Income Tax Appellate Tribunal - Chandigarh
H.P. Agro Industries Corporation Ltd. vs Deputy Commissioner Of Income Tax on 17 March, 1999
Equivalent citations: [1999]69ITD89(CHD), [1999]240ITR62(CHD)
ORDER
U. B. S. Bedi, J.M.
1. Through this miscellaneous petition, the assessee seeks rectification of the Tribunal's order dt. 26th Feb., 1997 passed in the captioned appeal, whereby deduction of Rs. 10,090 on account of fine and penalties paid under s. 14B of the Provident Fund Act, have been held to be not allowable, by relying on ITO vs. Bisleri (I)(P) Ltd. (1985) 12 ITD 116 (Bom.) (SB). It is stated that this case favours the assessee.
2. At the time of hearing of the miscellaneous petition, the assessee is not represented. Learned Departmental Representative submitted that the instant case is otherwise covered by the decisions of various High Courts, so there remains no importance of the Tribunal's decision (supra). He relied on Saraya Sugar Mills (P.) Ltd. vs. CIT (1979) 116 ITR 387 (All.) (FB), Swadeshi Cotton Mills Co. Ltd. vs. CIT (1989) 180 ITR 651 (All), CIT vs. L. H. Sugar Factories & Oil Mills (P.) Ltd. (1980) 123 ITR 596 (All) and urged for dismissal of the assessee's miscellaneous petition.
3. We have heard learned Departmental Representative gone through the record and the Special Bench's decision (supra) as also case law cited above and find that cases of Saraya Sugar Mills (P) Ltd. and Swadeshi Cotton Mills Co. Ltd. (supra) are relevant and, in view of the facts and circumstances of the case, there is no force in the miscellaneous petition of the assessee, which fails.
R. K. Bali, A.M.
1. Ground No. 1 in ITA No. 153/Chd/1991 related to the action of the Departmental authorities in confirming the disallowance of Rs. 10,090 on account of fine and penalties. The Tribunal in its order dt. 26th Feb., 1997 which was a combined order in ITA Nos. 115, 153 and 154/91, upheld the action of the Departmental authorities relying on the decision of the Special Bench of the Tribunal as in Bisleri (I)(P) Ltd.'s case (supra). The assessee moved a miscellaneous petition on 10th March, 1997 praying that in view of the Special Bench decision (supra), the disallowance of Rs. 10,090 was not justified as in the said decision, the Special Bench relying on the Supreme Court decision in the case of Mahalakshmi Sugar Mills Co. vs. CIT (1980) 123 ITR 429 (SC) has held that penalty under s. 36(3) of the Sales-tax Act and damages under s. 14B of the Provident Fund Act were allowable as deductions and the Tribunal inadvertently, while passing the order, has mentioned that the ground taken by the assessee fails instead of writing that the "ground is to be allowed".
2. On the above miscellaneous petition, the learned Judicial Member, who wrote the judgment, made the following order under proviso to r. 34A(3) of the IT Rules :
"Since acceptance of miscellaneous application would tantamount to review earlier order of the Bench which is not permissible under law, this application is not posted for hearing in terms of proviso to r. 34A(3) hence filed. Inform the assessee."
When the matter was put up before me, I discussed the matter with the learned Judicial Member and told him that as per the decision of the Special Bench in Bisleri (I)(P) Ltd.'s case (supra) relied on by the assessee, the ground was to be adjudicated in favour of the assessee and it was by a mistake that the Tribunal observed that the ground has failed. After discussion, my learned brother agreed to fix the case for hearing on 9th May, 1997, by making the following order :
"With reference to the assessee's miscellaneous petitions disallowance of Rs. 10,090 on account of fine and penalties, was decided in para 8 of the Tribunal's order as under :
'8. Now, coming to the assessee's appeal relating to asst. yr. 1980-81, first ground is against confirmation of disallowance of Rs. 10,090 on account of fines and penalties. The disallowance needs to be confirmed, in addition to the reasoning given by CIT(A) in the impugned order, by the ratio of the decision reported as ITO vs. Bisleri (1985) 12 ITD 116 (Bom)(SB). Ground fails.' In view of the contention raised in the miscellaneous petition we direct that both the parties - assessee and the Revenue - are at liberty to file objections, if any, in this regard on or before 30th May, 1997, on which date the miscellaneous petition is fixed."
