CHAKRAVARTTI, C. J.

( 1 ) THIS is a Reference under Section 66 (1) of the Indian Income-tax Act by the Calcutta Bench of the Appellate Tribunal of the following question of law :"whether on the facts and in the circumstances of the case, the deduction of Rs. 6,000/- was permissible under Section 12 of the Indian Income-tax Act. "

( 2 ) THE Reference has been made at the instance of the Commissioner of Income Tax, West Bengal. Appearing for him, Mr. Meyer made it clear at the very outset that he was not concerned at all with the amount of deduction which had been allowed by the Tribunal, but his whole concern was to have certain erroneous principles upon which the Tribunal had proceeded corrected in order that the decision in the present case might not be utilised as a precedent in other similar cases. Likewise, the learned Advocate for the assessee said that to him also, the amount of Rs. 6,000/-was of no concern and that he wanted rather to defend the principles upon which the Tribunal had allowed the deduction. We may therefore leave the amount of Rs. 6,000/- to itself and see whether the principles are wrong as the Commissioner has contended or whether they are right, as contended by the learned Advocate for the assessee.

( 3 ) THE assessee is a public limited company and was at the relevant time in the second year of its existence. The relevant time was the accounting year, 1946-47. As its name shows, it is a spinning and weaving mills, but the finding of fact is that in the accounting year in question it has not yet commenced the business. It appears however to have been preparing to do so and had certain investments from which it derived some income. Thus, It had an income of Rs. 18,465/- by way of interest from its managing agents, a further sum of Rs. 386,/-, also by way of interest, from Banks and a still further sum of Rs. 2,457/- from investments in Victory Bonds. I am leaving aside a large amount sought to be assessed by the Income-tax Officer on the basis of certain high denomination notes encashed by the company, because that item was excluded by the Tribunal and the Commissioner of Income-tax has not pursued the matter further.

( 4 ) AS the company is a spinning and weaving company and as the interest income was not from any of the sources mentioned in Section 8 of the Act, the entire amount was assessed under Section 12. The assessment order states specifically that the Income brought tinder assessment is Income from 'other sources'. As against that income, the assessee claimed a deduction of Rs. 21,654/- on account of office and establishment expenses but the income-tax officer did not allow any deduction at all. The Appellate Assistant Commissioner, on appeal, upheld the Income-tax Officer's, disallowance and did so on the ground that the assessee company was still at the development stage and therefore the expenses claimed could not be allowed.

( 5 ) WHEN the matter went up to the Tribunal on further appeal, the Tribunal applied the principles which it had applied to the previous year's, assessment to which it expressly referred. In accordance with those principles, the Tribunal estimated, the allowable expenditure at Rs. 500/-per month and granted a total deduction of Rs. 6,000/ -. It is that amount of Rs. 6,000/- which finds place in the question referred.

( 6 ) AS the reasons upon which the Tribunal proceeded are not to be found in the appellate order relative to the assessment year 1947-48, reference has got to be made to their order relative to the previous year that is, the assessment year 1946-47. It is stated in that order that the Tribunal could not agree to the proposition that any expenses, which could not be directly attributed to the interest receipts, must be considered to be development expenses and treated as capital rather than revenue expenditure in view of the stage at which the company's business was. The Tribunal thought that even though the company might be at the development stage

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