TMI Blog1983 (2) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... der, 1948, was not in the nature of penalty for infraction of the law ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the aforesaid payment of Rs. 2,38,140 was a business expense allowable under section 37 of the Income-tax Act, 1961 ?" This reference relates to the assessment year 1971-72. The assessee is a company carrying on business in the manufacture of textiles. During the relevant accounting year, the assessee paid to the Textile Commissioner sum of Rs. 2,38,140 under the provisions of clause 21C(1)(b) of the Cotton Textiles (Control) Order, 1948 ( for short, "the Control Order"). This amount was debited by the assessee in its profit and loss account and was claimed as a ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Revenue. We have heard learned counsel for the Revenue, Mr., G. S. Jetley. The real controversy is whether the amount of Rs. 2,38,140 paid by the assessee to the Textile Commissioner under clause 21C(1)(b) of the Control Order is on account of any infraction of law or is a payment incidental to the carrying on of the assessee's business. For resolving this controversy, it is necessary to examine the provisions of the Control Order. Under clause 20 of the Control Order, the Textile Commissioner has the power to issue directions in writing to any manufacturer or class of manufacturers regarding the classes or specifications of the cloth or yarn which they shall manufacture. While issuing such directions, the Textile Commissioner has t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such excess quantity packed at such rates and in respect of such maximum quantity as may be specified by the Central Government from time to time ; (b) such producer may, in lieu of packing the whole or part of the minimum quantity of cloth specified in the said direction, make payment to the Textile Commissioner in respect of the deficiency at such rates as may be specified by the Central Government and within such time as may be determined by the Textile Commissioner. (2) All payments received from producers under paragraph (b) of sub-clause (1) shall, as far as may be, be utilised towards payments, if any, to producers under the said paragraph (a). Explanation.--In this clause, 'producer' includes a group of producers. " From a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake the payment in respect of the deficiency. No penal consequences follow. Thus, the Control Order, in clear terms, gives two options to the producer. The choice is his. It is for him to decide the mode of compliance and to exercise his option. In a given case, keeping in mind his business expediency, he may find it more profitable or beneficial to pay to the Textile Commissioner at the specified rate than pack the minimum quantity of cloth or yarn in terms of the directions. In another case, packing the minimum quantity may be more expedient or profitable. The expediency or profitability may also vary from producer to producer. Some producers may even find it profitable or expedient to pack quantities in excess of the minimum. In that e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of the Gujarat High Court in Addl. CIT v. Rustam Jehangir Vakil Mills Ltd. [1976] 103 ITR 298. In that case also, a somewhat similar controversy came up for consideration before that court. There also, payment had been made by the producers to the Textile Commissioner on failure to produce the prescribed quantity of cloth as required by the scheme framed by the Control Order. The Gujarat High Court, on perusal of the scheme of the Control Order and the relevant clauses thereof, held that such payment of compensation was made under an option under the Control Order itself and was not one for breach of law and it was, therefore, an allowable business expenditure under section 37(1) of the Act. Reference may also be made in this connect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . of its export obligation within the time prescribed by the bond and completed its entire export obligation, although within one month after the time prescribed under the bond expired. The amount which the assessee had to pay under the bond was calculated on the footing of the shortfall. In these circumstances, it can hardly be looked upon as a penalty for an infraction of the law or any statutory obligation or of public policy, but must be regarded as damages paid under a contract. " In the light of the foregoing discussion, we are of the clear opinion that, in the instant case, the Tribunal was justified in holding that the payment made to the Textile Commissioner by the assessee under clause 21C(1)(b) of the Control Order was not in t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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