COMMISSIONER OF INCOME TAX Vs. HUKUMCHAND MILLS LIMITED

JUDGEMENT

(1.) BY this reference under S. 256(1) of the IT Act, 1961, the following two questions of law have been referred by the Tribunal to this Court at the instance of the Revenue:

(2.) THIS reference relates to asst. year 1971 72. The assessee is a company carrying on the business of manufacture of textiles. During the relevant accounting year the assessee paid to the Textile Commissioner a sum of Rs. 2,38,140 under the provisions of cl. 21C(1)(b) of the Cotton Textiles (Control) Order, 1948 ("the Control Order"). This amount was debited by the assessee in its P&L a/c and thus claimed as a deduction by way of business expenditure in computation of its business income. This claim was allowed by the ITO while assessing the income of the assessee for the relevant assessment year. However, this part of the order of the ITO, in so far as it related to the allowance of the above claim, was later reversed by the CIT in exercise of his suo motu power of revision under S. 263 of the Act. According to the CIT, the amount in question was required to be paid by the assessee for an infringement of legal obligation placed upon it under the provisions of the Control Order and, as such, it was not allowable as a deduction in computation of its assessable income.

(3.) WE have heard the learned counsel for the Revenue, Mr. G.S. Jetly. The real controversy is whether the amount of Rs. 2,38,140 paid by the assessee to the Textile Commissioner under cl. 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 cl. 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 to give regard to the demand for cloth or yarn, the need of the general public, the special requirements of the industry for such cloth or yarn, the capacity of the manufacturer to manufacture different descriptions or specifications of cloth or yarn and the necessity to make available to the general public cloth of mass consumption. When such directions are issued, under sub cl. (3) of cl. 20, every manufacturer to whom such direction is issued has to comply with the same. There are a number of other powers vested in the Textile Commissioner with more or less similar object. Clause 21A of the Control Order empowers the Textile Commissioner in cases specified therein to direct any producer with a spinning plant to Pack such minimum quantity of such cloth during such period as may be specified in the direction. When such a direction is issued, the producer is bound to comply with the same. Clause 20C, however, deals with the options available to a producer to whom directions have been issued under sub cl. (1) of cl. 21A of the Control Order. Clause 21C reads :