J.C.SHAH, J.

(1) THE assessees are a firm carrying on business at Kurnool, of manufacturing ground-nut oil and cake. Under the Madras General Sales Tax Act IX of 1939, the assessees were entitled to a rebate of sales tax paid on goods purchased by them and used in the manufacturing process. The assessees maintained their books of account according to the Samvat Year ending with Diwali. The system of accounting was a mixture of mercantile and cash. Purchases and sales of goods on credit were duly entered in the books of account. The sales tax actually recovered by the tax authorities was debited when paid and amounts if any refunded were credited when received. The assessees had adopted the system which was permitted by the Act of paying tax calculated on the turnover of the previous year of account. Under this system, tax was provisionally assessed by the Sales Tax Officer on the basis of the turnover of the previous year, and thereafter the liability was adjusted at the end of the year of account in the light of the actual turnover of that year, and of rebate allowed in respect of groundnuts pressed into oil. As a result of the final adjustment made by the sales tax authorities, in some years the assessees were assessed to pay tax in excess of the amount provisionally assessed and in others they obtained refund of the excess tax paid under the provisional assessment. The following tabular statement shows the official years for sales tax, provisional demands made by the sales tax authorities, the final demands and the adjustments made in that behalf. Official Year Provisional Final Adjustment. Refund/Additional-levy.

ended. demand. demand.

Rs. Rs. Rs. Rs.

31-3-1942 2,679/- 1,872/- 807/-

31-3-1943 3,046l/- 2,863/- 183/-

31-3-1944 14,509/. 18,402/- 3,893/-

31-3-1945 47,276/- 20,037/- 27,239/-

31-3-1946 45,315/- 13,379/- 31,936/-

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(2) FOR the assessment year 1946-47 (corresponding to the year of account 18/10/194 4/11/1945), the assessees claimed in their assessment to income-tax to deduct Rs. 49,633.00 being the amount of salestax paid under a provisional assessment. In the year ending 31/3/1945, the assessees had paid Rs. 47,276.00 as sales-tax provisionally assessed. They also had paid in that year Rs. 3,894.00 in adjustment of the liability for the previous year towards sales-tax due. After giving credit for Rs. 1,537.00 received as rebate, the total sales-tax liability under the provisional assessment was Rs. 49,633.00. The Income-tax Officer accepted this claim, and debited it from the income in the assessment year 1946-47 in assessing the taxable income of the assessees. Deduction of salestax actually paid under provisional assessment less rebates was permitted by the Income-tax Officer not only in the assessment year 1946-47 but also in the earlier years. The Excess Profits Tax Officer had also adopted for the chargeable accounting period prior to 18/10/1944 the same method of computation, but for the chargeable accounting period 18/10/194 4/11/1945, the Excess Profits Tax Officer allowed out of the amount of Rs. 47,276.00 debited to sales tax only Rs. 17,055.00 as properly attributable to that period in computing the Excess Profits Tax liability. According to the Excess Profits Tax Officer, the excess amount paid under he provisional assessment i.e., Rs. 30,221.00 could not be taken into account, because under r. 12 of Sch. 1 of the Excess Profits Tax Act, expenditure in excess of the amount reasonable and necessary for the business was not a permissible deduction. In appeal against the order of the Excess Profits Tax Officer, the tribunal affirmed the order. Against the order passed by the tribunal confirming the order of the Excess Profits Tax Officer, the assessees applied for and obtained an order referring the following question to the High court of Judicature of Andhra Pradesh,

`WHETHER there are materials for the tribunal to hold that the aforesaid sales-tax payments of Rs