Commissioner of Income Tax vs Anglo French Textiles Ltd. Anglo French Textiles Ltd. Vs Commissioner of Income Tax

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 to the classes of persons and 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 Textile 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 Textile Corporation is not the successor of Anglo French Textiles Limited, although the entire undertaking was transferred by the

Government to the said Pondicherry Textile Corporation, as none of the liabilities of that company were taken over. The application to substitute

the said Pondicherry Textile 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 Funds and Miscellaneous Provisions 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 the Income Tax Act irrespective of the

nomenclature given to the imposts in the statute whether termed as penalty or damages or otherwise has to find out whether it is compensatory or

is penal in nature, in order to allow the 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 Funds and Miscellaneous Provisions 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 not an order which is in accordance with law.

We, therefore, answer the question referred to us by holding that it is only the compensatory part of the damages to be determined by the Income

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