On 30th May, 1997, when the miscellaneous petition was fixed for hearing, there was no representation on behalf of the assessee. However, the learned Departmental Representative submitted that since the issue in dispute was covered in favour of the Revenue as per the decisions of the Allahabad High Court in the cases of Saraya Sugar Mills (P.) Ltd. (supra), L.H. Sugar Factories & Oil Mills (P.) Ltd. (supra) and Swadeshi Cotton Mills Co. Ltd. (supra), no reliance should be placed on the decision of the Special Bench. Accordingly my learned brother held that there was no material in the miscellaneous application filed by the assessee which should be rejected.
3. I have very carefully gone through the proposed order of my learned brother but I am unable to accept the same and I give my reasons for the same as under.
4. The short question which was required to be decided in the present miscellaneous petition was as to whether in view of the Special Bench decision in Bisleri (I)(P) Ltd.'s case (supra) the amount of Rs. 10,090 on account of fine and penalties paid under s. 14B of the Provident Fund Act was an allowable deduction from the profits of the assessee or not. The Special Bench decision clearly mentioned at p. 118 of the report that damages under s. 14B of the Provident Fund Act are an allowable deduction and it was only by mistake in the order passed by the Tribunal the ground was adjudicated against the assessee. The decision of the Special Bench being in conformity with the decision of the Hon'ble Supreme Court referred to supra, the miscellaneous petition of the assessee is required to be allowed. The reliance by the learned Departmental Representative on the Allahabad High Court judgments in Saraya Sugar Mills (P.) Ltd.'s case (supra), L.H. Sugar Factories & Oil Mills (P.) Ltd.'s case (supra) and Swadeshi Cotton Mills Co. Ltd.'s case (supra) is misplaced as in all these decisions of the Allahabad High Court, the decision of the Delhi High Court in the case of CIT vs. Mahalakshmi Sugar Mills Ltd. (1972) 85 ITR 320 (Del) was approved which decision has since been reversed by the Hon'ble Supreme Court in the case of Mahalakshmi Sugar Mills Co. (supra) I may further point out that a Full Bench of the Hon'ble Allahabad High Court itself in the case of Triveni Engg. Works Ltd. vs. CIT (1983) 144 ITR 732 (All) has clearly held that the decisions of the Hon'ble Allahabad High Court in the case of Saraya Sugar Mills (P.) Ltd. (supra) does not lay down the correct law. The decisions in L.H. Sugar Factories & Oil Mills (P.) Ltd.'s case (supra) and Swadeshi Cotton Mills Co. Ltd.'s case (supra) have relied on the decision of Allahabad High Court in Saraya Sugar Mills (P) Ltd.'s case (supra) which cannot be considered as laying down the correct law in view of the decision of the Hon'ble Supreme Court in the case of the Mahalakshmi Sugar Mills Co. (supra) as well as the Full Bench decision of the Allahabad High Court in the case of Triveni Engg. Works Ltd. (supra). I accordingly allow the miscellaneous application filed by the assessee.
REFERENCE UNDER S. 255(4) OF THE IT ACT R. K. Bali, A.M.
1. On a difference of opinion between the Members who heard this miscellaneous petition, the following point of difference is referred to the Hon'ble President for the opinion of the Third Members :
"Whether, on the facts and in the circumstances of the case, the miscellaneous petition of the assessee seeking rectification of Tribunal's order dt. 26th Feb., 1997, should be dismissed as held by the Judicial Member or it should be allowed in view of the reasoning given by the Accountant Member ?"
