SHARMA, J. - (1.) THE Revenue has filed this application under section 256(2) of the Income tax Act, 1961 ('the Act') directing the Tribunal, Jaipur Bench, to refer the following question of law for the opinion of this Court: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the penalty amounting to Rs. 71,232 on late payment of provident fund contribution was deductible as a business expenditure under the IT Act, 1961?"
(2.) THERE is no dispute that the non-petitioner S. Zoraster and Co. (Supplies) (P) Ltd., Golecha Garden, Jaipur (the company) is covered under the provisions of the Employees Provident Funds & Miscellaneous Provisions Act, 1952 ('the Act') Presently, there also appears to be no dispute that the contribution, i.e., employer's contribution as well as the employees's contribution, both in respect of provident fund, was not paid in time. Therefore, after notice to the company under s. 14B of the Employees Provident Funds and Miscellaneous Provisions Act, damages amounting to Rs. 71,232 were levied against the company for late payment of the contribution. In doing assessment for the year 1976-77, the company claimed the aforesaid amount of Rs, 71,232 as business expenditure under S. 37 of the IT Act. The assessing authority under the assessment order dt. 9th Aug., 1983 held that the company was not entitled to claim the said amount and the aforesaid amount under S. 14B, being in the nature of penalty, could not be allowed as business expenses. The company preferred an appeal and, the CIT (A) under his order dt. 10th Feb., 1984 in agreement with the assessing authority, did not allow the aforesaid amount as business expenditure. The company then filed an appeal before the Tribunal, Jaipur Bench, and the Tribunal under its order dt 29th Sept., 1987, allowed the appeal in part and took a view that the provisions of the Act are different from the provisions claiming damages under the same Act and place reliance on its earlier decision for the asst. yr. 1974-75 in the case of Udaipur Mineral Development Syndicate(P) Ltd (IT Appeal no. 452 (JP) OF 1981 dt. 22nd July, 1983) and further placed reliance on the Special Bench decision in the case of Second ITO vs. Bisleri (I) (P) Ltd (1985) 12 ITD 116 (Bom), wherein the Tribunal had said that the damages under the Provident Funds Act are allowable as business expenditure. An application for reference under S. 256(1) was filed before the Tribunal and the Tribunal under its order dt. 26th July, 1988 refused to state a case and refer question of law for the opinion of this Court. The Tribunal said that its finding was that the amount paid to the Provident Fund Commissioner was in the nature of payment of interest for late payment. It is contended by the learned counsel for the Revenue in support of his application under S. 256 (2), that the view taken by the Tribunal is not in accordance with law and the Tribunal has taken a wrong view that the amount paid to the Provident Fund Commissioner was in the nature of payment of interest for late payment. In support of his contention that it is by way of penalty and, as such, cannot be allowed as business expenditure under S. 37, the learned counsel for the Revenue has placed reliance on the case of CIT vs. Kamlapat Motilal (1988) 69 CTR (All) 228 : (1988) 172 ITR 438 (All) : 39 Taxman 95 Wherein a Division Bench of the Allahabad High Court has taken the view that the damages paid for late payment of provident fund deductions under s. 14B of the Employees' Provident Funds and Miscellaneous Provisions Act are penal in nature and are not allowable as business expenditure under S. 37 of the IT Act. In the aforesaid case, the Allahabad High Court considered the cases of Triveni Engg. Works Ltd. vs. CIT (1984) 38 CTR (All) 107 : (1983) 144ITR 732 (FB) : 15 Taxman 452 and Mahalakshmi Sugar Mills Co. vs. CIT (1980) 16 CTR (SC) 198 : (1980)123 ITR 429 (SC), on which reliance has been placed by the learned counsel for the Revenue and said that the Supreme Court had said in the aforesaid case of Mahalakshmi Sugar Mills Co. (supra) that interest paid on arrears of cess under S. 3(3) of the U.P.Sugarcane Cess Act,1956 as an allowable deduction as revenue expenditure. In the aforesaid case of Kamalapat Motilal (supra). The Allahabad High Court considered the case of Organo Chemical Industries vs. Union of India AIR1979 SC 1803. In the aforesaid case the Supreme Court disapproved the view and said that 'damages' paid under S. 14B are simply to recompense the beneficiaries of the Scheme from the loss they suffered, and remarked: "46, The traditional view of damages as meaning actual loss, does not take into account the social content of a provision like S. 14B continued in a socio-economic measure like the Act in question. The word 'damages' has different shades of meaning. It must take its colour and content from its context, and it cannot be read in isolation, nor can S. 14B be read out of context. The very object of the legislation would be frustrated if the word 'damages' appearing in S. 14B of the Act was not construed to mean penal damages. The imposition of damages under S. 14B serves a two-fold purpose. It results in damnification and also serves as a deterrent. The predominant object is to penalise , so that an employer may be thwarted or deterred from making any further defaults,"
(3.) WE are of the opinion that the view taken by the Tribunal that they were not in the nature of interest for late payment does not appear to be in accordance with law. At any rate, question of law does arise for opinion of this Court.;