JUDGMENT

VENKATACHALA, J.:—Two questions are raised for our decision in this appeal. First, whether the appellant was entitled to claim as allowance under S. 37(1) of the Income-tax Act, 1961 (the I.T. Act) the interest paid by it for delayed payment of sales tax under the Bombay Sales Tax Act, 1951 (the BST Act) and the damages paid by it for delayed payment of contribution under Employees State Insurance Act. 1947 (the ESI Act). Second, whether the appellant was entitled to claim as allowance under S. 37(2) of the I.T. Act the entire expenses incurred by it as entertainment expenses.

2. The appellant is a company carrying on the business in the manufacture of textile goods. It is the assessee. In the Income-tax return of the assessee for the Assessment Year 1966-67 (the previous accounting year being from 1st July, 1964 to 30th June, 1965), the interest and the damages of Rs. 19,635 paid by it for delayed payment, of sales tax under the BST Act and for delayed payment of contribution under the ESI Act, was claimed as revenue expenditure, allowable under S. 37(l) of the I.T. Act. So also the sum of Rs. 3,865 paid by it for entertainment expenses was claimed as revenue expenditure, allowable under S. 37(2) of the I.T. Act. The I.T.O., in his assessment order made on that return, treated the said item of expenditure of Rs. 19,635 as penal interest and disallowed it. As to the item of expenditure of Rs. 3,865, he disallowed Rs. 2,500/ - treating it as exclusive expenditure incurred on its Directors. Appeals preferred before the A. A.C. and the Income-tax Appellate Tribunal (Tribunal) questioning the disallowance of claims of the appellant by the I.T.O., did not succeed. Application made by the assessee under S. 256(1) of the I.T. Act before the Tribunal to raise the questions covering the said matters and get them referred for decision by the High Court, also did not meet with success. Again, the application made thereafter by the assessee under S. 256(2) of the I.T. Act before the Bombay High Court to obtain a reference on the questions relating to the said matters for its decision, was rejected. Hence, the assessee has filed this appeal by special leave, questioning the aforesaid orders made by the authorities and the High Court. Reference sought to be obtained from the Tribunal for decision by the High Court, was on thefollowing questions:

1. Whether the sum of Rs. 19,635 debited in the interest account paid by way of interest for delayed payment of sales tax and Employees State Insurance contribution could be said to have not been incurred, wholly and exclusively for the purpose of business?

2. Whether on the facts and in the circumstances of the case, the sum of Rs. 19635/- claimed by the assessee was an allowable expenditure under the Income-tax Act, 1961?

3. Whether on the facts and in the circumstances, the Tribunal was justified in holding that the disallowance of Rs. 2,500 out of expenditure incurred by the assessee at Diners Club and C.C.I. could be disallowed even though the said expenditure was less than the expenditure allowable under S. 37(2) of the I.T. Act?

4. Whether there was any evidence or material before the Tribunal to hold that the expenditure to the extent of Rs. : 2,500/ - at Diners Club and C.C.I. was not laid wholly and exclusively for the purposes of business of the assessee-company?

3. Questions 1 and 2 are covered by First Question indicated at the outset. So also, questions 3 and 4 are covered by Second Question indicated at the outset. Indeed, after hearing counsel for the parties we were inclined to think that the said questions ought to be remitted to the High Court for its opinion under S. 256 of the I.T. Act. In the normal course, we would have done so and left the questions to be answered by the High Court. But, regard being given to the fact that the questions relate to a 25 year old case of the Assessment Year 1966-67 and the fact that they could be considered by us on the facts found in the ord