INCOME TAX OFFICER v. BLUEMOUNT SWITCHGEARS ASSOCIATE (P) LTD
[Citation -1984-LL-0726-1]

Citation 1984-LL-0726-1
Appellant Name INCOME TAX OFFICER
Respondent Name BLUEMOUNT SWITCHGEARS ASSOCIATE (P) LTD.
Court ITAT
Relevant Act Income-tax
Date of Order 26/07/1984
Assessment Year 1980-81 TO 1982-83
Judgment View Judgment
Keyword Tags opportunity of being heard • reasonable opportunity • extra shift allowance • reduction of interest • statutory obligation • plant and machinery • charge of interest • waiver of interest • actual payment • bonus act
Bot Summary: The contention of the Department is that whatever the nomenclature such as incentive or ex- gratia, the payment is restricted to the maximum provided under the Payment of Bonus Act, permissible as a deduction only under provisions of s. 36(1)(ii) of the IT Act. The learned Departmental Representative reiterates the Department s stand that any payment beyond the limit specified under Payment of Bonus Act cannot be allowed either under s. 36(1) or under s. 37. The payment cannot be regarded in the strict sense as a payment of business. The payment cannot be regarded in the strict sense as a payment of bonus under the payment of Bonus Act. The table annexed to the notice issued by the Regional Director of Employees State Insurance Corporation in this connection gives the particulars regarding the amount due for payment, the period for which they are due, the due date on which they are due, the date of actual payment and the period of delay. The assessee has explained in its letter to the Regional Director the circumstances and difficulties on account of which there was delay in the payment. In these circumstances we are satisfied that the payment cannot be regarded as a payment by way of fine or penalty for infraction of law.


These there appeals are preferred by Department relating to income t x assessment for years 1980-81 to 1982-83 of assessee M/s Bluemount Switchgears Associates (P) Ltd. In appeal for year 1982-83 only ground of objection of Department is to direction of CIT(A) to allow extra shift allowance in respect of assessee s plant and machinery with reference to number of days during which concern as whole worked extra shift instead of with reference to number of days such plant and machinery worked extra shift. Department in its ground of appeal kly relies on decision of Madras High Court in South India Viscose Ltd. vs. CIT (1982) 135 ITR 206 (Mad) said to have been pronounced long after Central Board of Direct Taxes circular in this connection. It is however, conceded that Board s circular supports direction by CIT(A). It is not case of Department that circular of Board has since been withdrawn after decision of Madras High Court. If we were to decided question of extra shift allowance by reference to interpretation of relevant provision of statute and rules thereunder, then we would certainly be bound to follow Madras High Court decision mentioned above and hold in favour of Department, but point we have to decide is as to whether Circular of Board in this connection is binding on Department authorities and they should carry out directions contained therein. Circular of Board shows that Board has decided that where concern has worked double or triple shift, extra shift allowance will be allowed in respect of eintre plant and machinery used by concern without making any attempt to determine number of days on which each machine actually worked double or triple shift during relevant previous year. this obviously shows that Board has taken administrative decision not to be meticulous and to take broad view of matter with regard to grant of extra shift allowance. Now, it is well settled by authority of Supreme Court in number of decision [see: Navnitlal C. Jhavery vs. Sen, K.K. AAC of IT (1965) 56 ITR 198 (SC), Ellerman Lines Ltd. vs. CIT (1972) CTR (SC) 71: (1971) 82 ITR 913 (SC), K. P. Varghese vs. ITO (1981) 24 CTR (SC) 358: (1981) 131 ITR 597at 612-614 (SC)] that circulars issued by CBDT are binding on all officers and persons employed in administration and execution of Act even if they are not in accordance with correct interpretation of statute. It is therefore clear that notwithstanding fact that grant of extra shift allowance of entire concern as whole instead of according to number of days each plant and machinery worked extra shirt may not be strictly in accordance with terms of statute and rules assessee would be entitled to such allowance on basis of circular according to authority of Supreme Court stated above. In circumstance, we find no merit in objection of Department on this point, which is rejected. Coming to appeal for asst. yr. 1981-82, of two objections raised in its grounds, one relates to grant of extra shift allowance with reference to number of days concern as whole worked extra shift. For reasons already stated above in regard to similar dispute for earlier assessment year, we reject objection of Department and uphold relief granted by CIT(A). other objection is with regard to relief granted by CIT(A) for allowance, incentive or ex-gratia, besides payment of bonus. contention of Department is that whatever nomenclature such as incentive or ex- gratia, payment is restricted to maximum provided under Payment of Bonus Act, permissible as deduction only under provisions of s. 36(1)(ii) of IT Act. In this connection we have been furnished with copy of agreement between assessee and workers under s. 18(1) of Industrial Disputes Act and r. 21 of Tamil Nadu Industrial Disputes Rules. It is not in dispute that payment which is sought to be disallowed by Department is in accordance with this agreement. learned Departmental Representative reiterates Department s stand that any payment beyond limit specified under Payment of Bonus Act cannot be allowed either under s. 36(1) or under