U. B. S. Bedi, J.M.
1. On a difference of opinion between the Members who heard this miscellaneous petition, the following point of difference is referred to the Hon'ble President for the opinion of the Third Members :
"Whether, on the facts and in the circumstances of the case, the miscellaneous petition of the assessee seeking rectification of the Tribunal's order dt. 26th Feb., 1997 should be dismissed as held by the Judicial Member relying on Saraya Sugar Mills (P) Ltd. vs. CIT (1979) 116 ITR 387 (All) (FB) and Swadeshi Cotton Mills Co. Ltd. vs. CIT (1989) 180 ITR 651 (All) (FB) cited by Departmental Representative or it should be allowed as held by the Accountant Member relying on Triveni Engg. Works Ltd. vs. CIT (1983) 144 ITR 732 (All) (FB) where Saraya Sugar Mills (P) Ltd. vs. CIT (supra) was overruled on the point of interest paid on sugar cane purchase tax/cess paid late and Mahalakshmi Sugar Mills Co. vs. CIT (1980) 123 ITR 429 (SC) where (1979) 116 ITR 387 (All) (FB) (supra) was not overruled and still holds the field and in none of these cases point of allowability under s. 37(1) of damages paid/recovered under s. 14B of Provident Fund Act was there and when none of these cases were cited by either side ?"
R. M. Mehta, Vice President (As Third Member)
1. This is a case where unfortunately the difference did not end at the stage of deciding the miscellaneous petition but continued even upto the stage of framing the point of difference as the following would show :
Per, A.M. :
"Whether, on the facts and in the circumstances of the case, the miscellaneous petition of the assessee seeking rectification of Tribunal's order dt. 26th Feb., 1997 should be dismissed as held by the Judicial Member or it should be allowed in view of the reasoning given by the Accountant Member ?"
Per, J.M. :
"Whether, on the facts and in the circumstances of the case, the miscellaneous petition of the assessee seeking rectification of the Tribunal's order dt. 26th Feb., 1997 should be dismissed as held by the Judicial Member relying on Saraya Sugar Mills (P) Ltd. vs. CIT (1979) 116 ITR 387 (All) (FB) and Swadeshi Cotton Mills Co. Ltd. vs. CIT (1989) 180 ITR 651 (All) (FB) cited by Departmental Representative, or it should be allowed as held by the Accountant Member relying on Triveni Engg. Works Ltd. vs. CIT (1983) 144 ITR 732 (All) (FB) where (1979) 116 ITR 387 (All) (FB) (supra) was overruled on the point of interest paid on Sugar Cane Purchase Tax/Cess paid late and Mahalakshmi Sugar Mills Co. vs. CIT (1980) 123 ITR 429 (SC) where (1979) 116 ITR 387 (All) (FB) (supra) was not overruled and still holds the field and in none of these cases point of allowability under s. 37(1) of damages paid/recovered under s. 14B of Provident Fund Act was there and when none of these cases were cited by either side ?"
2. A reading of the question framed by the learned Judicial Member shows that he has included "arguments" from the words "where (1979) 116 ITR 387 (All) (FB) (supra)" upto the end of the question. It in fact tantamounts to expressing an "opinion" on the dissenting view of the learned Accountant Member which can be best left to the Third Member to decide.
2.1. The learned Judicial Member has also taken exception to the reference by the learned Accountant Member to certain reported decisions on the ground that "none of these were cited by either side." It may be appreciated that it was only the Revenue which was represented at the hearing of the miscellaneous petition which was decided ex parte qua the assessee. Under these circumstances the learned Accountant Member, in my opinion, very rightly invoked relevant case law to enable a decision to be rendered on merits in deciding the miscellaneous petition although it was his decision and a dissenting one. The Tribunal is duty bound to render justice and in a matter decided ex parte great care is required as one party is not present and in the present case the decisions referred to by the learned Accountant Member are those which are not only relevant to the subject of dispute between the parties but are those where the decisions relied upon by the Department are considered one way or the other. No one can grudge the right or I must say the duty of a Judge, to follow the course of a judgment cited before him to see whether it is approved by a higher Court or modified in part or reversed.
