R.K.Gulati, J. - (1.) This is a cross reference under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), and concerns the assessment year 1971-72 for the period ending on January 31, 1970. M/s Upper India Sugar Mills P. Limited, a company, was engaged in the business of manufacturing crystal sugar. This company was amalgamated with M/s Triveni Engineering Works Ltd., New Delhi, with effect from February 1, 1970, as a result of an order passed by the Delhi High Court under the Companies Act, 1956. As a result thereof, all the profits of M/s Upper India Sugar Mills Ltd., together with its assets, became the property of M/s Triveni Engineering Works Ltd. Return for the assessment year in dispute was filed by M/s Triveni Engineering Works Ltd. and the merged company has been assessed to tax in respect of its income as a unit of M/s Triveni Engineering Works Ltd.
(2.) At the instance of the Department, the following two questions have been referred to this court for its opinion : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in relying on their order dated May 21, 1975, in 1TA Nos. 3975/1972-73 and 3058/1973-74 for the assessment years 1969-70 and 1970-71 (order not served on the CIT) and in deleting the addition of Rs. 16,30,110 made by the Income-tax Officer in the closing stock of sugar ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that interest paid on the cane purchase tax arrears under the provisions of the U. P. Sugarcane (Purchase Tax) Act, 1961, was an allowable deduction under the Income-tax Act, 1961, and in deleting thereby the disallowance of interest of Rs. 3,08,800 ? "
(3.) At the instance of the assessee, the following questions have been referred to this court for its opinion : "1. Whether, on the facts and in the circumstances of the case, and on a correct interpretation of law, the hon'ble Tribunal was justified in disallowing a sum of Rs. 4,34,827 representing the amount of interest recoverable by the applicant from the Triveni Engineering Works Limited and upholding that, to this extent, the debt had not become bad and upholding that such an action was not above collusion, is not based on any evidence and is unreasonable ? 2. Whether, on a correct interpretation of law and, on the facts and in the circumstances of the case, the hon'ble Tribunal erred by not allowing the amount of Rs. 4,34,827 as a business expense on account of commercial expediency ? 3. Whether, on the facts and in the circumstances of the case, the hon'ble Tribunal was justified in interpreting that the applicant's action in not charging interest on loan due from Triveni Engineering Works Limited in this year tantamounts to remission of interest made by the applicant is not supported by any evidence on record and is unreasonable and perverse ?;