PTD 2000 Judgments

2000 P T D 64

[231 I T R 625]

[Allahabad High Court (India)]

Before Om Prakash and P. K. Jain, JJ

COMMISSIONER OF INCOME-TAX

versus

VIJAI KUMAR RAJESH KUMAR

Income-tax Reference No.83 of 1981, decided on 15th May, 1997.

Income-tax---

----Firm---Registration---Minor---Minors admitted to benefits of partner­ship---Specification of shares in profits and losses of major partners and shares in profits allotted to minors admitted to benefits of partnership--No clear provision regarding share in losses of minors admitted to benefits of partnership---Inference that major partners would share such losses in same ratio in which they agreed to share losses---Firm entitled to registration--­Indian Income Tax Act, 1961, S.185.

Held, that a perusal of the partnership deed showed that the share ratio of profits and losses of the major partners was well-specified. The share ratio in profits of minors was also clearly stated. The share ratio in losses up to 40 percent. was well-defined amongst the major partners. The' question was in which ratio they would share 60 percent. losses falling to the share of minors. In the absence of any agreement to the contrary it would be inferred that the partners would share losses falling to the share of minors in the same ratio in which they agreed to share losses up to 40 percent. The firm was

Progressive Financers v. CIT (1997) 224 ITR 595 (SC) applied

Mandyala Govindu & Co. v. CIT (1976) 102 ITR 1 (SC) ref.

2000 P T D 165

[232 I T R 673]

[Allahabad High Court (India)]

Before R. K. Gulati and M. C. Agarwal, JJ

COMMISSIONER OF INCOME-TAX

versus

ISHTIAQ HUSSAIN

Income-tax Reference No.240 of 1981 and R. As. Nos. 980 and 981 (Delhi) of 1979, decided on 26th November, 1997.

(a) Income-tax---

----Penalty---Concealment of income---Returned income less than 80 percent. of assessed income---Effect of Explanation to S.271(1)(c)--­Presumption of concealment---Presumption can be rebutted---Finding by Tribunal that assessee had a satisfactory, Explanation regarding addition to his income---Penalty could not be imposed---Indian Income Tax Act, 1961, S.271(1)(c).

(b) Income-tax---

---Reference---Finding of fact---No challenge to validity of finding--­Finding of fact is final---Indian Income Tax Act,1961, S.256. The degree of proof necessary under the Explanation to section 271(1)(c) of the Income Tax Act, 1961, is that as in a civil suit, viz. preponderance of probability. The Explanation merely raises a rebuttable presumption which could be discharged in a given case by pointing out the factors and the materials in favour of the assessee. It is settled that the findings given in assessment proceedings would be relevant and admissible materials in penalty proceedings, but those findings cannot operate as res judicata because the considerations that arise in penalty proceedings are different from those in the assessment proceedings.

It is not open to the High Court to test the correctness' of the findings of fact recorded by the Tribunal unless there is a specific question by which the findings have been assailed. When the question referred opens with the expression "whether, on the facts and circumstances of the case" it must mean on the facts as found by the Tribunal and not the facts and circumstances that may be found by the High Court on a reappraisal of the evidence.

The assessee was a partner in two firms. In the assessment year 1971-72 an addition of Rs.61,500 was made. Likewise in the assessment year 1972-73 an amount of Rs.20,000 was added as income from undisclosed sources under agricultural account. Penalty proceedings were initiated and penalty was imposed. The Tribunal found that it was admitted that the assessee owned 3-1/2 acres of land which had been leased to R.R. had been produced before the Income-tax Officer and his statement was also recorded. He accepted that the amounts in dispute were given by him to the assessee. The Tribunal deleted the penalty. On a reference:

Held, that the Tribunal had recorded at categorical finding that on the evidence led by the assessment it could not be said that on the balance of probabilities, the amounts in question were not received by the assessee from R. In the opinion of the Tribunal, the assessee had discharged the onus that lay upon him under the Explanation to section 271(1)(c) as it stood at the relevant time. The findings recorded by the Tribunal are pure findings of fact based on appreciation of evidence. The Tribunal was right in cancelling the penalties.

Karnani Properties Ltd. v. CIT (1971) 82 ITR 547 (SC) ref.

2000 P T D 416

[232 I T R 588]

[Allahabad High Court (India)]

Before Om Prakash and R. K. Gulati, JJ

SUSHIL KUMAR SARAD KUMAR

versus

COMMISSIONER OF INCOME-TAX

Income-tax Reference No.246 of 1980, decided on 26th September, 1997.

(a) Income-tax---

----Penalty---Concealment of income---Addition made to income based on estimate---Tribunal considering evidence in penalty proceedings and finding that assessee had concealed his income---Imposition of penalty was valid--­Indian Income Tax Act, 1961.

(b) Income-tax---

----Reference---Powers of High Court---High Court cannot permit new plea to be raised---Indian Income Tax Act, 1961, S. 256.

The findings recorded in the assessment order constitute good evidence in the penalty proceedings but those findings cannot be regarded as conclusive for the purposes of the penalty proceedings. In deciding whether penalty can be imposed in a given case, the entirety of the circumstances must be taken into account. There may be cases where additions may be made purely on estimate without reference to any evidence/materials being on record, In such a case, it could be argued with some force that penalty cannot be levied-on the figures which are merely based on guess work or estimate. But in a case where after detailed investigation the assessee was confronted with evidence and materials and he failed to dislodge the factual position on the basis of which additions were made, the case stands on a different footing. In such a case; it is always open to draw an inference of concealment or of furnishing inaccurate particulars of income, resulting from deliberate underestimate of income. In other words, the income-tax authorities must be satisfied on examination of the cumulative effect or the entirety of the circumstances that the only reasonable inference from such factors or material that could be drawn was that the disputed amount added as a result of estimate, represented income and that the assessee had concealed particulars of income or had furnished inaccurate particulars thereof.

The assessee cannot be permitted to set up an altogether new case at the stage of reference proceedings.

S was the proprietary concern of the assessee and was assessed to tax in the status of an individual. On October 18, 1974, the business and residential premises of the assessee and that of Mrs. J were subjected to search under section 132 of the Income Tax Act, 1961. It was discovered that the assessee had two wives. The first wife was living in an ancestral house with five children whereas the second wife was living in a separate house with her two children. The assessee had shown withdrawals of Rs.6,521, Rs.8,275 and Rs.9043 for domestic and personal expenses for three years and finally, in, appeal on the quantum side, the Income-tax Appellate Tribunal upheld the estimated domestic expenses at Rs.15,000 for the assessment year 1972-73, Rs.18,000 for the assessment year 1973-74 and Rs.20,000 for the assessment year 1974-75, resulting in final additions on account of domestic expenses of Rs.8,479, Rs.9,725 and Rs.10,987. While completing the assessments, the Income-tax Officer simultaneously initiated penalty proceedings under section 271(l)(c) of the Act on being satisfied that the assessee had concealed his income or had furnished inaccurate particulars of income in each of the three years under consideration. The penalty orders were upheld, first by the Appellate Assistant Commissioner of Income-tax and thereafter in second appeal by the Income-tax Appellate Tribunal. The penalty orders stated that in the search operation it transpired that the assessee maintained a good standard of living and had a car and a scooter. The residential premises were found fitted with coolers and refrigerators. The children were studying in public schools; the assessee was feeding a number of insurance policies and paid insurance premium to the tune of Rs.11,000 to Rs.13,000 each year. On a reference it was contended that J was not given an opportunity of being heard:

Held, (i) that in so far as the complaint about the denial of opportunity for cross-examination was concerned, it was evident that no such plea was ever raised before the Income-tax Appellate Tribunal or for that matter, before any other authority either on the quantum side or in the penalty proceedings. The assessee was unable to show any material or document on record or any order to show that any such opportunity was demanded and it was refused. Moreover, it was difficult to read in J's statement that the amount of Rs.500 per month paid for house expenditure was in reference to the financial year 1974-75 only and not to the other years in the immediate past. The statement had to be read as a whole and not out of context with reference to one word or a sentence. The findings of the Income-tax Appellate Tribunal and those of the Assistant Commissioner were also to similar effect. They were pure findings of fact and had not been challenged by any independent question in these proceedings. The contention had to be rejected.

(ii) That the onus which lay on the Revenue to prove that the additions made to the returned income of the assessee represented concealed income, had been sufficiently discharged.. On the facts of the case, it was for the assessee to prove in rebuttal that the case with which the Revenue had come forward was untenable. The assessee led no fresh evidence in the penalty proceedings. On the facts found in the assessment proceedings which, were examined and analysed afresh in the penalty proceedings, concealment was patent. This was not a case of simple estimation of domestic expenses. There was no scope for any doubt that the account books of the assessee did not depict the true state of affairs at least so far as the domestic expenses were concerned. The Tribunal which is the final fact-finding authority had recorded a clear and categorical finding of concealment after considering the totality of the circumstances and materials. The imposition of penalty was valid.

Anantharam Veerasinghaiah and Co. v. CIT (1980) 123 ITR 457 (SC); Banaras Textorium v. CIT (1988) 169 ITR 782 (All.); CIT v. Anwar Ali (1970) 76 I-TR 696 (SC); CIT v. Baboo Ram Lachman Dass (1972) 85 ITR 405 (All.); CIT v. Mittal (K.C.).(1996) 217 ITR 759 (All.); CIT v. Vrajlal Manilal & Co. (1972) 86 ITR 799 (MP); Manasvi (D.M.) v. CIT (1992) 86 ITR 557 (SC) and Vidya Sagar Oswal v. CIT (1977) 108 ITR 861 (P&H)- ref.

2000 P T D 575

[232 I T R 302]

[Allahabad High Court (India)]

Before Om Parakash and R. K. Gulati, JJ

COMMISSIONER OF INCOME-TAX

versus

MANOHAR GLASS WORKS

Income-tax Reference No. 114 of 1981, decided on 23rd July, 1997

(a) Income-tax---

----Appellate Tribunal---Power of remand---Tribunal is final fact-finding Authority---Is under a legal obligation to record correct finding of fact--­Difficulty in recording correct finding of fact on account of contradictions in factual position--Tribunal has power to remand matter to lower Authority to state correct facts---Indian Income Tax Act, 1961, S.254.

(b) Income-tax---

----Firm---Assessment---Reconstitution or succession---Old firm dissolved on 20-8-1971, and a new firm constituted the next day--,I.T.O. making single assessment on the new firm for the whole year---Tribunal finding contradictory statements between deed of dissolution and new partnership deed about partners who retired---Tribunal remanding matter to A.A.C. as basic facts not correctly recorded---Justified.

A partnership was formed under a partnership deed, dated March 30, 1964, by three partners S. M and K, having one-third share each. On August 20, 1971, the partners agreed to dissolve the partnership. In view of the stipulation made in clause (4) of the dissolution deed, S and M were paid off the amounts lying to their credit in their capital accounts in lieu of their surrender of their rights in the properties and assets of the firm. On August 21, 1971, a new partnership deed was drawn up between K and S, and a minor son of K, was admitted to the benefit of the partnership. For the assessment year 1972-73, the new firm filed two returns, one for the period Diwali 1970, to August 20, 1971, and the other for the period commencing from August 21, 1971 to March 31, 1972. The Income-tax Officer made a single assessment on the new firm. The Appellate Assistant Commissioner affirmed the order of the Income-tax Officer. The Tribunal found that there were factual contradictions between the finding of fact recorded by the income-tax authorities and the evidence placed before the Tribunal, that the dissolution deed, dated August 20, 1971, gave out that S and M retired from the partnership and were paid off the amounts lying to their credit in lieu of their surrender of their rights in the properties and assets of the firm and that both of them surrendered their rights in the properties and assets of the firm in favour of the third partner, K, that on the other hand, the new partnership deed, dated August 21, 1971, recited that it was-only M who retired from the old firm pd that the two remaining partners K and S were to continue the partnership and that the assessee was unable to account for the discrepancy. The Tribunal, therefore, remanded the matter to the Appellate Assistant Commissioner to record correct findings of fact on the dissolution of the old firm in accordance with the decision of the Allahabad High Court in Dahi Laxmi Dal Factory v. ITO (1976,) 103' ITR 517. On a reference at the instance of the Commissioner, the Revenue contended that the Tribunal could not bind the Appellate Assistant Commissioner with the legal position as stated in the order, dated October 23,1978. The question arose whether the Tribunal was right in remanding the matter to the Appellate Assistant Commissioner in view of the contradictions in the factual position noticed by it:

Held, (i) that the Appellate Tribunal being the final fact-finding body is under a legal obligation to record a correct finding of fact and, as and when it feels sonic difficulty in recording a finding of fact on account of contradictions in the factual position, it may remand the matter to the lower authority to state the correct facts. There being a contradiction in the factual position in the dissolution deed, dated August 20, 1971, and in the new partnership deed, dated August 21, 1971, the Tribunal was right in remanding the case to the Appellate Assistant Commissioner.

(ii) That the Appellate Tribunal had not recorded any finding on law and no direction had been given to the Appellate Assistant Commissioner to follow it. The Appellate Assistant Commissioner was free to record a finding on facts as found by him after the remand. Therefore, there was no basis for the apprehension entertained by the Department.

(iii) That, therefore, the Tribunal was right in not confirming the order of the Income-tax Officer as the basic facts were not recorded by him.

Dahi Laxmi Dal Factory v. ITO (1976) 103 ITR 517 (All.) ref.

2000 P T D 608

[232 I T R 934]

[Allahabad High Court (India)]

Before Om Prakash and R. K. Gulati, JJ

VIJAI BAHADUR SINGH

versus

COMMISSIONER OF INCOME-TAX

Income-tax Reference No.224 of 1981, decided on 29th July, 1997.

(a) Income-tax---

----Income---Finding that assessee's wife was a benamidar for him--­Benami---Burden of proof---Income of wife of assessee was assessable in his hands---Indian Income Tax Act, 1961.

(b) Income-tax

----Reference---Powers of High Court---High Court has no power to admit fresh evidence---Indian Income Tax Act, 1961, S. 256.

The law does not prescribe any quantitative test to find out whether the onus in a particular case has been discharged or not. It all depends on the facts and circumstances of each case. Again in some cases the onus may be heavy, whereas, in other cases it may be nominal. In certain circumstances, the onus can shift from time to time. In the case of a benami transaction where .the ostensible owner is not the real owner, the Court or authority concerned has to apply its mind to the various materials and the evidence available in the case end then to reach a conclusion objectively as to whether it is a case of benami or not. The authorities are entitled to look into the material on record, documents and other surrounding circumstances. Various factors may come into the reckoning of this question including reasonable probabilities and legal inference arising from proved or admitted facts.

The High Court in exercise of its advisory jurisdiction is not competent to consider any fresh evidence which was not a subject-matter of consideration before the Tribunal.

D, the wife of the assessed, had set up her proprietary business FA on April 8, 1970, as dealer of Suvega Motor Cycles, manufactured by Mopeds India Ltd. The capital invested by her was Rs.4,000 only, which she had received as a gift from her father. The books of account for the first time were closed on March 31, 1971, but no return of income was filed, nor was any assessment made. However, for the assessment year 1972-73, an assessment was completed in her hands on an income of Rs.28,767 as the proprietor of FA. In the previous year relevant to the assessment year 1973-74, the business continued as a proprietary business up to May, 1972, and from May 29, 1972, it was converted into a partnership business in which the wife of the assessee had a 40 percent share. In due course while framing the assessment order for the assessment year 1973-74 in the case of the assessee's wife, the Income-tax Officer took the view that she was only a benamidar of her husband who was the real owner of the business FA so long it was a proprietary business and thereafter, it was actually he, who was a partner in the firm through his wife. An amount of Rs.33,495 was brought to tax in the hands of the assessee as income from the business of FA, earned in the name of D---a benami of the assessee. The aforesaid amount included income from both the periods when FA was a proprietary business, and thereafter, the share of profits allocated to the wife of the assessee when that business was taken over on May 29, 1992, by a partnership concern. The aforesaid view taken by the Income-tax Officer was concurrently upheld by the Appellate Assistant Commissioner and thereafter, in second appeal by the Income-tax Appellate Tribunal. It had been held throughout by all the tax authorities and the Income-tax Appellate Tribunal that the wife of the assessee was incapable of either transacting the business, signing the agency agreement or arranging capital to run the business. The authorities held that the entire affairs of FA were managed by the assessed himself, inasmuch as the principals Mopeds India (P.) Ltd. had no information as to who was the proprietor of the business FA or that the business had been taken over subsequently by a partnership concern. It was admitted that D had studied up to Class IV in the Hindi Primary School. With regard to the investment in the business it had come on record that the security deposit amounting to Rs.20,000 made on March 16, 1971, for taking the agency was out of the loan which was arranged by the assessee on the strength of his friendship. Further, the assessee had set up another identical business under the name "S" capital in which was invested by withdrawing funds from FA. The connection between the two concerns was intimate, which suggested that the affairs of the two businesses were being managed by a single individual namely, the assessee. On a reference:

Held, (i) that on behalf of the assessee reliance was placed on a certificate purported to have been issued by D .authorising the assessee to represent her. This document had not been referred to, or relied, upon in any of the orders passed by the Revenue Authorities, or by the Income-tax Appellate Tribunal. It could not be considered by the High Court. Even if it were taken into account, it was clear that the principals had no knowledge of the authority under which the assessed had signed the agreement. On the contrary, the letter of November 18, 1975, sent to the Income-tax Officer by the principal, clearly indicated that they had been kept in the dark about the proprietor of the business FA or that they were dealing with someone else besides the assessee himself. The certificate could not be given any credence.

(ii) That the Tribunal had reached its conclusion on an appreciation of a number of facts established by evidence, and whether the conclusion of the Tribunal was sound or not., had to be judged not by considering the weight to be attached to each single fact, but by assessing the cumulative effect of all the facts in their .setting a whole. The Tribunal was legally correct in holding that D, the wife of the assessee was a benamidar and the business carried on in the name and style of FA really belonged to the assessee. The Tribunal was legally correct in confirming the addition of a sum of Rs.33,495 as the income of the assessee.

CIT v. A. Abdul Rahim & Co. (1965) 55 ITR 651 (SC) ref.

2000 P T D 677

[232 I T R 914]

[Allahabad High Court (India)]

Before Om Prakash and R. K. Gulati, JJ

COMMISSIONER OF INCOME-TAX

versus

GANESHI LAL & SONS

Income-tax Reference No.37 of 1981, decided on 23rd July, 1997.

(a) Income-tax---

----Firm---Assessment---Change in constitution of firm---Death of partner--­Clause in partnership deed that death of partner would not result in dissolution of firm and that it would continue with surviving partners--­Death of partner resulted in change in constitution of firm---Single assessment to be made for entire period---Indian Income Tax Act, 1961, S.187---Indian Partnership Act, 1932, S.42.

(b) Income-tax---

----Export markets development allowance---Weighted deduction---Part of expenditure on advertisement, printing; telephone and postage relating to exports---Entitled to weighted deduction---Indian Income Tax Act, 1961, S.35B.

Section 187 of the Income Tax Act, 1961, says that .where at the time of making an assessment, it is found that a change has occurred in the constitution of a firm, the assessment shall be made on the firm as it is constituted at the time of making the assessment. "Change in the constitution of the firm" is defined for the purpose. The relevant part of the definition states that if one or more of the partners cease to be partners in such circumstances that one or more of the persons who were partners of the firm before the change continue as partner or partners' after the change, there is a change in the constitution of the firm. These provisions would apply to a firm which survives upon the death of a partner. They would apply to a case of a partnership where a partner dies and the partnership deed provides that death shall not result in the dissolution of the partnership. Such provision is lawful because section 42 of the Indian Partnership Act, 1932, contemplates it:

Held, that, in the instant case, in the partnership deed it was stated that if a partner of the firm dies then the firm would not stand dissolved. Hence, on the death of partner M, the firm was not dissolved and the business was continued by the surviving partners. There was merely a change in the constitution of the assessee-firm and, therefore, one single assessment has to be made for the entire period on the firm, as it stood at the end of the year.

CIT v. Empire Estate (1996) 218 ITR 355 (SC) fol

From a perusal of clause (b) of section 35B(1) of the Act, 1961, it is clear that weighted deduction will be allowed in respect of the expenditure referred to in clause (a), which is incurred wholly and exclusively on advertisement or publicity made outside India in respect of the goods, services or facilities which the assessee deals in. It cannot be said that the expenditure which is incurred abroad alone qualifies for weighted deduction.

The business of the assessee-firm consisted of the purchase and sale of jewellery, precious stones and handicrafts. The assessee had export business also. It claimed deduction under section 35B in respect of expenditure on advertisement, cost of samples, stationery and printing, salaries, postage, T.A. and telephone. The Income-tax Officer rejected the claim. The Tribunal held that the assessee's claim for weighted deduction on expenditure on advertisement which pertains to advertisements in export magazines, catering to export markets in foreign countries and for photographs was wholly related to exports and was entitled to weighted deduction; that similarly expenditure incurred on printing of catalogues and other advertising materials were also entitled to weighted deduction; that the expenditure on telephones and cables sent to foreign countries was also entitled to weighted deduction. The Tribunal pointed out that the assessee had not claimed the entire expenditure on advertisement, printing and stationery, for telephones and cables or for foreign postage as incurred by it but only part of it for purposes of weighted deduction. On a reference:

Held, that the Tribunal clearly found that the expenditure in respect of which weighted deduction was claimed by the assessee, was wholly and exclusively incurred for advertisement or publicity made outside India. The Tribunal was correct in law in holding that the assessee was entitled to weighted deduction under section 35B in respect of the expenditure on advertisement, stationery and printing, postage and telephone expenses as claimed by the assessee. The Tribunal was correct in law in holding that the assessee was entitled to weighted deduction under section 35B in respect of expenditure on salaries relatable to exports.

CIT v. Shiv Shanker Lal Ram Nath (1977) 106 ITR 342 (All.) ref.

2000 P T D 704

[232 I T R 456]

[Allahabad High Court (India)]

Before Om Prakash and R. K. Gulati, JJ

GEEP INDUSTRIAL SYNDICATE LTD.

versus

COMMISSIONER OF INCOME-TAX

Income Tax Reference No 97 of 1981, decided on 11th September, 1997.

(a) Income-tax-

----Reassessment---Failure to disclose material facts necessary for assessment---Failure to disclose acquisition of guest house and permanent residence of directors in the guest house---Finding that there had been failure to disclose facts not challenged---Finding was final---Reassessment proceedings were valid---Indian Income Tax Act, 1961, Ss. 147, 148 & 256.

(b) Income-tax-

----General principles---Judgment of Tribunal or Court must be read as a whole.

In order to confer jurisdiction under section 147(a) of the Income Tax Act. 1961, two things are required which are conditions precedent. Firstly, there must be reason to believe that the income, profits or gains chargeable to income-tax have escaped assessment and secondly, there must be reason to believe, inter alia, that such "escapement" occurred by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts for that assessment year. The reopening of an assessment on the basis of subsequent discovery and objective belief of the Income-tax Officer that in the original assessment, the income had escaped assessment for non-disclosure of true facts, would justify an action under section 147(a).

An order or judgment cannot be read out of context relying on a word or a sentence occurring therein. The order has to be read as a whole. In other words, it is neither desirable nor permissible to pick out a word or sentence from the order of an authority or Court and treat it to be a complete decision on the question that was up for adjudication.

