BEG, J. :- Two questions have been referred to us by the Income Tax Appellate Tribunal under section 66(1) of the Indian Income Tax Act (hereinafter referred to as the Act) by means of a consolidated order on three reference applications. The first of these questions relates to the assessment year 1950-51, and the same question had arisen out of the assessee's case for the assessment year 1949-50. This question has already been answered by this Court on 29-4-1966 in ITR No. 207 of 1962 (All), J. K. Cotton, Spinning and Weaving Mills Co. Ltd. v. Commr. of Income Tax, Lucknow.

2. The assessee is a private limited company, which had employed Sri H. P. Pasari in 1939 as the General Manager of its Mills. It had also employed Shri Madan Lal Singhania in 1936 as Printing Master in its Calico Department. There was no written contract of service between either of these two employees and the assessee. Both these employees were involved in a murder case and remained in jail as under-trial prisoners from 23-8-1948 to April 1950. They were both acquitted in 1950. In these circumstances, the question arose whether the amount paid towards their salaries and bonuses during the period for which they were in jail as under-trial prisoners was an allowable business expense under section 10(2)(xv) of the Act. This Court held that the payments made to both of these employees, who are closely related to Sri Sohan Lal Singhania, the Director incharge, and Sri P. D. Singhania, the Director of the assessee company, were made due to extra-commercial considerations. Hence, the whole amount could not be deducted under section 10(2)(xv) of the Act, but the amounts paid to Sri H. P. Pasari for a period of 29½ days and to Madan Lal Singhania for 24½ days, for which periods these gentlemen could remain on leave on full salary under their terms of service, could be allowed to be deducted. The first question before us was framed as follows :-

"Whether on the facts and in the circumstances of the case, the payments of salaries and bonuses made to Madan Lal and H. P. Pasari during the period of their jail custody are allowable as deduction under sec. 10(2) (xv) of the Income Tax Act and consequently under Business Profits Tax Act?"

The Tribunal's findings of fact left no room for doubt that the payments to the extent to which they were found by this court, in answering ITR No. 207 of 1962, to be not allowable under section 10(2)(xv) of the Act were made for reasons outside the scope of commercial expediency. The allegations of the assessee, that the payments had been made in order to prevent leakage of trade secrets and that the employees had continued to give advice and guidance concerning their respective departments during their jail custody, were disbelieved by the Income fax authorities right upto the Tribunal. We, therefore, see no reason to give any other answer than the one already given by this Court in the above mentioned ITR No. 207 of 1962. Consequently, we give the answer in the negative to the above mentioned question and hold that the salaries and bonuses paid to the two employees could not be deducted except for the periods for which they were lawfully entitled to leave under the terms of their service with the assessee company.

3. The second question referred to us relating to the assessment year 1951-52 is framed as follows :-

"Whether on the facts and in the circumstances stated above the payment of Rs. 2,50,000 to the U.P. Government is allowable as a deduction under section 10(2)(xv)?"

The assessee company had revealed for the first time by means of an unsigned and undated letter filed before the Appellate Assistant Commissioner, the following facts: In May, 1946, the Anti-Corruption Police had raided the premises of M/s. Kanodia Brothers who used to make purchases of cloth from the Assessee Company. The police seized a number of alleged cash memos of the assessee company's retail shop and a number of other documents. The godown of Laxmi