Deduction under section 37 of the Income-tax Act. - Income Tax - 1127/CBDT

INSTRUCTION NO. 1127/CBDT Dated : December 24, 1977 Section(s) Referred: 37 Statute: Income - Tax Act, 1961 Vide Instruction No.910 (F.No.228/51/75-ITA.II), dated the 8th January, 1976, the Board considered the question whether the payment made by the Textile Mill on account of non-fulfilment of the prescribed quota of production of such variety of cloth as may be directed to be produced and packed by the Textile Commissioner under clause 21A(1) of the Cotton Textiles (Control) Order, 1948 during a specified period, would be allowable as deduction in the hands of the producer under section 37 of the Income-tax Act, 1961. It was then decided that any payment by the producer under clause 21C(1) (b) of the said Order in lieu of non-fulfilment of the prescribed quota of production would partake the character of penalty and would not be allowable as deduction under section 37 of the Income-tax Act. The question has been reconsidered by the Board in consultation with the Learned Solicitor General Of India. It has been advised that such payment by the producer is not in the nature of a penalty. The payment is made on account of an option exercised in the light of the exigencies of assessee's own business and as such is allowable under section 37 of the Income tax Act, 1961. It has also been advised that the decision of the Gujarat High Court in Rustom Jahangir Vakil Mills case 103-ITR-298 is quite sound in law. The Board have, therefore, decided to withdraw all the appeals pending before the Supreme Court on this issue . Accordingly, all the Commissioners are requested to withdraw/concede all such matters pending in appeal at different stages of the appellate proceedings.