JUDGMENT <NAME>, J.

1. This is plaintiff's appeal by certificate from the judgment and decree of <ORG> reversing on appeal the judgment and decree dated February 23, 1963 of the First Additional Chief Judge, <ORG>, Hyderabad, which had decreed the present appellant's suit for Rs. 1,14,960.86 ps. against <ORG>. <ORG> allowed the appeal of <ORG> and dismissed the plaintiff's suit.

2. The defendant called for tenders for the supply of cigarettes on various occasions. The plaintiff-company carrying on the business of manufacturing cigarettes submitted its tenders which were accepted by the Chief Director of Purchases, <ORG>, <ORG>, <ORG>, New Delhi. After acceptance of the tenders several contracts were entered into between the parties beginning with December 23, 1954 and ending July 11, 1957. They were all subject to the terms and the special instructions and conditions of contract in Schedules A and B to the contracts. Clause 7 of Schedule B relating to Price (with the Note) reads as under:

Schedule B ...

7. Price: The price quoted will be subject to Clause 3(b) of the General Conditions of Conduct (<ORG>).

The price quoted will be deemed to be inclusive of the cost of packing, cigarettes excise duty, tobacco excise duty Customs duty and all other charges (incidental to supply and incurred upto loading) but exclusive of sales tax which if payable should be shown as a separate item. Sales tax would be paid at the rates prescribed by the State Government concerned But in the event of any rebate or refund or sales tax allowed by the State Government (on purchases for <ORG>) subsequent to supplies, a corresponding credit will be afforded by the supplier to the Government, Sales tax where leviable and intended to be claimed from the purchaser should be distinctly shown along with the price quoted, where this is not done, no claim for sales tax will be admitted at any later stage or on any ground whatsoever.

All claims for reimbursement of sales tax will be accompanied by the following certificate duly signed by the contractors:

Certified that no rebate or exemption has so far been allowed by the Sales Tax authorities retrospectively in respect of the reimbursement of sales tax so far claimed by us from <ORG> and if it is subsequently allowed the same will be to the Chief Director of Purchase, <ORG> at once.

Certified that the goods on which sales tax has been charged have not been exempted under the State Sales Tax Act or the rules made there under and the charges on the account of sales tax on these goods are correct under the provisions of that Act or the rules made there under.

Note: Under Article 286(1) of the Constitution of India no sales tax is payable on supplies procured on <ORG> account and dispatched outside the State of origin.

3. In Exhibit B-4 (Tender No. A/3636 dated December 11, 1954) the plaintiff-company inserted in the column pertaining to "Price Per Unit" that it was "subject to sales-tax. at the rate of 1 anna per rupee", but noted in the "Remarks" column, "No sales tax is leviable as per Schedule B". The quotations in this tender were also stated to be subject to the terms and conditions given in <ORG> letter dated July 6, 1954. That was the letter (B-1) inviting tenders with which were enclosed Schedules A and B. Supplies were duly made by the plaintiff in accordance with the terms of the tender. Both the parties were apparently under the belief that these sales were not subject to sales tax. The Commercial Tax Officer, however, taxed all the sales and levied a total tax of Rs. 1,14,960.36 Ps. for the four assessment years 1954-55 to 1957-58. The plaintiff took the matter on appeals but they were all rejected upto <ORG>. Writ Petitions to <ORG> were also unsuccessful. The plaintiff demanded reimbursement by the Central Government to the extent of the amount of sales-tax actually paid. On rejection of this demand, after giving the statutory notice under Section 80 C.P.C. the plaintiff instituted the suit for the recovery of Rupees 1,14,960.36 which has given rise to the present appeal. The suit was resisted by <ORG> on various grounds, including even the bar of limitation. Defence on the merits was principally based on Clause 7 of the Social Instructions in Schedule B of the tender invitation. It was also pleaded in para 5 of the written statement that the mention of no sales-tax being leviable (made in the contract of December, 1954 and some others) was discontinued because it was considered redundant.

4. The pleadings of the parties gave rise to as many as 7 issues, those relevant for our present purpose being Nos. 2, 3, 5 and 6. They are as follows:

2. What is the effect of note to clause 7 of the contract?

3. Whether the plaintiff company is entitled to claim the amount of sales tax from tile defendant when it has not mentioned the same in the tenders?

5. Whether the plaintiff is entitled to the reimbursement of sales tax from the defendant.

6. Whether the central Government and the plaintiff were under the bona fide belief that no sales tax would be leviable by the State of Hyderabad and then the State of Andhra Pradesh.

