DETAILS OF CASE LAW
IN THE CASE OF : Millennia Developers Pvt. Ltd. Vs DCIT, Appeal No.:ITA No. 810/2009, Decided by: HIGH COURT OF KARNATAKA, Decided on: January 19, 2010
RELEVANT PARAGRAPHS:
8. The appeal is sought for admission on the following questions of law:-
i) Whether in law, the Tribunal was justified in upholding the dis allowance of payment of Rs.4,40,5007- for regularisation of the deviations which were within the permissible limits, holding it as penalty and thus not liable to be allowed U/s.37(1)of the Act.
ii) Whether in law under the KMC Act the payment made for regularisation of the deviations in the plan within the permissible margin could be held to be penalty for the purpose of dis allowance U/s. 37(1) of the Act especially when the Appellant had contracted and sold the properties in accordance with the- regularised plan, the profit from which had been offered for taxation?
9. On the overall examination of the facts and legal position, we One that the authorities below have not commuted any error in law, warranting a correction by this Court in exercise of appellate jurisdiction under Section 26GA of the Act. We say so, for the reason that the so called regularisation fee in terms of Bye-law 6.0 of the Bangalore Mahanagara Palike Bye-laws 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 civil and criminal actions and obtaining legel advirp –
The commissioner may.-
a) ……….
b) compound any offence against this Act, the rules, bye-laws or regulations which may by rules made by the Government be declared compoundable;”
10. The language of Section 483(b) leaves us will) no doubt as to the nature of the expenditure as it is only an amount paid for compound an offence. The amount paid for compound an offence is inevitably a penalty in terms of Section 483 itself and the mere fact that it has been described as compounding fee cannot, in any way, alter the character of the payment which payment, is in the nature of penalty.
11. As it is in the nature of penalty, the law too is well settled to hold that it can never be an amount in the nature of expenditure which can qualify for deduction U/s.37 of the Income Tax Act and it is for this reason, we have to dismiss this appeal. If an answer is warranted in respect of the questions referred above, we answer the same against the assessee and in favour of the revenue.
