AJIT K. SENGUPTA, J. ( 1 ) IN this reference under Section 256 (1) of the Income-tax Act, 1961, the following questions of law have been referred to this court for the assessment year 1980-81 :"1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that the expenditure of Rs. 17,37,497 incurred on payment of commission on sales cannot be treated as sales promotion expenses and, therefore, it cannot be taken into account while computing the disallowance under Section 37 (3a) of the Income-tax Act, 1961 ?" 2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in upholding the order of the Commissioner of Income-tax (Appeals) directing the Income-tax Officer to allow the expenditure of Rs. 19,058 paid as penalty under Section 5c of the Rajasthan Sales Tax Act ?" ( 2 ) SHORTLY stated, the facts relating to the first question are that the assessee claimed deduction of Rs. 17,37,497 as selling commission. The Income-tax Officer disallowed 15% of this amount under Section 37 (3a) treating it as sales promotion expenditure. ( 3 ) THE matter was carried in appeal before the Commissioner of Income-tax (Appeals) who, following his order dated August 6, 1982, in the appeal in the case of Tins Products Ltd. , directed the Income-tax Officer not to include the selling commission for the purpose of computing the disallowance under Section 37 (3a ). ( 4 ) AGAINST the decision of the Commissioner of Income-tax (Appeals), the Revenue came up in appeal before the Tribunal. It was submitted that the Commissioner of Income-tax (Appeals) erred in following his decision in the case of Tins Products Ltd. , without analysing the facts of the case before him. It was also pointed out that even the Income-tax Officer did not examine all the relevant facts in order to ascertain if the expenditure was incurred on payment of commission on actual sales. It was contended that the amount was rightly considered by the Income-tax Officer for the purpose of computing the disallowance under Section 37 (3a ). It was also pointed out that even the Income-tax Officer did not examine all the relevant facts in order to ascertain if the expenditure was incurred on payment of commission on actual sales. It was contended that the amount was rightly considered by the Income-tax Officer for the purpose of computing the disallowance under Section 37 (3a ). ( 5 ) ON behalf of the assessee, it was contended that the payment of sales commission cannot be considered for the purpose of computation of disallowance under Section 37 (3a) as the commission paid on sales cannot be considered to be an expenditure incurred on sales promotion. In this connection, reliance was placed on the circular dated May 17, 1978 (see [1979] 117 ITR (St.) 17), issued by the Central Board of Direct Taxes. ( 6 ) THE Tribunal, considering other similar orders, upheld the order of the Commissioner of Income-tax (Appeals ). Hence, this reference on the first question by the Department. ( 7 ) IT is not in dispute that this question came up for consideration before this court in Income-tax Reference No. 134 of 1985--CIT v. Hindustan Motors Ltd. [1991] 192 ITR 619, where the judgment was delivered on February 23, 1990. In that case, it was held that the commission and brokerage payment could not be equated with sales promotion expenses and, accordingly, the expenditure could not be disallowed under Section 37 (3a) of the Income-tax Act, 1961. Following the said decision, we answer this question in the affirmative and in favour of the assessee. ( 8 ) SHORTLY stated, the facts relating to the second question are that the Income-tax Officer disallowed the assessee's claim for deduction in respect, of a sum of Rs. 19,058 on the ground that the amount was paid by way of penalty under Section 5c of the Rajasthan Sales Tax Act, for violation of the provisions of that Act. Before the Commissioner of Income-tax (Appeals), it was submitted that the amount did not represent any penalty, but it was a concession withdrawn. Reliance was placed on the decision of the Madhya Pradesh High Court in the case of Simplex Structural Works v. CIT. The Commissioner of Income-tax (Appeals), following the appellate order for the assessment year 1978-79 in the assessee's own case held that the amount was allowable as a deduction. Reliance was placed on the decision of the Madhya Pradesh High Court in the case of Simplex Structural Works v. CIT. The Commissioner of Income-tax (Appeals), following the appellate order for the assessment year 1978-79 in the assessee's own case held that the amount was allowable as a deduction. He, accordingly, directed the Income-tax Officer to allow the sum of Rs. 19,058. ( 9 ) THE Tribunal, without giving any detailed reasons and following