The trial court dealt with these four issues together. It did not agree with the contention of the Government counsel that if the sales-tax was payable the plaintiff should have claimed the same in their tenders as a separate item and having not done so they could not claim reimbursement of the sales-tax paid by them and that the plaintiffs could have found out with reasonable diligence whether or not sales-tax was leviable on the sales in question. In the trial court's opinion the Note to Clause 7 in Schedule B could by no stretch of imagination be deemed to be a mere expression of opinion. In the presence of that Note the plaintiff was held entitled to assume that no sales-tax was leviable on the goods despatched outside the State. The goods, according to the trial court, were eventually despatched and consumed outside the State and the supplies were procured on the <ORG> account. In the presence of Clause 7 in Schedule B the plaintiff could not have claimed the sales-tax in the tenders and the trial court also observed that the Note to this clause was very misleading and. it indeed did mislead the plaintiff into the belief that no sales tax was leviable on the cigarettes procured for the <ORG> and despatched outside the State, otherwise the plaintiff would have felt no difficulty in claiming sales-tax in the tenders. Even in Ex. B-5, the letter from <ORG> accepting the plaintiffs tender dated December 11, 1954, it was expressly noted that the sales tax was not payable as dispatches would be made outside the State of origin. This Note was prominently added against the "N.B.". In the opinion of the trial court even Article 286 of the Constitution was also wrongly quoted in the Note to Clause After taking into account all the relevant circumstances the trial Court felt that it could not be suggested with fairness that the plaintiff company was not free to assume that sales tax was not payable on the dispatches of cigarettes made outside the State, The plaintiff company was assessed on the sales for the first time in December, 1957 and payment for the last contract had been made on October 31, 1957 with the result that the plaintiff could not have claimed sales-tax in the tenders, being unaware till assessed, that sales-tax was payable on. these sales. <ORG> also took into account the fact that the plaintiff had resisted, the levy of sales-tax right upto <ORG> but without success. The ultimate conclusion was expressed by that Court in these words:

The circumstances of the case clearly reveal that not only the plaintiff but also the central Government were under the bona fide belief that no sales-tax would be levied by the State of Andhra Pradesh as it appears from the averments of the defendant that as the cigarettes were delivered outside the State or Andhra Pradesh for the purpose of consumption outside the State the despatching State could not tax the sales as they were inter State sales. The plaintiff company in my opinion is therefore entitled to the reimbursement of the sales-tax from the defendant as they were misled by the representation of the defendant that no sales tax is leviable on the goods despatched outside the State and, therefore, they did not claim the sales tax in the tenders. I therefore decided issues 2, 3, 5 and 6 in favour of the plaintiff firm.

The plaintiff's suit was decreed, as already noticed.

5. <ORG> on appeal did not regard Clause 7 as constituting any misrepresentation on the part of the Government and treated that clause "at the most as an opinion on a point of law". Reimbursement under Clause 7 according to <ORG>, could only he claimed if the plaintiff "included sales-tax as chargeable against the buyer in the first instance". On this reasoning the defendant's appeal was allowed and the plaintiff's suit dismissed.

6. In this Court Mr. <NAME>, the learned Counsel for the appellant strongly contended that <ORG> was in error in holding that Clause 7 merely contained an opinion on a point of law. It was really an assertion on a question of fact or at any rate on a mixed question of fact and law. According to him in the very first tender (Ex. B-4) ,the sales-tax was specified and it was slated in the Remarks Column that the same was not "Leviable as per Schedule B, In that Schedule as per Clause 7 the <ORG> had unequivocally, stated that sales-tax was not leviable. The plaintiff's tender was accepted by the <ORG>. In subsequent tenders this mention was dropped as being redundant. That this was the reason for the subsequent omission is admitted and indeed in the defendant's written statement in para 5 a plea to this effect is taken in positive terms.

7. According to Mr. <NAME> fixation and payment of the price as also payment of sales-tax at the rates prescribed by <ORG> in the present case, was the core of one of the fundamental obligations undertaken by the defendant-purchaser in lieu of the cigarettes purchased and this clearly signifies payment of sales-tax by <ORG>, if leviable. The circumstances in which the seller-appellant could be deprived of the right of reimbursement was an exemption clause and, therefore, that had to be. strictly construed. The exemption clause in the present circumstances, according to his submission cannot be so construed as to deprive the plaintiff's right as seller to claim sales-tax from the defendant as buyer.

8. On behalf of <ORG>, respondent in this Court. <NAME> referred us to the plaintiff's letter dated December 11, 1954 (Ex. B-4), the first offer to supply cigarettes and contended that this was the only contract in which in the column of Price, sales-tax was mentioned and reference was made in the "Remarks" Column to Schedule B for excluding the sales-tax. In the subsequent contracts, according to the respondent's counsel, there was no such mention. He drew our attention to the subsequent offers to support his submission. The learned Counsel also relied on the <CITATION> AIR. 1959 SC 452 for the contention that the buyer is under no liability to pay sales-tax in addition to the agreed, sales price: there could, therefore, be no question of any agreement on the part of the defendant to reimburse the plaintiff, argued the counsel. Finally it was submitted that <ORG> had certified the case to be fit for appeal only because of its high valuation and because of the judgment of <ORG> being one of reversal: the grant of certificate by <ORG> does not in the circumstances mean that the case involves any important question of law. this Court is, therefore, not obliged to interfere with the decision of <ORG>, even if it is considered to be erroneous contended <NAME>.

