M.Katju, J. - (1.) This is an IT Reference under Section 256(1) of the IT Act in which the following questions have been referred to us for our opinion : "(i) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that a sum of Rs. 9,812 is not admissible deduction for the purpose of computing the total income of the assessee for the asst. yr. 1979-80? (ii) Whether, on the facts and circumstances of the case, the assessee is an "industrial company" under Section 2(7) of the Finance Act, 1979 ?"
(2.) Heard learned counsel for the parties. The relevant asst. yr, is 1979-80. The assessee is a private limited company which was incorporated on 6th Oct., 1977. By a sale deed dt. 12th Nov., 1977, the assessee took over the running business of M/s Jit & Pal X-Ray Bhuri Wave & Diagnostic Laboratory, which was being run under the sole proprietorship of Dr. Harnam Singh. The consideration fixed was Rs. 96,192 which is mentioned in the sale deed. The previous year for the asst. yr. 1979-80 ended on 31st July, 1978. In the deed of sale itself it was written that over and above the sum of Rs. 96,192 the company would be liable to pay to Mrs. Jagjit Kaur wife of Dr. Harnam Singh by way of annual overriding charge at the rate of 20 per cent of the net profit earned by the company every year subject to a maximum of Rs. 20,000 per year. Jagjit Kaur was separately paid salary of Rs. 11,457 and bonus of Rs. 2,100. Apart from that, she was paid a sum of Rs. 9,812 which was claimed as an overriding charge. For the allowance of this the assessee relied on the sale deed dt. 12th Jan., 1977,
(3.) The ITO did not accept the assessee's submission and it held that the payment of Rs. 9,812 was neither allowable as an overriding charge nor was it admissible as a revenue expenditure. Hence, he disallowed the claim. The assessee filed an appeal in which it was stated that Dr. Harnam Singh transferred his entire undertaking to the assessee. He only wanted to make a provision for his wife, and as such a provision was made in the sale deed itself. However, the CIT(A) rejected the assessee's appeal. The assessee then went up in further appeal to the Tribunal which was also dismissed. Hence, this reference. The relevant discussion in the Tribunal's appellate order regarding the first question referred to us in paras 2, 3 and 4 of the said order, which we have carefully perused.;