COMMISSIONER OF INCOME TAX Vs. RAJKUMAR MILLS LIMITED

JUDGEMENT

(1.) BY this reference under Section 256(1)of the I.T. Act, 1961 (hereinafter referred to as "the Act"), the Income-tax Appellate Tribunal, Indore Bench, Indore, has referred the following questions of law for the opinion of this court:

(2.) THE material facts giving rise to this reference as set out in the statement of the case are as follows: THE assessee is a public limited company dealing in the manufacture and sale of textiles. THE assessment year involved is 1972-73 and the relevant accounting period ended on December 31, 1971. Under the Cotton Textiles (Control) Order, 1948, the assessee paid compensation of Rs. 85,411 for short packing of controlled cloth during the period January, 1971, to May, 1971. THE assessee had also paid a sum of Rs. 2,800 for production of higher medium cloth. THE assessee claimed the aforesaid two payments as admissible deductions in the computation of the total income of the assessee. THE ITO disallowed both these items, but on appeal by the assessee they were allowed by the AAC. THE Revenue preferred an appeal against the order of the AAC. THE Tribunal confirmed the order of the AAC and dismissed the appeal.

(3.) AS regards the item of Rs. 85,411 this amount was paid by the assessee as compensation for short packing of controlled cloth during the period January, 1971, to May, 1971. The Cotton Textiles (Control) Order, 1948, provided for a cash payment by way of assistance, i.e., a subsidy at specified rate, if a textile mill manufactured controlled cloth in excess of the minimum quantity specified in the direction given under the aforesaid order. If there was a shortfall in the targeted quantity of controlled cloth to be produced, the mill had to make a payment to the Textile Commissioner at specified rates as provided, under the Control Order. The Tribunal found that the assessee received a sum of Rs. 10,36,198 as incentive for having packed excess quantity of controlled cloth during the period June, 1971, to December, 1971, and the assessee had duly shown as its taxable income the subsidy received from the office of the Textile Commissioner for the excess packing of controlled cloth. The assessee sought to deduct the compensation which the assessee was required to pay for short packing of controlled cloth in an earlier period in the accounting year in question. It is difficult to appreciate how the amount required to be paid on account of shortfall in packing of controlled cloth could not be deducted when the subsidy received by the assessee for excess production of controlled cloth was treated as its taxable income. The Tribunal placed reliance upon a decision of the Gujarat High Court in Addl. CIT v. Rustam Jehangir Vakil Mills Ltd. [1976] 103 ITR 298 in which after examining the relevant pro visions of the Cotton Textiles (Control) Order, 1948, the High Court held that the amount paid by the assessee was deductible. A similar view is taken by the Madras High Court in CIT v. Vasantha Mills Ltd. [1979] 120 ITR 321. We are in respectful agreement with the view taken in the aforesaid decisions and are of the opinion that the Tribunal did not commit any error of law in holding that the amount of Rs. 85,411 paid by the assessee as compensation for shortfall in the packing of controlled cloth was deductible from the income of the assessee.