Sohani, J.

1. By this reference under Section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as " the"), the Income Tax Appellate Tribunal, Indore Bench, has referred the following questions of law to this court for its opinion :

"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the Commissioner of Income Tax was competent to revise under Section 263 an order passed by the Inspecting Assistant Commissioner (Assessment)

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that a sum of Rs. 94,875 allowed as discount to the subscribers of the bond issued by the assessee-Corporation was not an allowable expenditure"

2. The material facts giving rise to this reference, briefly, are as follows :

The assessee is a corporation established under the State Financial Corporations Act, 1951. The assessment year in question is 1978-79. During the relevant previous year, the assessee, with the object of increasing its working capital, issued bonds for public subscription described as 6 1/4% 1981 Bonds (II Series of the face value of Rs. 100 each) for a sum of Rs. 82.50 lakhs. As the said bonds were issued at a discount, the assessee debited to its profit and loss account for the assessment year 1978-79, the amount of Rs. 94,875 representing discount at Rs. 1.15 per hundred and claimed it as deduction. The Inspecting Assistant Commissioner (Assessment) allowed this claim. As certain other contentions of the assessee were not upheld, the assessee preferred an appeal. While allowing that appeal, the appellate authority did not set aside the finding of the Inspecting Assistant Commissioner (Assessment) with regard to the claim of the assessee for deduction of the amount of Rs. 94,875. Subsequently, the Commissioner of Income Tax, Bhopal, while examining the record of the assessment of the assessee for the assessment year in question found that the order of the assessment passed by the Inspecting Assistant Commissioner (Assessment) was erroneous in so far as it was prejudicial to the interests of the Revenue on the ground that though the deduction of Rs. 94,875 representing the difference between the face value of the bonds and their issue price was not an admissible deduction in computing the total income, it was nevertheless allowed by the Inspecting Assistant Commissioner (Assessment). The Commissioner of Income Tax, therefore, issued a notice to the assessee under Section 263 of theto show cause why the discount of Rs. 94,875 allowed to the assessee be not withdrawn. The Commissioner of Income Tax thereafter passed an order under Section 263 of thedirecting the Inspecting Assistant Commissioner (Assessment) to modify the assessment for the assessment year 1978-79 by rejecting the claim of the assessee for deduction of Rs. 94,875. Aggrieved by the order passed by the Commissioner of Income Tax under Section 263 of the Act, the assessee filed an appeal before the Tribunal. It was contended before the Tribunal that the Commissioner of Income Tax had erroneously assumed jurisdiction under Section 263 of thein respect of an order of assessment passed by the Inspecting Assistant Commissioner (Assessment) and that the Commissioner of Income Tax had erred in holding that the assessee was not entitled to the deduction of Rs. 94,875 as claimed by the assessee. The Tribunal overruled the objection with regard to the jurisdiction of the Commissioner of Income Tax. The Tribunal also held that no liability to pay the sum of Rs. 94,875 had accrued to the assessee during the previous year relevant to the assessment year 1978-79 and hence the Commissioner of Income Tax was justified in holding that the deduction of Rs. 94,875 made by the Inspecting Assistant Commissioner (Assessment) was not an allowable expenditure. Aggrieved by the order passed by the Tribunal, the assessee sought a reference and it is at the instance of the assessee that the aforesaid two questions of law have been referred to this court for its opinion.

3. Now, so far as the first question is concerned, it has to be noted that Sub-section (4) of Section 125A of theprovides that where the Inspecting Assistant Commissioner exercises the powers or performs the functions of an Income Tax Officer, in pursuance of an order made by the Commissioner of Income Tax under Sub-section (1) of Section 125A of the Act, reference in the or in any rule made thereunder to the Income Tax Officer, shall be construed as reference to the Inspecting Assistant Commissioner. This provision leaves no room for doubt that the orders passed by the Inspecting Assistant Commissioner (Assessment), in exercise of powers conferred on him by virtue of an order made under Sub-section (I) of Section 125A of the Act, are subject to revision under Section 263 of thebecause the order passed by an Income Tax Officer is liable to be revised by the Commissioner under Section 263 of the Act, in accordance with the provisions of that section. Therefore, in our opinion, the Tribunal was justified in holding that the Commissioner of Income Tax was competent to revise under Section 263 of the Act, the order passed by the Inspecting Assistant Commissioner (Assessment). Our answer to the first question referred to us is in the affirmative and against the assessee.

4. Before we proceed to consider question No. 2, it is necessary to refer to certain facts having a bearing on that question. It is not disputed that during the relevant accounting year, the assessee had issued bonds for public subscription at a discount of Rs. 1.15 per hundred and that the amount of discount on the issue of bonds was Rs. 94,875. Now, when debentures are issued at a discount, the effect thereof is aptly described in Spicer & Peglers Book-Keeping and Accounts (seventeenth edition) at page 240 as follows :

"The discount on the issue is, in effect, deferred interest, and should accordingly be written off over the period having the use of the money raised by the debentures, unless a sinking fund is created to accumulate the full redemption price, including the discount."

