Dipak Kumar Sen, J. - (1.) The facts found or admitted in this reference are shortly as follows: In the assessment year 1963-64, the relevant accounting period being that from the 1st November, 1961, to the 31st October, 1962, Calcutta Landing & Shipping Co. Ltd., the assessee, filed the return disclosing an income of Rs. 4,49,095 but was assessed on a total income of Rs. 5,08,956. In the said assessment year, the assessee did declare a dividend of Rs. 1,37,500.
(2.) A concern named Calcutta Marine and Engineering Private Ltd., under a contract with the assessee with effect from the 25th March, I960, was responsible for all repair work of the assessee at a fixed annual remuneration of Rs. 75,000. The assessee had also demised its shipway to the said repairers on lease from the 25th March, 1960, at a rent of Rs. 4,130 per month. On a representation of the repairers, the board of directors of the assessee passed a resolution on the 29th January, 1963, whereby the remuneration payable to the repairers was increased to Rs. 85,000 per year. By another resolution, passed in the same meeting, it was decided that the rant payable by the repairers for the shipway would be reduced by Rs. 9,000 per annum but instead of amending the lease, such reduction would be indirectly effected by a grant of Rs. 9,000 per annum to the said repairers, by way of compensatory allowance for repair work. It was decided, in the same meeting, that such enhanced payments aggregating Rs. 94,000 (Rs. 85,000 and Rs. 9,000) per annum would be made to the repairers with retrospective effect from the 25th March, 1960.
(3.) In consonance with the aforesaid resolution the assessee debited its account in the said assessment year by Rs. 49,469 of which amount Rs. 26,048 was by way of increased annual payment for repairs and the balance Rs. 23,431 was compensatory allowance in lieu of reduction in rent.;