O.Chinnappa Reddy, J.

1. The assessee who carries on business in exhibition of films is a member of the East Punjab Motion Pictures Association. Under the bye-laws of the association, a member is obliged to carry out the "award and directives" of the association arising out of all disputes between members or upon complaints received by the association. A member failing to carry out the directive of the association would be suspended from membership of the association and would be eligible to be reinstated on payment of a specified sum of penalty in addition to " reinstatement circulation charges ". The assessee had to pay a sum of Rs. 4,300 by way of penalty to the association during the accounting year relevant to the assessment year 1970-71. The assessee claimed that the sum of Rs. 4,300 paid by way of penalty to the association was a sum " laid out wholly and exclusively for the purposes of the assessees business " and was, therefore, allowable expenditure under Section 37 of the Income-tax Act, 1961. The Tribunal held that breaches of contractual obligations were not incidents of business and, therefore, the amount paid by the assessee as penalty was not allowable expen