COMMISSIONER OF INCOME-TAX VS AHMEDABAD COTTON MFG. CO. LTD.
1995 P T D 176
[205 I T R 163]
[Supreme Court of India]
Present: B.P. Jeevan Reddy and N. Venkatachala, JJ
Civil Appeal No.2123 of 1977
COMMISSIONER OF INCOME-TAX
Versus
AHMEDABAD COTTON MFG. CO. LTD. and others
(Civil Appeal No.2123 of 1977 is from the judgment and order dated November 18, 1976 of the Gujarat High Court in I. T. R. No. 183 of 1976).
Civil Appeal No.2149 of 1977
COMMISSIONER OF INCOME-TAX
Versus
MIHIR TEXTILES LTD.
(Civil Appeal No.2149 of 1977 is from the judgment and order dated November 18, 1976, of the Gujarat High Court in I.T.R. No. 175 of 1976).
Civil Appeals Nos.2123, 2149, 2171, 2172, 2226, 2241 and 2245 of 1977, decided on 15/10/1993.
Income-tax---
--Business expenditure---Amount paid at option of assessee under law or statutory scheme---Not penalty---Allowable as expenditure---Textile mills-- Cotton Textile Control---Amount paid at assessee's option in lieu of producing and packing quantity of cloth as specified by Textile Commissioner---Amount paid in lieu of exporting sanforized cloth under option in bond---Allowable expenditure---Indian Income Tax Act, 1961, S.37---Indian Cotton Textiles (Control) Order, 1948, C1.21C(1)(b).
During the accounting period relevant to the assessment year, 1972-73, the respondent company, which ran a textile mill, instead of producing and packing the minimum quantity of specified type of cloth as required by the Textile Commissioner in directions issued under the Cotton Textiles (Control) Order, 1948, paid to the Textile Commissioner a sum of Rs.1,70,766 in exercise of the option available to the respondent under clause 21C(l)(b) of the Control Order. Similarly, since it had not fulfilled its export obligation under a bond entered into as regards exporting a certain quantity of sanforized cloth, the' respondent paid Rs.5,17,781 to the Textile Commissioner in exercise of its option available under the terms of the bond. The question was whether these amounts were allowable as business expenditure. The High Court held that these amounts were not in the nature of penalty or something akin to penalty and were allowable as business expenditure. On appeal to the Supreme Court:
Held, affirming the decision of the High Court, that the sums of Rs.1,70,766 and Rs.5,17,781 were not in the nature of penalty or something akin to penalty but were made in exercise of the option given to the respondent by the law or the statutory scheme and the expenditure was incurred in the course of business as a measure of business expediency and the amounts were, therefore, allowable as business expenditure under section 37 of the Income Tax Act, 1961.
In examining the claim of an assessee that a payment made by him is a deductible expenditure under section 37 of the Income Tax Act, 1961, what needs to be done by the assessing authority, is to see whether the law or scheme under which the amount was paid required such payment to be made as a penalty or something akin to penalty imposed by way of punishment for breach or infraction of the law or the statutory scheme; if the amount so paid (although called a penalty) is found to be not a penalty or something akin to penalty due to the fact that the amount paid by the assessee was in exercise of the option conferred upon him under the very law or scheme concerned, the assessing authority has to regard such payment as business expenditure of the assessee, allowable under section 37 as an incident of business laid out and expended wholly and exclusively for the purpose of the business. Such payment by the assessee is one which is made in exercise of the option given to the assessee by the law or the statutory scheme and there arises no need for the assessing authority to go into the question whether the payment could be regarded as one made as a measure of business expediency, for it cannot ignore the fact that the law or the statutory scheme enables incurring of such expenditure in the course of the assessee's business.
M.S.P. Senthikumara Nadar and Sons v. CIT (1957) 32 ITR 138 (Mad.) and Haji Aziz and Abdul Shakoor Bros. v. CIT (1961) 41 ITR 350 (SC) distinguished.
