- (1.) The Income-tax Appellate Tribunal, Allahabad, has referred the following question of law under Section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), for opinion to this Court : Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in allowing a deduction of Rs. 6,02,125 in the assessment year 1978-79 ?
(2.) The reference relates to the assessment year 1978-79.
(3.) Briefly stated, the facts giving rise to the present reference are as follows : The assessee is a corporation wholly owned by the U.P. Government established for the purposes of promoting small scale industries in the State. The Government of U.P. sanctioned certain amounts for different schemes, which were not connected with the assessee's business but for which the assessee's assistance was obtained by the Government. An amount of Rs. 17,93,000 was sanctioned vide Government order dated March 25, 1975, for certain schemes to be executed with the assistance of the assessee for and on behalf of the Government. The intention was that 50 per cent. of the aforesaid amount was to be regarded as grant-in-aid and the balance as a loan. One of the schemes was for the hire-purchase business of the assessee, for which an amount of Rs. 2,60,000 had been allocated. By an earlier order dated December 11, 1978, another amount of Rs. 1,00,000 was advanced to the assessee for the purchase system. Similarly, 50 per cent, was to be considered as grant-in-aid. In this way, a total amount of Rs. 6,30,000 was considered as Government grant to the assessee for a part of the business connected with hire-purchase. Both these amounts were shown in the audited balance-sheet of the assessee as on March 31, 1976 in schedule H. During the accounting period ending on March 31, 1976, the actual amount utilised for the business was Rs. 6,02,125 and this amount was credited to the profit and loss account for the year ended on March 31, 1976. In this way, this amount was assessed to income-tax for 1976-77. Subsequently, the Government amended the scheme under which the amount of Rs. 6,30,000 which was previously to be treated as a grant was converted into loan. Thus, a grant of Rs. 6,30,000 was withdrawn in the year 1977-78. Out of the total amount of the grant, an amount of Rs. 4,02,125 was credited to the profit and loss account. The amount of Rs. 6,30,000 was subsequently withdrawn and, therefore, the amount of Rs. 6,02,125 which had been offered for assessment in the assessment year 1976-77 and which was in the nature of a debt to the Government was claimed in the assessment year 1978-79 as a deduction, because the debt was repudiated by the Government and became irrecoverable.;