Sabyasachi Mukharji, J. - (1.) In this reference under Section 256(1) of the I.T Act, 1961, a combined statement of case has been filed by the Tribunal dealing with the assessee's application as well as the Revenue's application for reference. The assessment relates to the assessment year 1972-73. The assessee is a limited company which is mainly engaged in the business of export sales of leaf tobacco purchased and cured in India. For the relevant assessment year, among the claims made by the assessee were, that the profit on exchange amounting to Rs. 1,40,329 was not liable to tax, the weighted deduction on account of agricultural development allowance should be allowed on the entire expenses claimed amounting to Rs. 18,20,670, which included depreciation of Rs. 64,732 and scientific research expenses in the field of agriculture amounting to Rs. 81,847. It was also claimed that the expenses on account of ex gratia payments to widows or dependants of the deceased employees as well as expenses on reimbursement of the medical expenses to the employees should be allowed as a deduction in working out the business income. The ITO, however, while allowing the weighted deduction on agricultural development allowance in respect of the expenses of Rs. 16,74,091, did not allow the weighted deduction in respect of depreciation amounting to Rs. 64,732 and scientific research expenses in the field of agriculture amounting to Rs. 81,847. The ITO did not accept the other claims of the assessee-company. It is not necessary to refer in detail to the order of the ITO.
(2.) The assessee, being aggrieved by the aforesaid order, went up in appeal before the AAC. The AAC upheld the action of the ITO except on the issue of the weighted deduction for expenses amounting to Rs. 64,732 in respect of which the AAC held the weighted deduction on account of agricultural development allowance, as laid down by Section 35C, should be allowed.
(3.) Against the aforesaid order of the AAC, both the assessee as well as the Revenue went up in appeal before the Tribunal. The Tribunal, following certain decisions of the Supreme Court and on an interpretation of Sub-section (2) of Section 35C of the I.T. Act, 1961, held that the weighted deduction on account of agricultural development allowance was not permissible in respect of depreciation. The Appellate Tribunal discussed in detail the decisions of the Supreme Court and certain other cases, to which it is not necessary at this stage to refer in detail, and held that profits on exchange was an appreciation in the value received by the assessee for the export sales on account of a favourable fluctuation in the foreign exchange rates at the relevant time and was not (sic) therefore, liable to be assessed as the assessee's income. The Appellate Tribunal was of the view that the direct payments to the employees did not come within the scope of expenditure resulting directly or indirectly, in the provision of any perquisite or amenity or benefit to the employees, whether convertible into money or not, for the purpose of working out the disallowance under Section 40A(5) and, therefore, the expenses incurred by the assessee-company on the reimbursement of medical expenses of the employees could not be disallowed and added back, while working out the business income. The Appellate Tribunal, following a certain decision of this court, was of the view that ex gratia payments to the dependants of the former employees were motivated by considerations of commercial expediency and were wholly and exclusively for business purposes. The Appellate Tribunal also took note of the fact that there was no single instance of any payment which had been pointed out either in the assessment order or in the order of the AAC or even at the time of hearing of the appeal before the Appellate Tribunal where the payment was made to a person other than the dependant of a former employee. The Appellate Tribunal, therefore, held that the disallowance on account of ex gratia payments to the dependants of the former employees was not justified and we shall refer to the relevant portion of the order of the Appellate Tribunal at the relevant time. On these facts, as mentioned hereinbefore, both the assessee and the Revenue wanted to raise certain questions of law for reference. At the instance of the assessee-company, the Tribunal has referred the following two questions to the court under Section 256(1) of thel.T.Act, 1961 : "(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that no weighted deduction on account of agricultural development allowance under Section 35C of the Income-tax Act, 1961, was admissible in respect of depreciation on assets used for the purpose of providing goods, services or facilities as laid down in Section 35C(1)(b)? 2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the profit on exchange of Rs. 1,40,529 was liable to tax and was, therefore, includible in the total income of the assessee-company ?";