the decision in another similar case, affirmed the order of the Commissioner of Income-tax (Appeals ). ( 10 ) AT the hearing before us, Mr. Bajoria, learned counsel for the assessee, contended that though the momenclature given was penalty in Section 5c (2) of the Rajasthan Sales Tax Act, it was in reality not a penalty but a withdrawal of some concession given under the very same provision. It was further contended that this was a separate provision while there were regular provisions for levy of penalty which is, in reality, penalty. He has also explained that payment of amounts under Section 5c (2) arose only in the event of the assessee not being able to sell the finished products in Rajasthan for reasons beyond the control of the assessee. He has also drawn our attention to the decision of the Madhya Pradesh High Court in Simplex Structural Works. ( 11 ) TO appreciate the contention, it is necessary for us to set out the relevant provisions of the Rajasthan Sales Tax Act. The relevant provisions are as follows :"5c. Concessional rate of tax for raw materials.--- (1) Notwithstanding anything contained in this Act, but subject to such restrictions and conditions as may be prescribed, the rate of tax payable on the sale to or purchase by a registered dealer of any raw material for the manufacture in the State of goods for sale within the State or in the course of inter-State trade or commerce shall be at a concessional rate of 1 % of the sale or purchase price of such raw material. (2) Where any raw material purchased by a registered dealer under Sub-section (1) is utilised by him for any purpose other than a purpose specified therein, such dealer shall be liable to pay as penalty, such amount, not less than the difference between the amount of tax on the sale of such raw material at the full rate applicable thereto under Section 5 and the amount of tax payable under Sub-section (1) but not exceeding one and one-quarter times the amount of tax at such full rate, as the assessing authority may determine, having regard to the circumstances in which such use was made. " ( 12 ) IT would appear that certain concessions are allowed to the assessee in respect of purchase of raw materials for the manufacture in the State of goods for sale within the State or in the course of inter-State trade or commerce. If a dealer purchased the raw materials at a concessional rate for the purpose of manufacturing the finished products, but if the obligations under Section 5c are not fulfilled, in that event, certain consequences as provided in Section 5c (2) will follow. A concessional rate of 1% of the sale or purchase price of such raw materials has been given to a dealer for the specific purpose of utilising such raw materials for manufacture in the State of goods for sale within the State of Rajasthan but, in case he fails to sell the goods so manufactured within the State or in the course of inter-State trade or commerce, the said concession will be withdrawn. It has also been provided that the dealer would be liable to pay over and above the difference in the rates of taxes which is given by way of concession. In our view, two separate contingencies have been provided in Section 5c (2), the first contingency is that a dealer has to compensate the Government for the benefit which he has obtained in the course of purchase of the raw materials for the manufacturing of the goods and, in that event, the dealer shall be liable to pay as and by way of penalty an amount not less than the difference between the amount of tax on the sale of such raw material at the full rate applicable thereto under Section 5 and the amount of tax payable under Sub-section (1 ). The second contingency is when a dealer may be asked to pay more than the amount of difference which, however, would not exceed one and one-quarter times the amount of tax at such full rate as the assessing authority may determine. The second limb where the discretion has been vested with the sales tax authorities to impose more than the difference between the amount of tax on the sale of such raw material and the amount of tax payable at the full rate if no such concession was allowed, may be treated as penalty. But, when only the actual tax which otherwise would have been payable is collected, it cannot be held to be in the nature of penalty. There are many reasons why a dealer may not be able to fulfil the obligations of manufacture in the State of goods for sale within the State or in the course of inter-State trade or commerce. The object of Section 5c (2) is to protect the interests of the Revenue. If the purpose for which the concession was given was not fulfilled for any reasons by the dealer, then the concession is