1. This is an application under s. 2356(2) of the I. T. ACt, 1961, by the Commissioner of Income-tax who seeks a direction to the Tribunal to state a case and refer the following questions for the decision of this court :
'1. Whether, on the facts and in the circumstances of the case, the I. T. A. T. was correct in law in in lowing the provision for gratuity amounting to Rs. 1,86,461 as an admissible deduction?
2. Whether, on the facts and in the circumstance of there case, the I. t. A. T. was correct in law in holding that the proportionate interest of Rs. 1,22,129 disallowed by the ITo is an admissible diction u/s. 36(1)(iii)?'
2. So far as the first question is concerned, the relevant facts are in a very benefit compass. The assessed has debited a sum of Rs. 1,86,461 to the sales and wages account by wy of a provision for gratuity. It is common ground that this provision was made in respect of the non journalist employees of the company to whom the company has to pay gratuity in accordance with certain awards of the Industrial Tribunal, w. e. f. July 1, 1967. it is against common ground that the provision was made on the basis of an actuarial valuation, i.e., for the present value of the future liability in respect of the gratuity which the assessed would have has to meet as per the awards. the ITO disallowed the assessed's claim for deduction this amount by distinguishing the judgment of this court in the case do DElhi Flour MIlls Co. Ltd. v. CIT : 95ITR151(Delhi) and relying upon the decision of the Supreme Court in the case of Bombay Dyeing & Mfg. Co. Ltd. v. CWT : 93ITR603(SC) . However, on appeal both the AAC and the Tribunal allowed the assessed's claim. the Tribunal referred to the decision of the Bombay High Court in the case of Tata Iron & Steel Co. Ltd. v. D. V. Bapat, ITO : 101ITR292(Bom) , of the Allahabad High Court in the case of Madho Mahesh Sugar Mills (P.) Ltd. v. CIT  92 ITR 503 and of this court in the case of Delhi Floor Mills co. Ltd. : 95ITR151(Delhi) , and allowed the assessed's claim. the Commissioner challenges the correctness of this conclusion.
3. We are not persuaded to direct a reference on this question because the question of allowability of gratuity as a deduction where it is provided for in the books on the basis of actuarial valuation has been set at rest by the decision of the Supreme /court in the case of metal Box Company of India Ltd. v. Their Worked : (1969)ILLJ785SC ; 39 Comp Case 410. that was no doubt a case under the Bonus ACt but the Supreme Court has refered to decision under the I. T. ACt and it has also based it conclusion on the well-settled accountancy principle that, even in respect of a contingent liability its present value, if ascertained on scientific basis could be taken into account as trading expenses without deducting which the profits of the assessed cannot be truly ascertained. ?the observations of the Supreme court in this respect are quite clear and categorical.
4. the decision in BOmbay Dyeing and Mfg. Co. Ltd. v, CWT : 93ITR603(SC) , does not in any way alter the position. In that case the Supreme Court has reiterated its earlier decision in the cases of standard Mills co. Ltd. v. CWT  63 ITR 470 . In the Bombay Dyeings case as well as in Standard Mill'; s case, all that wa held was that the liability in respect of gratuity wa a contingent liability and could not be treated as a debt outstanding on the valuation date for wealth-tax purposes. Standard Mills case has been considered by the Supreme Court in the Metal Box case : (1969)ILLJ785SC . Metal Box case has also been referred to in the decision in Bombay Dying case. It has been pointed out the there is no conflict between liability can, to the extent of its present valuation on a scientific basis, be treated as trading expenses, as laid down in Metal Box case has been consistently followed by a larger number of decisiion. See CIt v. Bankey Lal Hira Lal : 92ITR587(All) Sic), Tata Iron & Steel Co. Ltd. v. D. V. Bapta,. ITO : 101ITR292(Bom) , CIt v. Standard Furniture Co. Ltd.  116 ITR 7651 (Ker) [FB], CIt v. Batala Engineering Co,. Ltd. and CIT v. Orissa Cement Ltd.  124 251 (Delhi).
5. Shri Wadheran on behalf of the Department referred to CIT v. Indian Metal and Metallurgical Corporation : 51ITR240(Mad) and Chhaganlal Textile Mills Pvt. Ltd. v. CIT : 62ITR274(MP) . These decision were rendered prior to the decision of the Supreme Court in the Metal Box case  873 ITR 53 . He also referred to the decision of the Calcutta High Court in the case of Radheeslyam Ladia v. ITO : 82ITR247(Cal) and Official Liquidator of the Sakeria Cotton MIlls Ltd. v. CIT : 81ITR528(Bom) . But these were case in which there was no scientific ascertainment of the present value of the liability sought to be deducted. These decision did not run counter to, nor do they in any way seek to restrict the principle of, the decision in the Metal Box case. On the other hand, m several High court have followed Metal Box case. We are, thereforee, of opinion that the question raised by the Commissioner is directly and squarely covered by the decision of the Supreme Court in the case of Metal Box and numbers other decisions and define to direct the Tribunal to refer the first of the two questions raised in the application.
