Expenditure incurred by the assessee-company for renovation/repair of a club of which its employees are members is allowable as business expenditure under Section 37 of the Income-tax Act, 1961.

( 1 ) THIS is a reference under Section 256 (1) of the Income-tax Act, 1961, wherein two questions were referred to this court by the Income-tax Appellate Tribunal. The facts of the case are that the assessee filed its return in respect of the assessment year 1989-90. The assessee is a limited company and the method of accounting is the mercantile system. The assessment, by the authority concerned, was made under Section 143 (3) of the Income-tax Act, 1961. The Assessing Officer did not entertain the claim of the assessee in respect of certain items amongst which the disallowance of deduction claimed under Section 32ab of the Income-tax Act, 1961, and the disallowance of Rs. 5,93,126 under Section 37 (2a) of the Income-tax Act, 1961, are relevant so far as the present hearing is concerned. Being aggrieved by the decision of the Assessing Officer in respect of those two items, the assessee preferred appeal before the Commissioner of Income-tax (Appeals) and thereafter the matter finally came before the learned Income-tax Appellate Tribunal for decision. The learned Tribunal allowed Rs. 78,135 in favour of the asses-see-company treating it as expenditure for business purposes. However, the claim in respect of the expenditure of Rs. 5,00,000 on this head was not allowed by the Tribunal. As such, being asked by the assessee the learned Tribunal referred the question before this court which is as follows :"whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in rejecting the claim of subscription paid to Borsola Gymkhana Club for repairs of club building, which was destroyed by fire, of Rs. 5,00,000 on the ground that the assessee was not the owner of the club building, although its employees are members of this club ?"

( 2 ) ANOTHER question was referred by the Tribunal on the facts that the Assessing Officer while making the assessment took the view that the assessee acquired certain new plant and machinery or deposited certain funds in the investment deposit account and he did not allow the deduction in favour of the assessee as per the provisions of Section 32ab (3) of the Income-tax Act. The matter was heard in appeal by the Commissioner of Income-tax (Appeals) and he accepted the argument of the assessee-company and directed the Assessing Officer to make out the deduction claimed under Section 32ab holding that deduction under the above mentioned provision is allowable to the assessee-company. Being aggrieved and dissatisfied with the said order, the assessee-company preferred an appeal challenging the procedure to be adopted as per the direction of the Commissioner of Income-tax (Appeals ). The learned Tribunal, after hearing the parties, allowed the appeal of the assessee-company by setting aside the order of the Commissioner of Income-tax (Appeals) and directed the Assessing Officer to compute 20 per cent, of the eligible profit inclusive of rental income, interest, dividend, profit on sale of assets, replantation subsidy along with other income as found in the Sixth Schedule, Parts II and III of the Companies Act subject to such adjustment as found prescribed therein. As the Revenue was dissatisfied with the said finding of the Tribunal, the following question was referred to this court:"whether, on the facts and in the circumstances of the case, the Tribunal was justified in law as well as on facts to direct the Assessing Officer to compute 20 per cent, of the eligible profit inclusive of rental income, interest, dividend, profit on sale of assets, replantation subsidy along with other income as found in profit and loss account against the correct interpretation of Section 32ab ?"

( 3 ) ON the basis of those two questions, the present hearing took place and we heard the submissions made at length by the learned advocates for both the sides. Let us now answer those two questions one after another. So far as the first question is concerned, it appears that t