3. Coming to the different questions proposed by the learned Members, I am of the view that much time need not be wasted in the light of my earlier observations as the point of difference is whether the miscellaneous petition was required to be accepted as held by the learned Accountant Member or it merited rejection that being the view expressed by the learned Judicial Member, but before I proceed to deal with the issue, I would like to recollect an important aspect of the case. The assessee in this case had filed a miscellaneous petition on the ground that the Special Bench decision of the Tribunal in the case of Bisleri (I) (P) Ltd. (1985) 12 ITD 116 (Bom)(SB) cited at the hearing of the appeal had been erroneously applied against the assessee whereas it had been quoted as favouring the assessee. To this extent a mistake apparent from the record was canvassed but in the ex parte hearing the Tribunal proceeded to decide the matter as if in an "appeal hearing" rather than to restrict itself to the limited issue raised. In other words, the limit where rectification proceedings ended and assumed the character of an appeal hearing were lost sight of and the Department was allowed to cite decisions not done by it at the time of hearing of the appeal as the initial order of the Tribunal shows that the parties restricted themselves to the Special Bench decision, supra.
4. In view of the peculiar background of this case, I now proceed to decide whether the decisions relied upon by the learned Accountant Member were applicable or those referred to by the learned Judicial Member held the field.
5. Taking up first the Special Bench decision of the Tribunal in the case of Bisleri (I)(P) Ltd. (supra), the question was of the claim for deduction in respect of penalty imposed and paid under s. 36(3) of the Bombay ST Act, 1959, for non-payment of sales-tax in time, amount of damages under s. 14B of Provident Fund Act and interest paid for non-payment of contributions under the Employees' Provident Fund Act and under Employees' State Insurance Act. The learned Member constituting the Special Bench following the decision of the Hon'ble Supreme Court in the case of Mahalakshmi Sugar Mills Co. (supra), which dealt with interest on arrears of cess under s. 3(3) of the U.P. Sugar-Cane Act, 1956 allowed the various claims. The observations of the Bench in respect of damages under s. 14B of the Provident Fund Act as also interest charged for non-payment of sales-tax, sugar cess, provident fund contribution, ESI contribution, etc. are as follows :
"... The issue regarding the deduction of the interest paid for non-payment of the provident fund contribution was squarely covered by the decision in the case of Mahalakshmi Sugar Mills Co. vs. CIT (supra) and there was no difficulty in holding that the interest paid by the assessee for non-payment of the provident fund contribution and the contributions under the Insurance Act were allowable as deductions as they would stand on the same footing as the contributions themselves.
As regards the damages paid under s. 14B of the Provident Fund Act, on going through the orders of the Regional Provident Fund Commissioner reducing the damages to 20 per cent and in allowing the assessee to make the payment of provident fund contributions in twelve monthly instalments, it was clear that the assessee was passing through financial stringency which was not of its own making.
xxxxx xxxxx xxxxx Therefore, it is clear that the interest charged for non-payment of sales-tax, sugar cess, provident fund contribution, ESI contribution, etc., is not and cannot be equated with penalty for infraction of law. Such an interest is, therefore, always allowable as deduction. As regards penalty imposed and paid for non-payment of such levies, the manner in which the imposition of penalty is treated by the authorities under the statutes under which the penalty is imposed, constitutes a relevant factor for considering whether the penalty so imposed is penal or mere interest/damage/compensation for delay in making payment of legitimate dues. However, the acid test in all these cases will be, whether the penalty/damage has been suffered by the assessee in spite of its acting in good faith and in its capacity as a trader."
6. The Special Bench in the aforesaid decision considered the judgments of the Hon'ble Allahabad High Court in the cases of Saraya Sugar Mills (P.) Ltd. (supra) and L.H. Sugar Factories & Oil Mills (P.) Ltd. (supra), the latter judgment following the former along with a catena of decisions of various other High Courts. Another decision considered was the one of the Hon'ble Allahabad High Court reported in the case of Triveni Engg. Works Ltd. (supra), which followed the Hon'ble Supreme Court judgment in the case of Mahalakshmi Sugar Mills Co. (supra), which was followed by the learned Accountant Member in his dissenting order and the earlier two decisions relied upon by the Revenue at the hearing of the miscellaneous petition finding favour with the learned Judicial Member along with the decision of the same Hon'ble High Court in the case of Swadeshi Cotton Mills Co. Ltd. (supra) which in turn followed the decision in Saraya Sugar Mills (P.) Ltd.'s case (supra).
