Bhagabati Prosad Banerjee, J. - (1.) The Tribunal has referred the following question of law under Section 256(1) of the Income-tax Act, 1961, to this court : " Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the payment of Rs. 10,778 under the Emergency Risks Insurance Act, 1971, for defaulted premium was not in the nature of penalty and it should, therefore, be allowed as business expenditure "
(2.) In this proceeding, the assessment year involved is 1978-79 for which the relevant year of account is the year ended on March 31, 1978.
(3.) The facts found by the Tribunal as contained in the statement of case are as follows : " The assessee is a limited company. The assessment year involved is 1978-79, the relevant accounting period for which ended on March 31, 1978. In the course of assessment of the company for the assessment year 1978-79, the Income-tax Officer found that the company paid Rs. 10,778 as shortfall of premium and Rs. 1,353 as compounding fees for understating the insurable value of goods before the authorities of the Emergency Risks Insurance. The company debited the said sum in its profit and loss account. But the Income-tax Officer was of the view that the sum of Rs. 10,778 was in the nature of penalty and Rs. 1,353 paid as compounding fees was not business expenditure. He, therefore, disallowed these two items.";