A notice of reassessment for assessment year 1965-66 was served on the assessee on the allegation that the assessee had failed to disclose fully and truly all relevant facts necessary for its assessment for the year under consideration. The Income-tax Officer stated that during the course of assessment for subsequent years it was discovered that the assessee-company was maintaining guest houses at A and at N, and that the director of the assessee-company was residing in the guest house at A on payment of a mere Rs.5 per day. The Tribunal found that no details pertaining to the guest house expenses were furnished nor any information regarding the permanent stay of S and his wife in the guest house at A was disclosed in the assessment year 1964-65. The Tribunal held that the initiation of reassessment proceedings was valid. On a reference:

Held, that the only contention urged on behalf of the assessee before the High Court was that, at the point of time when the original assessment for the year under consideration was completed on March 22, 1966, the entire material and primary facts had already been placed on record in the assessment proceedings for the assessment years 1963-64 or 1964-65 and/or in income/wealth tax returns of S for the three consecutive assessment years 1963-64 to 1965-66. Further, the true facts were also within the knowledge of the assessing authority. It was apparent from the Tribunal's order that it had looked into the assessment records of the assessee for the assessment years 1963-64 and 1964-65 as well as the extracts of income and wealth tax returns of S. The Tribunal found as a fact that the assessee had completely eliminated from its assessment records the primary facts which were essential and necessary for a proper assessment for the year under consideration. The findings recorded by the Income-tax Appellate Tribunal about the non­disclosure of material facts were findings of fact. These findings of the Tribunal had not been challenged by raising any independent question. The correctness of the findings recorded by the Tribunal was, therefore, not open to question iii reference proceedings. The reassessment proceedings were valid.

Bhaichand Amoluk & Co. v. CIT (1962) 44 ITR 511 (SC); Calcutta Discount Co. Ltd. v. ITO (1961) 41 ITR 191 (SC); Gemini Leather Stores v. ITO (1975) 100 ITR I (SC); Homi Jehangir Gheesta v. CIT (1961) 41 ITR 135 (SC); Jagdish Prasad v. CIT (1976) 104 ITR 214 (All) and Ram Charan Lal Ram Narain v. ITO (1966) 59 ITR 282 (All.) ref.

2000 P T D 931

[232 I T R 618]

Allahabad High Court (India)]

Before Om Prakash and R. K. Gulati, JJ

COMMISSIONER OF INCOME-TAX

versus

SWADESHI COTTON MILLS CO. LTD.

Income-tax Reference No. 238 of 1981, decided on 2nd September, 1997

(a) Income-tax---

----Business expenditure---Company---Entertainment expenditure--­Admissible expenditure must be calculated with reference to business income as a whole and not with reference to income of each unit of business---Indian Income Tax Act, 1961, S. 37(2).

(b) Interpretation of statutes--

---- Strict interpretation---No deduction on the basis of analogy.

The cardinal principle of law is that if the language of a provision of a fiscal law is clear and unambiguous, that has to be given full effect, without importing into it, any foreign word. In tax laws a deduction cannot be permitted on the analogy of another deduction, but deduction can be allowed only when it is provided under the Act explicitly. It is, by virtue of section 24 of the Income Tax Act, 1961, that deduction from income of each house property can be claimed in view of clauses (i) to (x) to subsection (1) of section 24. No analogous provision is there to claim deduction in respect of entertainment expenditure .in the case of an assessee-company. A company may have incurred expenditure of varying types, but no deduction can be claimed unless it is provided under the Act.

(c) Income-tax---

----New industrial undertaking---Special deduction---Special deduction must be calculated taking into account R.19A---Income Tax Act, 1961, S. 80J--­Indian Income Tax Rules, 1962, R. 19A.

Subsection (2) of section 37 is the only provision to allow deduction in respect of entrainment expenditure in the case of a company on gradation bases as set out in clauses (i), (ii), (iii) and (iv) of subsection (2) of section 37. The expression "in the case of company" occurring in sub­section (2) of section 37 cannot be read as "in the case of a company and its units"- The units may have drawn up separate balance-sheets and profit and loss accounts and their income may have been computed by the Assessing Officer separately on the basis of their profit and loss accounts, yet the fact remains that the income of the units is the income of the assessee-companies, and, therefore, deduction in respect of entertainment expenditure has to be allowed under subsection (2) of section 37, which refers to a company and not to its units. Profits and gains of business are computed in Chapter IV-D of the Act. There is no provision in this Chapter to deduct entertainment expenditure from the total income of a unit of a company:

Held, (i) that the Supreme Court having clearly held in Lohia Machines Ltd. v. Union of India (1985) 152 ITR 308 that rule 19A of the Income Tax Rules, 1962, did not suffer from any infirmity and was valid in its entirety, relief under section 80J will have to be worked out, taking into consideration rule 19A.

Lohia Machines Ltd.,,-v. Union of India (1985) 152 ITR 308 (SC) fol.

(ii) that the Tribunal was correct in holding that the computation of admissible entertainment expenses under section 37(2) should be made with reference to the business income as a whole and not with reference to each unit of the business.

2000 P T D 1014

[233 I T R 366]

[Allahabad High Court (India)]

Before R. Dayal and R. K. Gulati, JJ

COMMISSIONER OF INCOME-TAX

versus

HINDUSTAN COMPUTERS LTD.

Income-tax Application No. 240 of 1995, decided on 30th January, 1997.

Income-tax--

----Reference---Question of law---Income---Till assessment year 1984-85 annual maintenance charges (AMC) recorded on accrual basis---In assessment year 1985-86 entire receipt on account of AMC transferred to profit and loss account---Tribunal finding that except for AMC assessee followed mercantile system of accounting---Tribunal finding that mere fact that entire receipt was transferred to profit and loss account did not have effect of changing system of accounting from mercantile to cash system---No question framed by Department questioning finding of Tribunal that assessee had not switched over to cash system---Findings of Tribunal findings of fact---No question of law arose for reference---Indian Income Tax Act, 1961, S. 256(2).

Till the accounting year relevant to the assessment year 1984-85, the assessee-company used to record the receipt. of annual maintenance charges (AMC) on accrual basis showing the income from maintenance contract of the amount which had actually accrued and providing for the un-expired period of maintenance contract at the end of the year. However, in the books of account, relevant to the assessment year 1985-86 the assessee-company transferred to the profit and loss account the entire AMC received during the year. However, in the return filed, it claimed deduction of Rs.72.05 lakhs as the amount pertaining to the un-expired period of the AMC received. The Revenue contended that the assessee was not entitled to the deduction for the reason that the assessee changed the system of accounting for that of the mercantile system to the cash system. The Tribunal held that the mercantile system was followed prior to the assessment year 1985-86 and also in the subsequent year, i.e., 1986-87, that even in respect of the assessment year 1985-86, except for the item in dispute, the assessee followed the mercantile system of accounting, that the sum of Rs.72.05 lakhs was taxed in next assessment year, i.e., 1986-87, that merely because the entire receipt on account of the AMC was transferred to the profit and loss account, it did not have the effect of changing the system of accounting, that no real profit had arisen on the un-expired period of AMC and, therefore, confirmed the order of the Commissioner of Income-tax (Appeals) who deleted the addition of Rs.72.05 lakhs. On an application filed by the Revenue under section 256(2) of the Income Tax Act, 1961, for directing the Tribunal to refer a question of law:

Held, that no question had been framed by the Department questioning the finding of the Tribunal that the assessee had not switched over to the cash system of accounting from the mercantile system. The findings of the Tribunal were holdings of fact and no question of law arose' for reference.

Kamani Properties Ltd. v. CIT (1971) 82 ITR 547 (SC) ref.

Shekhar Srivastava for Appellant.

Sudhir Chandra, S. Chopra and Tapas Mishra for Respondent.

2000 P T D 1546

[234 I T R 753]

[Allahabad High Court (India)]

Before Om Prakash and R. K. Gulati, JJ

COMMISSIONER OF INCOME-TAX

versus

H. K. KAPOOR through Legal Heirs

Income-tax Reference No. 62 of 1980, decided on 12th August, 1997.

Income-tax---

---Capital gains---Exemption ---Assessee,, owner of house property--Sale of house property---That construction of new building was started before sale of old building is immaterial ---Assessee entitled to exemption---Indian Income Tax Act, 1961, S. 54.

The assessee and his brother owned a residential house at a place G in moiety. The said property was sold on July 10, 1963, for a sum of Rs.4,11,000. The Income-tax Officer computed the capital gains from the sale of one-half share of the assesee at Rs.1,28,477 after allowing initial exemption of Rs.5,000. The assessee contended before the Income-tax Officer that capital gains to the extent of being invested in the construction of a new house at a place S was not taxable under section 54 of the Income Tax Act, 1961.' Though the Income-tax Officer accepted the contention that the house at place G had been used for. the purpose of residence for more than two years before the sale, he rejected the contention of the assessee that the construction of the house at place S had been completed by the assessee within a period of two years from the date of sale of the house at place G. The Income-tax Officer, therefore, held that section 54 was not applicable to the case of the assessee. The assessee alternatively contended before the Income-tax Officer that he started the construction of another residential house at Agra on March 10, 1963, and that came to be completed within two years of the sale of the house at place G and that the capital gains to the extent of being invested in the construction of the house at Agra was not taxable under section 54 of the Act. The Income-tax Officer, however, took the view that the assessee had started construction of the Agra house prior to the sale of the house at place G and, therefore, rejected the assessee's alternative contention also. On appeal, the Appellate Assistant Commissioner affirmed the order of the Income-tax Officer. On further appeal, the Tribunal found that a perusal of section 54 showed that it did not lay down that the construction of any house must be begun only after the sale of the old residential house and that the sale proceeds of the old residential house must be used for the construction of the new residential house, that the assessee had complied with the requirement of section 54 in respect of the construction of the house at Agra and that he was entitled to the exemption out of the capital gains from the sale of the house at place G to the extent of the cost of construction of the house at Agra. On a reference:

Held, affirming the decision of the Tribunal, that it was immaterial that the construction of the new building was started before the sale of the old building. Therefore, the Appellate Tribunal was right in holding that capital gains arising from the sale of the house at place G to the extent it got invested in the construction of the house at Agra would be exempt under section 54 of the Act.

CIT v. J. R. Subramanya Bhat (1987) 165 ITR 571 (Kar.) fol.

2000 P T D 1617

[1234 I T R 167]

[Allahabad High Court (India)]

Before Om Prakash and R. K. Gulati, JJ

COMMISSIONER OF INCOME-TAX

Versus

HIMALAYA DRUG CO. (P.) LTD.

Income-tax Reference No. 146 of 1981, decided on 24th July, 1997.

Income-tax---

----Captial or revenue expenditure---Assessee-company carrying on business; in manufacture and sale of medicines---Amount spent for resurfacing road within factory premises---Only resulted in repair of an existing inefficient subsidiary part of factory premises and bringing it into a condition of normal efficiency---No new road came into existence or benefit of enduring advantage obtained by resurfacing road ---Expenditure on resurfacing is revenue expenditure.

Unless a new tangible or intangible asset comes into being or the expenditure incurred brings about any addition to or expansion of the profit ­making apparatus of the assessee or a benefit of enduring nature is received by the assessee, expenditure incurred on usual and routine repairs could not be said to be of capital nature.

The assessee-company carrying on business in the manufacture and sale of Ayurvedic and Ulan; medicines incurred an expenditure of Rs.60,000 for repairs (resurfacing with concrete) of the existing road within its factory premises and, claimed deduction of the same as revenue expenditure. The Income-tax Officer held that the expenditure was of capital nature and disallowed the claim for deduction. On appeal, the Appellate Assistant Commissioner found that the expenditure on concreting the road had resulted in an enduring benefit to the assessee, the road being a part of the factory building the assessee was entitled to depreciation and directed the Income-tax Officer to allow depreciation. On further appeal, the Tribunal allowed the claim of the assessee for deduction as revenue expenditure on the ground that an existing inefficient subsidiary part of the factory premises had been repaired and brought into a condition of normal efficiency. On a reference:

Held, that there was no finding by the Tribunal that by resurfacing the roads, the assessee received a benefit of enduring nature or any new road altogether came into existence. Therefore, the Tribunal was right in holding that the amount spent on resurfacing the road within the factory premises was allowable as revenue expenditure.

L. H. Sugar Factory and Oil Mills (Pvt.) Ltd. v. CIT (1980) 125 ITR 293 (SC) and Lakshmiji Sugar Mills Co. Ltd. v. CIT (1971) 82 ITR 376 (SC) fol.

2000 P T D 1709

[234 I T R 249]

[Allahabad High Court (India)]

Before Om Prakash and R. K. Gulati, JJ

COMMISSIONER OF INCOME-TAX

Versus

Sint, DURGAWATI SINGH

Income-tax Reference No. 260 of 1979, decided on 29th July, 1997.

Income-tax---

----Assessment---Protective assessment---Doubt as to which person amongst 'two to be assessed---Parallel proceedings may be taken against both and alternative assessments framed---Protective assessment permissible but Appellate Authorities cannot make protective order-Assessment in respect of disputed income upheld in hands of assessee's husband by High Court--­Tribunal justified in cancelling assessment made on assessee.

It is settled that when there is a doubt as to which person amongst the two was liable to be assesseed, parallel proceedings may be taken against both and alternative assessments may also be framed. It is, also equally true that while a protective assessment is permissible, it is not open to the income-tax appellate authorities constituted under the Act to make a protective order. The law does not permit assessment of the same income successively in different hands. The tax can only be levied and collected in the hands of the person who has really earned the income and is liable to pay tax thereon.

The assessee in respect of the assessment year 1973-74 filed her return of income in the status of an individual showing an income of Rs.1,792 from a proprietary business for the period April 1, 1972 to May 27, 1972. She also returned an amount of Rs.32,854 as share income from a partnership business carried on in the name of a firm, F.A. The business that was carried on by the firm was the proprietary business of the assessee before May 27, 1972. During the course of the assessment proceedings for the aforesaid assessment year, the Income-tax Officer found that the assessee was only a benamidar of her husband who was the real owner of the business, F.A, so long as it was the proprietary business of the assessee and thereafter, it was he who actually was a partner in the firm through his wife, namely, the assessee. Consequently, the Income-tax Officer held that the entire determined share income of the assessee in the registered firm as well as the income for the period the business was a proprietary concern during the previous year relevant to the assessment year had to be clubbed with the income of her husband and assessed in his hands. However, since the return of income had been filed by the assessee voluntarily, an assessment in her hands was also completed on protective basis. On appeal, the Appellate Assistant Commissioner of Income-tax cancelled the protective assessment on the finding that since the income had already been assessed on substantive basis in the hands of the assessee's husband, the same could not be allowed to stand. On further appeal to the Tribunal, the order of the Appellate Assistant Commissioner was upheld. On a reference:

Held, that in view of the fact that the assessment in respect of the disputed income had already been upheld in the hands of the assessee's husband by the High Court in (1998) 232.ITR 934 the Tribunal was justified in cancelling the assessment made on the assessee on the basis of the return filed by her.

Vijay Bahadur Singh v. CIT (1998) 232 ITR 934 (All.) ref

2000 P T D 2005

1235 I T R 228]

[Allahabad High Court (India)]

Before S.L. Saraf, J

MODI RUBBER LTD

versus

COMMISSIONER OF INCOME-TAX

Civil Miscellaneous Writ Petition No.431 of 1982, decided on7th September, 1997.

Income-Tax----

----Return---Assessment under S.147---Non-resident---Agent---Delay filing return by agent of non-resident---Interest--Law applicable---Effect of amendment of S.215(6) in 1985---Assessment under S.147 as agent of non­resident for assessment year 1975-76---Assessment under 5.147 could not be regarded as regular assessment---Interest could not be levied under Ss.139(8) & 217(1)---Interest should also have been waived---Indian Income Tax Act, 1961, Ss. 139, 147 & 217.

The amendment of section 215(6) of the Income Tax Act, 1961, made in the year 1985 makes it abundantly clear that prior to the amendment the assessment made under section 147 was not treated or regarded as regular assessment for the purposes of sections 216, 217 and 273 of the Income Tax .Act, 1961.

The petitioner was an agent of a non-resident. For the assessment year 1975-76, a return was filed by G, its chief taxation manager. Since the said return was not a valid return as it was not signed by the assessee himself but was signed by G the same was considered to be non est and a notice under section 148 of the Act was duly issued and served upon the said G, chief taxation manager of the petitioner, the representative of the assessee. No return in compliance with the said notice was filed ex parte proceedings for the assessment was made on the basis of the information available in the earlier invalid return. The assessment was made on the total income of Rs.5,44,820. Thereafter, the petitioner moved an application under section 146 of the Income-tax Act requesting for the cancellation of the assessment order. The Income-tax Officer cancelled the said assessment order. Thereafter, the petitioner in pursuance of the notice under section 148, dated March 31, 1978, filed the return of income of the assessee on March 31, 1979, declaring an income of Rs.4,40,930. The tax as per the provisions of section 140-A of the Act amounting to Rs.3,16,119 was paid by the petitioner on his behalf on March 30, 1979. On March 28, 1980, the respondent passed an assessment order declaring his income at Rs.4,42,281 under section 147 of the Act. Interest was also charged under sections 139(8) and 217(1). On a writ petition against the levy of interest:

Held, that the order, dated March 28, 1980, was in fact an order passed under section 147 of the Act on the basis of the return filed pursuant to a notice under section 148 of the Act. The said order could not be treated as an order passed under section 144. Hence, section 217(1) and section 139(8) had no application in the instant case and no interest could be levied. In any event the tax authorities should have exercised their discretion under Rules 40 and 117-A of the Income-tax Rules, 1962, and. should have completely waived the interest.

Abdul Muthalif Rowther (P.A.) v. ITO (1976) 102 ITR 694 (Ker.); Charles D'Souza v. CIT (1984) 147 ITR 694 (Kar.); CIT v. Padma Timber Depot (1988) 169 ITR 646 (AP); CIT v. Triple Crown Agencies (1993) 204 ITR 377 (Gauhati); CIT v. United Machinery and, Appliances (1993) 200 ITR 569 (Cal.); Gates Foam and Rubber Co. v. CIT (1973) 90 ITR 422 (Ker.); Jashumal Harimal (Firm) v. CST (1995) MPLJ 42 (Note); Prakash Lal Khandelwal v. ITO (1989) 180 -ITR 604 (Pat.) and Shakti Tiles Industries v. CIT (1996) 218 ITR 612 (MP) ref.

R.S. Agarwal for Petitioner.

Rakesh Kumar Agrawal for Respondent.

2000 P T D 2038

[235 I T R 464]

[Allahabad High Court (India)]

Before Om Prakash and R.A. Sharma, JJ

COMMISSIONER OF INCOME-TAX

versus

MODI INDUSTRIES

Income-tax Reference No.85 of 1980, decided on 14th October, 1997.

Income-tax---

----Rectification of mistakes---Interest---Interest under S.214 whether payable on refund resulting from rectification order---Debatable issue---Interest cannot be withdrawn by order passed under 5.154---Indian Income Tax Act, 1961, Ss.154 & 214.

The Income-tax Officer was of the view that under section 214 of the Income Tax Act, 1961, interest is allowed only on the difference between tax determined on regular assessment and the advance tax paid. He was of the view that further interest on refunds computed under section 154 which are not regular assessments could not have been allowed and payment of interest on refund resulting from the rectification order was a mistake apparent from the record liable to be rectified under section 154 of the Act. The Tribunal set aside the order. On a reference:

Held, that in CIT v. Tata Chemicals Ltd. (1988) 169 ITR 314, the Bombay High Court held that the assessee is entitled not only to interest on the amount required to be refunded by reason of the order of rectification but he has also entitled to such interest up to the date of the order of rectification This view was taken by the Bombay High Court in view of the circular instruction of the Central Board of Direct Taxes, which the Board was authorized to issue. In view of the decision of the Bombay High Court, the question whether interest can be paid under section 214 in view of the rectification order is not free from debate. In the decision of the Bombay High Court, it is implicit that the assessee will be entitled to interest in view of the rectification order. From this decision it is apparent that two views on the ,question referred to this Court for the opinion, are possible. The Tribunal was, therefore; right in cancelling the order passed by the Income-tax Officer under section 154 of the Act.

CIT v. Tata Chemicals Ltd. (1988) 169 ITR 314 (Bom.) ref.

2000 P T D 2055

[235 I T R 663]

[Allahabad High Court (India)]

Before R. K. Gulati and M. C. Agarwal, JJ

COMMISSIONER OF INCOME-TAX

versus

U. P. SHOE INDUSTRIES

Income-tax Reference Case No.209 of 1982, decided on 19th November, 1997.

Income-tax---

---Appeal to Appellate Tribunal---Power of Tribunal to recall its order---On appeal before Tribunal assessee raising ground regarding disallowance of development rebate and relief under S.80-J---Tribunal holding particular ground in memorandum of appeal, became redundant because ITO had already passed order under S.154 giving relief to assessee---Subsequently Tribunal finding that assumption on which it decided the ground that relief had already been granted to assessee was incorrect---Was a mistake apparent from record---Tribunal has jurisdiction to rectify the mistake by recalling its order---Indian Income Tax Act, 1961, S.254(2).

In an appeal before the Income-tax Appellate Tribunal the assessee had raised a ground regarding the disallowance of development rebate and relief under section 80-J of the Income Tax Act, 1961. The Tribunal while deciding the said appeal pertaining to the assessment year 1973-74 decided the said ground as follows: "Ground No.5 of the memorandum of appeal also has become redundant because the Income-tax Officer has already passed the order under section 154 of the Act giving relief to the assessee regarding development rebate and relief under section 80-J of the Income-tax Act, 1961". Subsequently, it transpired that the application under section 154 of the Act that was moved by the assessee was rejected and the assumption on which the Tribunal had decided ground No.5 that relief had already been allowed to the assessee through an order under section 154 was incorrect. On an application filed by the assessee, the Tribunal recalled its earlier order to the extent of the decision on ground No.5 and restored the appeal to its file to that limited extent for fresh disposal in accordance with law, On the question whether the Tribunal was correct in recalling its order' and in restoring its appeal to its file for fresh disposal:

Held, that the Tribunal's observation regarding ground No.5 that the said ground had become redundant because the Income-tax Officer had already passed the order under section 154 of the Act giving relief to the assessee was mistaken, was a mistake apparent from the record and, therefore, under the specific powers conferred on the Tribunal by subsection (2) of section 254 of the Act, the Tribunal had jurisdiction to rectify the mistake and the mistake could be rectified only by recalling the order in so far as it related to ground No.5 and disposing of that ground in the appeal afresh after hearing the parties.

R. K. Agarwal for the Commissioner.

Pravin Mishra and Bharat Ji Agarwal for the Assessee.

2000 P T D 2106

[235 I T R 507]

[Allahabad High Court (India)]

Before Om Prakash and R. K. Gulati, JJ

COMMISSIONER OF INCOME-TAX

versus

BHARAT CURIO STORES

Income tax Reference No.212 of 1981, decided on 28th October, 1997.

Income-tax---

---Appeal to AAC---Power of AAC---Export markets development allowance---Weighted deduction claimed in respect of some items before Income-tax Officer ---AAC can consider claim in respect of other items--­Indian Income Tax Act, 1961.

Held, that since the assessee had already claimed weighted deduction under section 35B of the Income Tax Act, 1961, in respect of some of the items and claimed the same benefit before the, Appellate Assistant Commissioner on some more items, it cannot be said that the assessee set up altogether a new claim. The assessee having already set up the claim for weighted deduction before the Income-tax Officer, the Appellate Tribunal was right in directing the Appellate Assistant Commissioner to entertain the claim of the assessee on additional items, particularly when there was no finding by any authority that the material facts in regard to the additional items were not available on record.

Madhu Jayanti (P.) Ltd. v. CIT (1985) 154ITR 277 (Cal.) fol.

Bharat Ji Agarwal for the Commissioner.

2000 P T D 2227

[235 I T R 451]

[Allahabad High Court (India)]

Before R. K. Gulati and O. P. Jain, JJ

COMMISSIONER OF INCOME-TAX

versus

GARG ENGINEERING CO.

Income-tax Application No.40 of 1996, decided on 25th September, 1997.

Income-tax---

----Reference---Question of law---Penalty---Concealment of income---Is essentially a question of fact---Appellate Tribunal---Is final fact-finding Authority---Tribunal has power to record its own findings on appreciation of evidence---Standard of proof for imposition of penalty is different from that on which addition of income on quantum side could be sustained ---Assessee­ firm obtaining loans from a financing firm and paying interest---Interest paid disallowed due to close relationship between partners of assessee-firm and financing firm---Allegation that partners withdrawing money from their capital accounts in assessee-firm and transferring amounts to financing firm---Financing firm in turn advancing loans on interest to assessee­ firm--Tribunal finding that financing firm was genuine independent firm--­Transfer of funds reflected not merely through book entry but passed through Bank account also---Findings of Tribunal not perverse as relevant facts properly evaluated and no wrong conclusion drawn by it---Findings of Tribunal were findings of fact---No question of law arose for reference--­Indian Income Tax Act, 1961, Ss.256(2) & 271(1)(c).