6. The second question arises in the following circumstanes. / The assessed, which is publishing a newspaper in Delhi, was previously occupying a premises belonging to the Life Insurance Corporation of India (LIC) in Connaught Circus, New Delhi. The lease agreement with the : LIC wa coming to a close in October, 1969. the assessed has already purchased certain land and premises on Kasturba Gandi Marg, New DElhi. The assessed, thereforee, decided to contact a multi-storeyed building on the aforesaid plot of land and shift its office and press to the new building. it appears that the assessed draw up a plan for constructing a multi-storeyed structure on the above plot of land after demolishing the building which was situated thereon previously and also after obtaining the necessary permission for the commercial use of the land. It is common ground that a building with 16 floors wa put up by the assessed at a total cost of Rs. 209 lakhs. The construction of this building was started in the accounting year relevant to the assessment year 1968-69, and we are told that it came to a full compassion in the accounting year relevant to the assessment year 1974-75.
7. The assessed mortgages the plot of land on Kasturba Gandhi Marg and obtained a loan of Rs. 45 lakhs from the LIC to meet; in part the cost of construction. The loan was received by the assessed-company as follows :
Rs.31-5-69 20 lakhs8-4-70 15 lakhs7-12-71 10 lakhs--Total 45 lakhs--
8. The mortgaged deed in favor of the LIC contained a clause that the assessed-company could not let out any portion of the building under construction expect on monthly tenancies without obtained the written consent of the LIC and that the consent of the LIC would be taken as given, if no reply was received from it to the assesseds requisite in this behalf within 15 days. It was also a contention of the loan that the assessed should vacate the building owned by the LIC in Connaught Circus which was under the assessed's occupation.
9. WE are concerned here with the assessment year 1972-73. During the relevant previous year only a part of the building has been completed. It may be mentioned here that the total covered area of the building was 3,95,339 sq. feet. Out of this the assessed-company occupied 2,14,239 sq. feet, for its office and press and kept in reserve two floors measuring 27,400 sq. ft. of the further expansion of the company. The remaining portion of the building when completed was let out. It appears from the assessment order that the assessed has let out the entire area covered by the fourth to the sixteenth floor and was itself occupying only the basement and the first three floors. The building occupied by the assessed for its business purposes was 61% of the total floor area while the balance of 39% was eventually let out. One important fact to be mentioned about which there is no dispute is that buy the end of the previous year relevant to the assessment year 1972-73, with which we are concerned, the assessed has completed the construction only of the basement and the first three floors and was occupying the whole of it for the purposes of its business. In other words, during the previous year there was no portion of the building which was not occupied by the assessed for the purposes of its own business and no portion of the building was let out to anybody.
10. In the above circumstances, the ITO took the view that a portion of the interest paid by the assessed to the LIC on the loan of Rs. 45 lakhs should be disallowed. In his view he assessed has borrowed this money for putting up not only its office building but also to put up portions of the building which were never intended to be used buy the assessed for its business which were never intended to be sued by the assessed for its business nd which on the contrary were always intended to be let out or assigned or sold. He referee to an inquiry made by the inspector in August, 1974, and to an agreement entered into by the assessed with M/s. Orient Investment (P.) Ltd. to support his conclusion that the assessed never intended to use the higher floors of the building for its business. Having regard to the fact that only 60% of the building was used by the assessed for the purposes of the business, the ITO disallowed 40% of the interest paid by the assessed during the previous year to the LIC. This disallowance came to RS. 1,22,120.
11. The decision of the ITO, however, was reversed by the AAC with whom the Tribunal also agreed. The AAC referred to the circumstances that the decision for the construction of the building. He pointed out that the decisions for the construction of the building was taken in the context of the expiry of the lease in favor of the assessed by the LIC in respect of its earlier building. One of the terms on which the LIC gave money to the assessed was that it should vacate the entire area occupied by it as tenant of the LIC. The AAC, thereforee, concluded that the prematurely purpose of contacting the new building was to use it to house the press and offices of the company. He then turned his attention to the terms of the mortgage deed, the amount of the loan taken from the LIC, the total cost of construction of the property and other facts and pointed out that the conclusion of the ITO that the loan raised by the company was utilised for the construction of the building was not well founded. He observed that it should well be claimed by the assessed that the cost of construction up to the year of account under reference was almost entirely met by the company out of its won internal resources. The AAC also observed that since the company was occupying the basement and the first three floors for its won business use, it was clear that even if the loan raised from the LIC could be said to have been utilised for the these reasons he allowed the assessed's claim.