7. Coming back to the aforesaid decision once again i.e. Saraya Sugar Mills (P.) Ltd.'s case (supra), their Lordships initially dealt with the question of interest under s. 3(3) of the U.P. Sugarcane Purchase Tax Act, 1961 and held that it was not an allowable deduction and applied this decision to the question of damages paid under s. 14B of the Employees' Provident Fund Act as follows :
"In respect of the third question, s. 14B of the Employees' Provident Funds Act provides :
'Where an employer makes default in the payment of any contribution to the Fund or in the transfer of accumulations required to be transferred by him under sub-s. (2) of s. 15 or in the payment of any charges payable under any other provision of this Act or of any scheme or under any of the conditions specified under s. 17, the appropriate Government may recover from the employer such damages, not exceeding twenty-five per cent of the amount of arrears, as it may think fit to impose.' The Act goes on to make provision for imposition of penalty for continued delay as well as for prosecution resulting in fine and/or imprisonment. Sec. 14B calls the imposition 'damages'. It stands on the same footing as interest under the Sugarcane Purchase Tax Act qua penalty. Under s. 14B the appropriate Government is entitled to recover damages. The Provident Fund Commissioner demanded payment of damages on behalf of the Government. The damages as well as penalty are civil sanctions, as opposed to prosecution resulting in fine or imprisonment, which is a criminal sanction. Damages as well as penalty are intrinsically of the same nature and character.
In view of the legal position discussed above, payments made as damages for delay in paying the contribution to the provident fund stands on the same footing as interest payable for non-payment of purchase tax.
The third question is answered in the affirmative, in favour of the Department and against the assessee."
8. As rightly noted by the learned Accountant Member, one of the decisions approved by the Full Bench in Saraya Sugar Mills (P.) Ltd.'s case (supra) was of the Hon'ble Delhi High Court in the case of Mahalakshmi Sugar Mills Ltd. (supra), which in turn was reversed by the Hon'ble Supreme Court in Mahalakshmi Sugar Mills Co.'s case (supra). Both in Mahalakshmi Sugar Mills Ltd.'s case (supra) and Mahalakshmi Sugar Mills Co.'s case (supra), the Court, were dealing with interest payable under s. 3(3) of the U.P. Sugar Cane Cess Act, 1956 on the arrears of cess. On behalf of the Revenue before the Hon'ble Supreme Court the decision in Saraya Sugar Mills (P.) Ltd.'s case (supra) was cited and observations of the Court were as follows :
".... Our attention has also been invited to Saraya Sugar Mills (P) Ltd. vs. CIT (supra), where a Full Bench of the Allahabad High Court has held that the payment of interest under s. 3(3) of the U.P. Sugarcane Purchase Tax Act, 1961, is a penal liability which accrues on an infraction of the law. Sec. 3(3) of the U.P. Sugarcane Purchase Act, 1961, does seem to be in pari materia with s. 3(3) of the Cess Act."
Their Lordships, however, declined to deal further with this issue on the ground that it was not before them.
9. Even before the Special Bench of the Tribunal, supra, the Revenue referred to the Full Bench decision in Saraya Sugar Mills (P.) Ltd.'s case (supra) and at p. 121 of the report there is an observation that this decision has been overruled in Triveni Engg. Works Ltd.'s case (supra) on the question of interest paid under s. 3(3) of the U.P. Sugarcane Cess Act, 1956. Now their Lordships of the Hon'ble Supreme Court in Mahalakshmi Sugar Mills Co.'s case (supra) have observed that s. 3(3) of both the enactments i.e., U.P. Sugarcane Purchase Tax Act, 1961 and U.P. Sugarcane Cess Act, 1956 are in pari materia and this is also the view expressed by the Full Bench in Triveni Engg. Works Ltd.'s case (supra) and as already noted earlier the Full Bench in Saraya Sugar Mills (P) Ltd.'s case (supra) held that interest/damages under s. 14B of the Provident Fund Act stand on the same footing as interest under the Sugarcane Purchase Tax Act, 1961.
