Suhas Chandra Sen, J.
1. The Tribunal has referred the following question of law under Section 256(1) of the I.T. Act, 1961, to this court for its opinion:
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that Rs. 9,54,677 being the premium paid luring the accounting year corresponding to assessment year 1975-76 is an allowable expenditure '
2. The assessee is a company. The assessment year is 1975-76 for which the accounting year ending is on March 31, 1975, The assessee had debited a sum of Rs. 16,15,458 to the account of premium on purchase of import entitlements for the import of raw materials. The assessee itself did not have any import licence but it purchased the same from other exporters who had been allotted such licences. The entire quota was not utilised in the year of account. Note No. 9(a) in the balance-sheet, Schedule 'D', for the instant year in this connection was in the following terms :
'Premium on purchases of import entitlements for import of raw materials aggregating to Rs. 16,15,459 written off in the profit and loss account includes Rs. 9,54,677 being the value of unutilised licences in hand as at March 31, 1975. However, entitlements valued at Rs. 6,58,781 against which goods have already been received have been considered for the valuation of raw materials.'
3. Out of the unutilised quota of Rs. 9,54,677, the utilisation was Rs. 4,73,050 in the year 1975-76, Rs. 2,45,248 in the year 1976-77 and Rs. 2,54,641 in the year 1977-78. The balance of Rs. 1,758 could not be utilised as it got time-barred in the accounting year 1977-78. The ITO held that the import licences concerned were saleable and the assessee could sell its import entitlements. Secondly, he held that the amount of premium could be treated as an addition to the cost of the goods to be imported and should be considered as a credit to the profit and loss account as part of the closing stock of the goods. Thirdly, he held that for the purposes of ascertaining the correct profit of the year, such entitlements which were actually utilised for import of raw materials for the business during the year was allowable. In the result, the ITO held that the expenditure incurred to acquire unutilised import entitlements with licence could not be considered to have been incurred for the purpose of the assessee's business during the year and hence the said amount of Rs. 9,54,677 was disallowed by him.
4. On appeal, the Commissioner (Appeals) held that unutilised import entitlements were not saleable and this could not form part of the raw materials and could not be taken to the trading account nor could it form part of the stock-in-trade of the assessee. The Commissioner (Appeals) further held that in so far as the import entitlements utilised to the extent of Rs. 58,781 were concerned, a sum of Rs. 69,449 representing the value of the entitlements against the imported materials in stock had been taken in the closing stock and the balance had not been included in the consumption of raw materials since the same had already been charged off under the head ' Premium on purchase of import entitlements'. He held thatthere was thus no scope to find fault with the method of accounting adopted by the assessee. On the above reasonings, the Commissioner (Appeals) deleted the addition of Rs. 9,54,677.
5. The Department appealed to the Tribunal. The Tribunal held that the assessee incurred the expenditure in order to be able to carry on its business and the said expenditure could later accrue to its benefit in the form of stock-in-trade when it actually utilised its quota. In the result, the Tribunal held that Rs. 9,54,677 was an allowable expenditure and dismissed the departmental appeal.
6. In our opinion, this case does not present any difficulty. That the amount was spent for the purpose of the assessee's business cannot be disputed. The only question is whether merely because the entire quantity of import entitlement was not utilised in the year of account for which it was purchased, the assessee will be disentitled to get the deduction under Section 37 as expenses incurred wholly and exclusively for the purpose of business. The Tribunal has found that the import entitlements were not saleable by the assessee. These had been acquired in the course of the normal trading activities of the company. In no way, could these import entitlements be described to be part of the profit making apparatus of the company. The expenditure was incurred in the process of profit making. The import entitlements that were not used in the relevant year of account were utilised in the subsequent year for the purpose of the trading activities of the company.
7. In our opinion, it is not necessary for the assessee to use all the import entitlements in the year in which it was purchased, in order to obtain the benefit of Section 37. The assessee, in the course of the carrying on of its business, made purchases of goods, materials and quota rights, from time to time, and then utilised them in the course of its business. It cannot be laid down as a proposition of law that until and unless the quota rights are utilised or the goods are sold, the amount spent for the purchase of those quota rights or the goods will not be allowable as deduction.
8. No authority is really necessary for this proposition. But on behalf of the assessee our attention was drawn to a decision of the Supreme Court in the case of Travancore Rubber and Tea Co. Ltd. v. Commr. of Agricultural Income-tax : 41ITR751(SC) , where it was held that the amount expended by the assessee on the superintendence, weeding, etc., of the rubber plantation should be allowed against the profits earned and it was no answer to the claim for a deduction that part of those expenses produced no return in that particular year because all the trees were not yielding rubber in that year.
9. In that view of the matter, the question referred to this court, must be answered in the affirmative and in favour of the assessee.
10. In the facts and circumstances of the case, each party will pay and bear its own costs.
Satish Chandra, C.J.
11. I agree.