Allowability of compensation arising out of public
damages/tortuous liability distinction between compensation vs. punitive -
Exemplary damages
Facts:
Assessee was the owner of Uphaar cinemas where a fire had
broken out killing 59 people and injuring 103 people. In an ensuing legal case
compensation for loss of lives was granted by the high court arising out of
Tortuous liability against the assessee. Punitive and exemplary damages were
also levied on the assessee so as to not to allow obstructive seats and not to
compromise on public safety in a cinema halls or more to deter such activities.
The case travelled to SC where there were revisions on the liability of the
assessee. Huge litigation expenses were also incurred. Assessee claimed these
litigation spends and compensation as allowable expenses while AO and CIT(A)
disallowed the same citing -
- These were against law
- Business of assessee had
ceased
- Expense did not pertain to the
relevant AY
On higher appeal -
Held in favour of the assessee that the compensation for
loss of lives was a business loss allowable. Exemplary-Punitive damages were
not allowable under section 37 as these were for infringement of public law.
Litigation expenses were also allowable as per law.
Ed. Note: The decision makes a good read on tortuous liability
and on punitive - exemplary damages.
Case: Ansal
Theatres & Clubotels (P) Ltd. v. ACIT 2023 TaxPub(DT) 7145 (Del-Trib)