Section 37(2) — the law in short
What the courts have decided on section 37(2), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.
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Prakash Cotton Mills P Ltd v CIT
Supreme CourtCuts both ways
The AO disallowed a payment because the statute calls it a penalty. Does the label decide it?
No. Where a statutory impost paid as damages, penalty or interest is claimed under s.37(1), the officer has to examine the scheme of the statute that imposed it and decide whether it is compensatory or penal in substance, whatever it is called. If it is purely compensatory the deduction must be allowed; if the impost is composite, the compensatory and penal parts have to be separated and only the compensatory part allowed.
Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.