C.I.T PATIALA vs. M/S S.S WOOLLEN MILLS

ITR/68/1989HC Punjab & HaryanaPHHC01022612198924 October 2006Author: MR. JUSTICE ADARSH KUMAR GOEL,MR. JUSTICE RAJESH BINDAL2 pages
AI SummaryRemanded

What did the High Court hold?

The High Court noted that the question referred pertains to the deductibility of a penalty levied under Section 36(3) of the Bombay Sales Tax Act, 1959, as interest. The Tribunal had held this penalty to be in the nature of interest, following a prior decision. The Supreme Court in Parkash Cotton Mills P. Limited v. CIT (1993) 201 ITR 684, observed that statutory imposts paid by an assessee by way of damages, penalty, or interest are allowable as deductions under Section 37(1) of the Income Tax Act if they are compensatory in nature. The authorities are obligated to bifurcate composite imposts into compensatory and penal components, allowing deduction for the former. In the present case, the revenue's counsel could not show that the penalty allowed as a deduction was not in the nature of interest. However, due to the revenue's failure to file the paper book and the inability of its counsel to assist the court, the reference was returned unanswered, despite the question being liable to be answered against the revenue on merits.

What were the facts?

The Income Tax Appellate Tribunal (ITAT), Chandigarh, passed an order on February 8, 1986, in ITA No. 76 of 1986 for the assessment year 1976-77. The Commissioner of Income Tax, Patiala (the revenue), made a reference to the High Court of Punjab and Haryana at Chandigarh concerning this order. The assessee is M/s. S.S. Woollen Mills, Ludhiana. The dispute revolves around the admissibility of a penalty levied under Section 36(3) of the Bombay Sales Tax Act, 1959, as a deduction under the Income Tax Act, 1961. The revenue has not filed a paper book despite the passage of 17 years.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law that the amount of penalty levied under section 36(3) of the Bombay Sales Tax Act, 1959, was nothing but interest for depriving the Government of its legitimate dues and was admissible as a deduction under the Income Tax Act, 1961? The revenue's contention, as implied by the reference, is that the penalty levied under Section 36(3) of the Bombay Sales Tax Act, 1959, is not an allowable deduction. The assessee, by implication, contends that this penalty is compensatory in nature, akin to interest, and therefore deductible under Section 37(1) of the Income Tax Act, 1961. The Tribunal, in its order, followed a previous judgment which held that such a penalty was in the nature of interest. The revenue's counsel was unable to demonstrate that the deduction allowed was not in the nature of interest.

Which sections of the Income-tax Act were involved?

Section 36(3),Section 37(1)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
ITR No.68 of 1989 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITR No.68 of 1989 Date of decision:24.10.2006 The Commissioner of Income Tax, Patiala ....Petitioner versus M/s. S.S.Woollen Mills, Ludhiana ....Respondent CORAM: HON'BLE MR. JUSTICE ADARSH KUMAR GOEL HON'BLE MR. JUSTICE RAJESH BINDAL Present: Mr. SK Garg Narwana, Advocate, for the revenue.

JUDGMENT: This reference has been made at the instance of the revenue by the Income Tax Appellate Tribunal, Chandigarh, arising out of its order dated 8.2.1986 in ITA No.76 of 1986 for the assessment year 1976-77. The question referred is as under:- “Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law that the amount of penalty levied under section 36(3) of the Bombay Sales Tax Act, 1959 was nothing but interest for depriving the Govt. of its legitimate dues and was admissible as a deduction under the Income Tax Act, 1961?”

The question referred has been gone into by the Hon'ble Supreme Court in Parkash Cotton Mills P. Limited v. CIT, (1993) 201 ITR 684, wherein the question was deduction claimed on account of inter

The order continues below.

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