s. 37. We do not find any substance in Department s objection. agreement under s. 18(1) of Industrial Dispute Act is binding on both parties under sub-s. (3) thereof and assessee cannot flour or disregard agreement except at peril of penal consequences as contained in s. 29 of said Act. Thus, payment under agreement is statutory obligation of assessee and discharge of such obligation is for benefit and interest of business. payment cannot be regarded in strict sense as payment of business. payment cannot be regarded in strict sense as payment of bonus under payment of Bonus Act. It is expenditure incurred wholly and exclusively and necessarily for purpose of assessee s business which falls for deduction under s. 37 of IT Act. We therefore, reject objection of Department on this point also. Coming to asst. yr. 1982-83 first ground is against deletion by CIT(A) of disallowance of Rs. 12,495 paid by way of damages for delayed payment of Employees State Insurance premia. According to Department s stand, damages were paid for infraction of law and therefore, it is not entitled to deduction in computing assessee s income. assessee s ld. Representative submitted that there was no infraction of law, but delay in payments were on account of circumstances beyond control of assessee n d though concerned authorities, namely Regional Director of Employees State Insurance Corporation, have not totally excused assessee from payment of damages, amount has been considerably reduced. It is also further stated that out of amount of Rs. 12,495, sum of Rs. 1,533.72 is by way of interest and even if damages is regarded as payment for infraction of law, interest cannot be so regarded and it will be eligible for deduction. We have considered facts and contentions of parties. power to recover damage is provided under s. 85-B of Act appearing under Chapter VII entitled "penalties". nature of provision show that payment by way of damages cannot be regarded as fine or imposition of penalty. other provisions contained in ss. 84 to 85A clearly refer to punishment for offences specified therein. But under s. 85 mere failure to pay amount does not automatically attract recovery of damages. Before damages can be recovered, employer is required to be given reasonable opportunity of being heard and in appropriate cases it may be that employer is able to satisfactorily explain defeat which may not attract payment of damages. table annexed to notice issued by Regional Director of Employees State Insurance Corporation in this connection gives particulars regarding amount due for payment, period for which they are due, due date on which they are due, date of actual payment and period of delay. assessee has explained in its letter to Regional Director circumstances and difficulties on account of which there was delay in payment. Though Regional director has not totally waived amount of damages originally proposed at Rs. 50,333 he has considerably reduced it to Rs. 14,000 odd which shows that he has substantially accepted explanation of assessee. It is further seen that delay in regard to number of payments is marginal like five to seven days. In very nature of things occurrence of such minor delay is inevitable in day-to-day carrying on of business and must be regarded as incidental to same. In these circumstances we are satisfied that payment cannot be regarded as payment by way of fine or penalty for infraction of law. CIT(A) has rightly allowed deduction. We therefore, reject objection of Department. second objection is to direction of CIT(A) to ITO to reduce interest charged under s. 215 by recourse to r. 41 of IT Rules. learned Departmental Representative submitted in first place that CIT(A) has no jurisdiction to consider appeal against charge of interest and secondly that it was beyond his power to direct reduction of interest which is purely matter of discretion on part of ITO. It is also further contention of Departmental Representative that it is assessee who has to approach ITO to consider waiver of interest and ITO need not on his own do it. We find no substance in Department s contention on this point also. It is finding of CIT(A) and not disputed on behalf of Department that assessment was completed more than one year after return for that year was filed and delay in such completion was not attributed to assessee. In circumstances, he has directed that no interest should be charged under s. 215 for such part of period intervening between date on which return was filed and date on which assessment was made as was in excess of 12 months. Sec. 215 of Act provides that in such cases and in such circumstances as may be prescribed ITO may reduce or waive interest payable by assessee under said section. circumstance under which such interest may be reduced or waived are stated in r. 40 of IT Rules. Neither in section nor in rules we find any requirement that ITO can reduce or waive interest only at instance or on application of assessee. It is obvious to us that when any circumstances indicated in r. 40 i s found to be present, it is duty of ITO to consider question of reductions waiver of interest and if he fails to do so, assessee can very well agitate charge in appeal. We do not find anything in provisions relating to appeal so as to restrict scope of grievances that may be agitated by assessee. It is well settled that AAC can do what ITO has failed to do and also direct him to do which he has omitted to do. Since one of circumstances enumerated in r. 40 is present calling for reduction of interest we do not find any reason to interfere with order of CIT(A) directing ITO to reduce amount of interest charged. This point is also rejected. In result, appeals are dismissed. *** INCOME TAX OFFICER v. BLUEMOUNT SWITCHGEARS ASSOCIATE (P) LTD.
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