10. As regards the decision in Swadeshi Cotton Mills Co. Ltd.'s case (supra), relied upon by the learned Judicial Member, their Lordships followed the decision of the same Court in Saraya Sugar Mills (P.) Ltd.'s case (supra) and to which I have adverted at length earlier. The decision of the Full Bench of the same Court in Triveni Engg. Works Ltd.'s case (supra) was not relied upon by the learned counsel for the assessee and as is apparent from p. 654 of the report, the matter was decided in favour of Revenue on concession.
11. By means of the detailed discussion after considering various judgments, I have tried to demonstrate that the payments of interest, damages, etc. under the three enactments i.e., U.P. Purchase Tax Act, 1961, U.P. Sugarcane Cess Act, 1956 and the relevant provisions of the Employees' Provident Fund Act, i.e., s. 14B, have been considered on the same footing and it may not be material that in Triveni Engg. Works Ltd.'s case (supra), Saraya Sugar Mills (P) Ltd.'s case (supra) was overruled on the point of interest under U.P. Sugarcane Cess Act, 1956 only as observed by learned Judicial Member in the question proposed by him. The second observation about the decisions relied upon by the learned Accountant Member not being in respect of damages under s. 14B of the Provident Fund Act also loses its impact.
12. Coming to the arguments advanced by the parties, the learned counsel for the assessee strongly supported the order passed by the learned Accountant Member accepting the miscellaneous petition relying on the Special Bench decision of the Bombay Bench of Tribunal, supra, on the proposition that in rectification proceedings the merits of the controversy could not be gone into. He placed reliance on the decision of the Hon'ble Bombay High Court in the case of CIT vs. Ramesh Electric & Trading Co. (1993) 203 ITR 497 (Bom), that of the Hon'ble Orissa High Court in the case of CIT vs. Jagabandhu Roul (1984) 145 ITR 153 (Ori) and the decision of the Hon'ble Calcutta High Court in the case of Niranjan & Co. Ltd. vs. ITAT (1980) 122 ITR 519 (Cal). The learned counsel also placed reliance on the decision of the Hon'ble Supreme Court in the case of Mahalakshmi Sugar Mills Co. (supra), further stating that the issue of "damages" under s. 14B of the Employees' Provident Fund Act was no longer res integra in view of the decision of the Hon'ble Supreme Court in the case of Prakash Cotton Mills (P) Ltd. vs. CIT (1993) 201 ITR 684 (SC). The learned counsel also relied on the judgment of Hon'ble Apex Court in the case of Organo Chemical Industries vs. Union of India AIR 1979 SC 1803. He also referred to two other decisions, the first being of the Hon'ble Allahabad High Court in the case of Standard Chemical Co. (P) Ltd. vs. CIT, and the second being that of the Hon'ble Bombay High Court in the case of New Mahalakshmi Silk Mills (P) Ltd. vs. CIT (1994) 206 ITR 302 (Bom), which had followed the judgment of Hon'ble Supreme Court in the case of Prakash Cotton Mills (P) Ltd. (supra). According to the learned counsel, if the payment was compensatory in nature, the same was to be allowed as a deduction and in case it was penal in nature, then the claim was not tenable. As regard calculation of the amount claimed, i.e., Rs. 10,085, the learned counsel invited my attention to the order passed by the Regional Provident Fund Commissioner at Chandigarh with specific reference to p. 34. In concluding he urged that the order passed by the learned Accountant Member be confirmed in the light of the law which stood settled by the Hon'ble Supreme Court in the impugned judgments.
13. The learned Departmental Representative, on the other hand, vehemently supported the view expressed by the learned Judicial Member contending that the learned Members constituting the Division Bench had gone outside the purview of s. 254(2) and the matter should not have been decided on merits. According to her, the application of a judgment was also a debatable issue and resort could be had to provisions of s. 256(1) by the assessee rather than seeking relief by filing an application for rectification.
