Commissioner of Income Tax vs ANGLO FRENCH TEXTILES LTD.

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 Textile Corporation Ltd. Vs. Union of India (UOI) and Others, 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 assessment year 1977-78, the question is as to

whether the damages paid by the assessee u/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 Co. Ltd.

Vs. Commissioner of Income Tax, has held that the authority under Income Tax Act irrespective of the nomenclature given to the imposts in the

statute whether termed penalty or damages or otherwise (sic-assessing officer) has to find out whether is compensatory or the penal in nature in

order to allow compensatory part as deduction u/s 37(1) of the Income Tax Act. The court further held that the amount of damages for the

delayed payment of contribution u/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 compensatory part of the damages to be determined by the Income

Tax Officer having regard to the scheme of the Employees Provident Fund Act and relevant facts, that can be allowed as deduction.