Bombay High Court
Rohit Pulp And Paper Mills Ltd. vs Commissioner Of Income-Tax on 10 November, 1994
Equivalent citations: [1995]215ITR919(BOM)
JUDGMENT Dr. B.P. Saraf, J.
1. By this reference, the following five questions of law have been referred by the Income-tax Appellate Tribunal for the opinion of this court under section 256(1) of the Income-tax Act, 1961, at the instance of the assessee :
"1. Whether, on the facts and in the circumstances of the case, any amount paid to the employee-directors of the assessee-company which is beyond the amount of Rs. 72,000 is taxable under clauses (i) and (ii) of section 40(c) of the Income-tax Act, 1961, irrespective of whether the expenditure is excessive or unreasonable having regard to the legitimate business needs of the company, and also irrespective of whether the remuneration has been approved by the Government of India under section 310 of the Companies Act ?
2. Whether, on the facts and in the circumstances of the case, the commission paid to the managing director of the assesee-company partakes the character of salary and is, therefore, subject to the limits prescibed under section 40(c)(i) and (ii) of the Income-tax Act, 1961 ?
3. Whether, on the facts and in the circumstances of the case, the penalty paid by the assessee to the customs authorities is allowable as a business expenditure under section 37 of the Income-tax Act, 1961 ?
4. Whether, on the facts and in the circumstances of the case, the additional expenditure of Rs. 47,173 incurred by the assessee due to difference in exchange rates in remitting instalments of foreign currency loans repaid by the assessee is allowable in view of section 43A(1) of the Income-tax Act, 1961 ?
5. Whether, on the facts and in the circumstances of the case, the sum of Rs. 11,076 being the gratuity liability of the assessee relating to its managing director, executive director and other officers and not covered under the Payment of Gratuity Act, 1972, is admissible in view of section 40A(7) of the Income-tax Act, 1961 ?"
2. Counsel for the parties are agreed that all the questions except question No. 3 are covered by the decisions of this court and the Supreme Court and they may be decided in the light thereof. We, therefore, answer the said questions as follows :
The first question is covered by the decision of this court in CIT v. Hico Products Pvt. Ltd. (No. 1) [1993] 201 ITR 567. Following the same, this question is answered in the affirmative and in favour of the Revenue.
3. The second question is covered by the decision of the Supreme Court in CIT v. India Engg. and Commercial Corporation P. Ltd. [1993] 201 ITR 723. Following the same, it is also answered in the affirmative and in favour of the Revenue.
4. The fourth question is covered by the decision of the Supreme Court in Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1. Following the same, it is answered in the negative and in favour of the Revenue.
5. The fifth question is also covered in favour of the Revenue by the decision of the Supreme Court in Shree Sajjan Mills Ltd. v. CIT [1985] 156 ITR 585. This question is, therefore, answered in the negative and in favour of the Revenue.
6. So far as question No. 3 is concerned, learned counsel for the assessee submits that the amount paid by the assessee as penalty to the customs authorities was allowable as business expenditure inasmuch as the goods in question, on which the penalty was imposed, were imported by the assessee under the bona fide belief that the goods were covered by the import licence.
7. Learned counsel for the Revenue submits that the penalty imposed in this case in lieu of confiscation is a penalty simpliciter and is not allowable as a deduction under section 37 of the Act.
8. We have carefully considered the rival submissions. We find that the goods valued at Rs. 51,673 imported by the assessee were found by the customs authorities to be not covered by a valid licence, which is an offence under section 111(d) of the Customs Act, 1961, read with section 3 of the Imports and Exports (Control) Act, 1947. The Deputy Collector of Customs ordered confiscation of the goods under the above provisions and gave an option to the assessee under section 125 of the Customs Act to pay, in lieu of confiscation, a fine of Rs. 35,000. It is this amount which is claimed as a deduction.
9. We do not find that the above amount paid by the assessee is anything else than a penalty. It is, therefore, not allowable as a deduction under the Income-tax Act. The Income-tax Officer and other authorities were justified in not allowing any deduction under section 37 of the Income-tax Act on account of the same. The third question is, therefore, answered in the negative and in favour of the Revenue.
10. Under the facts and circumstances of the case, there shall be no order as to costs.