Karnataka High Court
M/S Millennia Developers (P)Ltd., vs The Deputy Commissioner Of Income Tax on 19 January, 2010
Bench: D.V.Shylendra Kumar, N.Ananda
THIS APPEAL COMING ON FOR ADMISSEON. THIS DAY. D.V.
SHYLENDRA IE{UMAR.J.. DELIVERED THE FOLl.O'WlN(}:
JUDGMENT
The assessee is a private limited business activity as a developer and = 2 assessment year 2005--O6, assessee amounts as deductible busine'ss"~e;-cpenditure 37 of the Income Tax Act: the paid by way of regularisation that had been indulged in by the_"assessee"'vvhiiejeons~'tr]isting a structure and for having' plan. in terms of the Building been approved by the municipal autlhqrilties, in "terms of the provisions of the Vj'l'{ar.riate1..l<c'ai..,'Municipal'Corporations Act, 1976 and Bangalore i\/iaha:1aga'.rfa«._P'ali'1<e}~Buiiding Bye--iaws. Tiiehvelairn of the assessee was disallowed by the Officer, the amount claimed by way of expenditure the head "Project Expenditure", which was nothing but egampound fee paid to Bangalore Mahanagara Palike towards ~ 3 regularisation of deviations in construct.ion was about Rs.4,4~O.500/--, for the reason that the amount which was in the nature of penalty, being penal in nature. Therefore. it did not qualify for deduction under Section 37 of Tax In the appeal by the assessee, commissioner, purporting to follow:.tl're-.ruli--né_;ot in the case of CIT V/s. Mamatha re'portecl ITR 356 (Kat), dismissed the H
4. lV':::S:tppe~al'*- tol'"theV' Income tax Appellate Tribunal also ._havin'g""met_htihe,sarr1e fate, the assessee is in appeal b_evforel"t~his .courtv_lu1'ioer Section 260A of the Income ;,':';F'eL3CAct:'13é§1;... aaaaa on behalf of the appellant/assessee, itMr.Dinesh.,"learned counsel would submit. that in the first Wiristariee, the amount could not be taken as a penalty, as it w._as..ai1"amount in the nature of regularisatiorl fee even in a§V/ terms of Bye--Law 6.0 of Bangalore Mahanagara Pahke Building Bye--Laws, which reads as under:
"'6.0. Deviations during Construction:
i) Wherever any construction ismin__vio|ati'oii*r:dey'iati~Qn of the sanctioned pian, the Co.rrimis'siohe*r:
he considers that the vioiati'ons/deyiatieovno it within 5% of (1) the setidiaok tohbe eproyidedvvéaroujnd the buiiding, (2) plot o_oy'e*r.age_» (3)'fi'oor_Haer_ea ratio and (4) heigi:--t.ffoi' _ and that the demolition undeVr_i'ohaot_er:i Act is not teasit}.!e~:\,yeithou'iA_ afteotiingyAstirootorai stability, he may regu'ia;'r.i_;e.is.'ec'ti :y_ioi'at_ion'sfo_evi_ati'ons after recording __ deta~i.|.e'd is_e,ason_s for the iisanfiie.
ii) V7-._VioiatiovnfdeeyiatéiéoniZ"as "at 6.0(i) above may be 'reg__utiia.vriz'edaoiniyiattier sanctioning the modified plan M ' * _record»in_Vg"t'her'eon the violations / deviations and V it,_t_d.gttte.r the'V|'e"v'y'ot tee prescribed by the Corporation _ froth time to time."
it the iearned eounsei submits that the ~ ~.«.fi,"f.authorities3 below have committed an error in law in tht.,de.rs't--anding that the payment, was in the nature of a penalty. T he further submission is that, the ruling of this Court rendered in the case of Mamatha Enterprises is not attracted to the present case for the reason that in the ease of Mamatha Enterprises, on facts it was found builder / assessee had put up 8"' floor of the _ obtaining any approved plan at all. VWhereas"'inj" . case the assessee had put up eonstriicltiofi approved plan from the compounding fee was paid deviations within the permissible lithe sanctioned plan. In the light enahling' regularising such deviations""had:'paid?-ipreg1;ilarisat'i'o1'1 fee, applying the said ruling to the was not called for and therefore the authori'Vties_ below have committed an error in law. in '-lhfjlciingvi-that riilirig covers this case also. H hhaize bestowed our .consideration to the supbmislsions tirade at the Bar and perused the orders of the atlthority, first and second appellate authority.
8. The appeal is sought for adrnissiori on the following questions of lawn
i) Whether in law, the Tribunal was upholding the disaliowance of _pay4riteri:t.i.:'ot it Fts.4,40,500/- for reguiarizatlAon"ef._the which were within the permi's.eai3ire"limits,_cheil,eahgi'it[ii«E71 as penalty and thusip'no.i liable: to 3a_'lvt«o.we.d U/s.37(t)oi the Act? ll
ii) Whether in law"L.nder-- the payment made for reguvl'aré--2:ati.oril-. the..lcl:e\riation5 in the plan vviltlhinlh'the;?perritiss"i'b|:erriarg.i§n could be held to mptli*:pOSe of disaiiowance .. elspecialiy when the Appellant had sold the properties in regularized plan, the profit _ _ froth v_irhi.r:,h-.hac_.i been offered for taxation? it AV the otférall examination of the facts and legal " that the authorities beiow have not V V' comr11i«t.t.eclv'any* error in law, warranting a correction by this ?",i"Co'urti.p in "ei$<ercise of appellate jurisdiction under Section 4l_"2f<3€;l_P£of'lthe Act. We say so, for the reason that the so called it ':l_4:1"egt1:larisatio1'1 fee in terms of Bye~law 6.0 of the .Bangalore 7 Mahanagara Palike Byelaws is a provision made for regularising the deviations/violations as enabled U/s.483(b} of the Karnataka Municipal Corporation Act. 1976 which reads as under: .
"483. Provisions respecting institution, etc,_,;'_"'of..'g;i.iiii' and criminal actions and obtaining Eegai'v_"aVdviiA;:ei"---T' T The comméssioner may.-
a) b] compound any offenceVbaQa.inst this__ bye--laws or regulations wi_1__E_:<V:'i=...v_ri:--:.~i_V3_/ byrales made by the Government be_.decIa_:red .oornpo't;:ndab|e;"
10. leaves us with no doubt as to expenditure as it is only an amount paidlfoyr com-poun'd.~~an offence. The amount paid for offence....is inevitably a penalty in terms of and the mere fact that it has been ' deseriloed asieoihpounding fee Cannot, in any way, alter the elaaracteryvof the payment which payment is in the nature of 8
11. As It is in the nature of penaitiy, the law too is weli settled to hold that it can never be an amount in the nature of expenditure which can qualify for deduction U/s/87 of the Income Tax Act and it is for this reas.o:n.,_V we have to dismiss this appeal. If an answer is __\1?arrajn.ted-V__i1fi.p_ respect of the questions referred aboyfe, we _ar'1s\ife.r the--psarr1e'q against the assessee and in favour thgerevenu-eV."'
12. The appeal is