Judgment

BHAGWATI, J.:- The dispute in this appeal by certificate relates to two items of expenditure incurred by the assessee during the assessment . year 1956-57 for which the relevant accounting year was the year ending on 30th September, 1955. The assessee is a private limited company carrying on business of manufacture and sale of crystal sugar in a factory situated in Pilibhit in the State of Uttar Pradesh. In the year 1952-53, a dam was constructed by the State of Uttar Pradesh at a place called Deoni and a road Deoni Dam-Majhala was constructed connecting the Deoni Dam with Majhala. It seems that the Collector requested the assessee to make some contribution towards the construction of the Deoni Dam and the Deoni Dam - Majhala Road and pursuant to this request of the Collector, the assessee contributed a sum of Rs. 22,332/- during the accounting year ending 30th September, 1955. The assessee also contributed a sum of Rs. 50,000/- to the State of Uttar Pradesh during the same accounting year towards meeting the cost of construction of roads in the area around its factory under a Sugar-cane Development Scheme promoted by the Uttar Pradesh Government as part of the Second Five Year Plan, It was provided under the Sugar-cane Development Scheme that one third of the cost of construction of roads would be met by the Central Government, one third by the State Government and the remaining one third by Sugar factories and sugar-cane growers and it was under this scheme that the sum of Rs. 50,000/- was contributed by the assessee. In the course of its assessment to Income-tax for the assessment year 1956-57, the assessee claimed to deduct these two amounts of Rs. 22.332/- and Rs. 50,000/- as deductible expenditure under Section 10 (2) (xv) of the Indian Income-tax Act, 1922. The Income-tax Officer disallowed the claim for deduction on the ground that the expenditure incurred was of capital nature and was not allowable is a deduction under Section 10 (2) (xv). The assessee preferred an appeal to the Appellate Assistant Commissioner but the appeal failed and this led to the filing of a further appeal before the Tribunal. The appeal was heard by a Bench of two members of the Tribunal and there was a difference of opinion between them. The Judicial Member took the view that the expenditure of both the amounts of Rs. 22,332/- and Rs. 50,000/- was in the nature of revenue expenditure and was therefore allowable as a deduction while the Accountant Member held that this expenditure was on capital account and could not be allowed as revenue expenditure. Since there was a difference of opinion between the two members, the question which formed the subject matter of difference was referred for consideration to a third member. The third member did not go into the question whether the expenditure incurred by the assessee was in the nature of capital or revenue expenditure but took a totally different line and held that the contributions were made by the assessee as a good citizen just as any other person would and it could not be said that the expenditure was laid out wholly and exclusively for the purpose of the business of the assessee. The third member in this view agreed with the conclusion reached by the Accountant Member and held that both the amounts of Rs. 22,332/- and Rs. 50,000/- were not allowable as deductible expenditure under Section 10 (2) (xv). The appeal of the assessee was accordingly rejected by the Tribunal so far as this point was concerned. The assessee thereupon sought a reference to the High Court and on the application of the assessee, the following question of law was referred for the opinion of the High Court :

"Whether on the facts and circumstances of the case the sums of Rs. 22,332/- and Rs. 50,000/- were admissible deduction in computing the taxable profits and gains of the companys business."

The High Court observed that "On the finding recorded by the third member of the Tribunal and on the view expressed by the