v. Jagannath Kissonlal : 41ITR360(SC) in favour of the Revenue and against the assessee. The standing counsel further submits that the first appellate authority and the Tribunal had erroneously relied on the decision of the Madras High Court in CIT v. N.N. Parthasarathy : 212ITR105(Mad) . On the other hand, counsel for the assessee sought to support the order of the authorities and the Tribunal with reference to the decision of the Madras High Court in Parthasarathy's case (supra). We have considered the rival submissions and also perused the relevant provisions of the Act and also the provisions of Rule 173 -Q of the Central Excise Rules and the provisions of ss. 33, 34 and 34 -A of the Central Excise Act. It is Rule 173 -Q which provides for confiscation of goods and for imposition of penalty. Section 33 of the Act provides for adjudication of matters covered by Rule 173 -Q. Section 34 which is relevant for the purpose of this case gives an option to pay fine in lieu of confiscation. The said provision reads as follows :
'34. Option to pay fine in lieu of confiscation. - -Wherever confiscation is adjudged under this Act or the rules made thereunder 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.' Section 34 -A of the Act is also relevant in this context which reads as follows : '34 -A Confiscation or penalty not to interfere with other punishments. - -No confiscation made or penalty imposed under the provisions of this Act or of any rule made thereunder, shall prevent the infliction of any other punishment to which the person affected thereby is liable under the provisions of this Act or under any other law.'
(3.) WE , find that neither the assessing authority nor the two appellate authorities had made any effort to ascertain the nature of the payment and the consequences provided therefor in the Act and the Rules. The question as to whether the redemption fine paid under the provisions of Section 34 of the Act can be treated as one for infraction of law is also a relevant matter to be considered, that too with reference to the provisions of Section 34A also. In fact the Supreme Court in Swedeshi Cotton Mills' case (supra) has clearly observed that whenever any statutory impost paid by an assessee by way of damages or penalty or interest is claimed as an allowable expenditure under Section 37(1) of the Act, the assessing authority is required to examine the scheme of the provisions of the relevant statute providing for payment of such impost notwithstanding the nomenclature of the impost as given by the statute to find out whether it is compensatory or penal in nature. As already noted, none of the authorities have addressed the question with reference to the provisions of the relevant Act and the rules under which the payment is made. In these circumstances we are of the view that the matter has to be considered by the AO himself in the light of the principles laid down by the Supreme Court in Swadeshi Cotton Mills' case (supra) and with reference to the provisions of the Central Excise Act and the Rules which we have already referred. In fact a Division Bench of this Court had occasion to consider the principles governing the determination of a payment as one for infraction of law or of compensatory in nature in the judgment in CIT v. Catholic Syrian Bank Ltd. It will also be helpful in deciding the question involved in this case. It is open to the Revenue also to place all decisions of the Supreme Court including the decision in CIT v. Jagannath Kissonlal (supra).;
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