The standard of proof for imposition of penalty is different from that on which an addition of an income on the quantum side could be sustained. Where a case set up by the assessee in a given case is found plausible and there could legitimately be two opinions about it, the fact that the Tribunal has accepted one version in preference to the other, does not make out a case for penalty, nor could the guilt of concealment of income be said to have been established.

The assessee-firm claimed deduction of Rs.63,993 in computing its income for the assessment year 1982-83 as interest paid to a financing firm. The deduction claimed was not allowed by the Income-tax Officer and the amount was added back to the income of the assessee. The addition of the amount was upheld on the quantum side. While completing the assessment proceedings, the Income-tax Officer simultaneously initiated penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961, on the ground that the assessee had concealed its income or had furnished the inaccurate particulars of such income, on the ground that there was close relationship between the partners of the assessee-firm and the financing firm from whom loans were obtained on interest, that the partners of the assessee­ firm withdrew money from their respective capital accounts with the funk and transferred or deposited the same in the financing firm (loaner) which in turn invested those amounts with the assessee-firm and that the interest paid to the financing firm was not a permissible deduction in view of section 40(b) of the Act, being the amount of interest paid to a partner of a firm. In accordance with the above finding, penalty of Rs.38,100 was imposed by the Income-tax Officer under section 271(1)(c) after obtaining the, approval of the Inspecting Assistant Commissioner. The Commissioner (Appeals) confirmed the order of the Income-tax Officer imposing penalty. On second appeal, the Tribunal cancelled the penalty on the grounds that the withdrawal of funds from the assessee-firm and transfer of the same to the financing firm was not in the nature of manipulation of accounts, that the financing firm to which, the funds were transferred was a genuine independent firm and that this by itself could not be considered to mean that false particulars of income had been filed or that the concealment of income had been effected, especially because the transfer of funds was reflected not merely through the book entries but was passed through bank account also. On a reference:

Held, that the Tribunal had discussed the entire material and the circumstances of the case and thereafter had recorded its finding considering the totality of the circumstances. Therefore, the Tribunal did not misdirect itself in any manner in appreciating the material that was before it nor did it omit to consider the relevant factors germane to the imposition of penalty for concealment under section 271(I)(c) of the Act. The findings of-the Tribunal were findings of fact and no question of law arose for reference.

2000 P T D 2269

[235 I T R 549]

[Allahabad High Court (India)]

Before R. K. Gulati and M. C. Agarwal, JJ

RENUSAGAR POWER CO. LTD.

versus

COMMISSIONER OF INCOME-TAX (NO. 1)

Income-tax Reference No.63 of 1982, decided on 18th November, 1997.

Income-tax---

----Business expenditure---Disallowance---Entertainment expenditure for assessment year 1974-75---No finding regarding nature of expenditure--­Matter remanded---Indian Income Tax Act, 1961, S.37.

The decision in Brij Raman Dass & Sons v. CIT (1976) 104 ITR 541 (All.) has been overruled by the Supreme Court in CIT v. Patel Brothers & Co. Ltd. (1995) 215 ITR 165. The Supreme Court has held that the expenditure incurred in extending customary hospitality by offering ordinary meals as a bare necessity would not be "entertainment expenditure" and such an expenditure would be permissible deduction under section 37(2A) of the Income Tax Act, 1961, as it stood prior to April 1, 1976, when Explanation 2 was brought on the statute book by retrospective amendment made in the year 1983:

Held, that from a perusal of the order of the Tribunal it was apparent that there was no discussion about the nature of entertainment on which the amount in dispute was incurred by the assessee for the assessment year 1974-75. There was no discussion either in the assessment order or in the order passed by the Commissioner of Income-tax (Appeals). In the absence of a finding about the nature of entertainment expenses, it was difficult to decide whether the guest house expenses, general charges and entertainment expenses were deductible.

Brij Raman Dass & Sons v. CIT (1976) 104 ITR 541 (All.) and CIT v. Patel Brothers & Co. Ltd. (1995) 215 ITR 165 (SC) ref.

2000 P T D 2446

[236 I T R 177]

[Allahabad High Court (India)]

Before R. K. Gulati and M. C. Agrawal, JJ

COMMISSIONER OF INCOME-TAX

versus

RENUSAGAR POWER CO. LTD.

Income-tax Reference No.61 of 1982, decided on 9th December, 1997.

Income-tax---

----Capital or revenue expenditure---Payment towards increase in liability while repaying cost of capital asset due to fluctuation in foreign exchange rate---Is capital expenditure ---Assessee purchasing machinery from foreign sellers on deferred payment in foreign currency in instalments---Cost of plant and machinery maintained in books of assessee in terms of rupees at exchange rate prevailing when machinery purchased---Extra liability incurred for purchase of dollars which had become dearer in terms of rupee due to fluctuation in exchange rate---Is capital expenditure---Indian Income Tax Act, 1961, S.37.

The assessee purchased plant and machinery from foreign sellers on deferred payment to be made in foreign currency spread over in instalments The cost of plant and machinery was maintained in the books of the assessee in terms of rupees at the exchange rate prevailing when the machinery/plant was purchased. During the years in dispute, for remitting the instalments that had fallen due, an extra liability was incurred for the purchase of dollars which had become dearer in terms of rupees due to fluctuation in the exchange rates. The assessee claimed before the Income-tax Officer that the extra expenditure or exchange loss was not on account of any official devaluation/revaluation of the currency as such, that the expenditure in question was purely incidental to the carrying on of the business arising from the remittances in foreign exchange and, therefore, was revenue expenditure. The Income-tax Officer disallowed the claim of the assessee in each of the assessment years 1973-74 to 1975-76 on the ground that the expenditure in question represented the repayment of instalments towards cost of plant and machinery acid any extra expenditure incurred in respect thereof, due to fluctuation in currency rates, was capital expenditure which could not be allowed as a set off against the profit and loss account of the assessee. The Commissioner (Appeals) upheld the order of the Income-tax Officer. On further appeal, the Tribunal upheld the claim of the assessee. On a reference:

Held, reversing the decision of the Tribunal, that whether the increased liability due to fluctuation in currency rate would be revenue or capital, would depend on the circumstances of each case. In the instant case, the assessee had no case that the payment of instalments made in foreign currency was on revenue account or as a trading asset or as a part of circulating capital embarked in the business. Any payment towards the increase in liability of the assessee while repaying the cost of capital asset due to fluctuation in foreign exchange rates, is in the nature of capital expenditure. Increase' in liability due to fluctuation of currency rates arising out of devaluation or otherwise, bears the same character as the original liability and it cannot be taken to have a different character. The expenditure claimed by the assessee was capital expenditure and could not be allowed as revenue expenditure.

Sutlej Cotton Mills Ltd. v. CIT (1979) 116 ITR 1 (SC); Ashok Textiles Ltd. v. CIT (1989) 178 ITR 94 (Ker.); Bestobell (India) Ltd. v. CIT (1979) 117 ITR 789 (Cal.); CIT v. Calcutta Electric Supply Corporation Ltd. (1987) 166 ITR 797 .(Cal.); CIT v. Cochin Refineries Ltd. (1988) 173 ITR 461 (Ker.); CIT v. V. S. Dempo & Co. (Pvt.) Ltd. (1994) 206 ITR 291 (Bom.); Stump and Schuele GmbH v. CIT (1986) 160 ITR 581 (Kar.); Union Carbide India Ltd. v. CIT (1981) 130 ITR 351 (Cal.) and Acropolymers (P.) Ltd. v. CIT (1985) 151 ITR 158 (P&H) fol.

Golden Horse Shoe (New) Ltd. v. Thurgood (1933) 18 TC 280 (CA) ref.

2000 P T D 2630

[236 I T R 848]

[Allahabad High Court (India)]

Before R. K. Gulati and M. C. Agarwal, JJ

KANPUR INCOME-TAX BAR ASSOCIATION and another

versus

UNION OF INDIA and others

Civil Miscellaneous Writ Petition No.767 of 1997, decided on 11th February, 1998.

Income-tax----

----Voluntary Disclosure Scheme---Writ---Locus standi to file writ petition--­Specific provision in S.73 of Finance Act, 1997 regarding valuation of jewellery, bullion, etc., declared under. Voluntary Disclosure Scheme--- Circular dated 3-10-1997 clarifying that silver utensils, gold, silver coins, watches, etc., could be declared at the value at which they were acquired---Subsequent letter dated 25-11-1997 by CBDT laying down that value of this type of assets would be taken at their value on 1-4-1997 in the absence of satisfactory explanation regarding year of acquisition of such articles---Writ petition by lawyers challenging validity of letter---Tax evaders were not "public" nor were they a disadvantaged group---Lawyers had oblique interest to protect their own interests---Persons making declaration could file petition---Writ petition was not a public interest litigation---Writ petition by the lawyers was not competent---Public interest litigation---General principles relating to public interest litigation---Voluntary Disclosure of Income Scheme, 1997---Clarifications issued by CBDT in their communications, dated 3-10-1997 and 25-11-1997---Constitution of India, Art.226.

The following are broadly the sine qua non of a genuine public interest litigation: (1) there should a public injury arising from the breach of public duty or violation of some provisions of the Constitution; and (11) the petitioner who may be any member of the public must be acting bona fide and not for personal gain or private profit or oblique consideration; and (iii) the purpose must be to advance the cause of the community or; disadvantaged groups and individuals.

The Government of India intr9duced a Voluntary Disclosure of Income Scheme by enacting sections 62 to 78 in the Finance Act 1997. Under the scheme any person could make a declaration of his income for any year and pay tax at the rate of 35 per cent if it is a company or a firm, and at the rate of 30 percent. if he is a person other than a company or a firm. The income declared may represent either cash or an asset in any form whatsoever. For explaining the provisions of the scheme the Government issued some circulars. A specific provision has been made in the scheme in section 73 that the value of the jewellery or bullion declared under the scheme shall be taken to be its market value as on April 1, 1987, where the disclosure is made in respect of an assessment year earlier than the assessment year 1987-88 and for the purposes of this scheme jewellery shall have the same meaning assigned to it in Explanation 1 to clause' (viii) of subsection (1) of section 5 of the Wealth Tax Act, 1957. By a communication dated October 3, 1997, it was clarified that disclosure of silver utensils and other articles which are not covered by the definition of jewellery, like gold/silver coins, watches, can also be made as the law does not prohibit their declaration and that the declaration can be made at -the value at which they were acquired. The communication further stated that in all such cases the assessee should be asked to file an affidavit indicating the period of acquisition of those articles and also the number/weight of these articles and on receipt of their affidavit, the declaration should be accepted and certificate should be issued as per law. A letter dated November 25, 1997, made a change in the aforesaid clarifications and paragraph 3 of the letter stated that "3. The matter has been reconsidered by the Government. It ' is now decided that in all such cases of unusual declaration of silver articles, utensils, gold or silver coins, watches, etc it should be treated as if they have been acquired in the current year unless the declarant is able to produce credible and satisfactory evidence about the year of acquisition. A simple affidavit would not suffice. Where such evidence is not produced, the value, as on April 1, 1987, would be treated as the value for declaring income under the VDIS-1997. In cases where certificates have already been issued, the Commissioners concerned' should call the declarants and ask them to produce credible and satisfactory evidence of the year of acquisition, failing which the Commissioner should take steps to review the certificates". On a writ petition by lawyers challenging the validity of this letter:

Held, dismissing- the writ petition in limine, that, admittedly, the petitioners wanted to serve the cause of that small group of people who had evaded taxes in the past and who wanted to convert their black wealth into white by making an effective payment of only one or two percent. as against 30 per cent, prescribed in the scheme. Such persons or a group thereof could not be termed "public" in the sense in which this word is used in public interest litigation. The litigation contemplated in public interest is to relate to a general public injury affecting the people at large and involving a violation of the right to life of other rights, like the right to have an independent judiciary. No public injury was complained of. The injury, if any, was directed to certain individuals who had accumulated untaxed money, popularly called black money and wanted to convert it into white money without producing satisfactory evidence about the period of acquisition of the assets represented by the said money. Such persons could not be treated as a disadvantaged group of individuals on whose behalf a writ petition could be filed and treated as in public interest. They admittedly were persons who had sufficient wealth which needed to be disclosed under the scheme and there was no averment that financially or otherwise such persons were disabled from themselves coming forward to contest the matter. The tax evaders are not a disadvantaged group when it comes to tax evasion or tax avoidance. They are quite ingenious and try to find escape routes anywhere and everywhere. Since, as averred by the petitioners the declarants had to avail of the services of the tax practitioner to make the declaration, it could not be said that this writ petition was not for personal gain or for an oblique consideration, i.e., an attempt to ensure that the advice given by them- is legally sustainable and to put the seal of the Court on such advice. Further, in order that a petition may be treated to be in public interest, there should be no doubt that it serves a general public interest. Where a petition serves the interest of only a small section of the public, but the relief claimed, if granted, renders or is likely to render disservice to the public at large, such litigation cannot be treated as public interest litigation. In the present case, there was a debate as to whether the clarification by the Central Board of Direct Taxes in placing an extra burden of proof on the declarants would harm .the small number of declarants or allowing the unscrupulous tax evaders to make unrestricted declarations and making a mockery of the scheme, would cause greater harm to the general public interest. The debate raised and the apprehension expressed from the side of the Revenue were real. Consequently, it could not be said that this petition was intended to serve public interest. Therefore, the present writ petition was not a public interest petition and the petitioners who had no direct personal interest in the matter could not maintain this writ petition for the benefit of their clients or prospective clients. The obligation of secrecy was on the Revenue Authorities and the individual declarant was not debarred from saying that he had made a declaration under the scheme. Further, for filing a writ petition of this nature, it was not necessary to give details of the income declared and of the assets which represented that income. It would be sufficient to state that a certain quantity of income represented by assets like gold and silver utensils or coins had been declared. Therefore, the declarants could not be held to be a disabled group of persons.

By the Court.---"A lawyer's office is a badge of honour and a patent of trustworthiness derived from his position as an officer of the Court. The Court is entitled to expect the highest rectitude and caution on the part of a lawyer It would be highly or rather dangerously injurious to the health of our judicial system if lawyers keep their clients in the background and themselves become litigants. It is our considered view that such a thing should not be allowed to happen and the Bench, too, has a bounden duty to restrain a lawyer from deviating from the path of rectitude and detachment."

Bar Council of Maharashtra v. M. V. Dabholkar AIR 1976 SC 242; Chhetriya Pardushan Mukti Sangharsh Samiti v. State of U. P. AIR 1990 SC 2060; Fertilizer Corporation Kamgar Union v. Union of India AIR 1981 SC 344; (1981) 59 FJR 237 (SC); Gupta (S. P.) v. President of India AIR 1982 SC 149; Janata Dal- v. H. S. Chowdhary AIR 1993 SC 892; Jasbhai Motibhai Desai v. Roshan Kumar AIR 1976 SC 578; State of U. P. v. U. P. State Law Officers Association AIR 1994 SC 1654 and Union Carbide Corporation v. Union of India AIR 1992 SC 248 ref.

S. D. Singh and S. P. Gupta for Petitioners.

Bharathji Agarwal for Respondents.

2000 P T D 2925

[234 I T R 782]

[Allahabad High Court (India)]

Before Om Prakash and R. K. Gulati, JJ

RENUSAGAR POWER CO. LTD.

versus

COMMISSIONER OF INCOME-TAX

I.T.R. No.44 of 1980, decided on 12th August, 1997.

Income-tax---

Commissioner---Revision---Jurisdiction---Notice---Affording opportunity of hearing to assessee---Is matter of procedure which follows assumption of jurisdiction---Not in itself a condition precedent for assumption of jurisdiction---Having, assumed jurisdiction, no enforceable order can be passed by Commissioner without hearing assessee---Indian Income Tax Act, 1961,S.263.

From a reading of section 263 of the Income Tax Act, 1961, it is manifest, that the Commissioner may make inquiry to find out whether an order passed by the assessing authority is erroneous and prejudicial to the interests of the Revenue without giving any notice to the assessee. Having assumed jurisdiction under section 263 for which no condition precedent is prescribed, the Commissioner before making an order under section 263 should give an opportunity of being heard to the assessee. It means no enforceable order could be passed by the Commissioner without hearing the assessee. But opportunity of hearing is not a condition precedent to assume the jurisdiction under section 263.

Where the Commissioner of Income-tax passed an order under section 263 without giving an opportunity of being heard to the, assessee:

Held, that the Tribunal was right in setting aside the order of the Commissioner of Income-tax and remitting the case to the Commissioner of Income-tax to make an order de novo after giving an opportunity of being heard to the assessee.

CIT v. Electro House (1971) 82 ITR, 824 (SC) fol.

2000 P T D 3008

[235 I T R 156]

[Allahabad High Court (India)]

Before Om Prakash and M. Katju, JJ

COMMISSIONER OF INCOME-TAX

Versus

RAM LAL RAJARAM

Income-tax Reference No. 173 of 1980, decided on 9th February, 1996.

(a) Income-tax---

----Interest on borrowed capital---Reference---Finding that borrowed capital had been used for purposes of business---Finding of fact---Interest was deductible---Indian Income Tax Act, 1961, S.36.

(b) Income-tax---

---Business expenditure ---Reference---Finding that expenditure had been incurred for purposes of business---Finding of fact---Amount expended was deductible---Indian Income Tax Act, 1961, S.37.

(c) Income-tax---

----Business expenditure---Provision made for liability---Finding that liability was not contingent---Amount was deductible---Indian Income Tax Act, 1961, S.37.

Held, (i) that the Tribunal accepted the case of the assessee for allowing deduction under section 36 of the Income Tax Act, 1961, saying that all the ingredients of clause (iii) of section 36(1), have been established by the assessee. This was purely a finding of fact. Hence, the sum of Rs.85,711 paid to S as interest on borrowed capital was an allowable deduction under section 36(1)(iii).

(ii) That the Tribunal came to the conclusion that the expenditure of Rs.4,740 had been incurred for the purpose of business. This being a finding of fact had to be accepted. The amount was deductible.

(iii) That the assessee had made provision towards a liability of Rs.19,952. The Tribunal had considered the evidence and found that the liability was not contingent. It was, therefore, deductible.

2000 P T D 3011

[235 I T R 158]

[Allahabad High Court (India)]

Before Om Prakash and R.K. Gulati, JJ

COMMISSIONER OF INCOME-TAX

Versus

NAVDURGA TRANSPORT CO.

Income-tax Reference No.261 of 1981, decided on 17th September, 1997.

Income-tax---

----Depreciation---Requisite conditions for claiming depreciation is "ownership" and "user" of building, plant, machinery, etc.---Assessee-firm constituted of seven partners---Four partners contributing money as capital while three partners bringing; their trucks into firm as capital contribution--Vehicles becoming assets of firm and used through agents appointed by firm and income from vehicles credited in books of firm, though registration continued in names of three partners---Registration under Motor Vehicles Act not an essential prerequisite for acquisition of ownership--"Owned by the assessee" not used in the sense that complete title should vest in assessee--­Assessee-firm was owner of vehicles and entitled to depreciation on them--­Indian Income Tax Act, 1961, S.32.

The assessee-firm was constituted of seven partners to carry on transport business. Out of the seven partners, four partners contributed money as capital while the other three partners brought their trucks into the firm as their capital contribution. The assessee-firm appointed three agents under three separate agreements for the supervision control and plying of the vehicles. The three vehicles were shown as the assets of the firm in its balance-sheet. The Assessing Officer rejected the claim of the assessee for depreciation under section 32 of the Income Tax Act, 1961, on the ground that the assessee failed to satisfy the requisite conditions that it owned and used the trucks. The Appellate Assistant Commissioner affirmed the order of the Assessing Officer. The Tribunal accepted that the three trucks became the assets of the firm and they were used through agents by the assessee-firm, though the registration of the vehicles continued in the names, of the three partners who initially acquired the vehicles. The Tribunal came to the conclusion that the assessee owned and used the trucks, that the income from the three trucks was credited in the books of the assessee-firm and that, therefore, it was entitled to depreciation under section 32 of the Act. On a reference:

Held, (i) that registration under the Motor Vehicles Act was not an essential prerequisite for the acquisition of the ownership of the motor vehicles but was only an obligation cast upon an owner of the vehicle for the purpose of running the vehicles in any public place. As the registration of the vehicles could not be made in the name of the firm, the registration continued in the names of the three partner, who initially owned the vehicles.

(ii) That the expression "owned by the assessee" in section 32 of the Act had not been used in the sense of the property, complete title in which vested in the assessee. The assessee would be considered to be an owner under section 32 if he was in a position to exercise the rights of an owner not on behalf of the person in whom the title vested, but in his own right.

(iii) That, therefore, the Tribunal was right in holding that the assessee owned and used the three vehicles and was entitled to depreciation under section 32 of the Act.

CIT v. Dilip Singh Sardarsingh Bagga (1993) 201 ITR 995 (Bom.) and CIT (Addl.) v. U.P. State Agro Industrial Corporation Ltd. (1981) 127 ITR 97 (All) applied.

2000 P T D 3060

[235 I T R 11]

[Allahabad High Court (India)]

Before Om Prakash and R.K. Gulati, JJ

COMMISSIONER OF INCOME-TAX

versus

NARAN RAM CHIRANJI LAL

Income-tax Reference No.237 of 1981, decided on 10th September, 1997.

Income-tax---

----Business expenditure---Amounts not deductible---Payments exceeding Rs.2,500 not to be made without crossed cheque or crossed Bank draft--­Assessee engaged in business of manufacture and sale of brass utensils---Purchase of raw materials through commission agent on cash payment---Commission agent dealing with assessee-firm -for first time--­Affidavit of partner of commission agent firm that commission-agent insisted on cash payment and confirming transaction with assessee---Purchases made under exceptional or unavoidable circumstances within the meaning of R.6DD(j)---Payments deductible---Indian Income Tax Act, 1961, S.40A(3)-­Indian Income Tax Rules, 1962, R.6DD(j).

The assessee-firm engaged in the business of manufacture and sale of brass utensils made certain purchases of raw materials for its business through a commission agent for an amount: aggregating to Rs. 1,26,583, The Assessing Officer refused deduction under section 40-A(3) of the Income Tax Act, 1961, on the ground that the purchases were made in a sum exceeding Rs.2,500 without a crossed cheque or crossed bank draft. The Appellate Assistant Commissioner affirmed the order of the Income-tax Officer. The Tribunal accepted the contention of the assessee that the purchases without crossed cheque or crossed bank draft were made in exceptional or unavoidable circumstances within the meaning of Rule 6DDOj) of the Income-tax Rules, 1962, on the grounds that an affidavit sworn by K, one of the partners of the firm of commission agents, had been filed stating that the commission agent who had dealings with the assessee-firm for the first time had insisted upon the assessee-firm making; cash payment and that a copy of the account of the commission agent in the books of the assessee-firm was also filed:

Held, affirming the decision of the Tribunal, that the payments made by the assessee for purchases of raw materials for its business could not be disallowed under section 40-A(3) of the Act, as the finding of fact was fully supported by the evidence available on record.

2000 P T D 3425

[237 I T R 792]

[Allahabad High Court (India)]

Before S.L. Sarf and Ikaram-ul-Bari, JJ

Sri ONKAR NATHMAHENDRA

Versus

COMMISSIONER OF INCOME-TAX and another

Civil Miscellaneous Writ Petition No.141 of 1982, decided on 10th February, 1999.

Income-tax---

----Advance tax---Interest payable by Government on excess payment of advance tax---Inclusions in total income---Minor----Income of minor child from firm in which individual is partners includible in individual's total income w.e.f. 1-4-1976---Minor submitting returns in respect of his income from firm and also paying advance tax after 1-4-1976---Protective assessment made on minor---Subsequent cancellation of protective assessment and inclusion of minor's income in that of his father---Interest levied on minor's father because with such inclusion there was a -short fall in his payment of advance tax---Waiver of interest--Minor entitled to interest under S.214 but interest not awarded on grounds of equity---Indian Income Tax Act, 1961, S.214.