14. In the earlier part of the present order I have already dealt with most of the arguments advanced by the parties and I do not find it necessary to go further into this aspect of the matter after having held that the learned Members constituting the Division Bench while hearing the miscellaneous petition should not have treated it as hearing of an appeal allowing the learned Departmental Representative to raise arguments on merits vis-a-vis the item claimed as a deduction, namely, interest/damages under s. 14B of the Employees' Provident Fund Act. I have also referred at some length to the duty of the Court to consider those judgments which have a bearing on the subject more so when the matter is decided ex parte qua one of the parties before the Tribunal and this proportion is duly supported by the judgment of the Hon'ble Rajasthan High Court in the case of Raja Baldeodas Birla Santati Kosh vs. CIT (1986) 158 ITR 601 (Raj), in which a decision of the Hon'ble Supreme Court not cited by either side, which was relied upon by the Tribunal in deciding the matter and on a rectification application filed by the assessee on the ground that the said judgment had not been referred to by any party and the Tribunal should not have considered it, the application came to be rejected by the Tribunal and the subsequent reference application was declined by the Hon'ble High Court. According to their Lordships, there was nothing illegal in the procedure adopted by the Tribunal in referring to the decision of the Hon'ble Supreme Court which was the law of the land although the same was not cited before it by the parties. Even in the present case, the learned Accountant Member has relied on the judgment of the Hon'ble Supreme Court in Mahalakshmi Sugar Mills Co.'s case (supra), which in turn has been "followed" by the Hon'ble Supreme Court in the decision of Prakash Cotton Mills (P.) Ltd.'s case (supra).
15 At this stage I would like to refer to the role of a Third Member while deciding a point of difference referred to him under s. 255(4) of the IT Act. The Third Member has to restrict himself to the point of difference and he has to agree with the view of one or the other Hon'ble Members who have passed the dissenting orders and the Third Member cannot express a different opinion even it he is convinced that another view in the matter could have been possible. In case a Third Member were to express a different opinion altogether, then according to me, there would be no majority opinion of the Tribunal and all the three orders would become null and void. The Third Member, in my opinion, does not sit over the dissenting orders passed by the two Members constituting the Division Bench and all that he is required to do is to agree with one of them and it would thereafter be the majority view that would constitute the order of the Tribunal and that too a legal and valid one.
16. The learned counsel during the course of the hearing has referred to the decision of the Hon'ble Supreme Court in the case of Prakash Cotton Mills (P.) Ltd. (supra) which has confirmed the earlier view expressed by the same Court in Mahalakshmi Sugar Mills Co.'s case (supra). According to their Lordships in the case of a Statutory Impost, the scheme has to be studied to find out whether the same is compensatory or penal or composite. Further, deduction is to be allowed where it is wholly compensatory but where it is composite, then only that part which is compensatory is to be allowed. This clearly emerges from the following observations at pp. 690 and 691 of the report :
"The decision of this Court in Mahalakshmi Sugar Mills Co.'s case (supra) and the decision of the Division Bench of the Andhra Pradesh High Court in CIT vs. Hyderabad Allwyn Metal Works Ltd. (1988) 172 ITR 113 (AP) with the views of which we are in complete agreement, are, in our opinion, decisions which settle the law on the question as to when an amount paid by an assessee as interest or damages or penalty could be regarded as compensatory (reparatory) in character as would entitle such assessee to claim it as an allowable expenditure under s. 37(1) of the IT Act. Therefore, whenever any statutory impost paid by an assessee by way of damages or penalty or interest is claimed as an allowable expenditure under s. 37(1) of the IT 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 whether it is compensatory or penal in nature. The authority has to allow deduction under s. 37(1) of the IT Act, wherever such examination reveals the concerned impost to be purely compensatory in nature. Wherever such impost is found to be of composite nature, that is, partly of compensatory nature and partly of penal nature, the authorities are obligated to bifurcate the two components of the impost and give deduction to that component which is compensatory in nature and refuse to give deduction to that component which is penal in nature."