9. Dealing with the last argument first, Article 133(1) confers a right of appeal on an aggrieved party when the case satisfies the requirement of Clause (a) and the judgment of <ORG> is one of reversal. In such a case it is not necessary that a substantial or important question of law should also be involved. this <ORG>, therefore, cannot justifiably decline to go into the merits of the appeal on the ground that no substantial question of law is involved. But this apart, it cannot be said that this appeal does not involve any substantial question of law.

10. Turning to the merits it is clear and indeed it is not disputed that Clause 7 in Schedule B governs the various contracts of sale between the parties. This clause expressly provides that the price quoted is exclusive of sales-tax. But sales-tax was expressly agreed to be paid at the rates prescribed by the State Government concerned. This liability appears to us to be the real core of one of the fundamental terms of the obligation undertaken by the purchaser. The term that the sales-tax, if payable, should be shown as a separate item is merely a matter of procedure and the condition that if the sales-tax intended to be claimed is not distinctly shown then no such claim would be admitted at a later stage is more akin to exemption from this liability. In the case in hand in the very first tender, as already noticed, the plaintiff had actually separately shown in distinct terms that the price per unit stated in column No. 4 was subject to sales-tax at the rate of 1 anna per rupee. In the Remarks Column it was again expressly mentioned that no sales-tax was leviable as per Schedule B. This tender fully complies with Clause 7 both in letter and in spirit even though in our opinion in view of the Note to Clause 7 this mention was scarcely necessary, the sales-tax not being leviable according to the defendant's representation. In subsequent tenders, if there is no mention of sales-tax or of the fact that it was not leviable as per Schedule this was due to the fact that it was considered redundant. This, as already noticed, was also admitted by the defendant in the written statement. The separate mention of sales-tax which, in our opinion, does not relate to the fundamental term or core of the contract, cannot be considered to deprive the plaintiff of its right to realise the sales-tax actually held by the Sales-tax department to be leviable and , which the defendant had in express terms undertaken to pay. The express and unqualified representation by the defendant' in the Note to Clause 7 in Schedule B that sales-tax was not leviable on these sales was, in our opinion, sufficient to justify the omission on the part of the plaintiff to distinctly show it with the price quoted to be intended to be claimed. This omission could by no means deprive the plaintiff company of the right under the contract to claim from the defendant sales tax at the prescribed rate actually paid.

11. A faint Contention was raised on behalf of the defendant-respondent that there was no agreement by the defendant to pay sales-tax because the cigarettes supplied by the plaintiff were of an inferior quality and therefore, the company must be deemed to have agreed not to charge sales tax from the purchaser as is the normal practice in the market. In support of this submission reference was made to Ex. B-1, a letter dated July 6, 1954, written by the Deputy Director of Purchase, <ORG>, <ORG> to the plaintiff company. All that this letter suggests is that since none of the plaintiff's "Brands" had been approved, the plaintiff was requested to get its Brands approved from the Director of Supplies and Transport so as to enable the company to quote against the <ORG>'s future tender enquiries. This letter does not support the counsel's submission. Apparently after July, 1954 the plaintiff must have got their Brands approved which enabled them to quote against the <ORG>'s future tender enquiries. It is not and was never the defendants' case that the Brand of cigarettes for which the tenders were actually accepted were of an inferior quality. This contention is an afterthought and is unacceptable. It is somewhat surprising that <ORG> should have advanced this plea. Indeed even the main plea which was plainly contrary to the clear and explicit representation of <ORG> does not reflect the expected fairness on the part of the defendant in their dealings with the citizens.

12. For the foregoing reasons, in our opinion, <ORG> was in error in allowing the appeal and reversing the well-considered judgment of <ORG>. We accordingly allow the appeal and reversing the judgment and decree of <ORG> restore that of <ORG> with costs throughout.


ORDER, ADMISSIBILITY--Interest under s. 215.

Ratio :

Levy of interest under section 215 can be appealed against only if the assessee denies his liability of penal interest, not in a case where he mere disputes the quantum of interest.

Held :

If an assessee challenges only the quantum of the penal interest, then it is not permissible to him to go in appeal to the Appellate Assistant Commissioner under section 246(c) (as it then stood) but if the assessee denies the very liability to be charged with penal interest, then it is permissible to him to go in appeal to the Appellate Assistant Commissioner under section 246(c) and when such an appeal has been filed, it will be open to the Appellate Assistant Commissioner to take into account all points which may ligitimately reduce the taxable income or the tax to be paid but also substantially reduce the quantum of the penal interest.

