TMI Blog1979 (8) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... The relevant portion of the clause runs as follows : (1) Where the Textile Commissioner has specified under paragraph (a) of sub-clause (1) of clause 22, the maximum prices at which any class or specification of cloth may be sold ... he may, having regard to the matters specified in sub-clause (2) of clause 20, by order in writing direct any producer with a spinning plant or a group of such producers to pack such minimum quantity of such cloth and during such period as may be specified in the direction. Sub-clause (2) of cl. 21 A contemplates the Textile Commissioner granting extension of time for complying with the directions. The price applicable to such quantities of cloth so packed is the price in force during the period specified in the direction under sub-cl. (1) or during the extended period, whichever is lower. Clause 21C runs as follows : (1) Where the Textile Commissioner has issued directions under sub-clause (1) of clause 21A to any producer to pack a specified quantity of cloth during the period specified in the directions-- (a) the producer who packs quantities of such cloth during the period in excess of the minimum quantity shall be eligible for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al in para. 5 of its order has given the reasons for the allowance as follows: The assessee is, as stated by the Appellate Assistant Commissioner, given the option either to produce or to make the payment. If the assessee thinks that it is advantageous to make the payment rather than produce the cloth and suffer a loss, there is nothing wrong in it. We cannot find fault with the assessee. It is for the assessee to decide what is the advantageous course.... If the assessee thought that it was advantageous to make the payment rather than to produce the cloth on that account the payment will not cease to be a payment made wholly and exclusively for the purpose of the business. This conclusion of the Tribunal is correct on facts and supported by authorities. The Gujarat High Court in Addl. CIT v. Rustam Jehangir Vakil Mills Ltd: [1976] 103 ITR 298 considered an identical question. In that case also there were directions to pack The particular variety of cloth as mentioned in the directive of the Textile Controller. The assessee instead of packing the minimum of the particular variety of the cloth, chose to make the payment. The Gujarat High Court at page 309 pointed out : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e business so that from the commercial point of view, he would carry on the business of manufacturing cotton cloth under the scheme set out in clauses 21A and 21C of the Cotton Textiles (Control) Order. Hence, the amount spent by the manufacturer would fall fairly and squarely within section 37(1) of the Income-tax Act, 1961 ........ We are in complete agreement with the above passages. We do not find it necessary to add anything further in support of the same view. The learned counsel for the Commissioner drew our attention to certain other decisions, some of which have also been considered by the Gujarat High Court. However, in deference to the argument, we would briefly refer to the cases cited. In M.S.P. Senthikumara Nadar Sons v. CIT [1957] 32 ITR 138 (Mad), the assessee carried on business in coffee. It entered into contracts with the India Coffee Board and purchased coffee at a rate far below the price of coffee to be sold within India, with an obligation to export the whole of the coffee so purchased to places outside India. The assessee, however, exported only part of the coffee so purchased and sold the balance within India in contravention of its obligations. Wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rol Order was only to encourage production of a particular type of cloth and the mills were given the option of either producing the type of cloth or making a payment which could be absorbed for giving the cash incentive to the other mills which complied with the regulation of producing the particular type of cloth. The entire transaction is thus completely bound up with what the assessee is carrying on as a business. The option available to the assessee was only a business option and the exercise of such an option cannot be equated with what happened in Senthikumara Nadar Sons v. CIT [1957] 32 ITR 138 (Mad). In Haji Aziz and Abdul Shakoor Bros. v. CIT [1961) 41 ITR 350 (SC) the case of Senthikumara Nadar Sons v. CIT [1957] 32 ITR 138 (Mad) was noticed at page 358 and it was understood as a case involving payment of penalty for an infraction of the law which fell outside the scope of permissible deductions under s. 10(2)(xv). It was also pointed out that the assessee in that case was paid liquidated damages which was akin to penalty incurred for an act opposed to public policy, a policy underlying the Coffee Market Expansion Act, 1942, which was left to the Coffee Board to e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 3 of the U.P. Sugarcane Purchase Tax Act, 1961, had not been paid in time. The assessee had, therefore, to pay interest and the Allahabad High Court considered it to be a liability which accrued on infraction of the law, namely, failure to pay within the prescribed time and was not incurred by the assessee in his character as a trader. For our present purpose, it is unnecessary to go further into the decision as in the present case the facts are wholly different. As pointed out earlier, this is a case in which the assessee had an option to carry on business under two alternatives and he exercised one of the options available to him under the Control Order and when in exercise of such an option it paid a particular sum, that sum cannot be treated as penalty or non-business expenditure. The result is that the question referred to us is answered in the affirmative and in favour of the assessee. The assessee will be entitled to its costs. Counsel's fee ₹ 250. T.C. No. 26 of 1976 The question referred to us runs as follows : Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the payment made by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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