The petitioner was a minor at the relevant time and was being assessed to income-tax for his share in a partnership firm. His father was also a partner in the said firm. By section 13 of the Taxation Laws (Amendment) Act, 1975, made effective from April 1, 1976, provisions of section 64(3) were inserted in the Income Tax Act, 1961. The said provision provided that if a minor is admitted to; the benefits of partnership, income falling to his share will be liable to be assessed in the hands of either parent, whoever has the higher income. Though not obliged after the amendment of section 64(3) of the Act, the petitioner filed his return of income and showed his share of income from the firm. An order of protective assessment was made on the minor. Subsequently, however, the said protective assessment was cancelled and the income of the petitioner was added to the income of his father and he was assessed accordingly. In the meantime, however, the petitioner had deposited the advance tax under the provisions of section 210 read with section 211 of the become Tax Act, 1961. On a writ petition claiming refund of advance tax as also interest under section 214:

Held, that section 214 speaks of the period for which the amount is refundable and for the said purpose word "regular assessment" is incorporated. In the said provision it is nowhere provided that the interest will not be payable unless the regular assessment has been made. If the amount becomes refundable otherwise, as in the instant case, there is no justification for with bolding the refund of the said interest amount to the assessee. However, interest was levied on the father who was assessed finally on the income of the minor for short payment of advance tax. Such short payment was on account of non-deposit of advance tax payable on the income of the minor. Since the Department had waived the interest payable by the father on the income of the son; no order could be passed awarding interest to the assessee on grounds of equity.

Vikram Gulati for Petitioner.

Shambhu Chopra for Respondent.

2000 P T D 3496

[238 I T R 338]

[Allahabad High Court (India)]

Before S.L. Saraf and Ikram-ul-Bari, JJ

Pandit GOVIND PRASAD MISHRA

versus

COMMISSIONER OF INCOME-TAX

Income-tax Reference No.289 of 1981, decided on 24th February, 1999.

Income-tax---

----Penalty---Concealment of income---No deliberate concealment on part of assessee---Income from truck purchased in the name of minor son--­Assessee under mistaken belief that income of minor son could be assessed as income of minor and not of assessee---Penalty could not be imposed under S.271(l)(c) of Act---Indian Income Tax Act, 1961, Ss.271(l)(c) & 274.

Held, that the order passed by the Tribunal was not sustainable at law. There was no concealment of income on the part of the assessee. A return was filed by the assessee and a separate return was also filed by his minor son for the income from Truck No. UPF-405. The assessee was under a mistaken belief that the income derived from the truck purchased in-the name of the minor son could be assessed as income of the minor and not as the income of the assessee. The facts disclosed showed that there was no deliberate concealment on the part of the assessee. The imposition of penalty under section 271(l)(c) of the Income-tax Act, 1961, by the Income-tax Officer was on the basis that since the explanation of the assessee was found not to be correct, the penalty proceedings were called for. The authorities did not make any attempt to prove as to whether there was any deliberate concealment on the part of the assessee.

Cement Marketing Co. of India Ltd. v. Assistant Commissioner of Sales Tax (1980) 124 ITR 15; (1980) 45 STC 197 (SC) rel.

CIT v. Anwar Ali (1970) 76 ITR 696 (SC); CIT v. Zeekoo Shoe Factory (1981) 127 ITR 837 (All.); Hindustan Steel Ltd. v. State of Orissa (1972) 83 ITR 26 and (1970) 25 STC 211 (SC) ref.

Vikram Gulati for the Assessee.

Shambhu Chopra for the Commissioner

2000 P T D 3688

[238 I T R 240]

[Allahabad High Court (India)]

Before Ravi S. Dhavan and V. P. Goel, JJ

AMAR CHAND AGRAWAL; and others

Versus

COMMISSIONER OF INCOME-TAX and others

Civil Miscellaneous Writ No. 1164 of 1983, decided on 25th April, 1998.

Income-tax---

----Recovery of tax---Attachment and property---Sale by public auction not fetching reserve price---Permission to defaulter to arrange private sale of property---Provisions of R. 66 of Sched. II are similar to R. 83 of 0. 21 of I has power to authorise sale within a period less than thirty days---Sale by private negotiation authorised by TRO---Sale transaction is complete when agreed price is deposited by purchaser---Person offering more than agreed price after completion of sale transaction has been concluded, has no locus standi to object to sale---Indian Income Tax Act, 1961, S.220 & Sched. II, R.66.

Rule 66 of Schedule II to the Income Tax Act, 1961, permits change of scene from a public auction to a private negotiation by specific authorisation by the Income-tax Department. Rule 66 of Schedule II to the Act contains provisions analogous to rule 83 of Order 21 of the Civil Procedure Code. Rule 83 stipulates the principles that should a public auction be lacking in getting a reserve price or an anticipated price, a Court if not satisfied with the price fetched may permit a judgment-debtor facing a decree, to authorise him to arrange a better price by negotiating a sale. When the Tax Recovery Officer grants a certificate to the defaulter authorising him to negotiate a sale within a period to be mentioned therein the qualifying words "notwithstanding anything contained in the Schedule" is not without meaning. If the words "notwithstanding anything contained in the Schedule" were not there, then the interplay of the other qualification of the sale being concluded not earlier than 30 days would come into play. Rule 66 is an independent provision. The legislative intent is also very clear that if the Tax recovery Officer is to authorise a period within which the negotiations are to be concluded, then it is that period during which the defaulter must conclude the sale. Rule 66, thus, is not qualified by other previsions of Schedule II relating to public auction. The Tax Recovery Officer concludes the sale when the money is deposited by the person who agrees to the sale.

A property in K was attached by the income-tax authorities. It was attempted to be sold, in the first instance in 1967. The sale did not materialise because the property would not fetch the pike, which the Income-­tax Department was anticipating. The bids offered at the public auction were inadequate and below the reserved price. Due permission was granted to the. defaulters, o» their applying, to permit the sale of the property by private negotiation so that tree amount anticipated by the Department could be raised In May, 1982, an lifer larger than that given at the public auction had been received. This was an offer of Rs.3,50,000. During the period when authorisation had teen permitted to the defaulters to enter into negotiations, a valuation report was obtained. The report disclosed a value of Rs. 3,14,100. The Tax Recovery Officer forwarded his report to the Commissioner of Income-tax. In November, 1982, the office of the Commissioners of Income tax permitted the; Tax Recovery Officer to decide the matter on merit. The Tax Recovery Officer wrote to that his offer had been, accepted. The purchasers were then required to deposit a sum of Rs.3,50,000 in favour of the Tax Recovery Officer within seven days of the report of the letter. The purchasers placed the entire sale consideration by a banker's cheques for Rs.3,50,000 in favour of and before the Tax Recovery Officer. On December 2, 1982, the confirmation of sale was issued by the Tax Recovery Officer, in favour of the petitioners. In March 1983, the petitioners were informed by the Commissioner of Income-tax. (Tax Recovery) that two persons had filed an appeal objecting to the sale in favour of the petitioners, and that the petitioners if they desired to have an opportunity of being heard on the said appeal, they might appear, on April 4, 1983. The petitioners sent in their written objections, dated April 4, 1983, to the Commissioner of Income-tax, who passed the appellate order on September 1, 1983, setting aside the sale in favour of the petitioners. On a writ petition challenging the Order of the Appellate Authority, dated September 1, 1983, by the petitioners:

Held, that the Appellate Authority had made not only an apparent, but a manifest error in permitting and being impressed by an argument that respondents Nos.3 and 4 had a right to object within a period 3-0 days. The Tax Recovery Officer had concluded the sale as on the date when the money was deposited by the person who agreed to the sale, that is the petitioners who negotiated under the authority of the Tax Recovery Officer. Moreover, the third and fourth respondents had no locus standi in any of the negotiations permitted. to the defendants by law. Nothing was settled with and the questions of their having an interest did not arise. They were neither person interested nor did they have any interest and they had no right to file an appeal. They did not even have a right to move an application under rule 86 to seek review of any order: The order of the Appellate Authority under rule 86(1) of the Second Schedule to the Income tax Act was not valid and was liable to be quashed.

Basavarajappa (K.) v. Tax Recovery Commissioner (1997) 223 ITR 297 (SC); Boddpati Ramachandra Rao v. Special Deputy Tahsildar (1969) 71 ITR 277 (AP); Sathyanarayana (D.V.) v. Tax Recovery Officer (1992) 194 ITR 409 (Kar.); Sathyanarayana (D.V.) v. Tax Recovery Officer (1992) 197 ITR 407 (Kar.) and Tax Recovery Commissioner- v. Basavarajappa (K.) (1992) -197 ITR 398 (Kar.) ref.

V.B., Upadhyay; Senior Advocate with V.B. Singh for Petitioner.

M. Katju for Respondents Nos. 1 and 2.

2000 P T D 113

[232 I T R 806]

[Andhra Pradesh High Court (India)]

Before Syed Shah Mohammed Quadri and B. S. Raikote, JJ

COMMISSIONER OF INCOME-TAX

versus

ADONI AGRICULTURAL MARKET COMMITTEE

Income-tax Case No.43 of 1996, decided on 31st July, 1996.

Income-tax---

----Reference---Question of law---Exemption---.Local authority---Agricultural marketing committee---Is a local Authority---Gains derived by it exempt from tax---No question of law arose for reference---Indian Income Tax Act, 1961, Ss.10(20) & 256(2).

The Agricultural Marketing Committee is. a local authority within the meaning of section 10(20) of the Income Tax Act, 1961, and the gains derived by it are, therefore, entitled to exemption under the Act. No question of law arose for reference.

CIT v. Agricultural Market Committee (1983) 143 ITR 1020 (AP) fol.

S.R. Ashok for Appellant.

2000 P T D 431

[232 I T R 109]

[Andhra Pradesh High Court (India)]

Before Ms. S. V. Maruthi and T. N. C. Rangarajan, JJ

COMMISSIONER OF INCOME-TAX

versus

T.T.D. COOPERATIVE STORES LTD.

Case Referred Nos. 143 of 1989, 35 of 1992 and 72 of 1993, decided on 27th March, 1998.

Income-tax---

----Cooperative society---Business expenditure---Payment of rebate by society to its members at end of year---Rebate given as special incentive for increasing society's business and encouraging cooperative movement--­Rebate not to be given if there was loss---Net profit ascertained only after allowing rebate, resulting in reduction of price at which members purchased goods from society---Payment of rebate was expenditure wholly and exclusively incurred for purposes of business---Allowable deduction.

The assessee, a cooperative society, engaged in the business of purchasing provisions and other goods, which were sold mostly to the members of the society, earned interest and other miscellaneous income. At the end of the year after ascertaining the profits, the society declared a rebate to the members. For the assessment year 1980-81, the Income-tax, Officer allowed the rebate distributed to the members as a deduction in computing the assessee's total income. Subsequently, he found that the assessment for the assessment year 1981-82 had been revised by the Commissioner of Income-tax. He accordingly treated that as an information and reopened the assessment to disallow the rebate. On appeal, the Tribunal following its own orders for the assessment year 1981-82 held that there was not rule or provision not to allow rebate as a deduction. For the assessment year 1981-82, the Commissioner of Income-tax disallowed the actual rebate given by the society by an order under section 263 and set aside the assessment holding that the rebate was nothing but an appropriation of its profits and accordingly could not be allowed as a deduction The Tribunal held that the rebate was to be related to a provisional price and hence it should be allowed as a deduction in appropriating trading profits and not as an expenditure incurred. For the assessment year 1982-83, the Income-tax Officer allowed the deduction of rebate only to the extent of profits of business. This was confirmed by the Tribunal. On a reference, the Revenue contended that since section 45 of the Andhra Pradesh Cooperative Societies Act as well as rule 36 of the Andhra Pradesh Cooperative Societies Rules talked of payment out of the net profits, it was only an appropriation of profits and could not be allowed as a business expenditure:

Held, that it is true that where an amount is. paid out of the net profit, it cannot be allowed as a business expenditure, because business expenditure is to be allowed for ascertaining the net profit and not to be paid out of the net profits. But the tact was that the net profit was ascertained only after allowing the rebate which went to reduce the price at which members purchased the goods from. the society. The rebate allowed was not a part .of profit at all. The Tribunal had pointed out that the scheme of rebate was that the price at which the goods were sold to the members was taken as a provisional price. When the rebate is given at the end of the year, the provisional price is reduced and the amount received by the society is itself taken at a reduced figure. The deduction goes to the trading account where the figure of sales will be reduced by the amount of rebate given. It was not a case where the deduction on business expenditure was made after ascertaining the gross profit. The only objection was that he rebate was given at the end of the year after ascertaining the profit made during the year. That could be an occasion to find out whether the society had a surplus out of which a rebate could be given to the loyal customers. But even if the ascertainment was at the time of making up of the accounts, the actual rebate was related back to the date of sales and the sales figure was reduced in the trading account. There was a clear decision to give a rebate to those members of the assessee-society who had done large business as an incentive for the purpose of encouraging the cooperative movement, and the rebate was not to be given, if there was a - loss. Therefore, the Tribunal was right in holding that the payment of rebate by the assessee-society to its members was an expenditure incurred wholly and exclusively for the purposes of the business.

Armoor Cooperative Meeting Society v. CIT (1987) 167 ITR 565 (AP); Associated Power Co. I`.;tc7, v. CIT (1996) 218 ITR 195 (SC) and Poona Electric Supply Co. Ltd. v. CIT (1965) 57 ITR 521 (SC) ref.

S.R. Ashok for the Commissioner.

Y. Ratnakar and P. S. R. Chandra Murthy for the Assessee.

2000 P T D 552

[232 I T R 243]

[Andhra Pradesh High Court (India)]

Before Ms. S. V. Maruthi and T. N. C. Rangarajan, JJ

COMMISSIONER OF INCOME-TAX

versus

Sri VIJAYALAKSHMI MINERAL AND TRADING CO.

Income-tax Case No.93 of 1997, decided on 30th March, 1998.

Income-tax---

----Reference---Return---Delay in filing return---Depreciation---Unabsorbed depreciation---Carry forward and set off---Unabsorbed depreciation in respect of an assessment year where return filed under S.139(10) was non est---Could be carried forward to subsequent assessment year and set off against profit of subsequent assessment year---Answer self-evident--­Question need not be raised---Indian Income Tax Act, 1961, Ss.32(2), 139(10) & 256(2).

The assessee filed a return for the Assessment Year 1987-88 belatedly under section 139(10) of the Income Tax Act, 1961. The assessee filed the return of income for the Assessment Year 1988-89 on July 29, 1988, declaring loss of Rs.4,75,879 and on August 3, 1989, the assessee filed a revised return declaring loss of Rs.7,41,330. While completing the assessment, the Assessing Officer rejected the claim of the assessee for carrying forward depreciation relating to the Assessment Year 1987-88, on the ground that the return for the Assessment Year. 1987-88 was non est and therefore, the depreciation allowance for 1987-88 had not been quantified. On appeal, the Commissioner of Income-tax (Appeals) held that unabsorbed depreciation could be carried. forward and under section 32(21 of the Act it could be given effect to in the current year, i.e., in the Assessment Year 1988-89. On further appeal, the Tribunal confirmed the order of the Commissioner of Income-tax (Appeals). The Tribunal also rejected the application of the revenue under section 256(1) to refer questions of law. On an application filed under section 256(2):

Held, that a reading of section 32(2) of the Act makes it clear that in the assessment of the assessee if full effect cannot be given to any allowance in any previous year owing to there being no profits or gains chargeable for that previous year, the allowance or part of the allowance to which effect has not been given shall be added to the amount of allowance for depreciation in the following previous year and deemed to be part .of the allowance. Therefore, if full effect could not be given to the depreciation on account of lack of profits or gains in the previous year, the said depreciation shall be treated as depreciation in the current year. Therefore, the Tribunal was right in holding that unabsorbed depreciation in. respect of the Assessment Year 1987-88 where the return was non est under section 139110) of the Income Tax Act, 1961, could be carried forward to the subsequent Assessment Year 1988-89 and set off against the profits of that assessment year. The answer to the questions were self-evident and hence no reference was called for.

CIT v. Jaipuria China Clay Mines (P.) Ltd. (1966) 59 ITR 555, (SC) fol.

CIT v. Dalmia Cement (Bharat) Ltd. (1995) 216 ITR 79 (SC) and Sathappa Textiles (P.) Ltd. v. Second ITO (1969) 71 ITR 260 (Mad.) ref.

J. V. Prasad for the Commissioner.

Srinivasa Reddy for the Assessee.

2000 P T D 644

[232 I T R 776]

[Andhra Pradesh High Court (India)]

Before Ms. S. V. Mruthi and T. N. C. Rangarajan, JJ

INDWELL CONSTRUCTIONS

versus

COMMISSIONER OF INCOME-TAX

Case Referred No. 139 of 1989, decided on 12th March, 1998.

Income-tax--

----Income---Additions to income---Income estimated---All deductions under S.29 deemed to have been taken into account while making estimate including disallowance under S.40---Rejection of books of account--­Revenue cannot rely on same books for disallowance and addition of specific items of expenditure ---Assessee firm doing contract business---Books rejected and income estimated---Separate addition made of interest and remuneration paid to partners to income already estimated and assessed from contracts---Not justified---Indian Income Tax Act, 1961, Ss. 29, 40(b) & 145.

The pattern of assessment under the Income Tax Act, 1961, is given by section 29 which states that the income from profits and gains of business shall be computed in accordance with the provisions contained in sections 30 to 43D of the Act. Section 40 provides for certain disallowances in certain cases notwithstanding that those amounts are allowed generally under other sections. The computation under section- 29 is to be made under section 145 on the basis of the books regularly maintained by the assessee. If those books are not correct or complete, the Income-tax Officer may reject those books and estimate the income to the best of his judgment. When such an estimate is made, it is in substitution of the income that is to be computed under section 29. In other words all the deductions which are referred to under section 29 are deemed to have been taken into account while making such an estimate. This will also mean that the embargo placed in section 40 is also taken into account.

Where the books of account have been rejected, the Revenue cannot rely on the same books for addition of an exact item (of expenditure) in the profit and loss account.

For the assessment year 1981-82, the assessee firm having contract business in engineering works, showed gross contract receipts at Rs.27,20,083 and the net income shown in the profit and loss account was Rs.1,24;830. The Income-tax Officer rejected the books and applying the proviso to section 145, estimated the income at Rs.2,50,000. The Commissioner of Income-tax in exercise of his revisional powers under section 263, considered that this estimate was erroneous and prejudicial to the interests of the Revenue and added a sum of Rs.63,859, which was' shown as interest and salary paid to the partners in the profit and loss account. The Tribunal upheld the order of the Commissioner of Income-tax. On a reference, at the assessee's instance, the Revenue contended that in the case of a firm which had borrowed capital from its own partners, the provisions of section 40(b) applied as it was regarded as payment of interest to oneself and such deduction had to be disallowed:

Held, reversing the order of the Tribunal, that there was a big difference between profit, earned with own capital and profit, earned with borrowed capital and such a difference could have been taken into account by the Income-tax Officer while making an estimate. If the Commissioner had set aside the estimate on the ground that the vital fact that the business was carried on with own capital and not with borrowed capital had been ignored by the Income-tax Officer, there might not have been any difficulty in upholding that order. But when he proposed to add back an exact item in the profit and loss account, he was relying on the rejected books, which he could not do. There was also a further difficulty if section 40 was to be taken into account even after making an estimate. When there are certain other deductions which are to be disallowed such as wealth tax payment in section 40, it cannot be said that after making an estimate the wealth tax charged in the profit and loss account should again be added back to the profit. Therefore, it was not correct in law to make the separate addition of Rs.63,859 representing the interest and remuneration paid to the partners to the income already estimated and assessed from contracts.

Maddi Sudarsanam Oil Mills Co. v. CIT (1959) 37 ITR 369 (AP) fol.

C. Kodandaram for the Assessee.

S. R. Ashok for the Commissioner.

2000 P T D 725

[232 I T R 788]

[Andhra Pardesh High Court (India)]

Before Syed Shah Mohammed Quadri and B. Sudershan Reddy, JJ

COMMISSIONER OF INCOME-TAX

versus

VENKATESWARA TRADERS

Income-tax Case No. 12 of 1996, decided on 12th July, 1996

Income-tax---

----Reference---Question of law---Firm---Registration---Firm carrying on business of lifting arrack from Government---'Tribunal reducing estimate of net profit---Tribunal upholding decision of CIT (Appeals) regarding grant of registration to firm---Tribunal holding that no question of law arises--­Question sought to be referred are questions arising on appreciation of facts---Order of Tribunal justified---Indian Income Tax Act, 1961, S. 256(2).

For the assessment year 1984-85, the assessee-firm which was engaged in the business of liquor did not file any return nor did it produce any accounts. The Income-tax Officer determined the income of the assessee at Rs.1,85,000. On appeal, the Commissioner of Income-tax (Appeals) reduced the taxable income to Rs.40,000 having regard to some comparable profits of other assessees. On further appeal, the Tribunal upheld the order of the Commissioner of Income-tax (Appeals). The Tribunal also upheld the decision of the Commissioner (Appeals) regarding grant of registration to the assessee-firm. The Tribunal rejected the application of the Revenue under section 256(1) of the Income Tax Act, 1961, to refer questions of law on the ground that no question of law arose from its order. On an application filed by the Revenue under section 256(2):

Held, that the Tribunal was right in coming to the conclusion that no questions of law arose as the questions sought to be referred were questions arising on appreciation of facts.

S. R. Ashok; D. Srinivas and J. V. Prasad for the Commissioner.

Nemo for the Assessee.

2000 P T D 744

[232 I T R 554]

[Andhra Pradesh High Court (India)]

Before Ms. S. V. Maruthi and T. N. C. Rangarajan, JJ

COMMISSIONER OF INCOME-TAX

versus

RASSI CEMENT LTD.

Case Referred No. 28 of 1990, decided on 9th April, 1998.

(a) Income-tax--

----Income from other sources---Interest---Interest earned on surplus funds deposited in banks during installation of company prior to commencement of business---Interest earned is assessable as income---Indian Income Tax Act, 1961, S. 57.

(b) Income-tax---

----Income on capital---Amount realised by selling tender forms and empty cement bags---Amount realised goes to reduce cost of cement utilised in construction of factory before commencement of business---Is capital receipt.

The interest earned on surplus funds deposited in banks during the installation of a company prior to the commencement of the business is assessable as income from other sources.

Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT (1997) 227 ITR 172 (SC) fol.

The amount realised by selling tender forms and empty cement bags will go to reduce the cost of cement utilised in the construction of a factory before the commencement of the business and is a capital receipt.

S. R. Ashok for the Commissioner.

S. Ravi for the Assessee.

2000 P T D 819

[233 I T R 10]

[Andhra Pradesh High Court (India)]

Before Ms. S. V. Maruthi and T.N.C. Rangarajan, JJ.

COMMISSIONER OF INCOME-TAX

versus

ATTILI NARAYANA RAO

Case Referred No. 10 of 1990, decided on 2nd April, 1998.

Income-tax---

----Capital gains ---Deductions---Assessee carrying on Abkari business--­Immovable property mortgaged to State Excise Department as security for amount of Kist due to Government---Government selling property in public auction and realising certain amount---Out of sale proceeds Government deducting amount due to it towards arrears and interest and only balance paid to assessee---Value of property to be reduced to the extent interest was created in favour of Government by mortgage ---Assessee got price minus value of interest of Government---Capital gains to be computed afterdeducting amount paid to Government---Indian Income Tax Act, 1961, S.45.

