- (1.) The following question of law has been referred to this court by the Tribunal under Section 256(1) of the Income-tax Act, 1961 : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the extra payment of Rs. 7,249 made by the company to the Provident Fund authorities for not making the payment of provident fund dues in time was not in the nature of penalty and that was in the nature of compensation paid to the Government -
(2.) The assessment year involved in this reference is the assessment year 1975-76, for which the relevant period of account is the financial year ending on December 31, 1974.
(3.) The Tribunal, following the decision of this court in the case of Balrampur Sugar Co. Ltd. v. CIT [1982] 155 ITR 227, held that damages levied and payable under Section 14B of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, were not in the nature of penalty but in the nature of compensation paid to the Government. In the case of Balrampur Sugar Co. Ltd's case , this court held that the liability to pay interest under Section 3(3) of the U. P. Sugarcane (Purchase Tax) Act, 1961, which arose for the delayed payment of cess was compensation for the delayed payment and not in the nature of a penalty imposed for an infraction of law and, therefore, the interest was an allowable deduction in computing the business income of an assessee, who carried on the business of manufacture and sale of sugar. In that case, reliance was placed on a decision of the Supreme Court in the case of Mahalahshmi Sugar Mills Co. v. CIT [1980] 123 ITR 429. There, the Supreme Court analysed the provisions of the U. V. Sugarcarte (Purchase Tax) Act, and was of the view that the interest paid by the assessee-company engaged in manufacture and sale of goods under Section 3(3) of the U. P. Sugarcane Cess Act, 1956, on arrears of cess payable on the entry of cane into the premises of a factory for use either for consumption or sale thereof was in reality a part and parcel of the liability to pay tax and it was an accretion to the cess. The arrears of cess carried interest if it was not paid within the prescribed period and a larger amount became payable as cess. The Supreme Court further held that the enlargement of cess liability was automatic under Section 3(3).;