A.K.Sengupta, J. - (1.) -In this reference made at the instance of the Revenue, the following questions have been referred by the Tribunal for the opinion of this Court under section 256 of the Income Tax Act, 1961: "Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the royalty of Rs. 3,43,600 was allowable in the assessment year 1972-73 ? Whether, on the facts and in the circumstances of the case while restoring the issue to the Income-tax Officer relating to the determination of the chargeable head of the interest accrued on fixed deposits, the Tribunal was justified in law in observing that the earning of interest on the fixed deposits could not be isolated from paying of interest by the assessed or the deposits received from the public? If the answer to question No. 2 above is in the affirmative, then whether the Tribunal was correct in law to hold that the interest accrued on fixed deposit should be assessed under the head "Business Income"?"
(2.) This reference relates to the Income-tax assessment of the assessee-company for the financial year ending 31st March, 1972, being the previous year relevant to the Assessment Year 1972-73. The facts as found by the Tribunal are as under :
(3.) In terms of an Agreement executed between the assessee-company and Oberoi Hotels (India) Pvt. Ltd. on 15th June, 1972, the hotels owned by the assessee-company became entitled to use the name "Oberoi" against payment of compensation calculated @ Rs. 600/- per Guest Room per year. This Agreement was effective from-1st April, 1970. The previous year of the assessee-company for the matter under reference ended on 31st March, 1972 ; but the audit of accounts for the relevant previous year was completed and finalized sometimes in August, 1972. While finalizing the accounts for the year ending 31st March, 1972, the assessee-company made provision for payment of royalty in the sum of Rs. 6,91,200/- in terms of the said Agreement executed on 18th May, 1972. This provision was made for the period 1st April, 1970 to 31st March, 1972. This Income-Tax Officer allowed deduction in the sum of Rs. 3,45,600/- for the period 1st April, 1971 to 31st March, 1972, corresponding to the Assessment year 1972-73 . but he did not allow any deduction for the balance sum of Rs. 3,45,600/- relating to the period 1st April, 1970 to 31st March, 1971 on the ground that although the assessee maintained accounts on mercantile basis, it did not give my suitable explanation for not charging this sum of Rs. 3,45,600/- in the immediately preceding year, that is to say, previous year relevant to the Assessment Year 1970-71. The disallowance made by the Income Tax Officer was later confirmed on appeal by the Commissioner of Income Tax (Appeals). The assessee filed second appeal to the Income Tax Appellate Tribunal. It was submitted before the Tribunal on behalf of the assessee that it was using the word "Oberoi" in terms of the resolution passed on 11th August, 1970. But no payment of royalty could be made without approval of the Industrial Finance Corporation of India from whom assessee company had borrowed certain funds. The formal Agreement for payment of royalty to Oberoi Hotels (India) Pvt. Ltd. could be executed only on 15th June, 1972 after obtaining the approval of the Industrial Finance Corporation of India through its letter dated 18th May, 1982. The Tribunal noted that the accounts for the previous year relevant to the Assessment year 1972-73 now in reference before us were finalized and signed only on 22nd August, 1972. Since the Agreement providing for payment of royalty with retrospective effect from 1st April, 1970 had already been signed on 15th June, 1972, the entire royalty relating to the period 1st April, 1970 to 31st March, 1972 was rightly provided in the accounts for the year ending 31st March, 1972 following the publication of the Institute of Chartered Accountants of India titled "Contingencies & Events occurring after the Balance Sheet date".;