The assessee carried on Abkari business during the financial years 1970-71 and 1971-72. He mortgaged his immovable property (house site) to the State Excise Department as security for the amounts of Kist due to the Government. The Government under section 69(1)(b) of the Transfer of Property Act, 1882, sold the property in public auction and realised a sum of Rs.5,62,980. Out of the said amount, the Government deducted a sum of Rs.1,29,020 due to it towards arrears and interest and paid the balance to the assessee. The total value of the house site as on January 1, 1964, was taken at Rs.1,87,010 and an amount of Rs.5,000 was deducted from out of the total sale price while arriving at the gross sale price. The Revenue contended that the capital gains should be computed at Rs.3,70,970 (Rs.5,57,980 minus Rs.1,87,010). The assessee contended that the amount of Rs.1,29,020 due to the State Excise Department had also to be deducted from Rs.5,57,980 before computing the capital gains besides allowing deductions. Thus, the net income from the capital gains came to Rs.85,130. The Income-tax Officer and the Appellate Assistant Commissioner did not accept the contention of the assessee. The Tribunal, accepting the contention of the assessee, held that the assessee held the property subject to the mortgage deed or charge due to the Government, which was subsequently sold by public auction, and the amount realised under the charge or mortgage never reached the hands of the assessee but reached the Government by overriding title and that the Income-tax Officer had clearly stated in his assessment order that the Excise Department deducted Rs.1,29,020 from the sale proceeds and paid-only the balance to the assessee. On a reference:

Held, affirming the decision of the Tribunal, that the property was mortgaged to the Government and an interest in the property was created in favour of the Government. When the property was sold by public auction the value of the property had to be reduced to the extent of the interest that was created in favour of the Government by the mortgage. Therefore, what the assessee got was the price minus the value of the interest of the Government in whose favour the mortgage was created. Therefore, what the assessee got was the value after deducting the amount payable to the Government on the mortgage. Therefore, the Tribunal was right in its view that the capital gains had to be calculated after deducting the amount paid to the Government on the mortgage.

Salay Mohamad Ibrahim Sait v. ITO (1994) 210 ITR 700 (Ker.) distinguished.

CIT v. Bilquis Jahan Begum (1984) 150 ITR 508 (AP) and Idiculla (K.V.) v. CIT (1995) 214 ITR 386 (Ker.) ref.

S. R. Ashok for the Commissioner.

M. J. Swamy for the Assessee.

2000 P T D 943

[232 I T R 306]

[Andhra Pradesh High Court (India)]

Before Ms. S. V. Maruthi and T. N. C. Rangarajan, JJ

K.V.REDDY and another

versus

ASSISTANT COMMISSIONER OF INCOME-TAX and another

Writ Petition No. 6595 of 1998, decided on 1st April, 1998.

Income-tax---

----Private company--Recovery of tax--Liability of Directors--Only where tax cannot be recovered from company, directors liable---Liability of Directors is joint and several among Directors---Not a joint and several liability with company---Before proceedings against Directors personally, Assessing Officer to give finding that tax due cannot be recovered from company---In the absence of such finding, Assessing Officer does not get jurisdiction to invoke S.179--Indian Income Tax Act, 1961, S.179.

Section 179 of the Income Tax Act, 1961, provides that where any tax due from a private company in respect of any income of, any previous year cannot be recovered, then, every person who was a director of the company during the relevant previous year shall be jointly and severally liable for the payment of tax. The language used in the section is clear. It is only in cases where the tax cannot be recovered from the company that the liability of the director arises. The liability of the directors is joint and several. It is not a joint and several liability with the company. It is not a liability co-extensive with the liability of the company, unlike a principal debtor and the surety. In the case of a principal debtor and surety, the liability of the surety is coextensive with that of the principal debtor and, therefore, both the principal debtor and the surety can be proceeded against simultaneously.

Before the Assessing Officer proceeds against the directors personally, he has to give a finding that the income-tax due for the previous year cannot be recovered from the company. In the absence of a finding conferring jurisdiction on him to recover the income-tax from the director personally, Assessing Officer does not get jurisdiction to initiate proceedings under section 179 of the Act.

P. Srinivas Reddy for Petitioners.

J. V. Prasad for Respondents.

2000 P T D 971

[233 I T R 277]

[Andhra Pradesh High Court (India)]

Before Ms. S. V. Maruthi and T. N. C. Rangarajan, JJ

RAMAKRISHNA CINE STUDIO

versus

COMMISSIONER OF INCOME-TAX

Case Reference No. 127 of 1989, decided on 2nd February, 1998.

(a) Income-tax---

----Capital or revenue receipt---Subsidy---Granted by State Government to film producers to produce feature film---Is in nature of a cash grant to induce film producers to produce feature films in the, State---Expectation that if producers are tempted to make feature films in State, film production in State will reap benefits of organized flourishing film industry shifting to State from elsewhere---Subsidy not granted to assist producer in film making and to increase his profits---Subsidy not assessable as revenue receipt.

(b) Income-tax---

----Appeal---Appeal to A.A.C. or C.I.T. (Appeals)---Maintainability of appeal---Question of maintainability arises only when appeal relates to levy of interest alone---Assessee denying his liability to pay tax on subsidy---Appeal lies to A.A.C. or C.I.T. (Appeals) regarding interest when appeal raises other grounds---Indian Income Tax Act, 1961, S. 246(1).

The Income-tax Officer assessed the film subsidy, of Rs.2 lakhs received by the assessee, a Cine Studio, as revenue receipt for the assessment years 1980-81 and 1981-82. The Commissioner of Income-tax upheld the view of the Assessing Officer. The Tribunal also held that the film subsidy received was a revenue receipt.

The assessee also objected to the levy of interest under section 217 of the Income Tax Act, and contended that it was not justified. The Revenue contended that in the assessment year 1980-81, the Inspecting Assistant Commissioner had waived the interest levied under section 217 of the Act and in the assessment year 1981-82 the interest levied under section 217'of the Act was reduced to Rs.15,000, that since the assessee had filed an application for waiver of interest it was not a case where the levy of interest under section 217 was challenged and hence no appeal lay against the levy of interest under section 217. The Tribunal held that the assessee had filed an application for waiver of interest and, therefore, it was not a case of total denial of levy of interest under section 217. and consequently an appeal was not maintainable against the levy of interest under section 217. The Tribunal also took into account the waiver of interest for the assessment year 1980-81 and the reduction of interest in the year 1981-82. On a reference to the High Court at the instance of the assessee:

Held, (i) that the subsidy granted by the Government is in the nature of at, inducement and it is a cash grant to induce a producer to produce a feature film in the State in the hope and expectation that if producers are tempted to make feature films in the State, film production in the State will reap the benefits of an organised flourishing film industry shifting to the State from elsewhere. It is not granted to assist the producer in film making and to increase his profits and, therefore, it is not taxable in the hands of the assessee as a revenue receipt. Therefore, the sum of Rs.2 lakhs paid by the Government to the assessee was not a revenue receipt in the hands of the assessee and was not assessable to tax.

CIT v. Chitra Kalpa (1989) 177 ITR 540 (AP) fol.

(ii) That if an assessee denies his liability to file returns under section 139 of the Act or denies his liability to pay advance tax, in such a case against the order of interest an appeal lies under section 246(1). However, in cases where the assessee admits his liability to file returns under section 139 or admits his liability to pay advance tax, then it is not a case of denying liability to be assessed under the Act and, therefore, no appeal lies under section 246(1) of the Act.

(iii) That the .question of maintainability of appeal arises only when the appeal relates to levy of interest alone. In the instant case, the assessee denied his liability to pay tax on subsidy and when that was allowed, levy of interest became a consequential issue. Grounds can be taken with reference to interest when the appeal raises other grounds and is otherwise maintainable. Therefore, the Tribunal was not correct in holding that the ground raised against the levy of interest under section 217 could not be entertained.

Central Provinces Manganese Ore Co. Ltd. v. CIT (1986) 160 ITR 961 (SC) and Vital Reddy v. CIT (1987) 165 ITR 673 (AP) ref.

C. Kodandaram for the Assessee.

S. R. Ashok for the Commissioner.

2000 P T D 978

[233 I T R 325]

[Andhra Pradesh High Court (India)]

Before Syed Shah Mohammad Quadri, Actg. CJ. And V. Bhaskara Rao, J

Suit. V. SUNEETHA PRASAD

versus

COMMISSIONER OF INCOME-TAX and another

Writ Petition No. 11573 of 1988, decided on 2nd December, 1997

(a) Income-tax---

----Return---Delay in filing, returns---Interest---No proper explanation for delay in filing returns---Levy of interest was justified---Indian Income Tax Act, 1961, S.139(8)---Constitution of India Art. 226.

(b) Income-tax--

----Penalty---Delay in filing returns---Waiver of penalty---Conditions precedent---Return showing correct income filed voluntarily---Excess claim or deduction was not relevant ---Assessee entitled to waiver of penalty--­Indian Income Tax Act, 1961, Ss:271(l)(a) & 273A---Constitution of India, Art.226.

A bare reading of section 273A of the Income Tax Act, 1961, shows that cases of filing of returns prior to the issue of a notice under section 139(2) or under section 148 of the Act voluntarily and making full and true disclosure of the income in good faith fall within the ambit of clauses (a) and (c) of section 273A(l).

The assessee's income from property for the assessment year 1977-78 was Rs.848 and from other sources Rs.890. She earned Rs.53,929 from sale of land and incurred an interest of Rs.27,271 on the borrowed capital for construction of a cinema hall. It was her case that she was under the impression that there was no taxable income for the assessment year 1977-78. However, she was advised that the profit on sale of land would be considered as capital gain within the meaning of section 45. She filed a return on December 29, 1983 duly computing her total income. The Income-tax Officer completed the assessment on a total income of Rs.63,070 by working out relief under section 80T of the Act at 25 percent. while she claimed 35 percent. The Income-tax Officer levied interest under section 139(8) penalty under section 271(1)(a) for the delay in filing returns. She filed a petition for waiver or reduction of the interest and penalty which was rejected. On a writ petition against the order:

Held, (i) that there was a ,delay of 76 months in filing the return. The assessee's explanation that she was under the impression that she had no taxable income, had been rightly rejected by the income-tax authorities. The levy of interest was valid. The order rejecting the petition to reduce or waive it was justified.

(ii) that the petitioner filed a return voluntarily before any notice under section 139(2) or under section 148 of the Act was issued. As far as the particulars of income or the sale consideration of the land or interest which was sought to be shown as a business loss was concerned, the Revenue did not dispute the figure. The fact that she had claimed deduction of 35 pen cent. instead of 25 percent. under section SOT of the Act would not attract the provisions of section 271(1)(c)., Thus, it was a fit case under section 273(1)(iii)(a) of the Act to waive the penalty. The order rejecting the application for waiver was liable to be quashed.

CIT v. Padma Timber Depot (1988) 169 ITR 646 (AP) ref.

Y. Ramakar for Petitioner.

Standing Counsel for Respondents.

2000 P T D 1050

[233 I T R 421]

[Andhra Pradesh High Court (India)]

Before T. N. C. Rangarajan and R. M. Bapat, JJ

COMMISSIONER OF INCOME-TAX

versus

KOYO SEIKO CO. LTD. and others

C. R. Nos. 5 of 1989 and 286 of 1991, decided on 19th February, 1998.

Income-tax---

----Capital or revenue receipt---Non-resident---Collaboration agreement with a resident---Sale of technical know-how in a foreign country---Finding that no services were actually rendered by non-resident in India with reference to earning of technical fee---Amount received by non-resident was a capital receipt---Amount was not taxable in India---Indian Income Tax Act, 1961, S.9(1).

The assessee, a Japanese. company, entered into a collaboration agreement, dated October 14, 1963, with the Andhra Pradesh Industrial Development Corporation Limited for assisting Andhra companies in the project programme of establishing a bearing factory in India. The agreement provided for payment of a technical fee for parting with the know-how of the Japanese company. The Appellate Tribunal. found that the Japanese company had to supply drawings and data on contracted projects, and thus, share a secret process for the period of agreement which was for nine years, and held that since the Japanese company which had exclusive knowledge lost part of it in India, the amount received as compensation was a capital receipt and could not be taxed in India in the assessment years 1966-67, 1971-72 to 1975-76 and 1978-79. The Appellate Tribunal also found that as far as services rendered by the technicians deputed to India was concerned, they were paid separately and in fact, no services were rendered in India with reference to the earning of the technical fee. On a reference:

Held, that a perusal of the collaboration agreement showed that the know-how was transferred in Japan by providing data relating to the products to be manufactured and what was received was as a lump sum, though in instalments. The Tribunal had found that no services were actually rendered in India and no technical fee could be attributed under section 9(1)(vii) of the Income Tax Act, 1961. Hence, the amount received as technical fee was only a capital receipt for sale of technical know-how abroad and, therefore, not taxable in India.

Aluminium Corporation of India Ltd. v. CIT (1972) 86 ITR 11 (SC); CIT v. Elecon Engineering Co. Ltd. (1974) 96, ITR 672 (Guj.); Handley Page v. Butterworth 19 STC 328 and Rolls-Royce Ltd. v. Jeffrey (Inspector of Taxes) (1965) 56 ITR 580 (HL) ref.

S. R. Ashok for the Commissioner.

Y. Ramakar for the Assessees.

2000 P T D 1076

[133 I T R 453]

[Andhra Pradesh High Court (India)]

Before Ms. S. V. Maruthi and T. N. C. Rangarajan, JJ

A. P. SMALL SCALE INDUSTRIES DEVELOPMENT CORPORATION'

versus

COMMISSIONER OF INCOME TAX

Case Referred No. 32 of 1990, decided on 3rd April, 1998.

Income-tax--

----Depreciation---Condition precedent--Ownership of asset-=-Meaning of "owner"---Building purchased by assessee---Full consideration paid and building occupied but document of sale not registered ---Assessee was owner for purposes of Income Tax Act---Entitled to depreciation---Indian Income Tax Act, 1961, S.32.

The liability to pay income-tax as owner is on the person who received or is entitled to receive the income from the property in his own right. The requirement of registration of the sale-deed in the context of section 22 of the Income Tax Act. 1961, is not warranted. Although under the common law "owner" means a person who has got a valid title legally conveyed to him after complying with the requirements of law such as the Transfer of Property Act. the Registration Act, etc., in the context of section 22 of the Income-tax Act having regard to the ground realities and further having regard to the object of the Income-tax Act, namely, "to tax the income", owner is a person who is entitled to receive income from the property in his own right.

The Andhra Pradesh Industrial Development Corporation constructed a building known as "Parisrama Bhavan". The assessee purchased two floors in the said building. Full consideration was paid to the Government. However, the conveyance deed transferring title to the property was not registered Though the premises were taken possession of in the month of July, 1978, by the assessee, the document was registered on March 31, 1984. The Income-tax Officer held that the assessee was not the owner of the property and, therefore, not entitled for depreciation. This view was upheld by the-Tribunal. On a reference:

Held, that the assessee was entitled to depreciation notwithstanding that the property was subsequently registered.

CIT v. Podar Cement (Pvt.) Ltd. (1997) 226 ITR 625 (SC) applied.

Nawab Mir Barkath Ali Khan v. CIT (1988) 171 ITR 541 (AP) ref.

Y. Ratnakar for the Assessee.

S. R. Ashok for the Commissioner.

2000 P T D 1587

[234 I T R 89]

[Andhra Pradesh High Court (India)]

Before Ms. S. V. Maruthi and T. N. C. Rangarajan, JJ

Mrs. G. Y. CHENOY

Versus

COMMISSIONER OF INCOME-TAX

Case Referred No. 30 of 1990, decided on 22nd April 1998.

Income-tax---

----Capital gains---Deductions---Sale of immovable property---Amount embezzled by person who assisted in, sale--Loss incurred by transferor as owner and not in the course of sale transaction---Not deductible---Indian Income Tax Act, 1961, Ss. 45 & 48.

The assessee appointed her mother, S, as her attorney and agent to sell her property. S took the help of R. R found a buyer and received the sale consideration in cash and cheques. Subsequent to deposit of the cheques, R misappropriated huge sums from it. The assessee offered for assessment the capital gains, which she actually received excluding the amount embezzled by R. The Income-tax Officer held that for the purpose of computing the capital gains tax the entire amount of Rs.5 lakhs under the sale-deed should be taken into account. This was upheld by the Tribunal. On a reference:

Held, that the amounts embezzled were not expenditure incurred wholly and exclusively in connection with such transfer. Therefore, clause (i) of section 48 of the Income Tax Act, 1961, had no application. Even if the principles of accepted commercial practice and trading principles of business are applicable, still in order to claim a deduction, the assessee must establish that the loss is incurred in the carrying on of the operations of the transaction and is incidental to the operations of the transaction. Whether the loss is incidental to the operations of the transaction is a question of fact to be decided on the facts of each case? In the instant case the loss occurred after the transaction was completed and the loss was not incidental to the transaction. It was a loss incurred as owner of the property. The assessee was not entitled to deduction of the amount misappropriated by R.

Badridas Daga v. CIT (1958) 34 ITR 10 (SC); Bansidhar Onkarmal v. CIT (1949) 17 ITR 247 (Orissa); CIT v. Nainital Bank Ltd. (1965) 55 ITR 707 (SC) and Dhun Dadabhoy Kapadia (Miss) v. CIT (1967) 63 ITR 651 (SC) ref

Y. Ratnakar for the Assessee.

J. V. Prasad for the Commissioner.

2000 P T D 1609

[234 I T R 140]

[Andhra Pradesh High Court (India)]

Before Ms. S. V. Maruthi and T. N. C. Rangarajan, JJ

M. SYAMALA RAO

Versus

COMMISSIONER OF INCOME-TAX

Case Referred No.27 of 1990, decided on 29th April, 1998

INCOME TAX---

----Capital gains---Short-term or long-term capital gains---Agreement of sale executed by vendor on 1-5-1962, and possession of land delivered to assessee on same date---Document registered on 8-6-1979---Registration of document relates back to date on which agreement of sale was executed in favour of assessee---Assessee deemed to be owner of property with effect from 1-5-1962---Assessee held property for more than 36 months---Sale of land by assessee after converting it into plots ---Ganis from sale not to be assessed as short-term capital gains---Indian Income Tax Act, 1961, S.45.

The assessee entered into an agreement of sale, dated May 1, 1962, with the vendor and paid him a certain amount for the purchase of a land. The sale-deed was executed on June 8, 1979. The assessee contended before the Income-tax Officer that the land was purchased in the year 1962 itself and he was in possession of the land and on payment of the sale consideration he was the legal owner of the land and that after he became the full-fledged owner by registering the document on June 8, 1979, he sold that land after converting it into plots. The Income-tax Officer held that the land was registered in the name of the assessee on June 8, 1979, and, therefore, the capital gains derived by the assessee on the sale of the plots should be assessed as short-term capital gains. On appeal, the Appellate Assistant Commissioner confirmed the order of the Income-tax Officer. On further appeal, the Tribunal affirmed the order of the Appellate Assistant Commissioner. On a reference:

Held, that a perusal of the document made it clear that the agreement of sale was executed in 1962 and possession was delivered to the assessee on the same date and the sale consideration was also paid by the assessee to the vendor, though the document was registered on June 8, 1979. The registration of the document related back to the date on which the agreement of sale was executed in favour of the assessee by the vendor. Therefore, the assessee was deemed to be the owner of the property with effect from May 1, 1962. Therefore, the assessee had held that property for more than 36 months and the capital gains derived by the assessee on the sale of the plots could not be assessed as short-term capital

C. Kodanda Ram for the Assessee.

S. R. Ashok for the Commissioner.

2000 P T D 1620

[234 I T R 95]

[Andhra, Pradesh High Court (India)]

Before Ms. S. V. Maruthi and T. N. C. Rangarajan, JJ

NAOZAR CHENOY

Versus

COMMISSIONER OF INCOME-TAX

Case Reference No. 39 of 1990, decided on 22nd April, 1998.

Income-tax

----Capital gains---Deduction---Sale of building---Expenditure incurred in getting tenants to vacate property---Deductible---Amount embezzled by person who assisted in sale---Loss incurred by transferor as owner and not in the course of sale transaction---Not deductible---Indian Income Tax Act, 1961, Ss.45 & 48.

The assessee sold property and received a consideration of eighteen lakhs of rupees. In computing the capital gains, he claimed a deduction of Rs.2,04,107 which consisted of Rs.63,000 which was embezzled by the power of attorney holder who was entrusted with the job of selling the property, Rs.43,107 being the interest paid on amounts borrowed in connection with the sanction of plans and building permit as per the. agreement under which the building was sold: Rs.34,200 being the interest paid to TNP for cancellation of agreement; Rs.60,000 being the amount paid to the tenant for vacating the premises and Rs.3,800 being the interest paid to OB on the moneys borrowed to repay advances received from earlier proposed vendees. The Tribunal disallowed these amounts. On a reference:

Held, (i) that as regards the amount of Rs.63,000 which 'was embezzled by the person who was entrusted with the job to assist the agent of the assessee in selling the property, the assessee was not entitled to the deduction of the said amount as he lost the amount in the capacity as an owner and not in the course of the transaction and it was also not incidental to the transaction.

Mrs. G. Y. Chenoy v. CIT (1998) 234 ITR 89 (AP) fol.

(ii) That the expenditure in getting the tenants vacate the premises had '< nexus with the transaction as without the tenants vacating the premises, the building could not be sold. The assessee was entitled to the deduction of Rs.43,107, Rs.34,200, Rs.60,000 and Rs.3,800.

Y. Ratnakar for the Assessee.

J. V. Prasad for the Commissioner.

2000 P T D 1744

[234 I T R 369]

[Andhra Pradesh High Court (India)]

Before Ms. S. V. Maruthi and T. N. C. Rangarajan, JJ

COMMISSIONER OF INCOME-TAX

Versus

TRANSPORT CORPORATION OF INDIA

I.T.C. No. 17 of 1994; decided on 30th April 1998.

Income-tax---

----Reference---Advance tax---Penalty---Underestimate of advance tax--­Finding that underestimation was not deliberate and cancellation of interest--­Tribunal justified in deleting penalty---No question of law---Indian Income Tax Act, 1961, Ss.215. 256 & 273

The assessee was a public limited company engaged in the business of transport of goods. For the assessment year 1979-80, the assessee filed an estimate of advance tax under section 212 of the Income Tax Act, 1961, at Rs.20,00,000. On December 15, 1978, the assessee also filed another estimate showing an income of Rs.50,00,000. The assessee-company filed a return of income for the assessment year 1979-80 declaring a total income of Rs.80,95,727. The assessment was completed on a total income of Rs.85,14,962. The Assessing Officer levied penalty of Rs.1,00,000. The Tribunal found that interest had been waived as there was no mala fide intention on the part of the assessee. It, therefore, deleted the penalty. On an application to direct reference:

Held, dismissing the application, that the Tribunal was right in cancelling the penalty on the ground that the authorities were not competent to impose penalty having waived the interest. No question of law arose from its order.

S. R. Ashok for Appellant.

Y. Ratnakar for Respondent.

2000 P T D 1768

[234 I T R 487]

[Andhra Pardesh High Court (India)]

Before Dr. Motilal B. Naik and Y. V. Narayana, JJ

COMMISSIONER OF INCOME-TAX

versus

SRI DURGA TOBACCO CO.

Case Referred No. 198 of 1990, decided on 29th June, 1998.

(a) Income-tax---

----Appeal---Maintainability .of appeal---Return filed belatedly ---Assessee denying liability to pay interest ---CIT (Appeals) directing ITO to examine question of chargeability of interest after giving opportunity to assessee to make representation and also after taking into account advance tax paid--­ITO passing order in disregard of direction given by CIT (Appeals)---Action of ITO amounts to improper exercise of power vested in him---Order passed from improper exercise of power by an authority is an appeal able order--­Appeal lies against levy of interest under S.139(8)---Indian Income Tax Act, 1961, S.139(8).

