- (1.) On an application under Section 256(1) of the Income-tax Act, 1961, the Tribunal has referred the following question for our opinion : "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is correct in law in upholding the order of the Commissioner of Income-tax (Appeals) in respect of disallowance under Section 40A(5) of the Income-tax Act, excluding the proportionate expenses deductible under Section 20(l)(i) of the Income-tax Act ?"
(2.) The assessee is a banking company within the meaning of the Banking Regulation Act and is incorporated under the laws of the United Kingdom. In the return filed on December 31, 1976, the assessee has declared the income of Rs. 12,25,99,190. The assessment year involved is 1976-77. During the course of the assessment, the Assessing Officer noticed that the assessee has paid excess amount to the employees in terms of Section 40A(5). The assessee has in fact claimed the proportionate expenses deductible under Section 20(l)(i) of the Act in computing the income under the head "interest on securities" for the purpose of disallowance under Section 40A(5). That has been rejected and the Assessing Officer has added back that excess amount in the income of the assessee. In appeal, the Commissioner of Income-tax (Appeals) has taken the view that while computing the income for the purpose of disallowance under Section 40A(5), the interest on securities are not to be included. In appeal before the Tribunal, the Tribunal has confirmed the view taken by the Commissioner of Income-tax (Appeals).
(3.) None appeared for the assessee. We heard learned counsel for the Revenue. The facts are not in dispute that the Assessing Officer has disallowed Rs. 27,07,043 under Section 40A(5). While disallowing this amount, the Assessing Officer has taken into account the total payment to the employees, which includes the payment of interest on securities.;