Commissioner of Income Tax vs National Cereal Products Ltd.

In this reference u/s 256(1) of the Income Tax Act, 1961, the following questions of law have been referred for our opinion:

Whether on the facts and circumstances of the case, and in true interpretation of Section 15A(1)(a) of the U.P. Sales Tax Act the assessed was entitled to the deduction of Rs. 77,757 as allowable revenue expenditure in computing its income for the accounting period relevant to the assessment year 1978-79?

Whether on the facts and in the circumstances of the case, the assessed was entitled to the deduction of Rs. 3,44,007 on account of the additional sales tax liability as allowable revenue deduction while computing the total income of the assessed for the accounting period relevant to the assessment year 1978-79?

It is common ground that the question has to be answered in the negative, in favor of the revenue and against the assessed in view of the decision of the Supreme Court in Haji Aziz and Abdul Shakoor Bros. Vs. The Commissioner of Income Tax, Bombay City II, , Mahalaxmi Sugar Mills Co. Vs. Commissioner of Income Tax , Delhi, and National Thermal Power Co. Ltd. Vs. Commissioner of Income Tax, .

It is also noted that an Explanation has been added to Section 37(1) of the Act which makes it clear that any expenditure incurred by the assessed for any purpose which is an offence, or which is prohibited by law shall not be deemed to be expenditure incurred for the purpose of business and no deduction or allowance shall be paid in respect of such an expenditure. The Explanation was inserted by Finance (No. 2) Act, 1998 with retrospective effect from 1-4-1962.

Insofar as the second question is concerned, it is common ground that this is required to be answered in the affirmative, in favor of the assessed and against the revenue in view of the decision of this Court in Additional Commissioner of Income Tax, Delhi-II Vs. Rattan Chand Kapoor, .