GULATI, J. - (1.) IN Tribunal, Allahabad, has referred the following two questions for our opinion : "1. Whether on the facts and in the circumstances of the case the Tribunal was justified in holding that the assessee was not liable to pay advance tax for the asst. yrs. 1964-65 and 1965-66. 2. Whether on the facts and in the circumstances of the case the Tribunal was justified in holding that the assessee was not liable to penalty under S. 273 of IT At, 1961, for the asst. yrs. 1964-65 and 1965-66?"
(2.) THE assessee is a limited company engaged in the business of manufacture of textiles. Under a scheme approved by the High Court, the Mill was leased out on an annual rent of Rs. 2,50,000. For the asst. yrs. 1964-65 and 1965-66 the assessee was served with a notice of demand under S. 210 of the IT Act for payment of advance tax. The assessee did not pay the tax as demanded and submitted its own estimate showing no taxable income. This was done under the impression that unabsorbed depreciation of the earlier years will be set off against the income earned from the lease of the mills. The ITO did not accept this contention. He treated the income from lease as income from other sources instead of income from business and did not permit the set off. The ITO levied penalty under S. 273 of the Act for submitting a wrong estimate of the advance tax payable by it. The Tribunal cancelled the penalty holding that the income from lease was to be treated as income from business and against this the unabsorbed depreciation of the earlier years had to be set off and if that was done, no taxable income would be left on which advance tax. would be payable. The CIT is aggrieved and at his instance this reference has been made. In the connected reference, we have held that the income from lease was income from business and not income from other sources. As such, the depreciation carried forward from earlier years would be liable to be set off against this income. After that set off no taxable income is left, so that the assessee would not be liable to pay any advance tax. That being the position, he would not be liable to pay any penalty for furnishing a wrong estimate.
(3.) WE accordingly answer both the questions in the affirmative in favour of the assessee and against the Department. The assessee is entitled to the costs which we assess at Rs. 200.;