Application :

Section 215 is inoperative now.

Income Tax Act 1961 s.215 Income Tax Act 1961 s.246 Depreciation--BUILDING--Roads.

Ratio :

Roads in factory premises are building and not "plant" for the purpose of depreciation.

Held :

As roads played no part in production as defined in section 43(3) , and because they are adjuncts to factory buildings, they are to be treated as `building' for depreciation.

Application :

Also to current assessment years.

Income Tax Act 1961 s.32 Income Tax Act 1961 s.43(3) ORDER Per Shri <NAME>, Accountant Member - The first common ground in the present appeals filed by the revenue is concerning the allowance of deduction on account of customs fines amounting to Rs. 22,85,983, Rs. 1,84,225 and Rs. 7,000 made by the Commissioner (Appeals). The facts of the case are that the appeals for the first two years had come up before the <ORG> in IT Appeal Nos. 463 and 464 (Bom.) of 1978-79 decided by the <ORG> on 24-1-1979. The <ORG> observed that the assessee imported certain goods and sought clearance against the import licence dated 11-11-1969 on the ground that the goods represented spare parts required for the plant, machinery and equipment used and installed in the assessees factory for the manufacture of petrochemicals. The customs authorities, however, found that the goods imported were of size and thickness which were different from those contemplated by item No. 5 in the import licence of the assessee. The sizes did not indicate to the customs authorities that the goods concerned could be treated as spare parts of any machinery. According to the customs authorities, the goods could not be readily fitted into any machinery. It was, therefore, held that they were raw materials and not spare parts. In the circumstances, the customs authorities held that the import was made without a cover of valid licence resulting in the commission of an offence attracting the provisions of section 111(d) of the Sea <ORG> Act read with section 3 or the Imports and Exports (Control) Act, 1947. The <ORG> referred to the <ORG> decisions in the case of <ORG> v. CIT  41 ITR 350 and disallowed the assessees claim. The assessee appealed before the <ORG> and relied on the <ORG> decision in the case of <CITATION> .  67 ITR 667. The <ORG>, however, rejected the assessees claim by relying upon the <ORG> decision in the case of <CITATION> .  104 ITR 167. The <ORG> for the first two years observed that it was yet to be established whether the assessees case was covered by the <ORG> decision in the case of <ORG> (supra). In the circumstances, the <ORG> restored the matter back to the <ORG>, who was directed to get the necessary expert evidence, make necessary inquiries, hear both the parties to the dispute and then reduced the matter in the light of the relevant statutory provisions and case law. In pursuance of the directions of the <ORG>, the Commissioner (Appeals) gave a hearing to the assessee and the technicians, who furnished to the Commissioner (Appeals) a draft of the machinery, valves, spares and other blueprints. The technicians explained to the Commissioner (Appeals) the whole process, the whole process, the whole working and specimens of flanges, elbows as also pump were shown to the Commissioner (Appeals). They gave detailed arguments how the machinery imported by the assessee was spares and not raw materials. Later on, they gave a detailed note recapitulating their arguments on the subject. After going through the entire material and after hearing the assessees representative, the Commissioner (Appeals) held that the goods represented spare parts required for plant and machinery and equipment and had to be installed by the assessee for the purpose of manufacturing the assessees products, viz., petrochemicals. The customs authorities while imposing the penalties were of the view that the goods imports were different from those contemplated in the import licence issued to the assessee and, therefore, they came in a different classification. therefore, they held that the assessee had committed an affiance under section 111(d) of the Sea <ORG> Act read with section 3 of the Imports and Exports (Controls) Act. The spare parts under consideration were in the nature of flanges, elbows and globe valves. They required to be replace frequently as due to the high degree of wear and tear and due to the high pressure and temperature they required constant replacement. It was explained on behalf of the assessee that the above goods were imported under the genuine belief that they were covered under the import licence for the import of these spare parts. The penalties were levied under the aforesaid provisions of the Sea <ORG> Act and Imports and Exports (Control) Act by the Collector of <ORG>. An option was, however, given to the assessee to redeem the goods by payment of fines. It was explained on behalf of the assessee that as the goods were vital for the purpose of manufacture of the petrochemical products by the assessee the assessee paid the fines and redeemed the goods.

