AJAY KUMAR MITTAL, J. - (1.) THE question that falls for judicial consideration before the Full Bench is, as to which of the two divergent views of two co -ordinate Division Benches of this Court has legal acceptability. Even more pointedly, the correctness of judgments reported in Commissioner of Income Tax v. Indo Asian Switch Gears (P) Ltd. and Baldev Singh Kanwar, Barishad, Hoshiarpur v. The Commissioner of Income Tax, Jalandhar (1997) ITR 640 is at issue in this Reference.
(2.) IN the first instance, it deserves to be noticed as to how this controversy has arisen. Before delving on the issue involved, it would be apposite for proper appreciation of the bone of contention between the parties to put a brief look on the factual matrix. A partner of the assessee - firm visited Germany where he entered into a contract for supply of certain goods of a particular value. The agreement so arrived at, however, could not be acted upon by the assessee as it did not have the requisite import licence for the material intended to be imported. The dispute was referred to an arbitrator. In terms of the award of the Arbitration Tribunal, rendered on 29.7.1974, the assessee paid a sum of Rs. 50,000/ -to the German -firm, M/s. Duestsche Strahil Metail of Berlin, for failure to perform its part of the contract. Accordingly, the assessee in its return for the assessment year 1975 -76, claimed deductions of the aforesaid amount as business expenses on account of damages for breach of contract. The Assessing Officer had initially allowed the amount of Rs. 50,000/ -as deductions out of the total income. But lateron, a notice was issued to the assessee under Section 148 of the Income Tax Act, 1961 (for short 'the Act') on the strength of a plea that the jurisdictional High Court in Cineramas v. Commissioner of Income Tax, Amritsar -I had held that infractions of law, including breaches of obligations are not normal incidents of business and penalties and the damages paid in connection with such infractions and breaches are not expenditure laid out or expended wholly and exclusively for the assessee's business. Applying the view taken in the said case, the Inspecting Assistant Commissioner of Income Tax, Assessment, Karnal, vide order dated 24.7.1980 accordingly disallowed the expenses of Rs. 50,000/ -paid by the assessee for breach of the contract on its part. The view taken by the Assessing Officer was upheld by the Commissioner of Income Tax (Appeals) Chandigarh Camp at Ambala and the Income -Tax Appellate Tribunal, Chandigarh Bench vide orders dated 22.8.1983 and 23.8.1985 respectively.
(3.) IT is in this manner the appellant preferred the instant Reference and raised the following question of law for opinion of this Court: Whether on the facts and in the circumstances of the case, the Tribunal was right in applying the decision of the Punjab and Haryana High Court in while confirming the disallowance of Rs. 50,000/ -payable to M/s. Duestsche Stahil Metail of Berlin for non -performance of the contract?;