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)