B.P. Banerjee, J. - (1.) In this reference the Tribunal has forwarded the following questions of law under s. 256(1) of the IT Act, 1961 relating to the asst. yr. 1977 -78 for which the relevant year of account ended on 31st December, 1976 : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the sum of Rs. 4,03,000 paid by the assessee company to M/s. Vulcan Industries for premature termination of the agreement between them was revenue expenditure of the assessee - "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 25,03,000 representing actuarially valued liability for gratuity for the year 1976 was not an allowable deduction in computing the total income of the assessee company for the asst. yr. 1977 -78 ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the commission payments of Rs. 70,667 to senior management staff were required to be taken into consideration for the purpose of s. 40A(5) of the Act -
(2.) So far as the question referred by the Department is concerned, the fact of the case is that there was an agreement by and between the assessee company and M/s. Vulcan Industries dt. 29th November, 1971. M/s. Vulcan Industries in terms of the said agreement was to manufacture for the assessee certain goods. The assessee was lifting these goods regularly since January, 1972. But it stopped lifting the goods in March, 1975, though there was no breach of contract on the part of M/s. Vulcan Industries. The assessee company paid compensation for the breach of the contract. The reason was that the assessee company could not carry on business with M/s. Vulcan Industries and that such agreement was creating onerous burden on the assessee company. Therefore, by making a lump sum payment the assessee company wanted to get rid of this onerous burden.
(3.) The CIT(A) held that the amount of compensation of Rs. 4,03,000 was an expenditure of capital nature.;