17. Testing the assessee's case on the basis of the law laid down, it is required to be determined as to what is the nature of the payment made by the assessee and for which purpose one would have to read minutely the order passed by the Regional Provident Fund Commissioner. It is noticed from the order that the "default" committed was the delay in making the payment of dues on account of provident fund contributions as also the delay on account of payment of administrative charges. In reply to the show-cause notice it was submitted that the management of the company which was a State Government undertaking of the Himachal Pradesh Government had in operation a private provident fund scheme whose benefits were at par with the benefits provided under the Employees' Provident Fund and Miscellaneous Provident Fund Act, 1952 and consequent upon the application of the latter on the undertaking with retrospective effect from 1st Jan., 1975 by a letter dt. 4th Oct., 1975 they had applied for exemption on 29th May, 1975 under the impression that since they were having a private provident fund scheme oven prior to the introduction of the 1952 scheme, they may be allowed exemption. On the aforesaid grounds it was pleaded that the provident fund dues were not deposited for some period of time but after that they had been quite regular in payment of such dues.
18. Another reason given for the delay was that they were under the bona fide impression that exemption under s. 17 of the Act may be given to them. It was also pointed out that being a Government undertaking their employees were also enjoying the benefits of the General Provident Fund Scheme and the pension and other connected benefits. The pleas were rejected observing that the undertaking could not assume that exemption would be granted and it was the statutory duty of the employer to report compliance of the 1952 Act and scheme framed thereunder w.e.f. 1st Jan., 1975. Further, in case of any doubt, they could have deputed their representative to the office of the Provident Fund Commissioner for seeking clarifications. On the aforesaid main grounds the Regional Provident Fund Commissioner invoked provisions of s. 14B and worked out the damages/interest at a figure of Rs. 10,085 although the amount proposed was Rs. 13,561. In doing so he took into account the plea taken up in assessee's representation dt. 10th March, 1979 as also those raised during the course of discussion on 31st March, 1979 and also took due note of the fact that the employer was a Government undertaking. In other words, this was not the case of a habitual defaulter or an employer who had been purposely keeping back the provident fund contributions of its employees or intentionally violating the provisions of law. As against this, the employer before the Hon'ble Supreme Court in the decision of Organo Chemical Industries' case (supra), was a habitual defaulter and moneys kept back after deduction had been misutilised and employed in running its business. On the facts of the case, the Regional Provident Fund Commissioner visited the employer with the maximum penalty. It was under these circumstances that their Lordships of the Hon'ble Supreme Court took the view that the amount paid under s. 14B of the Employees' Provident Fund Act had to be examined whether compensatory or penal; the former to be allowed as a deduction but not the latter. In the present case, I have already set out the facts. The entire payment is to be treated as compensatory in nature and no penal character either partly or fully emerges after a minute reading of the order passed by the Regional Provident Fund Commissioner.
19. In the final analysis, I hold that the entire amount paid by the assessee, i.e., in a sum of Rs. 10,090, was deductible as expenditure under s. 37(1) of the IT Act, 1961 in the light of the decisions of the Hon'ble Supreme Court in the cases of Mahalakshmi Sugar Mills Co. (supra), Organo Chemical Industries (supra) and Prakash Cotton Mills (P.) Ltd. (supra).
20. A question may be raised at this stage as to how the Third Member has expressed an opinion different from the one given by the two Hon'ble Members constituting the Division Bench. In my opinion, the Third Member is fully empowered in law to arrive at the same end result as done by any of the Members constituting the Division Bench although he may do it by a different route and all that is necessary is that he must agree with one of the Members constituting the Division Bench and who have disagreed on the point at issue. By means of the present order I have held that the deduction of Rs. 10,090 is allowable and the learned Accountant Member has also expressed a similar opinion by allowing the miscellaneous petition filed by the assessee. In other words, majority opinion of the Tribunal is available as a result of the present Third Member order and the matter shall now be posted before the Division Bench for passing an order in conformity with the majority opinion.