For the assessment year 1979-80, the Income-tax Officer held by his assessment order, dated March 28, 1980, that the assessee was liable to pay interest of Rs.10,920 under section 139(8) of the Income Tax Act, 1961. On appeal, the Commissioner of Income-tax (Appeals) directed the Income-tax Officer to look - into the . question of -chargeability of interest under section 139(8) and compute the same correctly after giving credit to the advance tax paid by the assessee. Pursuant to the said order, the Income-tax Officer passed a consequential order on March 15, 1982 justifying the levy of interest of Rs.10,750 under section 139(8) on the ground that the assessee did not pay instalments of advance tax for the periods of September and December within the due dates prescribed. The Income-tax Officer held that the payments of these instalments of advance tax could only be treated as deposits and no credit could. be given to the assessee while charging interest under section 139(8). The Income-tax Officer while passing the consequential assessment order did not give any opportunity to the assessee for a proper representation on .the question of chargeability of interest under section 139(8). In the meanwhile, the assessee filed an appeal before the Tribunal on certain aspects. The Tribunal endorsed the order of the Commissioner of Income-tax (Appeals) and directed the Income-tax Officer to give an opportunity to the assessee before passing a consequential order and remitted the matter to the Income-tax Officer. Against the consequential order passed by the Income-tax Officer, dated March 15, 1982, the assessee again filed an appeal before the Commissioner of Income-tax (Appeals) and contended that the Income-tax Officer failed to correctly give effect -to the earlier order, dated February 24, 1982, of the Commissioner of Income-tax (Appeals). While disposing of. the appeal filed against the consequential order, dated March 15, 1982, the Commissioner of Income-tax (Appeals) held that the amount of advance tax collected by using coercive methods shall not lose its character of advance tax merely because the payment was trade after the due date of instalments, that the advance tax recovered had to be given credit to under section 219 of the Act, that though some instalments of advance tax were paid after the dates, still they should be treated as part of the advance tax paid under Chapter 17 and hence directed the Income-tax Officer to compute the tax liability as if the assessee-firm was an unregistered firm and deduct the advance tax paid and thereafter compute the, interest liability on the balance amount, if any, under section 139(8) while giving an opportunity to the assessee. On appeals to the Tribunal, the Department contended that there was no right of appeal against levy of interest under. section 139(8) and that when there was delay in payment of advance tax instalments such payments were only to be treated as deposits, but not as advance tax paid and no credit could be. given for determining the liability under section 139(8). The Tribunal rejected both the contentions of the Department. On a reference:

Held, affirming the decision of the Tribunal, (i) that when a return is furnished belatedly or is not furnished within the specified date on the computation of the tax liability on the total income as determined either under regular assessment or the assessment under section 144 of the Act, the net tax liability is arrived at as reduced by the advance tax paid and any tax deduction at source.

(ii) That the Legislature has not given unfettered powers to the assessing authority to ignore the direction given by the departmental appellate authorities while passing a consequential order. In this case, though the Commissioner of Income-tax (Appeals) specifically directed the Income-­tax Officer to give an opportunity to the assessee and also to look into the question of chargeability of interest under section 139(8) of the Act, by taking into account the advance tax- paid by the assessee, the assessing authority passed the consequential order on March 15, 1982 in total disregard of the direction given by the appellate authority. This action of the assessing authority tantamounts to improper exercise of power vested in him and such an order is liable to be corrected on an appeal by the aggrieved party by moving the appropriate higher appellate forum, even though there is no specific provision in the Act, providing for an appeal to correct the improper order which has the tendency of causing prejudice to either party.

(iii) That the assessee had denied its liability to pay interest under -section 139(8). Had the assessing authority before passing his consequential order on March -15, 1982, given a fair opportunity to the assessee, the assessee could have convinced the assessing authority on the question of chargeability of interest under section 139(8). Therefore, the order passed from improper exercise of power by an authority is an appealable order. Therefore, an appeal lay against the levy of interest under section 139(8).

Central Provinces Manganese Ore Co. Ltd. v. CIT (1986) 160 ITR 961 (SC) fol.

(b) Income-tax---

----Advance tax---Instalments of advance tax paid beyond due dates but paid within financial year ---Assessee entitled to credit for payment of advance tax instalments paid beyond due dates for purpose of charge of interest under S.139(8)--Indian Income Act, 1961, S. 139(8).

Section 139(8) makes it clear that when a return is filed after a specified period, the assessee shall be liable to pay simple interest at a certain rate reckoned from the day immediately following the specified date to the date of furnishing. the return. But, however, on the payment of tax payable on the total income as determined on regular assessment, the tax liability has to be determined after giving credit to the advance tax paid, if any. This provision does not give any scope for section thoughts for not giving any credit to the advance tax paid, while determining the liability under section 139(8) of the Act also. Therefore, the amount of advance tax paid by the assessee beyond the stipulated dates were to be treated as advance tax and had to be given credit to for the purpose of charging the interest under section 139(8) of the Act.

Santha S. Shenoy v. Union of India (1982) 135 ITR 39 (Ker.) fol.

Bhikoobhai N. Shah v. CIT.(1978) 114 ITR 197 (Guj.) and CIT v. Jagdish Prasad Ramnath (1955) 27 ITR 192 (Born.) ref.

J.V. Prasad for the Commissioner.

Nemo for the Assessee.

2000 P T D 2322

[236 I T R 746]

[Andhra Pradesh High Court (India)]

Before Ms. S. V. Maruthi and T. Ranga Rao, JJ

COMMISSIONER OF INCOME-TAX

versus

NOVAPAN INDIA LTD.

Case Referred No.36 of 1986, decided on 5th October, 1998.

Income-tax---

----Reassessment---Information---"Information" includes information as to true and correct state of law and would include information as to relevant judicial decisions---Decision which came to knowledge of ITO after assessment is made is "information"---Reassessment based on such information is valid---Indian Income Tax Act, 1961, S.147(b).

The word "information" in section 147(b) of the Income Tax Act, 1961, includes information as to the true and correct state of the law acid so would cover information as to relevant judicial decisions.

The Income-tax Officer, in the original assessment, brought Rs.80,000 to tax. This amount was by way of interest on short-term deposits out of the assessee's own funds. The Commissioner of Income-tax by his order, dated September 1, 1981, gave relief to the assessee. However, the Department did not accept that decision. Meanwhile, the Income-tax Officer felt that even the original assessment was an underassessment inasmuch as the interest from short-term deposits in the bank out of borrowed funds, had not been taxed at the time of original assessment. Therefore, the Income-tax Officer, following the decision of the Bombay High Court in CIT v. United Wire Ropes Ltd. (1980) 121 ITR 762 and the decision of the Madras High Court in CIT (Addl.) v. Madras Fertilisers Ltd. (1980) 122 ITR 139, reopened the assessment under section 147(b) of the Income-tax Act and held that the entire interest earned during the pre-production period was assessable to tax under the head "other sources" without any set off of interest paid by the assessee on borrowed funds The Commissioner of Income-tax (Appeals) allowed the appeal filed by the assessee. The Tribunal set aside the reassessment on the ground that the judgments of the Bombay High Court and Madras High Court were not applicable to the facts of the case and that there was no information before the Income-tax Officer warranting the reopening of assessment under section 147(b) of the Income-tax Act. At the instance of the Revenue, two questions, viz., (1) whether the Tribunal was justified in upholding the Commissioner of Income-tax (Appeals) orders that the reassessment proceedings were not valid, and (2) whether the Tribunal was justified in holding that the interest on short-term bank deposits could not be considered as assessee's income, were referred for the opinion of the High Court. The High Court by its judgment, dated March 21, 1988, held that the second question was covered by its judgment in CIT v. Nagarjuna Steels Ltd. (1988) 171 ITR 663 and following the same the said question was answered in favour of the assessee and against the Revenue. The High Court also observed that in view of the answer to the second question, the first question did not ;,arise. From the judgment of the High Court the Commissioner of Income-tax filed an appeal before the Supreme Court. The Supreme Court, by its judgment, dated December 11, 1997, while answering question No.2 in favour of the Revenue, remanded the matter to the High Court for considering the first question. On remand, the Revenue contended that in view of the judgment of the Supreme Court in Tuticorin Alkali Chemicals and Fertilizers Ltd.'s case (1997) 227 ITR 172, the interest earned by the assessee on deposits in bank was income assessable to tax, that since the Income-tax Officer did not include the income, thus, earned by the assessee in the original assessment, he had reopened the assessment following the judgment of Madras High Court in Madras Fertilisers Ltd.'s case (1980) 122 ITR 139, that the said judgment was information within the meaning of section 147(b) of the Income-tax Act, that, therefore, the reassessment proceedings initiated by the Income-tax Officer under section 147(b) were within his jurisdiction:

Held, that a decision which came to the knowledge of the Income­ tax Officer after the assessment is made, is information within the meaning of section 147(b) of the Act. The Tribunal's order for the assessment years 1977-78 and 1979-80 wherein they had referred to the judgment of the Madras High Court in Madras Fertilisers Ltd's case (1980) 122 ITR 139 was, dated January 19, 1984, whereas the original assessment order was dated September 30, 1980, and the reassessment order was, dated March 26, 1983. Therefore, the Madras High Court judgment in Madras Fertilisers Ltd's case (1980) 122 ITR 139 was not before the Income-tax Officer at the time when he made the original, assessment. Therefore, the reassessment proceedings were valid.

A.L.A. Firm v. CIT (1991) 189 ITR 285 (SC); CIT v. Nagarjuna Steels Ltd. (1988) 171 ITR 663 (AP); CIT v. United Wire Ropes Ltd. (1980) 121 ITR 762 (Bom.); CIT (Addl.) v. Madras Fertilisers Ltd. (1980) 122 ITR 139 (Mad.); Kalyanji Mavji & Co. v. CIT (1976) 102 ITR 287 (SC); Maharaj Kumar Kamal Singh v. CIT (1959) 35 ITR 1 (SC) and Tuticorin Alkali Chemicals and Fertilizers Ltd. v. CIT (1997) 227 ITR 172 (SC) ref.

J. V. Prasad for the Commissioner.

C. Kodanda Ram for the Assessee.

2000 P T D 2330

[236 I T R 412]

[Andhra Pradesh High Court (India)]

Before Ms. S. V. Maruthi and T. Ranga Rao, JJ

COMMISSIONER OF INCOME-TAX

versus

AGARWAL ENTERPRISES

Case Referred No. 139 of 1990, decided on 14th September, 1998.

Income-tax---

----Firm---Stock-in-trade---Valuation---Stock-in-trade both at beginning and end of period covered by account to be valued at cost or' market price whichever is lower---Real income can be ascertained only on basis of real value of opening and closing stock---Difference between basis of real value of opening and closing stock is real income---Firm dissolved within two months of its constitution---There will not be much difference between value of opening and closing stock---Does not result in escapement of income.

According to commercial accounting stock-in-trade both at the beginning and end of the period covered by the account should be entered at cost price or market price, whichever is lower. It is not always necessary that the book value should be accepted. The true test is what is the fair value. The authority has to ascertain the fair value of stock-in-trade. The correct value is either market price or the cost price. Further, the authority has to ascertain the real value of the property, real value of the opening stock and the closing stock as he has to ascertain the real income for the purpose of assessment. If there is a difference between the real value of the opening stock and the closing stock, then the difference is liable to income-tax:

Held, on the facts of the case, that since the partnership firm was dissolved within two months of its constitution, there was not much difference between the value of the opening stock and the closing stock. Therefore, there was no escapement of income.

A.L.A. Firm v. CIT (1991) 189 ITR 285 (SC) and Sunil Siddharthbhai v. CIT (1985) 156 ITR 509 (SC) ref.

S.' R. Ashok for the Commissioner.

A. Satyanarayana for the Assessee.

2000 P T D 2365

[236 I T R 335]

[Andhra Pradesh High Court (India)]

Before Dr. Motilal B. Naik and Y. V. Narayana, JJ

V. B. C. INDUSTRIES LTD.

versus

COMMISSIONER OF INCOME-TAX

Income-tax Case No.27 of .1993, decided on 3rd July, 1998.

Income-tax---

----Reference--Question of law---Capital or revenue expenditure ---Assessee engaged in business of bottling aerated water- --Altering its objects to pursue other features--Assessee entering into understanding with another company for identification and preparation of project reports---Expenditure incurred in connection with project reports claimed as revenue expenditure---Tribunal finding expenditure incurred was capital expenditure---Question of law fit for reference---Indian Income Tax Act, 1961, Ss.37(1) & 256(2).

The assessee-company which was dealing in the business of bottling aerated water altered the objects clause of its memorandum of association so as to pursue other features.' In pursuance of that, the assessee approached another company, VBCC, for identification and for preparation of two project reports. Pursuant to, an understanding between the assessee and VBCC, the assessee compensated VBCC for the benefits derived by it. For the assessment year 1988-89, the assessee claimed deduction of the expenditure of Rs.11,52,506 .incurred in connection with the project report, on the ground that it was revenue expenditure. The Assessing. Officer 'rejected the claim of the assessee for deduction and held that the expenditure incurred was capital expenditure. The Commissioner (Appeals) confirmed the order of the Assessing Officer. On further appeal, the Tribunal also rejected the claim of the assessee for deduction. The Tribunal also rejected the application of the assessee under section 256(1) of the Income Tax Act, 1961. On an-application filed under section 256(2):

Held, that a question of law, whether the Tribunal was right in holding that the expenditure of Rs.11,52,5.06 incurred by the assessee in connection with project development and investigation was with a view to bringing into existence an asset or advantage of an enduring nature, arose for reference.

CIT v. Barium Chemicals Ltd. (1987) 168 ITR 164 (AP); CIT v Bharat Earth Movers Ltd. (1985) 155 ITR 321 (Kar.); CIT v. Sri Krishna Bottlers (Pvt.) Ltd. (1989) 175 ITR 154 (AP);. 'CIT v. Venkateswara Transmission (P.) Ltd. (1988) 171 ITR 476 (AP); Praga Tools Ltd. v. CIT (1980) 123 ITR 773 (AP) and Scientific Engineering House (P.) Ltd. v. CIT (1986) 157 ITR 86 (SC) ref.'

C. Kodanda Ram for Petitioner

S. R. Ashok for Respondent

2000 P T D 2489

[236 I T R 465]

[Andhra Pradesh High Court (India)]

Before Dr. Motilal B. Naik and Y. V. Narayana, JJ

B. R. ASSOCIATES

versus

COMMISSIONER OF INCOME-TAX

R. No.41 of 1990, decided on 21st July, 1998.

Income-tax---

----Capital or revenue receipt---Salami received in lieu of rent---Tribunal finding that assessee collecting lesser rents from tenants though rents at that point of time in neighbouring areas more---Salami or Pagadi was received only as advance---Is a revenue receipt.

For the assessment year 1968-69, the Income-tax Officer found that. the assessee had received a sum of Rs.8,500 from D and Rs.9,000 from A as Salami in instalments. However, the partners of .firm D denied payment of Salami or Pagadi to the assessee. The Income-tax Officer treated the income as income from other sources and assessed the same to tax. In so far as the Salami received from A was concerned, the assessee admitted having received the amount of Rs.9,000 during the assessment year in question as Salami from them. The assessee, however, contended that the said Salami should be assessed as a capital receipt and not as a revenue receipt. The assessee further contended that the Salami was actually received in lieu of rent. However, the Income-tax Officer held that the Salami amounts were received from A 'at the time of building construction, that the persons from whom the monies were received were, accommodated in the building as tenants and they were paying lesser rents, that the Pagadi had to be regarded as advance payment and hence the same was assessable as income. The Tribunal upheld the order of the Income-tax Officer, on reference:

Held, that the assessee was collecting lesser rents from the tenants though the rents at that point of time from the neighbouring areas were more and that the Salami or Pagadi amount received by the assessee from A was only as advance and had to be assessed as a revenue receipt.

Member for the Board of Agricultural Income-tax v. Sindhurani Chaudhurani (1957) 32 ITR 169 (SC); Durga Das Khanna v. CIT-(1969) 72 ITR 796 (SC) and Maharaja Chintamani Saran Nath Sah Deo v. CIT (1971) 82 ITR 464 (SC) distinguished.

C. V. Rajeev Reddy for the Assessee.

S. R. Ashok for the Commissioner.

12000 P T D 2601

[236 I T R 648]

[Andhra Pradesh High Court (India)]

Before Ms. S. V. Maruthi and R. Bayapu Reddy, JJ

COMMISSIONER OF INCOME-TAX

versus

ANDHRA PRADESH INDUSTRIAL INFRASTRUCTURE CORPORATION

Case Referred No. 159 of 1990, decided on 21st September, 1998

(a) Income-tax---

----Business---Business income or income from property---Lease---Lease of industrial sheds constructed by public sector company---Income from lease was assessable as business income---Indian Income Tax Act, 1961, Ss.22 & 28.

The assessee, a public sector undertaking of the State Government, purchased land, developed it and constructed industrial sheds thereon. The industrial sheds had been leased out. The assessee claimed that the lease rent realised from the industrial sheds should be treated as income from business. The Income-tax Officer assessed the income as income from property. The Commissioner of Income-tax (Appeals) and the Tribunal, however, held that it was assessable as business income. On a reference:

Held, that the income was assessable as business income.

CIT v. A. P. Small Scale Industrial Development Corporation (1989) 175 ITR 352 (AP) fol.

(b) Income-tax---

----Accounting---Change in method of accounting---Change in method pertaining to one set of debtors---Finding by Tribunal that changed method had been followed consistently and that change was bona fide---Accounts could not be rejected---Indian Income Tax Act, 1961, S.145.

The assessee had been advancing loans to various cooperative sugar factories. The interest received on such loans had been accounted for on accrual basis including for the accounting year ending had on March 31, 1979. However, for the accounting year under consideration, namely, 1980-81, the assessee had chosen to account for such interest only on cash basis. The reason for this change was given in the directors' report. The directors had stated that for the year concerned, it had been decided to account for the interest on bridge loans advanced to cooperative sugar factories on receipt basis. The directors also passed a resolution to this effect and the interest due was not shown in the accounts. The Income-tax Officer was of the opinion that the interest on bridge loans could not be accepted on cash basis. The Tribunal found that the change in the method was consistent and bona fide; that no ulterior motive could be attributed for the change in the method; that it had been consistently followed in the subsequent years. It held that the changed method was in accordance with law. On a reference:

Held that the Tribunal found that the assessee was adopting the change in the method consistently and the only change in the accounting system was bona fide. The Tribunal was correct in law in holding that in spite of adoption of cash system, of accounting for interest accrued on loans advanced to various cooperative sugar factories, the income of the assessee could be properly deduced when the interest payable by it was being accounted for on accrual basis, and the assessee's case was not hit by the proviso to section 145(1) of the Income Tax Act, 1961.

S. R. Ashok for the Commissioner.

Y. Ratnakar for the Assessee.

2000 P T D 2791

[236 I T R 503]

[Andhra Pradesh High. Court (India)]

Before Dr. Motilal B. Naik and Y. V. Narayana, JJ

COMMISSIONER OF INCOME-TAX

versus

NEW SRINIVASA CONSTRUCTION CO.

Income-tax Case No.3l of 1998, decided on 5th August, 1998.

(a) Income-tax---

----Reference---Revision--Appeal---Merger of order of Assessing Officer in appellate order---No attempt by Revenue to show that entire order of A.O. had not merged in appellate order---Tribunal finding that there had been a total merger and setting aside order of revision---No question of law arose--­Indian Income Tax Act, 1961, Ss.256 & 263.

Under section 256(2) of the Income Tax Act, 1961, the High Court, if not satisfied with the correctness of the decision of the Tribunal, could give a direction to the Tribunal for stating the case and referring the questions of law for the opinion of the High Court. At this stage it is not open to the applicant to raise fresh grounds before the High Court.

Held, dismissing the application to direct reference, that no contention was raised by the Revenue before the Tribunal to the effect that the total order of the Assessing Authority did not fall for consideration before the Commissioner of Income-tax (Appeals). No attempt was made before the, Tribunal on behalf of the Revenue to point out such, of those specific aspects of the Assessing Authority's order, which had not been considered by the Commissioner of Income-tax. (Appeals) so as to justify the order of the Commissioner of Income-tax passed under section 263 of the Act. The Tribunal had categorically found that the entire order of the Assessing Authority had fallen for consideration before the Commissioner of Income-tax (Appeals) and, as such, the entire order of the Assessing Authority, dated September 19, 1989, had merged with the order of the Commissioner of Income-tax (Appeals), dated February 28, 1992. That being the finding of fact, the question whether the Tribunal was justified in setting aside the order of the Commissioner of Income-tax (Appeals) could not be referred.

CIT v. Shri Arbuda Mills Ltd. (1998) 231 ITR 50 (SC) ref.

(b) Income-tax---

----Reference---Application to direct reference---New ground cannot be raised at that stage ---Indian Income Tax Act, 1961, S.256.

J. V. Prasad for Petitioner.

K. K. Viswanathan for Respondent.

2000 P T D 2830

[236 I T R 932]

[Andhra Pradesh High Court (India)]

Before Ms. S. V. Maruthi and R. Bayapu Reddy, JJ

Y. V. SUBBA RAO

versus

COMMISSIONER OF INCOME-TAX

Case Referred No.217 of 1990, decided on 22nd September, 1998.

(a) Income-tax---

----Discontinuance of business---Construction work entrusted to three firms in all of which assessee was a partner---Amount received in respect of construction work after business was discontinued---Amount was assessable in hands of three firms---Indian Income Tax Act, 1961, S.176.

The assessee, an individual, submitted a tender for the construction of two aqueducts in Lower Sileru Project. In order to effectively carry out the construction, three different partnership firms were constituted which undertook the work in three separate sections. In all the three firms, the assessee was a partner. The construction work was completed by 1976. Thereafter, the firms had no contract works. Due to certain disputes that arose between the assessee and the electricity -department, the matter was referred to the arbitrator. The arbitrator awarded payment of Rs.7,46,471 by his award, dated December 19, 1976. The award was also confirmed by the Civil Court. The assessee received the amount on February 17, 1979. The Income-tax Officer assessed the amount in the hands of the assessee. The Tribunal held that the amount was assessable in the hands of the three firms. On a reference:

Held, that the finding of the Tribunal that there was discontinuance of the work by the three firms was a finding of fact which was based on the record before the Tribunal and it had become final. Once there was a discontinuance of the business by the three firms, the amount received after discontinuance would be deemed to be the income of the recipient and charged to tax in the year of receipt, as had he received the same before discontinuance, he would have been laible to pay tax. Prior to discontinuance the three firms were entitled to receive income. It was only on account of the discontinuance 'of the firms, that the assessee had received the amount. Therefore, the assessee was only a trustee and the actual recipients were the three firms. The provisions of section 176(3Aj of the Income Tax Act, 1961, were applicable and the amount of Rs.7,46,471 could not be assessed in the hands of the assessee-recipient but in the hands of the three firms which actually executed the contract:

Held also, that questions Nos. l and 2 could not be answered as, in spite of service of notice, the assessee was not present either in person or through any counsel.

(b) Income-tax---

----Reference---Reference at instance of assessee---Assessee absent in spite of service of notice---Reference could not. be answered---Indian Income Tax Act, 1961, S.256.

S. R. Ashok for the Commissioner.

2000 P T D 2933

[234 I T R 756]

[Andhra Pradesh High Court (India)]

Before Dr. Motilal B. Naik and Y. V. Narayana, JJ

COMMISSIONER OF INCOME-TAX

versus

SARASWATHI TALKIES

Case Referred No.50 of 1990, decided on 24th July, 1998.

Income-tax---

----Capital gains---Exemption---Relinquishment of rights over capital assets amount to transfer---Firm--Firm formed to do businesses of exhibition of films---Due to disputes among partners, suit instituted for rendition of accounts and dissolution of partnership by some partners---During pendency of suit, compromise effected and deed of compromise filed in Court--­Pursuant to compromise decree all partners authorising a co-partner to sell partnership property by auction---In auction, property purchased by one of the partners of dissolved firm and relinquishment deed on behalf of firm executed in favour of purchaser---Firm stood dissolved by virtue of compromise decree---Transaction was an outright sale for gains to realise sale proceeds of property---There was no distribution of capital asset in specie on dissolution ---Assessee-firm not entitled to exemption from tax on capital gains arising on sale---Indian Income Tax Act, 1961, Ss.2(47) & 47(ii).

Under section 2(47) of the Income Tax Act, 1961, relinquishment of rights over a capital asset shall be treated as a "transfer". As per the above provision, a sale, exchange or "relinquishment" of a capital asset shall be regarded as a "transfer". Thus, the gains arising from the transfer---may be in the form of a sale or exchange or relinquishment---of a capital asset effected in the previous year are chargeable to income-tax under the head "Capital gains" under the provisions of section 45 of the Act.