5. In Batlibois Principles and Practice of Auditing, the effect of issue of debentures at a discount is stated thus :

"When debentures are issued at discount, an account styled Discount on Debentures Account, will be debited with the discount allowed on the issue. The debentures account will be credited in the books at their nominal value and will appear at that value as a liability in the balance-sheet. The loss thus arising need not be completely written off in the year in which the debentures are issued, since the benefit to be derived from the amount borrowed will continue till the debentures are redeemed. Where the debentures are remeedable at the end of a fixed period, a proportionate amount of discount should be written off out of revenue every year during which the debentures are outstanding."

6. In the case of issue of bonds at a discount, the same principles as are applicable in the case of issue of debentures at discount would be attracted. The amount of discount, in effect, represents deferred interest. Looked at as a loss, a proportionate amount of discount can be written off out of revenue every year during the period the bonds would remain outstanding. Therefore, though the assessee would not be justified in claiming deduction of the entire amount of discount amounting to Rs. 94,875 in the accounting year in question, it would nevertheless be entitled to proportionate deduction spread over the period for which the bonds would remain outstanding.

7. The Tribunal held, following the decision of the Madras High Court in CIT v. Madras Industrial Investment Corporation Limited : [1980]124ITR454(Mad) , that the expression "expenditure" occurring in Section 37 of thehas to be construed in the sense of paying out the money which goes out of the pocket of the assessee irretrievably and that in the case of issue of debentures at discount, there is no such paying out, as is contemplated by Section 37 of the. With respect we may say that the decision in CIT v. Madras Industrial Investment Corporation Ltd. : [1980]124ITR454(Mad) , does not take note of the real nature of the amount of discount, when debentures are issued at a discount. The decision in : [1980]124ITR454(Mad) , came up for consideration before the Calcutta High Court in CIT v. Indian Jute Mills Association : [1982]134ITR68(Cal) . Referring to the decision of the Supreme Court in Indian Molasses Co. (Pvt.) Limited v. CIT : [1959]37ITR66(SC) , on which reliance was placed by the Madras High Court, it was observed that the Supreme Court was, in that case, considering the meaning of the expression "expenditure incurred" while dealing with the question as to whether there was a distinction between the actual liability in praesenti and a liability de futuro. Sabyasachi Mukharji J. (as he then was), who delivered the judgment of the court, observed as follows (at pp. 75 and 76):

"The expression expenditure is not defined in the, as such. In the context of different statutes, the expression expenses have been construed. For example, in Strouds Judicial Dictionary, third edn., vol. II, p. 1030, it is noted that in the case of Jones v. Carmarthen Corporation [1841] 10 LJ . 401, the expression expenses meant actual disbursements not allowances for loss of time. Therefore, a charge by a town clerk for preparing lists of parliamentary voters was not expense incurred by him within the Parliamentary Voters Registration Act, 1843. But, again, in the case of R. v. Marsham [1892] 1 QB 371, the Master of the Rolls, Esher, observed that the money expended by a local board and recoverable from the owners or occupiers were not confined to moneys actually paid but include the moneys expended in the sense, the owner or occupier was bound to pay it. It, therefore, appears that the expression must be understood in the context in which it is used."

8. The learned judge further observed as follows (at pp. 76 and 77):

"Reference in this connection may be made to Section 37 of thewhich enjoins that any expenditure not being expenditure of the nature described in Sections 30 to 36 laid out or expended wholly and exclusively for the purpose of the business or profession should be allowed in computing the income chargeable under the head Profits and gains of business or profession. In Sections 30 to 36, the expressions expenses incurred as well as allowances and depreciation had been used. For example, depreciation and allowances have been dealt with in Section 32. Therefore, the Legislature was using the expression any expenditure in Section 37 to cover both."

9. We respectfully agree with the aforesaid observations.

10. It would thus appear that the expression " expenditure " as used in Section 37 of themay, in the circumstances of a particular case, cover an amount which is really a loss and the said amount has not gone out from the pockets of the assessee. In Nash (Inspector of Taxes) v. Tamplin & Sons Brewery Brighton Ltd. [1951] 2 All ER 869, the House of Lords was considering the question as to whether the assessee was entitled to deduct the rent forgone in the circumstances of that case. It was held, following the decision in Ushers Wiltshire Brewery Limited v. Bruce [1915] AC 433, that rent forgone would, in the circumstances of that case, amount to money wholly and exclusively laid out or expended for the purposes of the trade of the assessee.

11. Therefore, our answer to question No. 2 is that though the entire amount of discount amounting to Rs. 94,875 was not an allowable expenditure in the assessment year in question, the said amount of discount has to be spread out proportionately over the number of years for which the bonds are issued and the proportionate amount of discount would be allowable expenditure in the assessment year in question.

12. Reference answered accordingly. In the circumstances of the case, parties shall bear their own costs of this reference.