withdrawn and the full amount of tax is realised. In such a case, the withdrawal of concession cannot be held to be in the nature of penalty. Had the concessional rate not been made available or obtained, the entire sales tax liability would have been allowed as deduction as revenue expenditure in income-tax proceedings. It is only when the obligations attached to the grant of concessional rate of tax are not fulfilled, that the question of making payment of the entire tax which, otherwise, would have been payable had the concession not been allowed to the dealer would arise. In our view, therefore, the charging of the difference which amounts to the full rate of tax cannot be equated with penalty. It is no doubt true that the sales tax authorities are empowered to charge at their discretion in excess of the difference in rates. If, in a case, anything more is levied than the difference in rates, in that event that excess will come within the purview of a penalty as not only the full rate of tax is recouped but also a further sum by way of penalty for contravention of the obligations imposed under Section 5c. If, in a case, anything more is levied than the difference in rates, in that event that excess will come within the purview of a penalty as not only the full rate of tax is recouped but also a further sum by way of penalty for contravention of the obligations imposed under Section 5c. However, that question does not arise on the facts of this case as, admittedly in this case, the assessee paid the difference between the amount of tax on the sale of raw material at the full rate applicable thereto under Section 5 and the amount of tax payable under Section 5c (1) and no excess amount had been charged or realised. The Madhya Pradesh High Court also considered a similar provision under the Madhya Pradesh General Sales Tax Act, 1958. The Madhya Pradesh High Court has observed as follows (at page 784 of 140 ITR) :"section 8 (1) of the Madhya Pradesh General Sales Tax Act provides for concessional rate of tax on the sale or purchase by a registered dealer of any raw material for the manufacture of other goods for sale in the State of Madhya Pradesh or in the course of inter-State trade or commerce or in the course of export out of the territory of India. But if any raw material purchased by a registered dealer under Section 8 (1) is utilised for a different purpose, Section 8 (2) makes him liable for penalty. The minimum amount of penalty under Section 8 (2) is the difference between the amount of tax payable at the full rate and the amount of tax payable at the concessional rate. The maximum penalty is one and one-quarter times the amount of tax payable at the full rate. Similarly, Section 8 (1) (b) of the Central Sales Tax Act read with Section 8 (3) provides for concessional rate of tax when a sale in the course of inter-State trade or commerce is made to a registered dealer of goods specified in his certificate of registration as being intended for re-sale by him or for use by him in the manufacture or processing of goods for sale. If a person, after purchasing any goods at a concessional rate of tax under Section 8 (1), fails without reasonable cause to make use of the goods for any of the aforesaid purposes, he becomes liable to punishment under Section 10 (d ). Instead of prosecution, however, penalty may be imposed on such a person under Section 10a. Minimum penalty is not prescribed by this section. Maximum penalty is one and a half times of the tax at the full rate. . . . If the amount of penalty is such an expenditure which the assessee would have been required to incur, even if he had not broken the law, such an expenditure cannot in the true sense be termed as penalty for infraction of the law. As pointed out by us, the assessees here would have been required to pay the tax at the full rate as part of the sale price and they, at the time of making the purchases, disclosed the purpose for which the goods were used. The amount of tax so paid would have been allowed as business expenditure under Section 37. The penalties imposed under Section 8 (2) of the State Act and under Section 10a of the Central Act in the cases before us do not require the assessees to pay more than what they should have paid as tax in obedience to the law. " ( 13 ) WE, respectfully, agree with the view expressed by the Madhya Pradesh High Court. ( 14 ) FOR the reasons aforesaid, we answer the second question by saying that the expenditure claimed will be allowed to the extent it represents the difference between the tax payable at the full rate and the tax payable at the concessional rate in terms of Section 5c (1) of the Rajasthan Sales Tax Act. There will be no order as to costs.