A firm was formed to do business of exhibition of films. Due to disputes among the partners, a suit for rendition of accounts and dissolution of the partnership was instituted by some of the partners. During the pendency of the suit a compromise was effected among the partners and a compromise decree was passed by the Court in terms of the said compromise recorded by the Court. Pursuant to the compromise decree a general power of attorney was executed by all the partners in favour of a co-partner authorising him to sell the partnership property by auction. In the auction held, the property was purchased by one of the partners and a deed of relinquishment on behalf of the firm was executed in favour of the purchaser. The Income-tax Officer computed capital gains in the transaction in a sum of Rs.1, 43,420. The assessee-firm contended that the theatre was distributed to one of the partners as part of the dissolution and that the dissolution was complete with the auction of the partnership property and that the capital gain resulting from the auction was exemption under section 47(ii) of the Income Tax Act, 1961. The Income-tax Officer held that the theatre was leased out and there was no firm, that there was a sale of the theatre by auction to one of the partners, that the transfer was by an association of persons, that there was no distribution of any capital asset coming within the purview of section 47(ii) and that, therefore, the assessee was not entitled to claim exemption under the section. Oat appeal, the Appellate Assistant Commissioner confirmed the order of the Income-tax Officer. On further appeal, the Tribunal held that there was distribution of property as a result of dissolution of the firm and that the assessee was entitled to exemption from tax on capital gains on the. sale of the partnership property. On a reference:

Held, reversing the decision of the Tribunal, that the sequence of events suggested that pursuant to the compromise, there was a Court decree for dissolution and on the dissolution of the firm pursuant to the Court decree, the partnership property was sold in auction in final settlement of accounts among the partners. Therefore, the assessee-firm stood dissolved by virtue of Court's compromise decree.

(ii) That the circumstances and manner in which the transaction took place ex facie indicated that the property of the dissolved firm was disposed of by a co-partner by way of auction so as to have a gain in terms of money to the dissolved firm, which money was to be distributed among all the partners on dissolution. Such a disposal was nothing but an outright sale for gains. What is actually exempted under clause (ii) of section 47 is the actual distribution of capital asset in kind on the dissolution of the firm and not the distribution of the sale proceeds that are realised on the transfer of such capital asset. There was a sale and there wits distribution of sale proceeds and not the capital asset in specie on the dissolution of the partnership firm. Therefore, the assessee-firm was not entitled to exemption from tax on capital gains arising from the transaction of sale of partnership property under section 47(ii) of the Act.

James Anderson v. CIT (1960) 39 ITR 123 (SC) applied.

CIT v. Walji Damji (1955) 28 ITR 914 (Bom.); Gowri Tile Works v. CIT (1957) 31 ITR 250 (Mad.) and Muthappa Chettiar (E.M.) v. ITO (1961) 41 ITR 1 (SC) ref.

J. V. Prasad for the Commissioner.

K. Ranganathachari for the Assessee.

2000 P T D 3123

[237 I T R 392]

[Andhra Pradesh High Court (India)]

Before Dr. Motilal B. Naik and Y. V. Narayana, JJ

COMMISSIONER OF INCOME-TAX

versus

BAKELITE HYLAM LTD.

Income-tax Case No.34 of 1998, decided on 6th October, 1998.

Income-tax---

----Reference---Question of law---Refund---Regular assessment---Return accepted under S.143(1)(a) and refund granted to assessee---Subsequently regular assessment made under S.143(3) resulting in further amount of refund---Commissioner holding that income assessed under S.143(3) could not be less than returned income and no further refund could be given except what was due on basis of return---Assessing Authority entitled to determine quantum of refund in regular assessment---No question of law arose for reference---Indian Income Tax Act, 1961, Ss. 143 & 256(2).

The assessee-company filed its return for the assessment year 1989-90 on December 29. 1989, showing a net income of Rs.2,32,41,730. The return was processed under section 143(1)(a) of the Income Tax Act, 1961, accepting the returned income and an intimation to that' effect was issued to the assessee-company on June 11, 1990. which resulted in a refund of an amount of Rs.1,08,00.894. Out of the said amount, a certain sum was adjusted towards tax arrears and the balance of Rs.84,88,828 was refunded to the assessee-company. Subsequently, the case of the assessee-company was taken up for scrutiny under section 143(3) of the Act on March 27, 1992. "The Assessing Officer determined the taxable income at Rs,1,76,62,580 which resulted in a further refund of Rs.4,1,82,929. The Commissioner took the view that the income assessed by the Assessing Officer in respect of the assessee-company under section 143(3) of the Act could not be less than the returned income shown by the assessee-company nor a further refund can be given except what was due on the basis of the return which was already allowed while making the provisional assessment under section 143(1)(a) of the Income-tax Act. The Commissioner was of the further view that the order of assessment made by the Assessing Officer on March 27, 1992, was also contrary to the instructions of the CBDT in Reference No.549, dated October 31, 1989 (1990) 182 ITR (St.) 19. Therefore, the Commissioner of Income-tax initiated revisional proceedings under section 263 of the Act for setting aside the assessment made under section 143(3). The assessee contended that the assessment order, dated March 27, 1992, was in accordance with law and the Assessing Officer had rightly allowed the deduction being the differential value of opening and closing stocks by following consistently the method of valuation and the interests of the Revenue had not suffered. The assessee also contended that in terms of section 237 of the Income-tax Act, the assessee was entitled to the refund arising on the assessment or otherwise of the amount which had been paid in excess of the tax payable by it under the Act. The Commissioner of Income­ tax, however, rejected the objections raised by the assessee-company and by his order passed under section 263 of the Act, dated March 17, 1993, directed the Assessing Officer to modify the assessment order in such a way that the income determined would not be less than the returned income and no refund shall arise thereby. On appeal to the Tribunal, the assessee contended that the view taken by the Commissioner of Income-tax that with effect from April 1, 1989, an assessment made under section 143(3) could not result in a refund was erroneous. The Tribunal allowed the appeal filed by the assessee and set aside the order passed by the Commissioner of Income-tax under section 263 of the Act. The Revenue filed an application under section.256(1) which was dismissed by the Tribunal. On'an application filed under section 256(2):

Held, (i) that under clause (b) of subsection (3) of section 143 of the Income Tax Act, 1961, before its amendment with effect from April 1, 1989, the Assessing Officer had power to determine the tax liability and also to refund the excess amount to the assessee. However, after amendment, with effect from April 1, 1989, the language employed by the Legislature under section 143(3) of the Act does not. implicitly say that the Assessing Officer is entitled to grant refund also. However, this does not mean that the Legislature has withdrawn the powers of the Assessing Authority to grant refund to the assessee in appropriate cases. The provisions under sub­section (3) of section 143 of the Act cannot be read in isolation. Had it been the intention of the Legislature to prevent the assessing authority from granting refund to the assessee, then the insertion of subsection (4) to section 143 of the Act would lose its significance.

(ii) That on a reading of clause (b) of subsection (4) of section 143 of the Act, it is clear that on an assessment made under section 143(1)(a) of the Act, and such assessment results in a refund,. if such refund exceeds the amount refundable on regular assessment made under section 143(3) of the Act, the whole or the excess amount so refunded shall be deemed to be the tax payable by the assessee. In other words, in the regular assessment, the tax liability is determined on the basis of giving credit to all the deductions the assessee is entitled to notwithstanding the fact that the assessment is made under section 143(1)(a) of the Act. Under clause (b) of the subsection (4) of section 143, it cannot be said that the Legislature did not visualise a situation permitting -the assessing authority to grant refund also under regular assessment in favour of an assessee.

(iii) That, therefore, the assessing authority is entitled to determine the quantum of refund also in a regular assessment made under section 143(3) of the Act with effect from April 1, 1989. No question of law arose for reference.

LML Ltd. v. Venkataraman (M.K.), Asstt. CIT (1994) 205 ITR 585 (Bon.) ref.

J. V. Prasad for Petitioner.

S. Ravi for Respondent

S.R. Ashok: amicus curiae

2000 P T D 3342

[237 I T R 479]

[Andhra Pradesh High Court (India)]

Before Ms. S. V. Maruthi and T. Ranga Rao, JJ

COMMISSIONER OF INCOME-TAX

Versus

BELLIEN MICHEAL ANDRESMANT and others

Case Referred No. 184 of 1990, decided on 8th October, 1998.

Income-tax--

----Exemption---Special allowance to meet expenses of office---Condition precedent for application of S. 10(14)---Nexus between special allowance and duties to 'be performed---Living allowance paid to foreign technician--­Technician provided with accommodation and free travel to work site---No material to show that allowance was paid towards expenses incurred' in performance of duties---Allowance was not exempt under S.10(14)---Indian Income Tax Act, 1961, S.10(14).

A reading of section 10(14) of the Income Tax Act, 1961, makes it clear that it deals ' with any special allowance or benefit, not being in the nature of an entertainment allowance or other perquisite specifically granted to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of an office or employment of profit to the extent to which such expenses are actually incurred for that purpose. In other words, there should be a nexus between the special allowance paid and the performance of the duties of an office or employment of profit. The allowance granted should be to meet the, expenditure incurred in the performance of duties of an office or employment of profit:

Held, that, in the instant case, the assessees were paid daily fees and living allowance at the rates specified therein. In addition, they were also provided with living accommodation with air-conditioner, refrigerator and electricity and water, and free transport from place of residence to work site and back daily.. In other words, in addition to daily fees they were paid living allowance. There was no material to hold that the living allowance paid was towards the expenditure incurred by the assessee in the performance of the duties of an office or employment of profit. In the absence of any material, the assessees are not entitled to claim the benefit. under section 10(14). .

CIT (All.) v. A.K. Misra, ITO (1979) 117 ITR 342 (All.); CIT v. Arthur Fuchs (1993) 202 ITR 656 (Pat.); CIT v. Pgnatale (S.G.) (1980) 124 ITR 391 (Guj.) and Zdzizlaw Skakuz v. CIT 158 (1986) ITR 420 (AP) ref.

S.R. Ashok for the Commissioner.

Nemo for the Assessee

2000 P T D 3420

[237 I T R 513]

[Andhra Pradesh High Court (India)]

Before Ms. S. V. Maruthi and T. Ranga Rao, JJ

COMMISSIONER OF INCOME-TAX

Versus

P.B. JAI SINGH

Case Referred No. 158 of 1990, decided on 23rd September, 1998.

Income-tax---

----Firm---Unregistered firm---Loss---Carry forward and set-off---Firm assessed as unregistered for assessment year 1973-74 but assessed as registered firm in subsequent years---Loss of unregistered firm can be carried forward and set-off against income of partner of registered firm---Indian Income Tax Act, 1961, Ss.72, 75 & 77(1).

The assessee was a partner of a firm, S, which was assessed at a loss as an unregistered firm for the assessment year 1973-74. For the assessment year 1974-75, the firm S was allowed registration. The assessee claimed that his share of loss from the unregistered firm in the year 1973-74 should be carried forward an set-off against his income from other sources in subsequent years. The Income-tax Officer held that the loss of the unregistered firm could be carried forward and set-off against the income of the partner of a registered firm. The Commissioner of Income-tax under section 263 of the Income Tax Act, 1961, revised the order of the Income-tax Officer and held that the benefit of set-off or carry forward of the unregistered firm's loss was available only against the income of that firm and there was a specific prohibition against the set off of such brought forward loss against the partner's own income from other sources. The Tribunal allowed' the appeal filed by the assessee and set aside the order of the Commissioner of Income-tax. On a reference:

Held, that in view of the specific language mentioned in section 77(1) read with section 75 of the Income Tax Act, 1961, the loss of an unregistered firm can be carried forward and set-off against the income of a partner of a registered firm subject to section 72 of the Act.

CIT (Addl.) v. B.S. Dail Mills (1981) 131 ITR 111 (Kar.); CIT v. Sunil Theatre (1989) 177 ITR 558 (P&H) and Excel Productions v. CIT (1967) 64 ITR 65 (Kar.) fol.

CIT v. Jadavji Narsidas & Co.(1963) 48 ITR (SC) 41; CIT v. Sadhana Nayar (1994) 210 ITR 648 (Bom.) and Todi Paharmal v. CIT (1987) 163 ITR 540 (Raj.) ref.

J.V. Prasad for the Commissioner.

K.V.S. Bhaskar Rao for the Assessee.

2000 P T D 3480

[238 I T R 384]

[Andhra Pradesh High Court (India)]

Before Ms. S. V. Maruthi and R. Bayapu Reddy, JJ

Sri KRISHNA MOHAN ENTERPRISES

versus

COMMISSIONER OF INCOME-TAX

Case Referred No.223 of 1990, decided on 23rd October, 1998.

(a) Income-tax--

----Reference---High Court---Power to reframe question---No power to frame question afresh on basis of statement of case---Only power is to answer questions referred by Tribunal---Indian Income Tax Act, 1961, S.256.

It is not open to the High Court to frame questions afresh on the basis of the statement of the case. The only power of the High Court is to answer the questions referred by the Tribunal.

(b) Income-tax---

----Reference---High Court---Tribunal refusing to refer a question---Remedy of aggrieved party is to approach High Court under S.256(2)---Indian Income Tax Act, 1961, S.256(2).

When the Tribunal refuses to refer a question, the remedy for the aggrieved party is to approach the High Court by way of a petition under section 256(2) of the Income Tax Act, 1961.

CIT v. Anusuya Devi (Smt.) (1968) 68 ITR 750 (SC); CIT v. G.M. Chennabasappa (1959) 35 ITR 261 (AP); Ganga Ram Balmokand v. CIT (1937) 5 ITR 464 (Punj.); Raja Rameshwara Rao Bahadur v. CIT (1957) 32 ITR 552 (AP) and Shiva Prasad Gupta v. CIT AIR 1929 All. 819 ref.

Y. Ratnakar for the Assessee.

S.R. Ashok for the Commissioner.

2000 P T D 3543

[238 I T R 63]

[Andhra Pradesh High Court (India)]

Before B. Subhashan Reddy and K. B. Siddappa, JJ

CITY DRY FISH COMPANY

versus

COMMISSIONER OF INCOME-TAX

Income-tax Case No.7 of 1992, decided on 19th January, 1999.

(a) Income-tax---

----Penalty---Concealment of income---Penalty based on addition to income-­Addition deleted by Tribunal---Penalty could not be levied---Indian Income Tax Act, 1961, S.271(1)(c).

(b) Income-tax---

----Reference---Application to direct reference---High Court expediting case by deciding it---Indian Income Tax Act, 1961, S.256.

Held, (i) that the points had been decided straightaway instead of directing the case for reference and then ordering the reference, which will take another decade. .

(ii) That, in the instant case, the order of the Tribunal was to the effect that the sum of Rs.85,622 pertained to the year previous to the assessment year 1980-81 and was available as reserve and, as such, the order of the Income-tax Officer clubbing that amount of Rs.85,622 as the income for the assessment year 1980-81 stood set aside. As a necessary corollary, the levy of penalty on the above component also had to be set aside.

Ch. Srirama Rao for the Assessee.

S.R. Ashok for the Commissioner.

2000 P T D 3591

[238 I T R 674]

[Andhra Pradesh High Court (India)]

Before Ms. S. V. Maruthi and R. Bayapu Reddy, JJ

COMMISSIONER OF INCOME-TAX

versus

BHOORATNAM & CO.

Income-tax Case No.49 of 1998, decided on 21st September, 1998.

Income-tax---

----Rectification of mistakes---Investment allowance---Rectification on basis of Supreme Court judgment to withdraw set off of unabsorbed investment allowance---Amounts to taking different view on merits---Not permissible in rectification---.Indian Income Tax Act, 1961, Ss.32A & 154.

For the assessment years 1987-88 and 1988-89, the assessee was allowed investment allowance in a total sum of Rs.10,22,341. The assessee claimed set-off of unabsorbed allowance against income for the assessment year 1989-90. The Income-tax Officer allowed it, but later he initiated action under section 154 of the Income Tax Act, 1961, and withdrew the unabsorbed investment allowance relying on the judgment of the Supreme Court in the case of N.C. Budharaja & Co. (1993) 204 ITR 412. The Tribunal held that this was not permissible under section 154. On an application to direct reference:

Held, dismissing the application, that section 154 of the Act empowers the income-tax authority to rectify any mistake apparent from the record. Admittedly, in this case, the Income-tax Officer exercised the power under section 154 relying on the judgment of the Supreme Court in N.C. Budharaja & Co. (1993) 204 ITR 412. Interfering with the assessment order relying on a judgment of the Supreme Court could not be said to be rectifying a mistake apparent on the record. On the other hand, it was an order on the merits taking a different view relying on the judgment of the, Supreme Court. The. Tribunal was right in holding that the Income-tax Officer should not have rectified the assessment order under section 154 of the Act.

CIT v. N.C. Budharaa & Co. (1993) 204 ITR 412 (SC) ref.

S.R. Ashok for the Commissioner.

Nemo for the Assessee

2000 P T D 72

[231 I T R 849]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and Mrs. Ranjana Desai, JJ

COMMISSIONER OF INCOME-TAX

versus

KIRLOSKAR TRACTORS LTD.

Income-tax Reference No. 315 .of 1983, decided on 3rd. February, 1998.

Income-tax---

Business expenditure---Capital or revenue expenditure---Collaboration agreement---German company supplying technical know-how---Stipulation in agreement that information to be kept confidential by asses see- --Assessee merely had right to use know-how for efficient running of business and better profitability---Payments to German Company for obtaining technical know-how deductible as revenue expenditure---Liability to make payments accrued only in the year approval of Reserve Bank was granted---Payments made in same year---Deductible in that year---Indian Income Tax Act, 1961. S. 37.

The question whether an expenditure is on account of revenue or capital has to be decided by looking at the facts and circumstances of the case and from the point of view of a practical and prudent businessman rather than from the point of view of a tax gatherer upon strict juristic classification of the legal right secured in the process. In order to arrive at a just and proper conclusion, one must look at the true nature and character of the advantage in a commercial sense, without giving undue emphasis to the form thereof or the terminology used, in the light of the surrounding circumstances. If the expenditure is so related to the carrying on or conduct of the business that it may be regarded as an integral part of the profit making process and not for acquisition of an asset or a right of permanent character, the expenditure may be regarded as revenue expenditure even though the advantage may endure for an indefinite future. What is relevant is the purpose of the outlay and its intended object and effect, considered in a common sense way, having regard to. the business realities. Each case depends on its own facts and a close similarity between one case and another is not enough, because even a single significant detail may alter the entire aspect. There is no single definitive criterion which, by itself, is determinative as to whether a particular outlay is capital or revenue. The "once for all" payment test is inconclusive.

The business of the assessee consisted of the manufacture and sale of tractors and engines. An agreement for technical collaboration was executed between the assessee-company and a West German company on June 29, 1970. The German company agreed to supply to the assessee for use in India full and correct technical and other confidential information and know-how, one set of printing of works-drawings of each machine and of components, patterns, forgings, etc. and all confidential advice as might be necessary in connection with the manufacture of the tractors and diesel engines. It was provided that all documents and materials containing information relating to the know-how could be given by the German company to the representative of the assessee in the Federal Republic of Germany and that they would continue to be the property of the German company. In addition, the assessee was also granted sole and exclusive licence to manufacture the said machines during the continuance of the agreement and to sell the same. The German company also guaranteed, for the period of the agreement, to supply the, latest technical developments in connection with the tractors and diesel engines known to them or which may be known to them during the period of the agreement. It was provided that the rights conferred by the agreement were not capable of assignment, encumbrance, letting or sub-licence by the assessee and they were always to be treated as confidential. It was also provided that the know-how, documents, materials, etc., provided could be used by the assessee solely for the purpose of the agreement and were not to be communicated to any other person, firm or company. The assessee was also obliged under clause 15 of the agreement to keep the technical documents secret. In consideration of the use of the know-how to be furnished by the German company to the assessee in West Germany, the assessee was to pay to the German company, free of tax, certain sums of money at fixed intervals, i.e. 60 days twelve months, twenty-four months, and thirty-six months, from the date, of the agreement. This was in addition to royalty on sales. The question before the Court was whether the payments made in consideration for the supply of know-how in the previous years relevant to the assessment years 1974-75 and 1975-76 were deductible as revenue expenditure, and if so, in which year:

Held,(i) that the expenditure in question related to the carrying on of the business of the assessee and was an integral part of its profit-making process. The aim and object of the expenditure was to run the business more profitably. There was a secrecy clause in the agreement which precluded the assessee from giving any of the information supplied to it to any third party. All these factors clearly indicated that the various services under the agreement were for the efficient running of the business of the assessee and better profitability. The conditions in the agreement as to non-partibility, confidentiality and the secrecy of- the know-how also indicated that the right obtained by the assessee was the right to use the know-how. There was no acquisition of the know-how by the assessee. The expenditure incurred by the assessee for getting the technical know-how and other assistance from the German company represented revenue expenditure which was allowable as a deduction in the computation of the income of the assessee.

Alembic Chemical Works Co. Ltd. v. CIT (1989) 177 ITR 377 (SC) and Empire Jute Co. Ltd. v. CIT (1980) 124 ITR 1 (SC) applied.

(ii) That even an assessee following the mercantile system of accounting is not entitled to claim a deduction until the liability for the sum for which deduction is claimed it has accrued. Under section 9 of the Foreign Exchange Regulation Act, 1973, there was a restriction on payments to any person resident outside India, save and except as may be provided in accordance with general or special exemption. The Reserve Bank granted approval to the assessee to make the payments in question in the previous years relevant to th6 assessment years under consideration and the remittances were also made in the same years. That being so, the liability to pay the amount pertaining to the earlier assessment years could be said to have accrued or arisen only in the years under consideration and the same was, therefore, allowable as deduction in the computation of income of those years.

Nonsuch Tea Estate Ltd. v. CIT (1975) 98 ITR 189 (SC) fol.

Abdul Kayoom (K.T.M.T.M.) v. CIT, (1962) 44 ITR 689 (SC); Bajaj Tempo Ltd. v. CIT (1994) 207 ITR 1017 (Bom.); CIT v. Abbott Laboratories (I) (Pvt.) Ltd. (1993) 202 ITR 818 (Bom.); CIT v. Citibank N.A. (1994) 208 ITR 930 (Bom.); CIT v. Kirloskar Cummins Ltd. (1993) 202 ITR 36 (Bom.); CIT v. Kirloskar Pneumatic Co. Ltd. (1993) 202 ITR 309 (Bom).; CIT v. Tata Engineering and Locomotive Co. (Pvt.) Ltd. (1980) 123 ITR 538 (Bom.); CIT v. Tata Engineering and Locomotive Co. Ltd: (1993) 201 ITR 1036 (Bom.): Jonas Woodhead & Sons (India) Ltd. v CIT (1997) 224 ITR 342 (SC) and Kirloskar Pneumatic Co. Ltd. v. CIT (1982) 136 ITR 746 (Rom.) ref.

??????????? Dr. V. Balasubramanian, J.P. Deodhar and P. Jetley for the Commissioner.

K.B. Bhujle with S.N. Inamdar for the Assessee.

2000 P T D 1258

[234 ITR 813]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and A. Y. Sakhare, JJ

L. M. DEVARE, LIQUIDATOR OF BANK OF KARAD LTD. (IN

LIQUIDATION)

versus

COMMISSIONER OF INCOME-TAX

Income-tax Reference No.286 of 1984, decided on 15th September, 1998.

Income-tax---

----Business---Business income ---Assessee carrying on banking business--­Amalgamation of another Bank with assessee---Immovable property acquired by amalgamating company from its debtors transferred to assessee--­Immovable property constituted stock-in-trade of assessee---Profits from sale of property assessable as business income---Indian Income Tax Act, 1961, S.28.

