So also, the assessee, which had number fulfilled its export obligation under a bond entered into as regards exporting certain quantity of sanforized cloth and had paid to the Textile Commissioner sic Government Rs 5,17,781 for number fulfilment of that obligation, in exercise of its option available under the terms of the bond, claimed deduction of that amount as well in its income tax return of the accounting year 1971 72 as its business expenditure.
The answers so given to the questions by the High Court were based on its view that the amount paid by the Rustam Mills to the Textile Commissioner was neither penalty number something akin to penalty paid for infraction of any law or public policy inasmuch as that amount was paid by Rustam Mills by exercising its option under clause 21 C 1 b of the Control Order, 1948 which formed part and parcel of a statutory scheme.
As the decision to be rendered by us in Civil Appeal No.
Revenues appeal filed against that appellate order before the Tribunal did number meet with success.
The questions referred for opinion of the High Court in Rustam Mills case2 Income Tax Reference No.
The ITO who made the assessment order in respect of the said accounting year, refused to allow the claimed deductions, taking the view that the said amounts paid by the assessee to the Commissioner of Income Tax were number deductions which companyld be allowed as items of its business expenditure.
In appeal preferred by the assessee against that assessment order, the Appellate Assistant Commissioner, allowed the said amounts claimed by the assessee as items of its business expenditure in respect of its accounting year 1971 72 and made an order allowing the appeal.
However, at the instance of the Revenue, the Tribunal referred the questions set out in the beginning of this judgment for getting the opinion of the High Court on them.
A Division Bench of the High Court which examined the Reference, answered questions 1 and 2 against the Revenue and in favour of the assessee following its earlier decision in CIT v. Rustam Jehangir Vakil Mills Ltd.2 It also answered question 3 against the Revenue and in favour of the assessee following its earlier decision in CIT v. Tarun Commercial Mills Co. Ltd.3 The Reference was decided accordingly by the High Court by its judgment rendered on November 18, 1976.
Thereafter, when the assessee filed its income tax return relating to the accounting year 1971 72 with the jurisdictional Income Tax Officer ITO , it claimed deduction of the said amount out of its profits, as business expenditure.
A Textile Mill was being run by Mihir Textiles Ltd., Ahmedabad, the assessee, during the accounting year 1971 72 previous to the Assessment Year 1972 73.
14 of 1972 , were Whether the payment made to the Textile Commissioner by the assessee for companytravention of the direction given by the Textile Commissioner was in the nature of penalty and number incidental to the carrying on of the assessees business?
The assessee, being a manufacturer of companyton textiles, had to companyply with the directions issued from time to time by the Textile 1 1977 Tax LR 586 104 ITR 167 Guj HC Commissioner under the provisions of the Cotton Textiles Control Order, 1948, hereinafter referred to as the Control Order, as amended and then in force, in the matter of producing and packing minimum quantity of specified type of cloth by it during the accounting year.
Whether, the payment of Rs 5,17,781 made by the assessee to the Government for number fulfilment of its obligation to export specified quantity of sanforized cloth is allowable as the payment incidental to carrying on of the assessees business?
The Judgment of the Court was delivered by VENKATACHALA, J. These are the appeals of the Revenue arising from different judgments of the Gujarat High Court delivered on References made at its instance under Section 256 1 of the Income Tax Act, 1961, to be referred to as the I.T. Act, on obtaining certificates of fitness to appeal to this Court.
So also, it was number disputed before us that the answers given by the High Court in Tarun Commercial Mills 2 1976 103 ITR 298 Guj HC 3 1977 107 ITR 172 1978 Tax LR 579 Guj HC case3 followed in answering question 3 in the judgment under the present appeal, if are sustainable, the answer to question 3 given by the High Court in the judgment under appeal, as well, becomes sustainable.
The assessee instead of producing and packing the minimum quantity of specified type of cloth as required by the aforesaid directions of the Textile Commissioner, paid to the Textile Commissioner Rs 1,70,766 in exercise of the option available to it under clause 21 C 1 b of the Control Order.
Whether, on the facts and in the circumstances of the case, the payment of Rs 1,70,766 made to the Textile Commissioner under the provisions of clause 21 C 1 b of the Cotton Textiles Control Order, 1948, as amended from time to time, was business expenditure, allowable under Section 28 of the Income Tax Act, 1961?
This situation leads us to the necessity of examining the companyrectness and the sustainability of the answers given by the High Court on the questions referred to it in References in Rustam Jehangir Vakil Mills Rustam Mills case2 and Tarun Commercial Mills Tarun Mills case3.
Facts which led to the reference of the said questions, for opinion of the High Court were briefly these.
The questions referred by the Tribunal under Section 256 1 of the I.T. Act for opinion of the High Court in that Reference, were these Whether, the payment made to the Textile Commissioner by the assessee for companytravention of the direction given by the Textile Commissioner was in the nature of penalty and number incidental to the carrying on of the assessees business?
175 of 1976 decided by the Gujarat High Court.
In the Reference, carried before the High Court, at the instance of the Revenue, the aforesaid questions were answered against it by the High Court, as already stated.
However, in the appeal of the Rustam Mills, the Appellate Assistant Commissioner, allowed the deductions claimed and that order was companyfirmed by the Tribunal in the further appeal carried before it by the Revenue.
