P. VISHWANATHA SHETTY, J.

( 1 ) THIS reference is made under Section 256 (2) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), at the instance of the Revenue out of the order dated July 16, 1996, made by the income-tax Appellate Tribunal (hereinafter referred to as "the Tribunal") in. T. A. No. 198/bang of 1989. The question of law referred to this court reads as follows : "whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the payment of the compounding fees is not a penalty for infraction of law and hence allowable ?"

( 2 ) THE facts in brief may be stated as hereunder : the respondent-assessee (hereinafter referred to as "the assessee") is a builder carrying on its business in building apartments and selling the same. In the return filed by the assessee, the assessee claimed a sum of Rs. 89,960 paid as compounding fine to the Bangalore City corporation as an expenditure under Section 37 of the Act. However, the Assessing Officer disallowed the said claim. Aggrieved by the said order, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals ). The Commissioner (Appeals) by me

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