JAGADISAN J.

Under section 66(2) of the Indian Income-tax Act, this court directed the Income-tax Appellate Tribunal, Madras, to state the case raising the following question of law :

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in disallowing the claim of the assessee that Rs. 21, 373 constituted an allowable sum of deduction in the year of account." *

The assessee is a manufacturer and dealer in safety matches owning a factory called "Pope The King Match Factory" at Kalugumalai, Tirunelveli District. Till the end of the year 1955 this factory was classified as "category No. 2" for purposes of levy of excise duty. During the year 1954, the assessee found that the production in the factory was higher than in the previous years, and that such production was likely to exceed 5 lakhs gross of match boxes, annual ceiling fixed for category No. 2 factory. This meant that the factory would have to be re-classified and treated as category No. 1. In the event of the factory being classified as category No. 1 the excise duty payable would also be more than that levied for category No. 2 factory. The assessee, therefore, submitted a petition to the Assistant Collector of Central Excise, Trivandrum, on August 23, 1954, and prayed for permission to work the factory so as to produce more than the maximum limit of 5 lakhs gross of match boxes permissible for category No. 2 factory. The excise duty payable in respect of category No. 2 factory is Rs. 1-15-0 per gross on 40s. and Rs. 2-14-6 per gross on 60s. The duty payable by factory under category No. 1 exceeds the duty in respect of category No. 2 by 1 anna 6 pies for 60s. and 1 anna for 40s. per gross. The Assistant Collector of Central Excise, Trivandrum, by his communication to the assessee dated September 27, 1954, granted permission for the transfer of the factory from category No. 2 to category No. 1. But two conditions were imposed on the assessee : (1) He should remit immediately the differential duty at the rate of one anna per gross of 40s. and 1 and a half annas per gross of 60s. for the quarter ended September 30, 1954, and (2) he should give an undertaking to pay the differential duty even on the production for the half year ended June 30, 1954, if the Collector so decided. The assessee accepting the terms of the condition paid the sum of Rs. 10, 364-1-0 on October 9, 1954, into the Koilpatti Sub-Treasury representing the differential excise duty payable for the quarter ended September 30, 1954. On December 9, 1954, the assessee received a demand for payment under rule 10A of the Central Excise and Salt Act, 1944, for the sum of Rs. 21, 373-7-0. This amount was claimed as differential duty payable by the assessee from January 1, 1954, to June 30, 1954. The demand was in these terms :

"Take notice that on behalf of the Central Government hereby demand payment by you of the sum of Rs. 21, 373-7-0 within ten days from the date hereofarticulars of demand

Differential duty from the licensee, consequent on his factory having exceeded in 1954 the 5, 00, 000 gross maximum and thereby having become liable to match excise duty under items 2(1) and 2(2) of the First Schedule of the Central Excise and Salt Act, 1944. The details of demand are as follows

40s. gross 60s. gross

(a) Total production from 1-1-1954 to 30-9-1954 4, 65, 830 27, 980

(b) Total amount of differential duty between

Cat. II and Cat. I rates to be collected Rs. A. P

during the period 2, 623--2--0

60s. 27, 980 gross at 0-1-6 29, 114--6--0

40s. 46, 480 gross at 0-1-0 31, 737--8--0

Amount already paid as per chalan No. 772

dated 9-10-1954 of Kovilpatti Sub-Treasury 10, 364--1--0

Balance amount to be realised 21, 373--7--0

The assessee preferred an appeal to the Collector of Central Excise, Madras, for cancellation of the demand on grounds which need not however be adverted to in this judgment. This appeal was rejected on April 19, 1955. The assessee preferred a further appeal to th