H.N. Seth, J. - (1.) THIS is a reference under Section 66(1) of the Income-tax Act, 1922, at the instance of the assessee, Messrs. L. H. Sugar Factory and Oil Mills Ltd., Pilibhit. The Tribunal has referred the following question for the opinion of this court: " Whether, on the facts and in the circumstances of the case, the sums of Rs. 22,332 and Rs. 50,000 were admissible deductions in computing the taxable profits and gains of the company's business ?"
(2.) THE relevant assessment proceedings relate to the assessment year 1956-57. During the year 1954-55, relevant to the assessment year 1956-57, the assessee paid a sum of Rs. 22,332 to the District Magistrate, Pilibhit, as its contribution towards the cost of construction of Deoni Dam Majhola Road. It also contributed a further sum of Rs. 50,000 in connection with the second five year plan sponsored by the U. P. Government for the construction of a net work of roads in the State. These two contributions were made under a scheme known as Sugarcane Development Scheme under which one-third of such cost was to be met by the Central Government, one third by the State Government and the remaining one-third by the sugar factories and sugarcane growers The assessee claimed that it Was entitled to a deduction in respect of these two amounts under the provisions of Section 10(2)(xv) of the Income-tax Act, 1922. The Income-tax Officer and the Appellate Assistant Commissioner disallowed the claim of the assessee on the ground that the expenditure was of a capital nature and was not allowable under Section 10(2)(xv) of the Act. The assessee then went up in second appeal before the Income-tax Appellate Tribunal. In the Tribunal, there was a difference of opinion between the two Members constituting the Bench.
(3.) THE Judicial Member observed that the amounts were paid by the assessee in pursuance of a development plan formulated by the State Government under which various sugar factories in the State agreed to contribute a portion of the funds needed for financing the scheme. In his opinion, as a result of the contribution made by the assessee under the scheme, no asset or advantage of an enduring nature accrued to the assessee. THE expenditure incurred by the assessee was not of a personal nature. It did not bring into existence any direct asset. It was incurred by the assessee on the ground of commercial expediency It may be that the expenditure was voluntary but it was commercially expedient and its ultimate object was the continuation and furtherance of the business and an eventual augmentation or stabilisation of profits. He concluded that the expenditure in question was incurred wholly and exclusively for the purposes of the business. It was neither an expenditure of a personal nature, nor was it a capital expenditure. THE assessee was, therefore, entitled to a deduction of these amounts under Section 10(2)(xv) of the Act. The Accountant Member on the other hand observed that there were two aspects of the question, viz. : (1) Whether any asset or advantage accrued to the assessee and, if so, is it of a capital nature ? (2) If not, is it still admissible as revenue expenditure ? ;