JUDGMENT

S.C. Agrawal, J.-These appeals, by certificate granted under Section 261 of the Income Tax Act, 1961 (hereinafter referred to as the Act ), have been filed by the Revenue against the judgment of the Allahabad High Court dated June 30, 1980 in Income Tax References Nos. 31 and 137 of 1976. By the said judgment the High Court has answered the following question against the Revenue and in favour of the U.P. State Industrial Development Corporation (hereinafter referred to as the assessee ) :

"Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that under writing commission in the case of shares held by the assessee itself and not actually subscribed by others was reducing the cost of the shares in the hands of the assessee and was not separately taxable as the assessee income of that year?"

2. The references relate to the assessment years 1970-71 and 1971-72.

3. The assessee is a State undertaking. Its shares are wholly subscribed by the State of Uttar Pradesh. It has been incorporated with the object of developing industries in the State of Uttar Pradesh and with that end in view it finances industrial projects or enterprises, whether owned or run by the Government, a statutory body, private company, firm or individuals etc. One of the clauses for financing the companies by the assessee was that on the shares of such companies subscribed by public the assessee was entitled to get commission as well as brokerage on the sale of shares of such companies and in case the shares of such companies were not subscribed by the public in toto the assessee was obliged to subscribe those shares at face value but was entitled to underwriting commission and brokerage in the same manner as if the shares of such companies were subscribed by the public. The method adopted by the assessee was that instead of crediting the underwriting commission and brokerage to its profit and loss account in the case of such companies the shares of which had to be subscribed by the assessee itself, it used to reduce the cost of the shares held by it as stock-in-trade. During the previous year relevant to the assessment year 1970-71 the assessee had earned by way of underwriting commission a sum of Rs. 1,01,250/- and brokerage to the extent of Rs. 33,719/- while the assessee offered a sum of Rs. 12,535/- our of the aforesaid receipts as its taxable income. In the previous year relevant to the assessment year 1971-72 the assessee earned by way of underwriting commission and brokerage a sum of Rs. 1,15,000/- and no part of it was included in its taxable income. While making the assessment the Income Tax Officer added the entire amount received by the assessee by was of underwriting commission and brokerage as part of taxable income for both the assessment years. The Appellate Assistant Commissioner, however, held that underwriting commission was assessable as assessees income in the year in which it accrues, i.e., in the year in which the underwriting agreement was made. But as regards brokerage he held that brokerage on the shares held by the assessee was not includable in the income of the assessee and that it had to be adjusted against the cost of the shares taken. The assessee filed appeals against the orders of the Appellate Assistant Commissioner before the Income Tax Appellate Tribunal (hereinafter referred to as the Tribunal ). The Revenue did not question the order of the Appellate Assistant Commissioner regarding brokerage. The Tribunal held that the underwriting commission in respect of the shares held by the assessee would reduce the cost of the shares and would not be separately assessable as the assessees income. The Tribunal has observed :

"And this difference by way of commission and brokerage is charged by the underwriter because it agrees to subscribe for a large amount of the capital of the company. As such whatever amount the underwriter earns as underwriting commission, it does not automati