The Commissioner (Appeals) also considered the <ORG> decision in the case of <ORG> (supra) and found that the assessee had not carried on the business in an unlawful manner or in conscious contravention of the rules and regulations regulating import of goods. After considering the entire evidence on the subject and after considering the law on the subject, the Commissioner (Appeals) was of the opinion that it was clear that in the present case there was no moral guilt involved on the part of the assessee. At best, the lapse on the part of the assessee could be considered as a mere technical breach of law. Further, he made a pointed reference to the fact that no evidence was brought on record but the department to how that the assessee had acted in an unlawful manner in carrying on its business. Had the assessee acted in an unlawful manner, there was no doubt that the imported goods would have been confiscated and would not have been released for the use in the assessees business. In this connection, he referred to the revised definition of the word spare in the Import Policy Book issued by <ORG> for the years 1980-81 and 1981-82, according to which spare means a part of sub-assembly or assembly for substitution, i.e. ready to replace an identical smellier part of sub-assembly or assembly, if it becomes faulty or worn out and includes an accessory (or attachment) in the same regard. Considering the entire issue, the Commissioner (Appeals) was of the opinion that the goods imported by the assessee were spare parts and, therefore, the assessees case was fully covered by the <ORG> decision in the case of <ORG> (supra) and he allowed the deduction for the first two years, i.e., the assessment years 1972-73 and 1973-74. For the assessment year 1978-79, he followed his earlier decisions and allowed the assessees claim.

2. The revenue is in appeal against the order of the Commissioner (Appeals) on this issue. It was vehemently urge that the assessees case was fully covered by the decision of <ORG> in the case of <NAME> (supra) and of <ORG> in the case of <ORG> (supra). On behalf of the assessee, it was urged that in the case of <ORG> (supra), <ORG> had distinguished the case of <NAME> (supra) and the dictum in this cases squarely applied to the assessees case. Further, reference was also made to the fact that the assessees entire plant and machinery were value at about Rs. 30 crores. The spare were of the value of Rs. 60 lakhs, in respect of which the penalty levied for the first year was Rs. 41 lakhs, which was later on reduced to Rs. 22 lakhs on the ground that the assessee had used the machinery for itself as spares.

3. We have carefully considered the facts and circumstances of the case and the arguments on either side. We find that the assessee has imported pipped flanges and elbows for its petrochemical complex at thane. Expert evidence has been brought on record which shows that considering the types of chemicals required to be used by the assessee, it had to replace these pipes too frequently as they got corroded, rusted and had to be discarded. The customs authorities treated the pipes, flanges and elbows as raw material perhaps because of its universal use. But the assessee was not interested in it as a raw material, but merely as spare parts for replacement of its petrochemical works going (sic). Perhaps for this reason, on an appeal by the assessee, the <ORG> reduced the penalty on the ground that the assessee had used the material for itself. In our opinion, there is certain element of uncertainty in the definition of the word spare. As per the clarification given later in <ORG>, the pipes and flanges imported by the assessee could well be called spares. In the circumstances, in our opinion, at worst, it can be said the assessee had committed any venial offence in the import of these pipes. At this stage we have to consider whether the assessees case is covered by the <ORG> decision in the case of <ORG> (supra) or by the <ORG> decision in the case of <ORG> (supra). In the case of <ORG> (supra), the <ORG> has held that the actual cost of the goods to the assessee was no only what it had paid to the importers but in addition thereto what it had to pay by way of penalty in order to save the goods from being confiscated and lost to it. The penalty paid by it could, therefore, be regarded as part of the cost of goods to it. It could also be regarded as an amount expended by it wholly and exclusively for the purpose of the business because unless the said amount was expended, the goods could not have been saved from confiscation. The learned judges further proceeded to observe that in cases where the penalty has to be incurred because of the fault of the assessee himself, as for instance, for the reason of his having carried on his business in an unlawful manner or in contravention of certain rules and regulations, the penalty paid by the assessee for such conduct thereof, could not be regarded as wholly laid out for the purpose of the business, because the incurring of the said expensed had not been necessitated by the business but by the conduct of the assessee in trying to carry out the business in an unlawful manner. While delivering this judgment, the learned Judges of <ORG> had also considered the <ORG> decision in the case of <NAME> (supra). In the case of <ORG> (supra), the facts as observed by <ORG> were that the penalty had been imposed not for the fault of the assessee, but it had to bear the penalty for the purpose of getting the goods released from the customs authorities. More or less, the same circumstances prevailed in the assessees own case also. As regards the case of <ORG> (supra), relied upon by the revenue, we find that the learned judges of the Gujarat High court have held that infraction of law was on a normal incidence of business. We find that the assessee has not indulged in any willful or conscious disregard of law. Apart from that, since, in our opinion, the assessees case is fully covered by <ORG> decision on the subject, we see no reason to look to the law as explained by any other <ORG> form guidance in deciding these appeals on this issue. In the circumstances, we see no reason to interfere with the order of the Commissioner (Appeals) on this issue.

