JUDGMENT Om Parkash, J.
1. The Income-tax Appellate Tribunal (Allahabad Bench, Allahabad), at the instance of the assessee, has referred the following questions to this court under Section 256(1) of the Income-tax Act, 1961, for its opinion :
" 1. Whether, on the facts and in the circumstances of the case the Income-tax Appellate Tribunal is justified in law in holding that the rebate of central excise duty amounting to Rs. 22.85,565 and remission of cane purchase tax of Rs. 2,71,923 allowed to the assessee by the U. P. Government were taxable in the assessee's hands ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in holding that the assessee had no right to agitate against the levy of interest under Sections 139 and 217 in the course of an appeal against the assessment order on other grounds as well ?
3. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that interest to the extent of Rs. 40,000 was not laid out wholly and exclusively for the purpose of the assessee's business ?"
2. We take up these questions seriatim.
3. Facts regarding question No. 1 as found by the Tribunal are that the assessee, a private limited company, engaged in the manufacture and sale of sugar and molasses, received rebate and remission aggregating to Rs. 25,27,198 in the previous year ended on October 31, 1973, corresponding to the assessment year 1974-75 from the Government of India, the break-up of which is as follows :
(Rs.)
(a) Rebate of Central excise duty on the excess production of sugar.
22,85,565
(b) Remission of the tax payable by the sugar factories under the U. P. Sugarcane (Purchase Tax) Act.
2,71,923 25,27,198
4. The Income-tax Officer brought such receipt to tax treating the same as a trading receipt in the hands of the assessee. The Appellate Assistant Commissioner on appeal affirmed the order of the Income-tax Officer in this behalf.
5. Before the Appellate Tribunal, the assessee reiterated the plea raised before the authorities below that the impugned receipt was a gift from the Government to the assessee and that the same was made by the assessee without any business link. In the alternative, it was contended that, if the said receipt is not taken as a gift, then the same was exempt under Section 10(3) of the Act, as that was casual and non-recurring in nature. The Appellate Tribunal rejected these contentions of the assessee observing that the chief ingredient of the gift, that is, absence of consideration was missing in the case. The view taken by the Tribunal is that a gift can be made only without consideration, but remission in this case had been made to the assessee on account of the declared policy of the Government of India, that rebate of central excise duty would be available on excess production of sugar and remission of the tax payable by the sugar factories under the U. P. Sugarcane (Purchase Tax) Act would be available to those whose purchases of sugarcane exceed a prescribed limit. The Tribunal held that payment of remission was directly linked with the excess production of sugar and with the excess purchases of sugarcane and if they were not there, then such remission would not have been given to the assessee. It was held that remission granted to the assessee were with quid pro quo and that the contention of the assessee that the receipt was without any business link was incorrect. The Tribunal also found that the receipt was not casual or unforeseen in nature, but any manufacturer whose production of sugar and purchases of sugarcane exceeded the prescribed limit would have anticipated the payment of such remissions.
6. Then the Tribunal held that the impugned receipts squarely fell within the ambit of Section 41(1) of the Act. The question for consideration is whether such a view taken by the Tribunal is legally sustainable. Section 41(1), in so far as material, states that, where a deduction had been made in the assessment for any year in respect of expenditure and, subsequently during any previous year, the assessee has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such expenditure, the amount obtained by him shall be deemed to be profits and gains of business and, accordingly, chargeable to income-tax as the income of that previous year, whether the business in respect of which deduction has been made is in existence in that year or not. The Tribunal recorded a finding of fact that remissions " have been given with regard to the deductions made in the earlier assessment years in respect of the expenditure incurred in paying central excise duty or U. P. Sugarcane Purchase tax ". These remissions having been received by the assessee during the previous year under consideration, the Tribunal concluded that they would be deemed to be the income of the instant previous year in the hands of the assessee and that they were rightly taxed. All the ingredients of Section 41(1) of the Act are present in this case, inasmuch as it is not disputed that deduction had been made of such expenditure in a preceding year and that the receipt has come to the assessee's hands in the previous year relevant to the assessment year under consideration. Therefore, the Tribunal was right, that remissions in question would be deemed to be the profits of the business of the assessee in the previous year relevant to the assessment year 1974-75 and that they were liable to tax being trading receipts in the hands of the assessee.
7. Sri Chopra, learned counsel for the assessee, contended that Section 41(1) does not talk of rebate, but only of " remission" or " cessation " and that rebate of excise duty does in no case fall within the ambit of Section 41(1) of the Act and hence cannot be taxed in the hands of the assessee in this year. He submits that in commercial parlance rebate and remission is different connotations. Rebate is a discount, says Sri Chopra, which is originally paid before the payment of the amount of bills in a transaction of sale purchase. No authority to support such a narrower proposition has been shown by Sri Chopra. Almost the same contention was made in Harihar Cotton Pressing Factory v. CIT [1960] 39 ITR 594 before the Bombay High Court, which rejected the submission observing (at page 610). :
"It is not confined to a transaction of sale and includes any deduction or discount from a stipulated payment, charge or rate. It need not necessarily be taken out in advance of payment but may be handed back to the payer after he has paid the stipulated sum. The repayment need not be immediate. It can be made later and in the case of persons who have continuous dealings with one another it is nothing unusual to do so. "
8. We are in complete agreement with the view taken by the Bombay High Court. In our opinion, the Tribunal rightly rejected such contention of the assessee relying on Harihar Cotton Pressing Factory's case [1960] 39 ITR 594 (Bom). The impugned receipt squarely falls within the scope of Section 41(1) and no exception can be taken to its taxability in this year.
9. Coming to the second question, we are of the view that the Tribunal erred in holding that the assessee had no right to agitate against the levy of interest under Sections 139 and 217 in the course of an appeal filed against the assessment order on other grounds as well. Admittedly, the appeal filed by the assessee was not confined to the question of interest alone. The appeal was filed by the assessee challenging the assessment on several counts, The question is whether the assessee can challenge the levy of interest in an appeal filed disputing the assessment on several grounds, This question is not res integra so far as this court is concerned which, in CIT v. Virmani Refrigeration and Storage Pvt. Ltd. [1991] 188 ITR 450 (All), relying on a Supreme Court decision in Central Provinces Manganese Ore Co, Ltd. v. CIT [1986] 160 ITR 961, held that, where the assessee disputes the levy, that is the assessment itself in appeal, he is also entitled to question the levy of interest, though an appeal on the question of interest alone is not maintainable. Since the appeal of the instant assessee was not confined to interest alone, we are of the view that the assessee was entitled to agitate the question of interest as well in appeal.
10. Turning to the last question, it will be advantageous to advert to a decision rendered by this court in the case of the assessee itself relating to the assessment year 1972-73 reported in CIT v. Saraya Sugar Mills (P.) Ltd. [1992] 193 ITR 575 (All), wherein a similar claim of the assessee, that is, deduction of interest paid on the moneys advanced to the directors of the assessee-company or the firms in which they are substantially interested, was disallowed. Following the said decision, we hold that the Tribunal was right in holding that interest to the extent of Rs. 40,000 was not laid out wholly and exclusively for the purposes of the assessee's business.
11. Our answers to the questions are as follows : Question No. 1 is answered against the assessee and in favour of the Revenue ; question No. 2 is answered in favour of the assessee and against the Revenue and question No. 3 is answered in favour of the Revenue and against the assessee. No order as to costs.