V.K. Singhal, J. - (1.) THE Income-tax Appellate Tribunal has referred the following question of law arising out of its order dated October 10, 1980, under Section 256(1) of the Income-tax Act, 1961, in respect of the assessment year 1976-77 : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the finding of the Appellate Assistant Commissioner that the licence fee deficiency of Rs. 37,250 debited to the goods account is allowable expenditure ?"
(2.) THE relevant facts for adjudication of the above points are that the assessee is a liquor contractor and as per the terms and conditions of the licence, the assessee was required to lift a minimum quantity of liquor from the Government. THE assessee has failed to lift the stipulated minimum quantity and there was deficiency in lifting to the extent of Rs. 37,250 for which the Government could make recovery from the assessee. This amount of Rs. 37,250 was claimed by the assessee as business expenditure. THE Income-tax Officer came to the conclusion that the goods account has been debited in excess of the purchases and, therefore, the same was disallowable. In the appeal before the Appellate Assistant Commissioner, the claim of deficiency of Rs. 37,250 was allowed and it was held that it is an expenditure which is allowable under Section 37 of the Income-tax Act. The Income-tax Appellate Tribunal confirmed the order of the Appellate Assistant Commissioner. The submission of learned standing counsel for the Department is that, since the purchases were not made to that extent, the amount could not have been debited in the goods account. The true nature of payment to the Government is that of penalty and, therefore, it is not an allowable expenditure. We have considered the matter. This court in CIT v. Chunnilal Tak (Shri) [1986] 160 ITR 617 has held that the deficiency between the minimum guaranteed amount and the actual purchase of liquor is allowable as a trading loss. So far as the application of the principles of this judgment is concerned, it cannot be denied that the loss which has been suffered by the assessee on account of the stipulation contained in the contract/ licence to lift a particular quantity and which was his obligation to make the payment of the loss to the Government would certainly be a liability which arose from carrying on the business and was laid out wholly and exclusively for purposes of business. The said amount was allowable as trading loss. For the purposes of determining the liability under Section 37 of the Act, the things which are required to be seen are : (i) that it should be expenditure ; (ii) such expenditure should not be of the nature described in Sections 30 to 36 ; (iii) it should not be expenditure in the nature of capital expenditure ; (iv) it should not be the expenditure of the nature of personal expenses ; (v) it should be laid out or expended wholly and exclusively for the purposes of business or profession.
(3.) WHILE considering the application of the above requirements of Section 37 of the Act, we find that the amount paid was an expenditure which was wholly and exclusively for the purposes of business carried on by the assessee. The assessee was under an obligation to lift a fixed minimum quantity of liquor in terms of the contract/licence and was under an obligation to make good the deficiency to the Government in case the said minimum quantity is not lifted. The expenditure was related to the business and was for the purposes of business and, therefore, has rightly been allowed. It cannot be considered as being in the nature of penalty. In view of the judgment of this court, we are of the view that the Income-tax Appellate Tribunal was justified in holding that the finding of the Appellate Assistant Commissioner that the licence fee deficiency debited to the goods account is allowable expenditure. Accordingly, the reference is answered in favour of the assessee and against the Revenue. ;