Judgment :- R. JAYASIMHA BABU, J. The question referred to at the instance of Revenue is as follows: "Whether, on the facts and circumstances of the case the penalty paid by the assessee under s. 10A of the Central Sales-tax Act, 1956 is an admissible deduction in computing the income from the business of the assessee ?" The asst. yr. is 1977-78 The assessee is a private limited company engaged in the business of constructing buildings. It had obtained 'C' Form and availed the concessional rate of sales-tax at the rate of 3 per cent even though it was not entitled to 'C' Form, having regard to the fact that the assessee was not a re-seller and the goods obtained by it had not been consumed in the manufacture of other goods, Consequently, the assessee suffered a penalty under s. 10A of the Central Sales-tax Act. The penalty that was levied was the difference between the rate at which the tax has been actually paid and the rate at which it was properly payable. The assessee's claim that the amount so paid by it was business expenditure was rejected by the AO and the appellate authority, but was reversed by the Tribunal. The Revenue has called into question, the correctness of Tribunal's view. The fact that a levy is termed as a penalty in a statute is not by itself decisive of its true character, as observed by the Supreme Court in Malwa Vanaspati & Chemical Co. vs. CIT. The use of the word 'penalty' in the provision is neither here nor there. It is only when levy does not have any compensatory character, it has to be regarded as penalty. In the case of Malwa Vanaspati & Chemical Co. (supra), the Supreme Court was concerned, inter alia, with the levy of penalty under s. 8 of the MP General Sales-tax Act, which provides for a penalty in cases where raw materials purchased by a registered dealer is utilised for any purpose other than the purpose specified in sub-s. (1) of s. 8 of that Act. The penalty was to be an amount not less than the difference between the amount of tax leviable under the statute and the amount of tax payable under s. 8(1) of the Act and not exceeding 1-1/4th times the amount of tax. The penalty was to be an amount not less than the difference between the amount of tax leviable under the statute and the amount of tax payable under s. 8(1) of the Act and not exceeding 1-1/4th times the amount of tax. Construing the provision, it was held by the Supreme Court that s. 8(2) of M.P. General Sales-tax Act provides both the elements of compensation and penalty compensation insofar as payment of tax at the full rate is obligatory, and penalty insofar as something more up to 25 per cent thereon being payable, should the Commissioner so directIt is, therefore, necessary for the authority to ascertain as to whether the levy termed penalty can only be regarded as such and not in any other manner. Reliance was placed by counsel on the decision of the Supreme Court in the case of Maddi Venkataraman & Co. (P) Ltd. vs. CIT. That was a case where penalty had been levied under the provisions of Foreign Exchange Regulation Act for the violation of the relevant provisions of the Act and no question of compensatory element being part of such penalty arose for consideration in that case. Reliance was also placed on the decision of the apex Court in the case of Swadeshi Cotton Mills Co. Ltd. vs. CIT. In that case, the Court observed that on the facts of that case there was "nothing on the record to show that the amount of penalty had a compensatory element in it." It is clear from the observation that the compensatory element in a levy termed as penalty is eligible for being regarded as business expenditure. It is only that part, which is purely penal, that has to be excluded. Sec. 10A of the Central Sales-tax Act empowers the authority to impose upon a person, who is guilty of an offence under cl. (b)(c) or (d) of s. 10 by way of penalty a sum not exceeding one-and-a-half times the tax which would have been levied under sub-s. (2) of s. 8 in respect of the sale to him of the goods, if the sale had been the sale falling within that sub-section. In this case, the tax payable by the assessee, had the assessee not violated the terms of the statute was 10 per cent. What was actually paid by him was only 3 per cent. In this case, the tax payable by the assessee, had the assessee not violated the terms of the statute was 10 per cent. What was actually paid by him was only 3 per cent. The penalty that has been imposed is only the difference. The amount so recovered though termed penalty is in fact compensatory as the assessee had only been now made to pay what he should have paid initially as tax. Had the authority imposed any further liability over and above the amount of tax payable, such imposition would have assumed the character of penaltyThe Tribunal was, therefore, right in holding that the assessee is entitled to deduct the amount paid by him though termed as penalty under s. 10A of the Act while computing its income from its business. The question referred to us is answered in favour of the assessee and against the Revenue. The assessee shall be entitled to costs in the sum of Rs. 1, 000.