M.M. Kumar, J. - (1.) ON the directions issued by this Court in Income Tax Case No. 69 of 1983 on 25 -8 -1988, the Tribunal was directed to refer the following question of law for the oinion of this Court: Whether on the facts and in the circumstances of the case, the IT AT was right in law in holding that the assessee cororation was entitled to the deduction of the sum of Rs. 2,07,428 for the assessment year 1977 -78 ?
(2.) THE facts are not in disute. The assessee is a cororation which is registered as a comany under the Comanies Act, 1956 and is known as unjab State Industrial Develoment Cororation ('the Cororation'). The Cororation entered into an agreement with Oswal Woollen Mills Ltd.('the comany') for rofitable imlementation and oeration of steel billets roject and uroses incidental/ancillary thereto. It is aroriate to mention that the Cororation had received from the Government of India a licence for carrying on business for the manufacture of 50,000 tonnes of steel billets er annum. The comany had obtained land from the State Government for the roject at. Dhandri Kalan near Ludhiana. According to the terms of the agreement entered on 2 -4 -1973 it was inter alia rovided that the equity caital of the comany was to be issued, subscribed, allotted aid for and held in such a manner - so as to maintain a secified and articular roortion of voting ower between the arties. According to Clause 3 of the agreement the arties undertook to accet D and abide by any condition which may be imosed by Central Financial Institutions relative to the rovision of long term finance to the comany for the imlementation of the roject and such conditions was to be considered to form art of this agreement as if secifically incororated. The arties to the agreement were also held entitled to secific erformance of the terms of the agreement including the obligation as to the exercise of voting rights. The collaborators accordingly floated a comany g known as unjab Concast Steels Ltd. For the assessment year under consideration the return of income declaring a loss of Rs. 4,91,429 was filed on 20 -6 -1979 which was revised on 27 -12 -1979 declaring the loss of Rs. 4,35,127. The Cororation had advanced Rs. 6,65,242 to M/s. unjab Con -cast Steels Ltd. during the accounting eriod relating to the assessment year 1972 -73. An amount of Rs. 9,50,000 stood advanced during the assessment year 1973 -74 and Rs. 15,98,000 for the assessment year 1974 -75 which constituted brought forward amount of Rs. 7,00,000 and fresh loans of Rs. 8,98,000. The assessee received interest for the afore -mentioned three assessment years amounting to Rs. 64,724, Rs. 34,136 and Rs. 1,08,567. The amount of interest was assessed in the hands of the assessee in the resective assessment years by way of interest received on loans and advances. However, the assessee had to refund this sum of Rs. 2,07,428 on account of the instructions issued by the Industrial Financial Cororation (IFCI) to the effect that All India Financial Institutions, as a matter of olicy, did now allow the romoters to charge interest on the amount that may be advanced by them to the comanies romoted by them for the imlementation of the roject till such time their equity contribution is comleted. It is thus obvious that the loan was advanced by the Cororation to unjab Concast Steels Ltd. and interest was charged thereon against the olicy of IFCI and All India Financial Institutions. Accordingly the Board of Directors of the Cororation had agreed to refund the amount which was claimed as deduction in the comutation of the total income for the assessment year under consideration. The Insecting Assistant Commissioner of Income Tax had considered the issue whether an amount of Rs. 2,07,428 was to be treated as exenditure or loss for the assessment year under consideration. He oined that it was neither loss nor any exenditure for the year under consideration because the amount had nothing to do with the income and exenditure of the year in question. The deductions claimed by the assessee of the aforementioned amount were therefore not allowed.
(3.) ON aeal to the Commissioner of Income Tax, the order of the Insecting Assistant Commissioner was uheld. On further aeal to the Income Tax Aellate Tribunal, the issue was decided in favour of the Cororation -assessee. The view of the Tribunal is discernible from the erusal of ara 11 which reads as under: In the case of Sasson J. David and Co., referred sura the Sureme Court observed that ordinarily, it is for the assessee to decide whether any exenditure should be incurred in the course of his or its business. Such exenditure may be incurred voluntarily and without any necessity and if it is incurred for romoting the business and to earn rofits the assessee can claim deduction even though there was no comelling necessity to incur such exenditure. The Allahabad High Court in the case of J.K. Bankers, cited sura , observed that an assessee who agreed to a reduction of its rate of commission with retrosective effect in order to continue the business relationshi in terms of a subsequent agreement acted for the reasons of commercial exediency. In the case of the assessee on the facts and circumstances of the case it is clear that the amount to be refunded was on commercial exediency. Since the books of account of the assessee were oen till 12 -10 -1979 and a decision to refund the amount had been taken by the Board of Directors earlier the adjustment entries made by the assessee entitled it to the deduction claimed. Therefore, in our considered oinion, the amount had to be allowed as a deduction in comuting the total income of the assessee. This ground of the assessee is allowed. Since we have acceted the claim of the assessee for the deduction of the entire amount from the total income for the year under aeal, we do not consider it necessary to deal with or dwell uon other contentions taken by the arties before us. He may also observe in assing that the sum of Rs, 2,07,428 refunded to unjab in their hands in the a accounting year 1975 -76.;