CIT (Addl.) v. Rustam Jehangir Vakil Mills Ltd. (1976) 103 ITR 298 (Guj.) and CIT v. Tarim Commercial Mills Co. Ltd. (1977) 107 ITR 172 (Guj.) approved.
M.L. Verma, Senior Advocate (R. Salim, P.N. Misra, C. Ramesh and P. Parameswaran, Advocates with him) for Appellant.
Mrs. A.K. Verma, Advocate (of J.B. Dadachanji and Co.) for Respondents.
JUDGMENT
N. 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. As the decision to be rendered by us in Civil Appeal 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.
Civil Appeal No.2149 of 1977: CIT v. Mihir Textiles Ltd.:
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 Income Tax Act for the 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 made to the Textile Commissioner under the provisions of clause 21C(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 made by the assessee to the Government for non-fulfilment of its obligation to export specified quantity of sanforized cloth is allowable as payment incidental to carrying on of the assessee's business?"
The facts which led to the reference of the said questions for the 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 Textile 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 a 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 in exercise of the option available to it under clause 21C(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, 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 a certain quantity of sanforized cloth and paid to the Textile Commissioner Rs.5,17,781 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 Income Tax Officer who made the assessment order in respect of the said accounting yea refused to allow the claimed deductions, taking the view that the said amounts paid by the assessee to the Textile Commissioner were not deductions which could be allowed as items of its business expenditure. In the 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. The 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.
A Division Bench of the High Court which examined the reference, answered questions Nos. l and 2 against the Revenue and in favour of the assessee following its earlier decision in CIT (Addl.) v. Rustam Jehangir Vakil Mills Ltd. (1976) 103 ITR 298 (Guj.). It also answered question No.3 against the Revenue and in favour of the assessee following its earlier decision in CIT v, Tarim Commercial Mills Co. Ltd. (1977) 107 ITR 172 (Guj.). The reference was decided accordingly by the High Court by its judgment rendered on November 18, 1976. The Revenue, which was not satisfied with the said judgment of the High Court, has filed the present appeal in this Court on a Certificate of fitness obtained from the High Court to appeal to this Court.
It was not disputed before us that if the answers given by the High Court in Rustam Jehangir Vakil Mills's case (1976) 103 ITR 298 (Guj.) are sustainable, the answers given to questions Nos. l and 2 by the High Court in the judgment under the present appeal also become sustainable. So also, it was not disputed before us that if the answer given by the High Court in Tarun Commercial Mills's case (1977) 107 ITR 172 (Guj), followed in answering question No.3 in the judgment under the present appeal is sustainable, the answer to question No.3 given by the High Court in the judgment under appeal as well become sustainable.
This situation leads us to the necessity of examining the correctness and the sustainability of the answers given by the High Court on the questions referred to it in references in Rustam Jehangir Vakil Mills's ("Rustam Mills") case (1976) 103 ITR 298 and Tarim Commercial Mills' ("Tarun Mills") case (1977) 107 ITR 172.
