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Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1978-79 - Whether amount paid as shortfall of premium under Emergency Risks Insurance Act, 1971, was deductible as business expenditure - Held, yes FACTS The assessee-company paid certain amount as shortfall of premium payable under Emergency Risks Insurance Act and claimed it as business expenditure. The ITO disallowed the claim holding the payment was in the nature of penalty. The Commissioner (Appeals) confirmed the disallowance. The Tribunal however held that the amount paid was part and parcel of liability to pay premium under the Emergency Risks Insurance Act, 1971. Accordingly, the Tribunal deleted the disallowance. On reference : HELD The Tribunal took into consideration the order passed by the authority under the Emergency Risks Insurance Act, 1971, for the purpose of realising the shortfall and came to its decision. It observed that, on a perusal of the order passed by the Chief Enforcement Officer, Emergency Risks Insurance, it was found that the amount paid was part and parcel of the liability to pay premium under the Emergency Risks Insurance Act. In instant case, what was realised was the shortfall in the premium. It was not paid in time. Thereafter, an order was passed and, pursuant to that order, this shortfall was paid. In this particular case, there was no question of imposition of penalty for infraction of law and as such the said amount was allowable as business expenditure under section 37. Note : The case was decided in favour of the assessee. CASES REFERRED TO CIT v. J.K. Cotton Spg. & Wvg. Mills Co. [1980] 123 ITR 911 (All.), Haji Aziz & Abdul Shakoor Bros. v. CIT [1961] 41 ITR 350 (SC),Mahalakshmi Sugar Mills Co. v. CIT [1980] 123 ITR 429 (SC) and Simplex Structural Works v. CIT [1983] 140 ITR 782 (MP). A.C. Moitra for the Applicant. JUDGMENT Bhagabati Prosad Banerjee, J.-The Tribunal has referred the following question of law under section 256(1) of the Income-tax Act, 1961, to this court: "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the payment of Rs. 10,778 under the…

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