M. S. MENON C.J. - This is a reference by the Income-tax Appellate Tribunal, Madras Bench, under section 66 (2) of the Indian Income-tax Act, 1922. The assessment year concerned is 1958-59 and the accounting period, the twelve months ended on December 31, 1957. The questions referred are :
'(1) Whether, on the facts and circumstances of the case, the assessee banks is not entitled to the deduction of bonus of Rs. 4,000 paid to the managing director under section 10 (2) (x) or (xv) of the Indian Income-tax Act, 1922 ?
(2) Whether, on the facts and in the circumstances of the case, the disallowance of the loss of Rs. 3,000 on the sale of 10 year Treasury Savings Certificates as capital loss is valid in law ?'
Question No. 1 : Section 10 (2) (x) of the Act has no application to the case at all. The allowance contemplated by that provision relates to any sum paid 'to an employee' as bonus or commission. The payment in this case was not to an employee 'as bonus or commission. The payment in this case was not to an employee of the bank but to an ex-managing director. In the light of the decision of the Supreme Court in Gordon Woodroffe Leather Manufacturing Co. v. Commissioner of Income-tax and of this court in I.T.R. No. 14 of 1964, we must also hold that the amount paid to the managing director will not constitute an admissible allowance under section 10 (2) (xv) of the Act.
Question No. 2 : The bank had invested Rs. 50,000 in 3 1/2 % 10 year Treasury Savings Deposits. The expression 'sale' used in the question is inaccurate. The 3 1/2% Treasury Savings Deposits were not saleable securities. What took place was not a sale but the obtaining of a repayment before the expiry of the ten calendar years from the date of deposit. Under the rules, for such repayment, what will be repaid is not the entire sum deposited but that sum after adjustment of a discount as prescribed in the rule. The Rs. 3,000 represented the discount deducted from the amount deposited. In these circumstances, the Tribunals conclusion that the Treasury Savings Certificates did not constitute the stock-in-trade of the assessee and that the loss should be considered as a capital loss seems to be justified.
In the light of what is stated above, we must answer both the questions referred against the assessee and in favour of the department. We do so, but, in the circumstances of the case, without any order as to costs.
A copy of this judgment under the seal of the High Court and the signature of the Registrar will be sent to the Appellate Tribunal as required by sub-section (5) of section 66 of the Indian Income-tax Act, 1922.
Question answered against the assessee.