The questions referred for the opinion of the High Court in Rustam Mills's case (1976) 103 ITR 298 (Income-tax Reference No. 14 of 1974) were (at page 301)
"(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.91,387 made to the Textile Commissioner under the provisions of clause 21C(1)(b) of the Cotton Textiles (Control) Order, 1948, was business expenditure allowable under section 28 or under section 37 of the Act ? "
The High Court answered the above question N0.1, thus (at page 311):
Then payment was not in the nature penalty and was incidental to the carrying on the assessee s business
Then The High Court answered question No. 2 thus at (311):
The payment was business expenditure allowable under section 37 of the Income Tax Act, 1961
We shall advert here to the facts of Rustam Mills's case (1976) 103 ITR 298 (Guj.) in order to examine the correctness and the sustainability of the answers given by the High Court to the questions referred thereto. For the assessment year 1969-70, the relevant accounting year being the financial year ending on March 31, 1969, the assessee-mills failed to produce and pack the minimum quantity of standard cloth required to be produced and packed according to a direction issued by the Textile Commissioner under the provisions of the Cotton Textiles (Control) Order, 1948. Rustam Mills which had the option under clause 21C(1)(b) of the Control Order, 1948, to pay to the Textile Commissioner the amount envisaged thereunder in lieu of production arid packing of the minimum quantity of the standard cloth in the year 1968-69, paid an amount of Rs,91,387 to the Textile Commissioner. In the return of Rustam Mills filed for the accounting year 1968-69, deduction of the amount of Rs.91,387 was claimed as an allowance under section 37 of the Income Tax Act on account of its business expenditure of that year on the plea that it was an expense wholly and exclusively laid out for the purpose of its business. The Income Tax Officer refused to allow the deduction so claimed. However, in the appeal of Rustam Mills, the Appellate Assistant Commissioner, allowed the deductions claimed and that order was confirmed by the Tribunal in the further appeal carried before it by the Revenue. 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. The answers so given to the questions by the High Court were based on its view that the amount paid by Rustam Mills to the Textile Commissioner was neither penalty nor 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 21C(1)(b) of the Control Order, 1948, which formed part and parcel of a statutory scheme. Coming to Tarun Mills's case (1977) 107 ITR 172 (Guj.), the question referred for the opinion of the High Court at the instance of -the Revenue was (at page 174):
"Whether, on the facts and in the circumstances of the case, penalty of Rs.18,247 paid to the Textile Commissioner for non-fulfilment of the assessee's export obligation was business expenditure incurred wholly and exclusively for the purposes of the assessee's business ?"
The High Court answered this question against the Revenue and in favour of Tarun Mills (the assessee). It would be necessary to advert to the facts of this case, in order to examine the correctness and the sustainability of the answer of the High Court given to the question. Tarun Mills became entitled to the user of the trade mark "Sanforized" on the authority given to it by the trade mark registry of the Government of India. That entitlement of Tarun Mills obligated it to export certain percentage of "Sanforized" cloth produced by it. Accordingly, for the period from July, 1963, to November, 1965, Tarun Mills was required to export five per cent of the value of "Sattforized" cloth produced by it, along with similar mills which had become entitled to the user of the trade mark "Sanforized". But at the end of the year 1965 it was found that the required quantity of the "Sanforized" cloth was not exported by several mills. So, a scheme was evolved by the Central Government to make the mills concerned to fulfil their export obligations. Under that scheme previous years' shortfall in the concerned mills' exports was required to be made good by them during the subsequent years 1966 to 1972, besides the requirement of their part to export annually a quantity of not less than ten per cent of the "Sanforized" cloth produced during those years. The scheme also contained a provision requiring the concerned mills to execute bonds in that regard in favour of the President of India. One of the conditions in that bond enabled the concerned mills to pay to the Central Government ten paisa per liner yard on the shortfall in its export of "Sanforized" cloth during the relevant year and that amount referred to as "penalty" was required to be deposited with the Government of India.
Tarun Mills which did not export the required quantity of "sanforized" cloth during its accounting year 1967-68, made a deposit of Rs.18,247 with the Central Government in exercise of its option under the bond to pay an amount in lieu of the shortfall in the quantity of "Sanforized" cloth to be exported, and claimed that amount as its business expenditure in the income-tax return of the said accounting year. But, the Income Tax Officer refused to allow the said amount of deduction claimed as business expenditure of Tarun Mills during the relevant year. In the appeal of Tarun Mills, the Appellate Assistant Commissioner reversed the order of the Income Tax Officer and allowed deduction of that amount as its business expenditure. The Revenue's appeal therefrom filed before the Tribunal did not succeed. At the instance of the Revenue, the question adverted to earlier, having been referred to the High Court, it was answered against the Revenue and in favour of the Tarun Mills, as stated earlier. In giving that answer, the High Court took the view that even if the bond referred to the amount payable by Tarun Mills for non-fulfilment of its export obligation as "penalty" such amount being payable at the option of Tarun Mills for non-fulfilment of its export obligation under the scheme, it could not be regarded as penalty or something akin to penalty payable for any breach of law or public policy, for the very scheme under which that amount was payable by Tarun Mills to the Government provided for such payment at the option of the concerned mills.
