Commissioner of Income Tax Vs Bharat Mining Corporation Ltd.

Dipak Kumar Sen, J.@mdashBharat Mining Corporation Ltd., the assessee, was assessed to Income Tax for the assessment year 1972-73 the accounting year ending on March 31, 1972, The assessee claimed deduction of an amount of Rs. 30,107 which was stated to have been paid on account of interest for late payment of provident fund dues in respect of a colliery owned by the assessee. The Income Tax Officer disallowed the claim on the ground that the amount paid represented a penalty imposed on the assessee.

2. In an appeal by the assessee, the Appellate Assistant Commissioner accepted the contention of the assessee noting that interest paid by the assessee on account of late payment of cess had been allowed by the Tribunal and the Appellate Assistant Commissioner in the case of the assessee earlier. The Appellate Assistant Commissioner in this view allowed the claim of the assessee for deduction of interest paid for late payment of provident fund dues and allowed the appeal on this point.

3. Being aggrieved, the Revenue went up on further appeal before the Income Tax Appellate Tribunal. It was contended before the Tribunal on behalf of the Revenue that the provident fund dues had to be paid by the assessee in the capacity of an employer and not in the capacity of a businessman. Therefore, the interest charged for late payment of such dues was not allowable as deduction in computing the income of the

4. It was urged on behalf of the assessee that in view of the decision of the Appellate Tribunal for the assessment year 1969-70 in the case of the assessee allowing interest for late payment of cess, the assessee should be, allowed a deduction on account of interest paid for late payment of provident fund dues. The Tribunal accepted the contention of the assessee and the appeal of the Revenue on this point was rejected.

5. On an application of the Revenue u/s 256(1) of the Income Tax Act, 1961, the following question has been referred as a question of law arising out of the order of the Tribunal for the opinion of this court :

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the sum of Rs. 30,107 paid by the assessee as interest for late payment of provident fund dues was an allowable deduction ?"

6. At the hearing, learned advocate for the Revenue contended that the amount paid by the assessee on account of interest was really a penalty imposed on the assessee for default in paying the provident fund dues in time and, therefore, the same was in the nature of a penalty and was not allowable as a deduction. In support of his contention, the learned advocate cited a decision of the Allahabad High Court in Commissioner of Income Tax Vs. J.K. Cotton Spinning and Weaving Mills Co., , where the Allahabad High Court held that the amount paid by the assessee to the Government for non-fulfilment of the export obligation at the prescribed rate and shortfall in the export of fabrics was not imposed for infraction but paid on account of a contractual obligation imposed by the Government. The breach was in the contemplation of the parties and was a commercial loss (sic).

7. The Allahabad High Court distinguished the decision of the Supreme Court in Haji Aziz and Abdul Shakoor Bros. Vs. The Commissioner of Income Tax, Bombay City II, .

8. Learned advocate for the assessee, on the other hand, contended that the amount paid by way of interest by the assessee was not a penalty paid on account of infringement of any law and should be allowed as a deduction. In support of his contention, he cited a decision of the Supreme Court in the case of Mahalaxmi Sugar Mills Co. Vs. Commissioner of Income Tax , Delhi, . In this case, the Supreme Court held that interest payable and levied u/s 3(3) of the U.P. Sugarcane Cess Act, 1956, was a simple interest chargeable automatically in case of delay in payment of cess. Such interest was held to be part and parcel of the liability to pay cess and was an accretion to the cess payment. The Supreme Court noted that there were other provisions in the said Act which imposed penalty by way of penal interest, fines and imprisonment.

9. We have considered the Employees'' Provident Funds Act, 1952. Learned advocate for the Revenue drew our attention to Section 14B of the said Act which reads as follows:

"14B. Power to recover damages.--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-section (2) of Section 15 (or Sub-section (5) of Section 17) 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 u/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. "

10. There appeared to be no other provision in the said Act under which interest could be levied for delayed payment of provident fund dues.

11. In that view of the matter, we are unable to answer the question referred to us in the absence of further facts to indicate how and in what manner and under which provision of law interest was charged to the assessee by the provident fund authorities. We, therefore, send the matter back to the Tribunal with a direction to submit a supplementary statement of the case relating to the above aspect of the matter within six months from date.

Shyamal Kumar Sen, J.

12. I agree.