- (1.) 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 1. T. Act', on obtaining certificates of fitness to appeal to this court. As the decision to be rendered by us in Civil No. 2149 (NT) of 1977 could form the basis for disposal of the remaining appeals, we shall proceed to consider that appeal and decide it at the first instance.
(2.) This appeal arises from the judgment in Income Tax Reference No. 175 of 1976 decided by the Gujarat High court. 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: (1 Whether, the payment made to the Textile Commissioner by the assessee for contravention of the direction given by the Textile Commissioner was in the nature of penalty and not incidental to the carrying on of the assessee's business (2 Whether, on the facts and in the circumstances of the case, the payment of Rs. 1,70,766. 00 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 (3 Whether, the payment of Rs. 5,17,781. 00 made by the assessee to the government for non-fulfilment of its obligation to export specified quantity of sanforized cloth is allowable as the payment incidental to carrying on of the assessee's business
(3.) Facts which led to the reference of the said questions, for opinion of the High court were briefly these. 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. The assessee, being a manufacturer of cotton textiles, had to comply with the directions issued from time to time by the Textilecommissioner 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. 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. 00 in exercise of the option available to it under clause 21-C (1 (b) of the Control Order. 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. So also, the assessee, which had not 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. 00 for non-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 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 not deductions which could 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. Revenue's appeal filed against that appellate order before the tribunal did not meet with success. 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.;