TMI Blog1979 (10) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the assessee ? " The assessee is a limited company running a textile mill at Coimbatore. The Indian Cotton Mills Federation, of which the assessee is a member, makes allotment of foreign cotton to the member mills spinning higher yarn counts. The allotment is on the basis of the number of spindles working on higher counts. The mills have to give a guarantee at the rate of Rs. 100 per bale of the quantity of cotton which they agreed to accept. As and when quotas of foreign cotton are announced, the cotton would be distributed to individual mills in the proportion of the shares they had agreed to accept based on the spindleage of higher counts. The units which rejected the allotment falling to their share would have to forfeit their qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here was a kind of pooling arrangement on the part of the Indian Cotton Mills Federation to distribute the foreign cotton, or what is called global cotton, in proportion to the spindleage utilised for spinning higher counts of yarn. The distributed quota of cotton has to be imported by the respective mills. Wherever any mill was not in a position to import the allotted quota, it had to pay to the Federation a fixed sum per bale. Thus, the whole arrangement is a contractual arrangement between the assessee and the Federation. The ITO has considered the amount paid to the Federation as a " penalty ". The word " penalty " does not appear to occur in any correspondence that passed between the assessee and the Federation. The word " penalty " wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by way of " penalty " to the association for being reinstated as a member and claimed it as business expenditure. The Tribunal disallowed the expenditure and on reference it was held that the amount paid was not allowable revenue expenditure. The amount in that case was paid for the purpose of reinstatement and not for any breach of any, obligation incurred during the relevant year. In dealing with such a situtation several cases have been noticed and at page 764, the a situation, learned judges observed : " We do not think that commercial expediency is always a corrector conclusive test to determine whether expenditure is laid out wholly and exclusively for the assessee's basis... ..We think it is perhaps wiser to leave the words of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in India and abroad which has been invariably applied, has been set out in Atherton v. British Insulated and Helsby Cables Limited [1925] 10 TC 155 at 191 (HL) as follows : " ...... a sum of money expended, not of necessity and with a view to a direct and immediate benefit to the trade, but voluntarily and on the grounds of commercial expediency and in order indirectly to facilitate the carrying on of the business, may yet be expended wholly and exclusively for the purposes of the trade." Considered in the light of this principle, in the present case, the amount having been paid only to avoid further loss, could only be treated as an expenditure laid out wholly and exclusively for the purpose of the business There is no element of any ..... X X X X Extracts X X X X X X X X Extracts X X X X
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