As the answers given by the High Court to the questions referred for its opinion in Rustam Mills's case (1976) 103 ITR 298 (Guj.) and in Tarun Mills's case (1977) 107 ITR 172 (Guj.) have gone against the Revenue and in favour of the concerned assessee-mills in view on the concerned scheme in the matter of payment of the amount to the Government of India, the points which require our consideration and decision in this appeal would be--whether the amount paid by the concerned mills to the Government under one or the other scheme becomes business expenditure of the mills concerned under section 37 of the Income Tax Act as would entitle such mills to claim deduction as its business expenditure for the accounting year.
Shri M. L. Verma, the learned senior counsel for the Revenue, contended that the amount paid by Rustam Mills in lieu of its failure to manufacture and pack the standard cloth during the accounting year 1967-68 as required under the scheme of the Control Order, 1948, has to be treated as amount paid as penalty or as something akin to penalty for infraction of the law or public policy envisaged under the scheme and, therefore, the said amount cannot be regarded as business expenditure of the assessee--Rustam Mills under section 37 of the Income Tax Act. He also contended that the amount which was claimed as deductible expenditure by Tarun Mills for non-fulfilment of its export obligation in relation to "Sanforized" cloth had to be regarded as an amount paid by way of penalty or something akin to penalty for infraction of the law or public policy and hence could not be regarded as business expenditure claimable as deduction under section 37 of the Income Tax Act. He sought to support his contention placing reliance on the decisions of the Madras High Court in M.S. P. Senthikumara Nadar and Sons v. CIT (1957) 32 ITR 138, and of this Court in Haji Aziz and Abdul Shakoor Bros. v. CIT (1961) 41 ITR 350 (SC).
In Senthikumara Nadar's case (1957) 32 ITR 138 (Mad.), the assessee was doing business in coffee. It had entered into contracts with the Indian Coffee Board entitling it to purchase coffee at a rate far below the price of coffee sold within India, undertaking an obligation to export the whole of the coffee so purchased outside India. The assessee, which purchased coffee at a low price because of the contracts, did not fulfil its export obligation by sending the whole of the coffee outside India. When the assessee was found to have committed the breach in performing his export obligation the assessee paid liquidated damages to the Coffee Board as provided for in the terms of the contract. The assessee, thereupon, claimed that amount as deduction under section 10(2)(xv) of the Indian Income Tax Act, 4922. The Madras High Court which examined the nature of the payment made by the assessee found that that payment was akin to penalty, for it was paid for infraction of public policy underlying the Coffee Market Expansion Act, 1942, which was left to be enforced by the Coffee Board. That amount, it was found, was not as amount spent in the assessee's normal trading activity and not an amount paid as an incidental expenditure on account of business. In fact, this is what the High Court had to say in the matter: The breach of its contractual obligations to the Board was not in the normal course of business, and the liability the assessee had to discharge for such breach was not incidental to the trading activities that it carried on. Hence, deduction of the said amount claimed by the assessee as business expenditure was not accepted by the High Court.
In Haji Aziz and Abdul Shakoor Bros.'s case (1961) 41 ITR 350, this court had to consider' a situation where the assessee-Haji Aziz and Abdul Shakoor Bros., had imported certain goods in contravention of the law and the goods were on that account liable to be confiscated. However, the assessee obtained release of the goods by payment of a certain amount by way of fine. The question was whether the assessee could claim the amount so paid as fine as deductible business expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922. This Court, in that context, observed that a case involving payment of penalty for an infraction of the law fell outside the scope of permissible deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922, by pointing out that the payment made by the assessee as liquidated damages was akin to penalty for an act of infraction of public policy underlying the concerned statute. Hence, this Court held in that case that the amount paid by Haji Aziz and Abdul Shakoor Bros, as fine was not deductible as business expenditure under section 10(2)(xv) of the Income Tax Act.
