SUHAS CHANDRA SEN, J. - (1.) THE assessee is a limited company. The references relate to the asst. yrs. 1966-67 to 1970-71. The ITO, in the course of the proceedings for the asst. yr. 1969-70, came to know that the assessee- company had made large borrowings from bank for investment on a new project for the manufacture of chloramphenicol, a basic raw material and a broad spectrum antibiotic, which was extensively used for the treatment of typhoid and skin diseases, etc., and was a component of the assessee-company's formulations appearing under the name of enteromycetin brand of preparations. The assessee-company obtained an industrial licence from the Government for this project. During the previous years relevant to the asst. yrs. 1966-67 to 1968-69, a portion of the borrowings from bank on overdraft were invested on the project and during the previous year relevant to the asst. yr. 1969-70, the assets of this project consisting of land, building and machinery, etc., were transferred at the book value to a public limited company, Dey-Se-Chem Ltd., which was incorporated with the assessee- company and its sister concern, Dey's Medical Stores (P) Ltd., holding more than 51 per cent. of the shares of the new company. The ITO, in the assessments for 1969-70 and 1970-71, disallowed the proportionate interest on bank overdraft attributable to the borrowings for investment on this project. He also reopened the assessments for the asst. yrs. 1966-67 to 1968-69 under s. 147(b) of the IT Act, 1961 ("the Act"), and in the reopened assessments disallowed the proportionate interest on bank overdraft attributable to investment on this project.
(2.) THE assessee-company went up in appeal before the AAC. The AAC upheld the reopening of the assessments under s. 147(b) for the asst. yrs. 1966-67 to 1968-69. He, however, held that the interest on bank overdraft attributable to investment in the chloramphenicol project should be allowed as a deduction in working out the business income. The additions on this account made in the asst. yrs. 1966-67 to 1970-71 by the ITO were, therefore, deleted by the AAC. The AAC further held, for the asst. yrs. 1966-67 to 1969-70, that the interest on bank overdraft attributable to income-tax payments could not be disallowed and that the additions on this account had to be deleted. The ITO appealed to the Tribunal. The Tribunal held that the proportionate interest on bank overdraft attributable to investment on the chloramphenicol project could not be allowed as a deduction in all the five years. The Tribunal further held that the reopening of the assessments for the asst. yrs. 1966-67 to 1968-69 was justified. On the question of allowance of proportionate interest on bank overdraft attributable to payment of income-tax for the asst. yrs. 1966-67 to 1969-70, the Tribunal held that this could not be allowed as deduction.
(3.) THE assessee has come up on a reference. Three questions of law have been referred by the Tribunal to this Court : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the proportionate interest on bank overdraft attributable to investments on chloramphenicol project was not an admissible deduction in working out the assessee's income liable to tax under the IT Act, 1961 ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the reopening of assessments under s. 147(b) of the IT Act, 1961, was correct and justified ? (Only for the asst. yrs. 1966-67 to 1968-69). 3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the proportionate interest on bank overdraft attributable to income-tax payments was not an admissible deduction in working out the assessee's income liable to tax under the IT Act, 1961 ?" (Only for the asst. yrs. 1966-67 to 1 969-70).;