4. For the assessment year 1978-79, there are some more grounds. The first one is in respect of the order of the commissioner (Appeals) deleting the addition of Rs. 8,81, 855 made by the <ORG> on account of the excess bonus ignoring the fact that this was not an admissible deduction either under section 36(1) (ii) or section 37(1) of the Income-tax Act, 1961 (the Act). During the course of the assessment proceedings, the <ORG> found that the assessee had debited under the head salaries, wages and bonus a sum of Rs. 3,81,65,845, which included an amount or Rs. 18,47,255 in respect of the bonus for the previous year. It was Explained on behalf of the assessee that this bonus payment was made on the basis of a memorandum of settlement made with the employees organisation by an agreement dated 8-8-1978. As per the terms of the agreement, it was agreed between the parties that the annual profit bonus for the accounting year ending December 1975 had to be paid at an amount equivalent to 20 per cent of the salary or wages earned by the employees during the accounting year 1976 and such bonus was to be calculated on the actual salary of Rs. 750 per month, whichever was lower. The non-supervisory staff was to be paid in respect of each of the calendar years 1977 and staff was to be paid in respect of each of the calendar years 1977 and 1978 at the rate of 20 per cent of the actual salary of wages of Rs. 750 per month, whichever was lower. It was further explained on behalf of the assessee that the agreement was arrived at on 28-8-1978 and, hence, it was a liability for the year under consideration, since a provision to that extent was made in the accounts. The assessee claimed the deduction under section 36(1) (ii) and section 37(1) . The <ORG> was of the opinion that since under the Payment of Bonus Act , 1965, the payment of Bonus was to be restricted to 8.33 per cent, the amount admissible as deduction under section 36(1) (ii) had to be restricted only to the extent as permitted by the Payment of bonus Act. He also held that the assessee was not eligible for deduction of the amount under section 37(1) .

5. On an appeal by the assessee before the Commissioner (Appeals), the Commissioner (Appeals) observed that the liability for the payment of bonus to the employees in the case of the assessee was a contractual obligation, According to him, as the <ORG> had not challenged the genuineness of the contractual obligation, he had to allow the expenditure which was enforceable in view of such an obligation. According to him, the provisions of section 36(1) (ii) did not prohibit the deduction of the amount claimed by the assessee.

6. The revenue is, therefore, in appeal before the <ORG> against the order of the Commissioner (Appeals) on the ground that the Commissioner (Appeals) erred in deleting the addition of Rs. 8,81,855 made by the ITO on account of the excess bonus ignoring the fact that this was not an admissible deduction either under section 36(1) (ii) or section 37(1) .

7. In the course of the hearing of the appeal, the learned departmental representative proceeded to invite our attention to paragraph 5 of the ITOs order. He proceeded to bring to our notice that under section 10 of the Payment of Bonus Act, the assessee was under an obligation to pay a bonus of 8.33 per cent of the salary or wages earned by the employee or Rs. 100 only, whichever was higher, whether or not the employer had any allocable surplus for the accounting period. He has proceeded to argue that according to the proviso to section 36(1) (ii), the deduction in respect of the bonus paid to an employee employed in a factory or other establishment to which the provisions of the Payment of Bonus Act applied should not exceed the amount of bonus payable under that act. According to him, since under the Payment of Bonus Act , the assessee could have paid a bonus of 8.33 per cent of the salary or wages earned by each individual employee, the Commissioner (Appeals) could not have made an allowance of bonus to the extent of 20 per cent of the salary or wages of the employees.

8. On behalf of the assessee, the learned representative has proceeded to argue that the <ORG> has seen only the provisions of section 10 , according to which, the assessee was under an obligation to pay bonus of 8.33 per cent of the salary or wages irrespective of the fact whether the employer had earned any profits during the year. If the <ORG> had seen the very next section of the Payment of Bonus Act , viz., section 11 , it would have been clear that where the allocable surplus for any accounting year exceeded the amount of minimum bonus payable to the employees under that section, the employer was under an obligation to pay to every employee in respect of that accounting year bonus, which would be an amount in proportion to the salary or wages earned by the employee during the accounting year subject to a maximum of 20 per cent of such salary or wages earned by the employee during the year. The learned representative has proceeded to point out that under this section, the assessee had the freedom to pay bonus as high as 20 per cent in a year. Further, he has proceeded to rely on a long chain of decisions of the various Benches of the Tribunal, according to which, payment of bonus up to 20 per cent was held to be an admissible deduction under section 36(1) (ii). In the case of <ORG> v <ORG>  1 ITD 516, the Hydrabad Bench of the Tribunal has held that the restriction on the allowance of claim for bonus up to the limits prescribed in the Payment of Bonus Act would not operate on customary bonus paid under an agreement. In the case of <CITATION> .  1 ITD 748 (Mad.) bonus was paid by an employer under an agreement in addition to the maximum bonus payable under the Payment of Bonus Act . The Tribunal held that such bonus fell outside the provisions of the Payment of Bonus Act and was allowable as a deduction under section 37(1) . In the case of <CITATION> .  1 ITD 803, the Banglore Bench of the Tribunal held that bonus paid in excess of 20 per cent of the salary was found to be a customary bonus and was held to be admissible. In the case of <ORG> (P.) <CITATION>  2 ITD 176, the Bombay Bench of the Tribunal held that where an assessee was under an agreement required to pay bonus at 20 per cent of the wages in spite of the non-existence of the liability during the relevant accounting year and in spite of the provisions of section 36(1) (ii) such payment was not inadmissible. In the case of <CITATION>  3 ITD 177, the Calcutta Bench of the Tribunal held as admissible the bonus paid by an employer to the employee under an agreement which was in excess of bonus statutorily payable under the Payment of Bonus Act .