We are unable to see how any support could be derived from the said decisions for the contentions urged on behalf of the Revenue in this appeal.
In Rustam Mills's case (1976) 103ITR 298 (Guj.), the concerned 'statutory scheme was found in certain clauses of Cotton Textiles (Control) Order, 1948. Sub-clause (1) of clause 21A read thus:
"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 clause 21A conferred power on the Textile Commissioner to grant extension of time for complying with the directions issued by him in so far as the price applicable to such quantities of cloth so packed is the price in force during the period specified in the direction under sub-clause (1) or during the extended period, whichever is lower.
Clause 21C of that Order read:
"(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-- ....
(b)such producer may, in lieu of packing the whole or part of the minimum quantity of cloth specified in the said .direction, make payment to the Textile Commissioner in respect of the deficiency at such rates as may be specified by the Central Government and within such time as may be determined by the Textile Commissioner.
(2)All payments received from producers under paragraph (b) of sub clause (1) shall, as far may be, utilized towards payments, if any, to producers under the said paragraph (a). "
The Textile Commissioner's direction issued to the textile mills to produce arid pack a specified quantity of standard cloth was in exercise of the powers conferred upon him under the said clauses. Rustam Mills instead of complying with the directions as to production and packing of required quantity of standard cloth availed of the option of making payment as provided under clause 21C(1)(b) and paid to the Textile Commissioner a sum of Rs.91,387. It is this amount which was claimed by Rustam Mills as deduction under section 37 of the Income Tax Act, 1961, in respect of the relevant accounting year. The High Court found that amount to be deductible expenditure of the assessee Rustam Mills. The statutory scheme contained in the said clauses was adverted to by the High Court thus (at page 309):
" .... the scheme is that the law itself gives an option to the producer concerned to adopt one of the three courses and, if he complies with the law by choosing one of the three options offered to him, he cannot be said to commit by infraction of law. Hence, there is no question of any amount paid as penalty or any amount paid being akin to penalty as was the case before the Madras High Court in the. Coffee Board's case (Senthikumara Nadar and Sons v. CIT (1957) 32 ITR 138..."
Referring to the facts of the case, it was held by the High Court thus (at page 310);
"In the instant case, the amount was spent by the manufacturer concerned for the purpose of carrying on its business and it was laid out and expended wholly and exclusively for the purposes of the 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 ...."
Turning now to Tarun Mills's case (1977) 107 ITR 172 (Guj), the payment there was made on account of non-fulfilment of the obligation of exporting "Sanforized" cloth according to a term of the bond executed in favour of the President of India. The assessee-Tarun Mills paid the amount of Rs.18,247 calculated at the rate of 10 paisa per linear yard in lieu of shortfall in the export of "Sanforized" cloth to be made by it as it was allowed, at its option, to do so under another term of the bond. The contention advanced in the case on behalf of the Revenue was that the amount paid by Tarun Mills was an amount of penalty or an amount akin to penalty for infraction of law or public policy and, therefore, could not have been allowed as deduction of its business expenditure. On a consideration of the matter, the High Court relied on Rustam Mills's case (1976) 103 ITR 298 (Guj.) and held thus (at page 181):
"We are of the opinion that having regard to the terms contained in the bond we find that it is optional for the manufacturers to achieve the export target prescribed for them or to pay to the Government the sum or sums calculated at the rate of 10 paisa per linear yard to cover up the shortfall in the export obligations. The option envisaged in the bond entered into between the parties clearly indicate that the option was with the manufacturers and that option may be availed of for a variety of reasons in the interest of commercial expediency. The export obligations which the textile manufacturers may have incurred for the use of trademark 'Sanforized' may not be fulfilled for various factors over which the manufacturers may not have control. The trend and competition in the international market, the quality and quantity of the goods produced by the manufacturers may be some of the factors which may ultimately have a bearing on the question of achieving the target. In the interest of business, textiles manufacturers opt for payment of compensation or damages to cover up the shortfall in the export obligation. It is no doubt true that the word used in the scheme which we have set out above for the sum to be paid in default of fulfilling the export obligation has been described as a penalty but in the ultimate analysis it is the substance of the transaction between the parties which has to be considered for purposes of determining what is the nature and import of the scheme and the bond executed in pursuance thereof. The exercise of option, as stated above, may be the result of commercial expediency as well as certain extraneous factors over which the manufacturers might not have control and, therefore, in view of the scheme and the bond with which we are concerned here, it cannot be said that there is a breach of public policy which may render the payment, agreed to be made for the default arising as a result of the breach, as one akin to penalty. Under no circumstances, without violence to the language, it can be said to be infraction of the law."
