M. Srinivasan, C.J. - (1.)THE Tribunal has referred three questions to us for our consideration. One of the questions relates to deduction under Section 36(1)(viii) of the Income-tax Act, 1961. It is covered by our judgment in I. T. R. No. 9 of 1988--CIT v. Himachal Pradesh Financial Corporation [1998] 232 ITR 138, dated May 14, 1997. We have answered the question in that case that the Tribunal was right in law in deciding that the deduction under Section 36(1)(viii) of the Income-tax Act be allowed at the prescribed percentage of the total income computed before making deduction under Chapter VI-A and also before taking into account the deduction allowable under Section 36(1)(viii) itself. Following the said judgment, we answer the question holding that the Tribunal was right in its view that the deduction under Section 36(1)(viii) of the Act is allowable at the prescribed percentage of the total income before making deduction under Section 36(1)(viii) itself.
(2.)THE second question to be considered by us is whether the assessee is entitled to claim the amounts representing discount on bonds and debentures as allowable expenditure. In the first year, that is, 1976-77, the claim was disallowed on the ground that they did not relate to that year. In the second year, the Inspecting Assistant Commissioner (Appeals) observed that the assessee had itself added back Rs. 19,538 on account of discount of bonds in the computation of income. THE Tribunal in relation to the year 1977-78 has deleted this sum but, according to the Inspecting Assistant Commissioner (Appeals), the decision of the Tribunal has not been accepted by the Department. Hence, he added back Rs. 19,538 in that year. On appeals, the Commissioner of Income-tax (Appeals) deleted the disallowance of Rs. 5,702 in the first year and Rs. 10,050 in the second year. That was challenged by the Revenue. In the third year, that is, 1981-82, the assessee had debited Rs. 19,538 as discount on bonds. While computing the taxable income the assessee itself added back Rs. 9,487 as it had been allowed in the year 1977-78 as a result of appeal effect in that year. For the balance, it had claimed a deduction.
The assessing authority followed the judgment of the Madras High Court in CIT v. Madras Industrial Investment Corporation Ltd. [1980] 124 ITR 454. The assessee relied upon the decision of the Supreme Court in India Cements Ltd. v. CIT [1966] 60 ITR 52, but the assessing authority held that the judgment of the Supreme Court was not applicable and followed the Madras case. The Commissioner of Income-tax (Appeals) upheld the order of the assessing authority. On second appeal, the Tribunal rejected the contention of the assessee and accepted the contention of the Revenue.

We have been taken through the judgment of the Madras High Court in CIT v. Madras Industrial Investment Corporation Ltd. [1980] 124 ITR 454, which has been considered by a judgment of the Madhya Pradesh High Court in M. P. Financial Corporation v. CIT [1987] 165 ITR 765. We have also perused the judgment of the Supreme Court in India Cements Ltd. v. CIT [1966] 60 ITR 52. We can straightaway point out that the judgment of the Supreme Court has no relevance in the present case.

(3.)NO doubt, the Madras High Court has expressed the opinion that there should be actual expenditure before the claim is made by the assessee. The Madhya Pradesh High Court in ([1987] 165 ITR 765) has refused to accept that judgment and has given its reasoning as follows (page 769) : "The Tribunal held, following the decision of the Madras High Court in CIT v. Madras Industrial Investment Corporation Ltd. [1980] 124 ITR 454, that the expression 'expenditure' occurring in Section 37 of the Act has to be construed in the sense of paying out the money which goes out of the pocket of the assessee irretrievably and that in the case of issue of debentures at discount, there is no such paying out, as is contemplated by Section 37 of the Act, With respect we may say that the decision in CIT v. Madras Industrial Investment Corporation Ltd. [1980] 124 ITR 454 (Mad), does not take note of the real nature of the amount of discount when debentures are issued at a discount. The decision in [1980] 124 ITR 454 came up for consideration before the Calcutta High Court in CIT v. Indian Jute Mills Association [1982] 134 ITR 68. Referring to the decision of the Supreme Court in Indian Molasses Co. (Pvt.) Ltd. v. CIT [1959] 37 ITR 66, on which reliance was placed by the Madras High Court, it was observed that the Supreme Court was, in that case, considering the meaning of the expression 'expenditure incurred' while dealing with the question as to whether there was a distinction between the actual liability in praesenti and a liability de future. Sabyasachi Mukharji J. (as he then was), who delivered the judgment of the court observed as follows (pages 75 and 76) :
'The expression "expenditure" is not defined in the Act, as such. In the context of different statutes, the expression "expenses" has been construed. For example, in Stroud's Judicial Dictionary , third edition, Vol II, page 1030, it is noted that in the case of Jones v. Carmarthen Corporation [1841] 10 LJ Exch. 401, the expression "expenses" meant actual disbursements not allowances for loss of time. Therefore, a charge by a town clerk for preparing lists of parliamentary voters was not "expense incurred" by him within the Parliamentary Voters Registration Act, 1843. But, again, in the case of R. v. Marsham [1892] 1 QB 371, 379 (CA), the Master of the Rolls Lord Esher, observed that the "moneys expended" by a local board and recoverable from the owners or occupiers were not confined to moneys actually paid but included the moneys expended in the sense, the owner or occupier was bound to pay it. It, therefore, appears that the expression must be understood in the context in which it is used.'

The learned judge further observed as follows (pages 76 and 77) :

'Reference in this connection may be made to Section 37 of the Act which enjoins that any expenditure, not being expenditure of the nature described in Sections 30 to 36, laid out or expended wholly and exclusively for the purpose of the business or profession should be allowed in computing the income chargeable under the head "Profits and gains of business or profession". In Sections 30 to 36, the expressions "expenses incurred" as well as "allowances and depreciation" had been used. For example, depreciation and allowances have been dealt with in Section 32. Therefore, the Legislature was using the expression "any expenditure" in Section 37 to cover both.'