High Court Of Madras

CIT vs. Anglo French Textiles Ltd.

Section 37(1)

Asst. Year 1977-78

R. Jayasimha Babu & K. Gnanaprakasam, JJ.

T.C. Nos. 153 & 154 of 1984 & TCMP No. 204 of 1990

22nd November, 2000

Counsel Appeared

C.V. Rajan, for the Applicant : T.R. Senthilkumar, for the Respondent

ORDER

R. JAYASIMHA BABU, J. :

The assessee is a company whose industrial undertaking was nationalised. The Act under which it was taken over provided for compensation in a limited sum to be distributed (sic-among) the classes of persons in the order of priority provided in the Schedule to the Act. The arrears of tax for the years prior to the date of nationalisation that is in 1986 is not an item for which first priority is given. That liability is not taken over by the Government or by the corporation. The undertaking of this company was subsequently transferred by the Government to the Pondicherry Textiles Corporation. This Court in the case of Pondicherry Textiles Corporation vs. Union of India (2000) 164 CTR (Mad) 401 : (1999) 239 ITR 457 (Mad) after considering the provisions of the Anglo-French Textiles Limited (Acquisition and Transfer of Textiles Undertaking) Act, 1986, held that the Pondicherry Textiles, Corporation is not the successor of Anglo-French Textiles, although the entire undertaking was transferred by the Government to the said Pondicherry Textiles Corporation as none of the liabilities of that company were taken over. The application to substitute the said Pondicherry Textiles Corporation as the respondent is, therefore, dismissed.

No one has appeared for the company and the reference made at the instance of the company is therefore, returned unanswered as that question has not been argued before us.

So far as the reference made at the instance of the Revenue is concerned and which concerns the asst. yr. 1977-78, the question is as to whether the damages paid by the assessee under s. 14B of the Employees’ Provident Fund Act for the delayed payment of contribution of provident fund is deductible in computing the income from the business of the assessee. The Supreme Court in the case of Swadeshi Cotton Mills Company Ltd. vs. CIT (1998) 150 CTR (SC) 616 : (1998) 233 ITR 199 (SC) : TC S17.1859 has held that the authority under IT Act irrespective of the nomenclature given to the imposts in the statute whether termed penalty or damages or otherwise (sic-AO) has to find out whether is compensatory or the penal in nature in order to allow compensatory part as deduction under s. 37(1) of the IT Act. The Court further held that the amount of damages for the delayed payment of contribution under s. 14B of the Employees’ Provident Fund Act, 1952, comprises both the element of penal levy as well as compensatory payment and that it is for the authority under the Act to decide the extent to which it is compensatory.

Having regard to the law laid down by the apex Court, the order of the Tribunal in holding that the amount of damages paid is to be allowed as deduction even without examining the extent to which the same can be regarded as compensatory, is an order which is in (sic-not) accordance with law.

We, therefore, answer the question referred to us by holding that it is only it compensatory part of the damages to be determined by the ITO having regard to the scheme of the Employees’ Provident Fund Act and relevant facts, that can be allowed as deduction.

[Citation : 254 ITR 314]