9. We have carefully considered the facts and circumstances of the case and the arguments on either side. The facts lie within a narrow compass. The assessee was under an obligation to pay bonus to the employees at the rate of 20 per cent of the salary and wages under a contract. It is a contractual liability. The various Benches of the <ORG> have in unambiguous terms held that such liability was deductible in the determination of the profits as a customary bonus arising out of a contract. Apart from that, what we find is that the main thrust of the argument of the <ORG> in disallowing the claim is that the payment was in excess of the amount admissible under the Payment of Bonus Act . As brought to our notice by the learned representative for the assessee under section 11 , the assessee had the freedom to make the payment up to 20 per cent of the salary or wages provided the allocable surplus was more than 50 per cent of the amount of minimum bonus payable to the employees. Therefore, the <ORG>s decision on the mere reference to section 10 was totally erroneous. It is the assessees plea that its claim in addition to being admissible as a contractual obligation, was also unexceptionable in view of the provisions of section 11 . In our opinion, without any clear finding on behalf of the <ORG> that the assessees case was not covered by section 11 , the <ORG> could not have proceeded to disallow the claim. Being contractual obligation, the assessee is fully entitled to the deduction. The order of the Commissioner (Appeals) in this respect calls for no interference.

10. The next ground for the assessment year 1978-79 is that the Commissioner (Appeals) erred in directing the <ORG> to allow depreciation on roads at the rates applicable to plant and machinery When no depreciation is admissible at all on roads. Without prejudice to this ground, it is urged that the Commissioner (Appeals) had erred in directing the <ORG> to allow depreciation on roads at the rates applicable to plant and machinery, whereas depreciation can be allowed on roads at the most at the rates applicable to buildings only. In the course of the assessment proceedings, the assessee claimed depreciation and development rebate on the cost of the roads in the factory premises, as if they were plant. The <ORG> disallowed the assessees claim. On an appeal by the assessee, the Commissioner (Appeals) followed the <ORG> decision in the assessees own case for the assessment years 1974-75 to 1976-77 in IT Appeal Nos. 990 to 992 (Bom.) of 1979 decided by the <ORG> on 20-3-1980 wherein the <ORG> considered the roads connecting the various plant installation in the entire complex as part and parcel of the plant. The Commissioner (Appeals) allowed the assessees appeal on this issue.

11. The revenue is in appeal against the order of the Commissioner (Appeals) in this respect. Reliance is placed on the <ORG> decision in the case of <CITATION> .  144 ITR 585. On behalf of the assessee, it is submitted that the assessees business activity is to run a petrochemical complex. It is not as if one or two buildings are situated in a big compound which are connected by various roads. The roads are part and parcel of the huge lay-out. Further, in addition to the roads connecting the various plant installations, there are also other roads connecting the other buildings in the complex. The assessee had claimed and allowed depreciation as if these roads were part and parcel of the buildings. In respect of the roads, which are under consideration, it was submitted that these roads are part and parcel of the plant.

12. We have carefully considered the facts and circumstances of the case and the arguments on either side. As explained by the assessee, no doubt, the roads presently under consideration are in the plant lay-out and are not merely roads connecting the various other buildings in the factory complex. At the same time, we cannot overlook the clear exposition of the law on the subject as laid down by the learned judges of <ORG> in the case of <ORG> (supra), according to which the essence of the test to determine whether an asset can be called a plant is to ascertain whether it can be treated as an apparatus which is used by a businessman for carrying on business, and whether with that asset he carries on the trade as opposed to the place where and the setting in which the trade was carried on. Roads within the factory premises are adjuncts of the factory buildings and, therefore, must be treated as buildings. Roads do not have any different nature or character than the buildings to which they are adjunct. It cannot be said that buildings in the instant case plays any part in production as such, to be treated as plant. They are factory buildings used as places where production goes on and cannot, therefore, be treated as plant. Roads constructed by the assessee in the premises of the factory would not constitute plant as defined in section 43(3) of the Act. They must be treated as building, for purposes of section 32 of the Act. In our opinion, in the circumstances, the revenue is entitled to succeed on this ground. We have also taken note of the fact that the <ORG> in IT Appeal Nos. 990 to 992 of (Bom.) 1979, for the assessment years 1974-75 to 1976-77 decided the issue in favour of the assessee. We find that the <ORG> did not have the benefit of the guidance of <ORG> decision in the case of <ORG> (supra), which was rendered two years later.

