JUDGMENT

S. M. FAZL ALI J:—These are appeals by the Revenue by special leave against the order of the High Court of Punjab and Haryana dated January 20,1970 answering the questions referred to the High Court by the Tribunal in favour of the assessees/respondents and against the Revenue. The appeal arises in the following circumstances.

2. M/s. Panipat Woollen and General Mills Co. Ltd hereafter referred to as the assessee-Company had two Department -(1) for spinning of yarn from raw and waste wool and (2) for spinning of yarn from imported wool tops. The second Department which carried on the operations of spinning of yarn from imported wool tops was started some time in the year 1952. Weaving operations were however, carried on in both these Departments. One of the Departments was known as M/s Panipat Woollen Mills,Kharar while the other one was known as M/s Navin Woollen Mills. It is said that the assessee-company was running at & constant loss as a result of which in 1952 the assessee -Company decided to instal a plant for manufacture of worsted yarn from imported wool tops by raising a loan of Rs.7 Lakhs from the Industrial Finance Corporation. The plant went into production in September 1952. The assessee-Company appointed M/s Murlidhar Chiranjilal as the sole selling agents for the worsted yarn on payment of 2 commission. Subsequently on December 15, 1953, the assessee-Company entered into an agreement with M/s Saligram Premnath under which the latter were appointed as the sole selling agents on certain specified conditions, the important of which being that the agents were to finance the assessee-Company to the extent of Rs. 2,50,000/- and the assessee-Company agreed to pay 6 interest on the advances to be made by the agents and further agreed to pay 2 commission on the net proceeds of sales of goods in India. Before expiry of this agreement another agreement was entered into by the assessee-Company with the agents on October 20. 1955. under which the agents were to get 6 interest on all the advances made by them 1 1/4 commission on net sales and 50 commission on net sales of the worsted plant. What is more was that the agents agreed to a deduction of 50 of the loss incurred by the assessee-Company from their remuneration. There were a number of other conditions with which we shall deal later. The selling agents M/s. Saligram Premnath advanced a sum of Rs. 6,26,847/- and Rs. 8,71,573/- and received Rs. 37,157/ -and Rs.73,787/- as 50 commission on the net profits of the worsted plant in the course of two years, namely assessment years 1956-57 ending on March 31, 1956 and 1957-58 ending on March 31, 1957. The assessee-Company accordingly in its return for the year 1956-57 claimed the amount of Rs. 37,157/ and Rupees73,787/- for the assessment year 1957-58 as a deduction under the provisions of Section 10 (2) (xv) of the Income-tax Act, 1922. The case of the assessee was that the two amount mentioned above being in the nature of commission paid to the selling agents would be deemed expenses incurred by the Company in order to earn profits and would, therefore fall within the ambit of Section 10(2) (xv) of the Income-tax Act, 1922 -hereafter referred to as the Act . The Income-tax officer, however disallowed the deduction and held that the deduction claimed was actually a division of profits after the profits had come into existence and had been 642 ascertained and therefore could not be claimed as a valid deduction under the provisions of the Act. The assessee-Company went up in appeal to the Appellate Assistant Commissioner who accepted the plea of the assessee-Company and held that the payment was a permissible deduction it was incurred for the purpose of the assessee s trade in order to facilitate the business of the assessee. The Revenue then went up in appeal before the Tribunal which after considering the facts and the law on the subject upheld the contention of the Revenue and held that the sums in questio