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TMI Blog1981 (3) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... -69 and Rs. 26,300 for the assessment year 1969-70 made by the assessee to the Indian Cotton Mills Federation for its failure to meet quota or import allotted quota of certain varieties of cotton within the specified time was allowable as an expenditure for working out the business income of the assessee ? 2. Whether, on the facts and in the circumstances of the case, for the assessment year 1969-70 payment of Rs. 95,400 made to the Textile Commissioner under the provisions of clause 21C(1)(b) of the Cotton Textile (Control) Order, 1948, was expenditure allowable under section 28 or under section 37 of the Act ? " At the instance of the assessee the following question is referred " Whether, on the facts and in the circumstances of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s question must be answered in the negative and against the Revenue. This leaves us with the remaining question whether the payment of Rs. 38,100 for the assessment year 1968-69 and Rs. 26,300 for the assessment year 1969-70 made by the assessee to the Indian Cotton Mills Federation for its failure " to meet quota or import allotted quota of certain varieties of cotton within the specified time " was allowable as an expenditure for working out the business income of the assessee. This question, though not directly covered by any decision of this court, would be clearly covered by the ratio of the decision of this court in the case of Addl. CIT v. Rustam Jehangir Vakil Mills Ltd. [1976] 103 ITR 298 (Guj). It appears that the Govt. of Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for failure to import the allotted quota of American cotton. It is the case of the assessee that it did not import cotton as per the allotment made to it, as American PL 480 cotton was not of the requisite quality and it preferred to make payments as stated above to the Federation instead of importing the said variety of cotton as per the allotment made to it. The assessee claimed deduction of the aforesaid payments as business expenditure. The ITO disallowed this claim of the assessee on the ground that the aforesaid amounts paid by the assessee to the Federation partook the character of penalty inasmuch as the payments were made on account of contravention of the directions given by the Government. In other words, according to the ITO, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is not the Revenue's case that it was on account of any infraction of law committed by the assessee that it was required to make the aforesaid payments by way of penalty. The payments are directly linked or connected with the business of the assessee. It was due to the commercial expediency that the assessee did not import cotton of the variety known as American PL 480 and preferred to make payment to the Federation as the cotton of this variety was not of requisite quality which it could profitably use for its business. It must, therefore, be held that the expenditure which the assessee incurred in making the aforesaid payment was a business expenditure, deduction of which is allowable under law. We are, therefore, of the view that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the provisions of clause 21C(1)(b) of the Cotton Textile (Control) Order, 1948, was expenditure allowable under section 28 or under section 37 of the Act ? " At the instance of the assessee for the asstt. year 1969-70. " Whether, on the facts and in the Negative (against the Revenue) circumstances of the case, the Tribunal was justified in law in holding that perquisite in excess of 1/5th of the salary paid to the two managing directors, who were employees of the company, was rightly disallowed; and in holding that such perquisite and other remuneration to the directors could be allowed only if they are allowable under section 40(a)(v) and also under section 40(c) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X
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