13. The next set of grounds, for the assessment year 1978-79, on behalf of the revenue is that the Commissioner (Appeals) erred in setting aside the assessment with reference to interest under section 215 / 217(1A) of the Act ignoring the fact that he has no powers to set aside an assessment merely with reference to a particular point. Further, it is submitted that the Commissioner (Appeals) erred in entertaining the grounds of appeal against the levy of interest under section 215 / 217(1A) when section 246 of the Act does not provide for any appeal against the levy of such interest. Further, without prejudice to this argument, it was submitted that the Commissioner (Appeals) ought to have upheld the interest levied by the <ORG> under section 215 / 217(1A) .

14. The facts relating to this set of grounds are that the <ORG> issued a notice under section 210 of the Act on 9-6-1977 for the payment of advance tax of Rs. 97,65,581, in three equal installments. The first installment was paid on 15-6-1977. Later on, the <ORG> revised the demand notice and directed the assessee to pay the further two installments to make up Rs. 79,08,064. A sum of Rs. 39,54,032 was paid on 14-9-1977. The assessee filed an estimate in Form No. 29 on 14-12-1977 estimating the total tax payable at Rs. 2,74,39,913. It also paid an amount of Rs. 1,88,80,704 on the same date. On filing the return of income the assessee paid a further amount of Rs. 80,10,809 on 26-6-1978. On completion of the assessment, there is no mention in the assessment order but in the demand notice the <ORG> demanded some amount by way of interest under section 217(1a) . Later on, by an order under section 154 of the Act dated 22-8-1981, the <ORG> directed that the levy was not under section 217(1A) but it was a levy under section 215 .

15. The assessee appealed against this levy before the Commissioner (Appeals). It was submitted on behalf of the assessee before the Commissioner (Appeals) that the <ORG> was not entitled to levy any interest either under section 215 or under section 217(1A) in the circumstances narrated above. The assessee challenged the very jurisdiction of the <ORG> to make such a levy. After hearing the assessees appeal, the Commissioner (Appeals) observed that the <ORG> had not given the details of the calculations of the interest which was either under section 217(1A) or under section 215 . In the circumstances, he found it difficult to verify the correctness regarding the chargeability of the interest. He proceeded to observe that he would not have entertained the grounds of appeal if the interest was prima facie chargeable. From the discussion in the <ORG>s order nothing was clear. He, therefore, set aside the order of the <ORG> on this point only with a direction to him to go through the assessees claim and pass necessary order after verifying the facts. While doing so, the <ORG> should also give credit to the installments paid by the assessee on 14-12-1977, which apparently was not taken into consideration by the <ORG> while imposing the levy.

16. The revenue has, therefore, filed the appeal firstly, on the ground that the Commissioner (Appeals) has erred in setting aside the assessment with reference to this levy ignoring the fact that he had no power to set aside the assessment merely with reference to a particular point. Further, it was submitted that the Commissioner (Appeals) erred in entertaining the grounds of appeal against the levy of interest under section 215 / 217(1A) when no appeal was provided against such a levy. Finally, it was submitted that the Commissioner (Appeals) ought to have upheld the interest levied by the ITO. The learned departmental representative has proceeded to refer to the <ORG> decision in the case of <CITATION>  132 ITR 453. On behalf of the assessee, reliance is placed on another decision of the <ORG> decision in the case of <CITATION> .  108 ITR 961(FB).

17. We have carefully considered the facts and circumstances of the case and the arguments on either side. We find that the learned judges of <ORG> have held against the assessee in the case of <NAME> (supra) only on the ground that the assessee had not denied the liability to the levy, whereas we have got the decision of the Full Bench of the same <ORG> in the case of <ORG> (supra) to the effect that where the assessee had denied the liability outright under section 246(1) (c) the assessee was entitled to challenged the levy. As expressly mentioned by the Commissioner (Appeals), the assessee in this case was challenging the very jurisdiction of the <ORG> to make such a levy on the facts and in the circumstances of the case. As explained by the learned judges of <ORG> in the case of <ORG> (supra) the assessee was fully entitled to take up the ground before the Commissioner (Appeals). Further, we find that the Commissioner (Appeals) has not set aside the entire assessment. Since the order of the <ORG> on the issue was too cryptic, he restored the matter to the file of the <ORG> for re-examination of the assessees liability to this levy. From the terms of the order of the Commissioner (Appeals), it is clear that the Commissioner (Appeals) was fully aware of <ORG> decision in the case of <ORG> (supra) and in terms he has followed it. We, there-fore, see no substance in the appeal on behalf of the revenue on any of the grounds on this issue. The appeal of the revenue on this issue is rejected.

18. In the result, the appeals for the assessment years 1972-73 and 1973-74 are dismissed whereas for the assessment year 1978-79, it is partly allowed.