C.S.P. Singh, J.
1. The Income-tax Appellate Tribunal, Delhi Bench D, has referred the following three questions for our opinion:
' 1. Whether, on the facts and in the circumstances of the case, the amounts of Rs. 93,638, Rs. 1,00,936 and Rs. 53,168 payable by the assessee as interest under section 3(3) of the U. P. Sugarcane (Purchase Tax) Act, 1961, for the assessment years 1967-68, 1968-69 and 1969-70 are allowable deductions under section 37(1) or under section 28 of the Income-tax Act, 1961 ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that payments on account of guarantee commission passed all the tests laid down in section 40(c) of the Income-tax Act, 1961, and that the entire claim of payment was allowable ?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the sum of Rs. 4,359 paid as damages for late payment of provident fund was an allowable deduction in the assessment year 1970-71 '
2. The first and the third questions are covered against the assessee by the Full Bench decision of this court in the case of Saraya Sugar Mills v. CIT : 116ITR387(All) , wherein it has been held that payments of the nature made, which are the subject-matter of the first and the third questions are not allowable deductions. So far as the second question is concerned that also appears to be covered by the decision of this court in the case of L. H. Sugar Factories & Oil Mills (P.) Ltd. v. CIT : 118ITR985(All) and the two other decisions in the case of this very assessee in I.T.R. No. 238 of 1976, decided on 18th August, 1979 (since reported in : 123ITR598(All) (infra) (Appendix-I)) and I.T.R. No. 482 of 1976, decided on 31st August, 1979 (since reported in : 123ITR599(All) (Appendix-II)).
3. Counsel for the department has, however, contended that in as much as there was no specific agreement between the Central Bank of India, Bombay, and the assessee. for giving a guarantee in respect of the loan of Rs. 40,00,000, which was taken during this year, the payment of commission to the directors, who had stood surety for this amount, could not be allowed as a business expenditure. The contention is misconceived. The Tribunal has found as a fact that although the guarantee was not given pursuant to any agreement between the bank and the assessee, yet it was given by the directors as per usual requirement of the bank, as, in case the guarantee had not been given, the assessee would not have been able to secure the loan from the bank. From the finding recorded by the Tribunal, it is clear that the bank would not have advanced the loan in case the directors had not stood security for the payment. This being so, the case cannot be distinguished from the decisions in the case of this very assessee for the earlier years, where substantially a similar situation obtained. The Tribunal was, thus, correct in holding that the amount of commission paid to the directors satisfied the tests laid down under Section 40(c) of the Act.
4. We, accordingly, answer questions Nos. 1 and 3 in the negative, infavour of the department and against the assessee. Question No. 2 isanswered in the affirmative, in favour of the assessee and against thedepartment. In view of the partial failure and success of the parties, theyshall bear their own costs.