It is true that an assessee doing business in the accounting year is not entitled to claim deduction under section 37 of the Income Tax Act, 1961, of an amount paid by such assessee during the year as an amount of penalty or an amount akin to penalty for any breach or infraction of law or any public policy which is sought to be achieved by such law, as is also held by this Court in Haji Aziz and Abdul Shakoor Bros.'s case (1961) 41 ITR 350. But if such payment is made by the assessee during the relevant accounting year without any breach or infraction of any law or any public policy sought to be achieved by it and in fact in obedience to provisions of such law as a measure of business expediency, there could be no valid reason not to allow such payment as deductible expenditure of the assessee under section 37 of the Income Tax Act.
Therefore, what needs to be done by an assessing authority under the Income Tax Act, 1961, in examining the claim of an assessee that the payment made by such assessee was a deductible expenditure under section 37 of the Income Tax Act although called a penalty is to see whether the law or scheme under which the amount was paid required such payment to be made, as penalty or as something akin to penalty, what is imposed by way of punishment for breach or infraction of the law or the statutory scheme. If the amount so paid is found to be not a penalty or something akin to penalty due to the fact that the amount paid by the assessee was in exercise of the option conferred upon him under the very law or scheme concerned, then one has to regard such payment as business expenditure of the assessee, allowable under section 37 of the Income Tax Act, as an incident of business laid out and expended wholly and exclusively for the purposes of the business. However, such payment of the assessee is one which is made in exercise of the option given to such assessee by the law or the statutory scheme and there arises no need for the assessing authority to go into the question whether the payment could be regarded as one made as a measure of business expediency, for it cannot ignore the fact that the law or the statutory scheme enables incurring of such expenditure in the course of the assessee's business.
As is pointed out by us already, the High Court has answered the questions referred in Rustam Mills's case (1976) 103 ITR 298 (Guj.) as well as in Tarun Mills's case (1977) 107 ITR 172 (Guj.), taking into consideration the facts that the payments concerned therein were made in compliance with the law or the scheme concerned therein and not for committing any breach or infraction of the law or statutory scheme. Therefore, the judgment of the High Court under the present appeal being rendered following its earlier judgments in Rustam Mills's case (1976) 103 ITR 298 (Guj) and Tarun Mills' case (1977) 107 ITR 172 (Guj.), which are found by us to have been rendered in consonance with law, the same is not liable to be interfered with.
In the result, we dismiss Civil Appeal No.2149 of 1977, with no costs.
Civil Appeals Nos.2123, 2171-72, 2.226, 2241 and 2243 of 1977
As our judgment in the above Civil Appeal No.2149 of 1977, fully covers the subject-matter of these appeal, they are liable to be dismissed, following that judgment.
In the result, we dismiss these appeals as well, with no costs.
M.B.A./288/T.FAppeal dismissed.