12. The Appellate Tribunal endorsed the conclusion of the AAC. In the first place, the Tribunal agreed with the AAC that the primary purpose of the construction was to use the premises for housing the office and press of the assessed. Secondly, the Tribunal pointed out that the built up area of the basement and the first three floors was 2,14,239 sq. ft. This had been constructed according to a certificate given by the architect at a cost Rs. 115.47 lakhs whereas the loan was only Rs. 45 lakhs. This showed that not the sum of RS. 45 lakhs but the assesseds own further funds to a substantial extent had also been mobilized to complete the construction of this portion of the building. Since this portion of the building was used only for the business purposes, no portion of the loan taken could be said to have been used for other than business purpose. Thirdly, it pointed out that the funds borrowed by the assessed were mixed up with the other funds of the assessed nd it could not be said that any partition thereof has been earmarked or set part for completing the portion of the building which were alter on let out to different companies. Having regard to these circumstance the Tribunal emphasized the position obtaining in the year of account and held, s it was clear that no portion of the building has been let out to any outsiders and the portion constructed till the end of the accounting year has been utilised only for the business purposes that no portion of the interest paid by the assessed to the LIC was disallowable and that the entire interest should be allowed. The Commissioner is challenging the correctness of this finding of the Tribunal.
13. Shri K. K. Wadhera, learned counsel for the Department, m lays great emphasis on the facts that the expenditure on the built up area of the building put up by the assessed wa in excess of its requirements and referred to the finding of the ITO that right from the beginning the assessed has intended to let out a substantial portion of the building to others. Considering that the loan from the LIC has been taken for the specific purpose of putting up this building and considering also that the building was intended to be used not merely for the business purposes of the assessed but also fro being let to outsiders, he contended the disallowance made by the ITO wa fully justified and should have been upheld by the Tribunal.
14. On the other hand, Shri O. P. Vaish, learned counsel fro the assessed, points out that the building has been intended only for being used for its own office nd press though, having regard to the needs of possible expansion of the business the floor area constructed was larger than what was immediately needed for the purpose of the business. He contends that the agreement with M/s. Orient Investment (P.) Ltd. has been executed only on January 20, 1973, i.e., subsequent to the accounting year present in question, m and he stated that in fact even that agreement has not been acted upon. Learned counsel further contends that the monies borrowed by the assessed form the LIC, thought ostensibly for the construction of the building were not earmarked for that purpose but were mixed up with the general funds of the assessed. Having regard to the huge investment in the property and the small amount of loan taken from the LIC, he contends that no correlation could be established between the borrowings and the construction. Even if such correlation could be assumed, he urged, the loan taken should be treated only as for business purpose, having regard to the fact found by the authorities that during the previous year in question the entire building in existence has been used for business purposes only.
15. From what has been stated above, it is clear that so far as the present assessment year is concerned, the question sought to be raised by the Commissioner is concluded by the findings of fact arrived at by the TRibunal. Under s. 36(1)(iii) of the I. T. ACt, the assessed is entitled to a deduction of the amount of interest paid in respect of capital borrowed for the purpose of the business. In the present case the capital has been borrowed for the purpose of putting up the business premises of the assessed. It is not necessary fro the purpose of this assessment year to consider whether any part of the funds, borrowed can be said to have been utilised for being let out. The most important fact found by the Tribunal (and, indeed there is no dispute about that fact) is that, by the end of the accounting year with which we are concerned, the building has been completed only to the extent of the basement and the first three floors and this entire building was being used only for the purpose of the business. In this state of affairs there in no material for any suggestion that any part of the interest paid by the assessed was in respect of monies borrowed for some other purpose. It may be that if the loan taken from the LIC continues to remain outstanding even after the entire building is put up and the assessed calms a deduction of the interest payable thereon, a question may arise whether out of the minors borrowed and utilised for the constitution of the entire building (including the floors which haves been let out by the assessed0 a portion should be attributed to premises let out and the interest thereon disallowed. We need not express any opinion on that question at this stage. So far as the present year of account is concerned, there can be no doubt that monies borrowed by the assessed have been utilised only for the construction of premises which are used for business. This being so, there is absolutely no basis on which it may be contained that a portion of the interest should be disallowed merely because the assessed had concrete plans to add to the building and use the addition for the purposes. The finding arrived at by the TRibunal was thus a pure finding of fact and we are unable to see how any question of law arises there from.
16. In these circumstances, the present petition fails and is dismissed. The Commissioner will pay the costs of the assessed. Counsel's fee RS. 150.