The assessee was a limited company carrying on the business of banking. In May, 1962, another bank was amalgamated with the assessee. This amalgamation took place in pursuance of the scheme sanctioned by the Reserve Bank of India. From the date of the amalgamation, all movable and immovable assets with liabilities of the bank stood transferred to the assessee. Immovable properties such as plots of land and buildings acquired by the bank froth its debtors in satisfaction of the debts owed to it were also transferred to the assessee. The assessee sold these properties in the accounting years relevant to the assessment years 1963-64 to 1967-58. The Income-tax Officer treated the surpluses as profits arising out of the banking business and taxed the surpluses as the assessee's business income by rejecting its contention that the surpluses represented capital gains. This was upheld by the Tribunal. On a reference:

Held, that in the present case, the bank acquired these properties from its debtors in satisfaction of debts owed to it. After the framing of the scheme of amalgamation the properties were transferred to the assessee. The assets and liabilities would not change their character after the amalgamation in the hands of the assessee. After amalgamation also the properties continued to be the stock-in-trade of the assessee's business. As these properties were acquired for satisfaction of the debt from the debtor by the bank doing money-lending business, profits/income earned from the sale of these properties must be treated as business income taxable under the Act.

Bareilly Corporation Bank Ltd. v. CIT (No.2) (1952) 22 ITR 528 (All.); Coimbatore Anupparpalayam Bank Ltd. v. CIT (1961) 42 ITR 576 (Mad.); Karumuru Venkata Ramanadham v. CIT (1964) 52 ITR 742 (AP); Manickam Chettiar (K.S.A.A.) v. CIT (1963) 50 ITR 716 (Mad.); Pulavarthi Venkata Subba Rao v. CIT (1967) 66 ITR 119 (AP); Sraswati Industrial Syndicate Ltd. v CIT (1990) 186 ITR 278 (SC); Subramanian Chettiar (M.R. RM. SP. L.) v. CIT (1968) 70' ITR 262 (Mad.); Vadlamani Kaneswara Rao v. CIT (1964) 51 ITR 304 (AP) and Vellayappa Chettiar (A. VR. V.) v. CIT (1952) 22 ITR 292 (Mad.) ref.

J.D. Mistry instructed by I. Dalal & Co. for the Assessee.

R.V. Desai with B.M. Chatterjee for the Commissioner.

2000 P T D 1270

[234 ITR 850]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and A. Y. Sakhare, JJ

COMMISSIONER OF INCOME-TAX

versus

Dr. D.A. IRANI

Income-tax Reference No. 112 of 1987, decided on 15th September, 1998.

Income-tax---

----Capital gains---Short-term or long-term capital gain's---Tenant who took a flat on lease acquiring ownership of such flat---Doctrine of merger applies and interest of lessor comes to an end with acquisition of ownership by lessee---Sale of property within five months of acquiring ownership---Gains arising on sale were short term capital gains---Indian Income Tax Act, 1961, Ss.2 & 45---Indian Transfer of Property Act, 1882, S.111.

The assessee jointly with his mother held a flat in Shanti Kutir. Bombay. The said flat was originally taken on lease in the year 1962-63 by for residential purposes on a monthly rent of Rs.175. Since then it was in occupation of the assessee's father as a tenant and after his death on March 26, 1974, in the occupation of the assessee and his mother. In May, 1974, the existing tenants of the building Shanti Kutir formed a society and entered into an agreement with' the landlords for the purchase of the building. The ownership of the building was transferred to the society in January, 1976. The assessee and his mother, like all other tenants, jointly paid Rs.46,287 towards the purchase price of the flat in their occupation and thereby beanie the owners thereof. After about four months of the purchase of the flat, in May, 1976, the assessee and his mother sold the flat for Rs.1,80,000. The Income-tax Officer computed the capital gains as short-term capital gain. However, the Special Bench of the Tribunal held that what was sold or transferred in this case was a composite asset which had admittedly come into existence as a result of fusion and merger of the smaller estate and bigger estate, assuming that the right of occupation as a tenant was-the smaller estate and the remaining interest of the landlord in the flat including the title constituted the bigger estate. It was observed that the two components of the composite estate were acquired by the assessee separately in two different years. The Tribunal held that the cost of the composite estate should be computed by taking into account the market value of the smaller estate as on the date of acquisition of the bigger estate. As the Income-tax Officer had not considered this issue from this point of view, the Tribunal set aside the order of the Income-tax Officer and directed him to re-compute the surplus liable to short-term capital gain afresh after allowing the assessee an opportunity of being heard. On a reference:

Held, that once the lessee purchases the leased property from the owner, the lease is extinguished as the same person cannot at the same time be both landlord and tenant. The doctrine of merger applies resulting in the "drowning" and "sinking" of the inferior right into the superior right. There is a complete union of the interest of the lessor in that pf the lessee in such a case and the tenancy comes to an end. This principle has been statutorily recognised in section 111 (d) of the- Transfer of Property Act, 1882, which specifically provides for determination of lease in case the interests of the lessee and the lessor m the whole of the property become vested at the same time in one person in the same right. The asset transferred- in the instant case was the flat acquired by the assessee by purchase from the owners with all the rights and interests therein including the occupancy right. The assessee was the owner of the flat and not a tenant. The fact that the assessee was in occupation of the flat as a tenant before its purchase was wholly irrelevant because, on purchase there-was a union of the interests of the lessor and the lessee and the tenancy was extinguished. The said flat having been sold within 4 to 5 months of its purchase, the capital gain arising there from was rightly held by the Income-tax Officer to be a short-term capital gain.

R.V. Desai with J.P. Deodhar-for the Commissioner.

Nemo for the Assessee.

2000 P T D 1531

[234 I T R 1]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and Smt. Ranjana Desai, JJ

COMMISSIONER OF INCOME-TAX

versus

HARIHAR JETHALAL JARIWALLA

Income-tax Reference No. 130 of 1984, decided on 7th January, 1998.

Income-tax---

----Advance tax---Interest payable by assessee---Advance tax less than seventy-five percent. of "assessed tax "--Interest levied under S.215---Assessed tax means tax determined on "regular assessment" ---Regular assessment refers to first order of assessment---Reduction of tax due to appellate order---Interest under S.215 can re charged even if advance tax Paid is not less than 75 % of tax determined in pursuance of appellate order--­Indian Income Tax Act, 1961, S. 215.

It is clear from subsection (1) of section 215 of the Income Tax Act, 1561, that the liability to pay interest arises if, in any financial year, the advance tax paid by the assessee falls short of seventy-five-percent. of the assessed tax. In that event, interest is payable on the deficient amount from the first day of April of the next financial year up to the date of regular assessment: "Assessed tax" has been defined in subsection (5) to mean the tax determined on the basis of the "regular Assessment". Thus, both for the P4rposes of determining the liability of the assessee to pay interest under this section and also the date up to which intercept is to be charged, the material assessment is the "regular assessment". Regular assessment means and refers to the original assessment made under section 143 or 144 of the Act.

For the assessment year 1976-77, the advance tax paid by the assessee was less than 75 percent. of the Assessed tax and, therefore, the Income-tax Officer levied interest under section 215 from the 1st day of the assessment year up to the date of assessment- The Commissioner of Income-­tax (Appeals) partly allowed the appeal of the assessee so that there was reduction of the tax payable by the assessee. This resulted in the reduction of the difference between the assessed tax and the advance tax paid by the assessee. The Income-tax Officer, accordingly, reduced the interest levied under section 215 of the Act as contemplated by subsection (3) of section 215. The assessee was aggrieved by the reduction of the interest as, according to him, the liability to pay interest under section 215 itself should have been re-determined with reference to the tax determined on the basis 01 the revised assessment and on such computation, he should have been lick not to be liable to pay interest under section 215(1) as the advance tax paid by the assessee was not less than seventy-five percent. of the tax assessed pursuant to the revised order of assessment passed giving effect to the appellate order. The Tribunal accepted the contention of the assessee and held that the expression "regular assessment" would include an order passed by the Income-tax Officer pursuant to the direction of the appellate authority. On a reference:

Held, reversing the order of the Tribunal, that the levy of interest under section 215 of the Income Tax Act, 1961, can be maintained even when the advance tax paid by the assessee is not less than 75 percent. of the tax assessed in pursuance of the order of an appellate or revisional authority.

Modi Industries Ltd. v. CIT (1995) 216 ITR 759 (SC) fol.

Chloride India Ltd. v. CIT (1977) 106 ITR 38 (Cal.) held no longer good law.

CIT v. Carona Sahu Co. Ltd. (1984) 146 ITR 452 (Bom.) ref.

T. U. Khatri with J. P. Keodhar instructed by H. D. Rathod for the Commissioner

K. B. Bhujle with C. B. Mehta for the Assessee.

2000 P T D 1729

[234 I T R 319]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and A. Y. Sakhare, JJ

COMMISSIONER OF INCOME-TAX

Versus

Smt. LALITA M. BHAT

Income-tax Reference No. 111 of 1987, decided on 9th July, 1998.

Income-tax---

---Loss---Set off---Association of persons---Is an independent assessable entity different and distinct from its members---Loss of association of persons---Can be set off only against its own profits and not against profits of its members---Member of an AOP cannot claim in his personal assessment set off of loss of AOP---Distinction between provisions of Indian Income-tax Act, 1922 and Indian Income Tax Act, 1961, in regard to assessment of income of AOP---Indian Income Tax Act, 1961, Ss. 2(31), 4(-1), 70 & 71.

It is clear from a plain reading of sections 70 and 71 of the Income Tax Act, 1961 that the assessee is entitled to set off the loss where the net result of computation for any assessment year in respect of any source falling under any head of income is a loss. The loss which can be set off, therefore, must be a loss determined in the assessment of the assessee himself. In other words, if loss is determined in the assessment of the assessee from any source of income falling under one head, such loss can be adjusted against his income, if any, assessable under the same head or under another head.

It is also clear from a conjoint reading of sections 2(31) and 4(1) of the Act that the charge is on every person including an association of persons, which is an assessable entity different and distinct from its members. The benefit of set off is available under sections 70 and 71 only when the assessee is the same. Loss of one assessee cannot be set off against the income of another. An association of persons being an independent assessable entity, different and distinct from its members, the loss of the association of persons can be set off only against its own profits---not against the profits of its members. That being the legal position, an assessee is not entitled to adjust his share of loss in the association of persons of which he was a member against the profits made by him in the business carried on by him individually.

There is a very important distinction between the provisions of the Indian Income-tax Act, 1922, and the provisions of the Income Tax Act, 1961, in regard to the assessment of the income of an association of persons, section 3 of the Indian Income-tax Act, 1922, provided that in respect of the total income of an association of persons, the income-tax shall be charged either on the association of persons or the members of the association of persons individually. No such option is provided under the Income Tax. Act, 1961. Under section 4 of the Income Tax Act, 1961, if it is the income of the association of persons, the association of persons alone has to be taxed. The members of the association of persons cannot be taxed individually in respect of the income of the association of persons. As a natural corollary, the loss of an association of persons also cannot be regarded as the loss of its members individually. That being so, it is clear that the member of an association of persons cannot claim in his personal assessment set off of loss of the association of persons, which is a different taxable entity under the Income Tax Act, 1961, against his individual income.

ITO v. Ch. Atchaiah (.1996) 218 ITR 239 (SC) and Ramanlal Madanlal v. CIT (1979) 116 ITR 657 (Cal.) fol.

Abida Khatoon (Smt.) v. CIT (1973) 87 \ ITR 627 (AP); Arunachalam Chettiar v. CIT (1936) 4 ITR 173 (PC); CIT v. Kanpur Coal Syndicate (1964) 53 ITR 225 (SC); CIT v. Murlidhar Jhawar and Puma Ginning and Pressing Factory (1966) 60 ITR 95 (SC); CIT v. Rajamani Nadar (S. K. S.) (1977) 109 ITR 258 (Mad.); Ganga Metal Refining Co. (Pvt.) Ltd. v. CIT (1968) 67 ITR 771 (Cal.) and Seth Jamnadas Daga v. CIT (1961) 41 ITR 630 (SC) ref

R. V. Desai with B. M. Chatterjee for the Commissioner.

J. D. Mistry instructed by Purohit and Purohit for the Assessee.

2000 P T D 1759

[234 I T R 453]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and A. Y. Sakhare, JJ

COMMISSIONER OF INCOME-TAX

versus

SULPHUR REFINERY (PVT.) LTD

Income-tax Reference No. 151 of 1987, decided on 17th June, 1998.

Income-tax---

----Advance tax---Penalty---Failure to furnish estimate of advance tax--­Condition precedent for imposition of penalty---Failure should be without reasonable cause---Failure to furnish estimate because of bona fide belief that there would be no profits---Penalty could not be imposed---Indian Income Tax Act, 1961, S. 273.

It, is clear from a plain reading of section 273(2)(c) of the Income Tax Act, 1961, that penalty can be imposed under the said provision if the Income-tax Officer is satisfied that the assessee has "without reasonable cause" failed to furnish the estimate of advance tax payable by him in accordance with the provisions of subsection (4) of section 209A of the Act.

The satisfaction of the Income-tax Officer in regard to the failure of the assessee to furnish an estimate of the advance tax payable by him in accordance with the provisions of section 209A(4) of the Act "without reasonable cause" is, thus, the condition precedent for imposition of the penalty under this clause. 'This satisfaction must be based on the materials on record. It is only after the Income-tax Officer arrives at a finding that the failure to furnish the estimate was "without reasonable cause" that he can impose penalty.

In the assessment of the assessee-company for the assessment year 1979-80, the Income-tax Officer noticed that on June 14, 1978, the assessee ­company had filed a statement in Form No.28A showing loss of Rs.3,199 while its income was assessed at Rs.3,01,540. The Income-tax Officer therefore, initiated proceedings for levy of penalty under section 273(2)(c). The assessee explained that it had accumulated losses and. unabsorbed allowances amounting to Rs.28,897 and that on the date of submission of the statement in Form No.28A it had expected to make a profit of Rs.25,698 only during the previous year relevant to the assessment year under consideration, It was contended that revised estimate under section 209A(4) of the Act was not submitted because the accounts could not be audited and the correct income could not be ascertained. No further statement of advance tax could be filed as the accountant was frequently indisposed and the correct profit of the year could not be ascertained up to December 15, 1978. The Commissioner of Income-tax (Appeals) accepted the contention of the assessee and observed that the estimate was bona fide in the facts and circumstances set out by the assessee. This was upheld by the Tribunal. On a reference:

Held, that both the Commissioner (Appeals) and the Tribunal had recorded a finding that there was reasonable cause for the failure of the assessee to submit the estimate under subsection (4) of section 209A. This finding was primarily and essentially a finding of fact which ordinarily is final and binding. That being so, the Tribunal was justified in holding that section 273(2)(c) of the Act was not attracted in the facts and circumstances of the present case.

Hindustan Steel Ltd. v. State of Orissa (1972) 83 ITR 26 (SC) applied.

Hind Products (P.) Ltd. v. CIT (1980) 121 ITR 903 (Bom.) fol.

Milind Sathe with S.A. Diwan for the Commissioner.

Nemo for the Assessee

2000 P T D 1831

[234 I T R 548]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and A. Y. Sakhare, JJ

MURLIDHAR BHAGWANDAS

versus, COMMISSIONER OF INCOME-TAX

Income-tax Reference No.441 of 1984, decided on 1st July, 1998.

Income-tax---

----Assessment---Appeal to A.A. C.---I.T.O.---Fresh assessment pursuant 'to appellate order---Only issues which have not attained finality can be considered---Appeal from such a fresh assessment can only be on issues which have not attained finality ---AAC holding reassessment to -be valid and directing ITO to re-compute income from hundi loans---It is not open to ITO while making fresh assessment pursuant -to AAC's order to re-examine legality of initiation of proceedings under S.147---In appeal against fresh assessment AAC cannot examine the legality of initiation of proceedings under 5.147, Indian Income Tax Act, 1961.

In proceedings before the Income-tax Officer for making a fresh assessment pursuant to the directions contained in an appellate order, only such issues, can be agitated which have not attained finality. Similarly, in an appeal against the fresh order, only such issues which have not become final by the earlier orders of the appellate authority can be agitated. The assessee cannot be allowed to challenge the findings of the appellate authority collaterally before the Income-tax Officer in the proceedings for the fresh assessment.

Hardillia Chemicals Ltd. v. CIT (1996) 221 ITR 194 (Bom.); Pulipati Subbarao & Co. v. AAC (1959) 35 ITR 673 (AP) and Kathar Jute Mills (P.) Ltd. v, CIT (1979) 120~ITR 861 (Cal.) fol.

Held, that in the instant case, the legality of the proceedings under section 147(a) of the Income Tax Act, 1961, having been considered by the Appellate Assistant Commissioner in his earlier order and the same having been held to be legal and valid and the assessment having been set aside and remitted to the Income-tax Officer only for the limited purpose of computing the additions and disallowances afresh by re-examining the evidence in respect of the hundi loans after giving reasonable opportunity of hearing to the assessee, it was not open to the Income-tax Officer. while making fresh assessment pursuant to the directions to the Appellate Assistant Commissioner to re-examine the legality of the initiation of the proceedings for reassessment, when the assessee sought to challenge again in the fresh assessment proceedings the legality of the initiation of the proceedings under section 147(a) of the Act. The Appellate Assistant Commissioner also erred in examining the question of legality of reassessment in appeal against the fresh order of the Income-tax Officer.

G. S. Jetley with P. S. Jetley and A. S. Tungare instructed by S. H. Paralkar for the Assessee.

Ms. Rajni-Iyer with R. V. Desai for the Commissioner.

2000 P T D 1856

[234 I T R 571]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and A. Y. Sakhare, JJ

NARENDRA G. GORADIA (HUF)

versus

COMMISSIONER OF INCOME-TAX

Income-tax Reference No.220 of 1986, decided on 25th June, 1998.

Income-tax---

Income---High denomination notes--Encashment---Assessee proving of amounts---Sufficient cash balance available with assessee when .high denomination notes were tendered for encashment--­Failure to furnish detailed particulars of source of acquisition of notes of Rs.1,000 denomination tendered for encashment---No requirement of law to maintain details of currency notes of various denominations received by assessee---Addition of certain amount by treating part of high denomination notes as income from undisclosed sources---Not justified---Indian Income Tax Act, 1961, S. 68.

In the previous year relevant to the assessment year 1979-80 on demonetisation of the high denomination notes by the Demonetisation Ordinance, 1978, the assessee tendered Rs. 2 lakhs in such notes on January 19, 1978, for encashment. When called upon to explain the source of this amount, the assessee pointed out that there was sufficient cash balance in the cash book, out of which the above amount was deposited. Though there was no dispute about the fact that the assessee had cash balance of Rs.3,28,305.47 on the date when the currency notes of Rs.1,000 denomination for the value of Rs.2 lakhs were tendered by the assessee to the Reserve Bank of India for encashment, the Income-tax Officer accepted the explanation only to the extent of Rs:36,000 covered by 36 notes of Rs.1,000 denomination and treated the balance amount of Rs.1,64,000 as unexplained and added the same as income from undisclosed sources under section 68 of the Income Tax Act, 1961. This the Income-tax Officer did on the basis of -his opinion based on some independent enquiries from different banks that the assessee had received on withdrawal of money from those banks only 36 notes of Rs.1,000 denomination during the period from August, 1977, till January 19, 1978, when they were tendered for encashment.' On appeal, the Commissioner of Income-tax (Appeals) came to the conclusion that the assessee could have been in the possession of Rs.96,000 in- Rs.1,000 denomination notes and accordingly reduced the addition to the income of the assessee as income from undisclosed sources from Rs.1,64.000 to Rs.1,04,000. On further appeal, the Tribunal refused to interfere with the order passed by the Commissioner of Income-tax (Appeals) and dismissed the appeal filed by the assessee. On a reference:

Held, (i) that what the assessee is required to prove is the source of money and once he is successful in proving the same, he cannot be put to further proof of acquisition of such amount in the currency notes of particular denomination. If the explanation shows that the receipt was not of income nature, the Revenue cannot reject the explanation of the assessee to hold that it was income. Where the business and the state of accounts and dealings of the assessee justify a reasonable inference that he might have for convenience kept the whole or a part of a particular sum in high denomination notes, the assessee, prima facie, discharges his initial burden when he proves the cash balance and that it might have been kept in high denomination notes. Before the Department rejects such evidence, it must either show an inherent weakness in the explanation or rebut it by putting to the assessee some information or evidence which it has in its possession. The Department cannot by merely rejecting unreasonably a good explanation, convert good proof into no proof.

(ii) That there was neither any dispute about the source of money nor about the fact that sufficient amount was kept by the assessee in high denomination notes of Rs.1,000 because the Revenue itself could collect material and evidence regarding availability of high denomination notes worth Rs.96,000. In such a situation, the assessee could not be asked to prove the acquisition of each and every Rs.1,000 denomination note held by him. There is no dispute about the fact that it is neither the business practice nor the requirement of any law to maintain details of currency notes of various denominations received by an assessee.

(iii) That almost every day, payments were made by the assessee on. behalf of its customers for whom he was working as commission agent, which were reimbursed by the customers on the very same day. In such a situation, there was no justification for adding a portion of the amount received by the assessee on encashment of Rs.1,000 denomination notes as income of the assessee from undisclosed sources for the alleged failure of the assessee to furnish the source of acquisition of the amount in notes of Rs.1,000 denomination.

(iv) That, therefore, the Tribunal was not right in treating part of the high denomination notes as income of the assessee.

Lalchand Bhagat Ambica Ram v. CIT (f959) 37 ITR 288 (SC) and Sreelekha Banerjee v. CIT (1963)49 ITR (SC) 112 applied.

Govindarajulu Mudaliar (A.) v. CIT (1958) 34 ITR 807 (SC) ref.

A. P. Sathe for the Assessee.

R. V. Desai with B. M. Chatterjee for the Commissioner.

2000 P T D 2016

[235 I T R 239]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and A. Y. Sakhare, JJ

COMMISSIONER OF INCOME-TAX

versus

J.V. KOLTE

Income-tax Reference No.222 of 1987, decided on 30th June, 1998.

(a) Interpretation of statutes-

Strict interpretation---No.222 of 1987 decided on 30th June, 1998.

In construing fiscal statutes and in determining the liability' of a subject to tax, one trust have regard to the strict letter of the law and not merely to the spirit of the statute or the substance of the law. The onus is on the Revenue to satisfy the Court that the case falls strictly within the provisions of the law. If the case is not covered within the four corners of the provisions of the taxing statute, no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the legislature and by considering what was the substance of the matter. If a section in a taxing statute is of doubtful and ambiguous meaning it is not possible out of that ambiguity to extract a new and added obligation not formerly cast upon the taxpayer.

(b) Income-tax---

----Exemption---Employee---Amounts received on premature retirement from approved superannuation fund in accounting year relevant to assessment year 1976-77---Entitled to exemption---Indian Income Tax Act, 1961, Ss.10(13), 17 & 192.

Section 10 of the Income Tax Act, 1961, sets out incomes which do not form part of the total income. Clause (13) thereof deals with payments from an approved superannuation fund. Section 10(13) and section 192(5) indicate that receipts from an approved superannuation fund are taxable in the hands of an assessee except to the extent specifically exempted by the provisions of clause (13) of section 10 of the Act. However, that by itself cannot justify levy of tax on the receipts from a superannuation fund. It is clear from the definition of "profits in lieu of salary" in section 17 which is an inclusive definition, that the Legislature, while including certain payments received by an assessee from a provident fund or any other fund within the scope and ambit of the said definition, has specifically excluded payments received by an assessee from a superannuation fund. Payments from an approved superannuation fund are, therefore, not treated as income under the Act. That being so, no tax can be imposed on such receipts by the assessee by inference or by analogy or by trying to probe into the intentions of the Legislature from the provisions of section 10(13) of the Act which provides for exemption of a part of such income and section 192(5) read with Rule 6 of Part B of the Fourth Schedule which provides for deduction of tax at source on payments from a superannuation fund other than those referred to in section 10(13) of the Act. In view of the clear and unambiguous language of section 17(3)(ii) of the Act, as it stood at the material time, payments from approved superannuation fund cannot be treated as income for the purpose of the Act. Parliament has since noticed this anomaly and with a view to bringing such receipts within the provisions of the law, by the Finance Act, 1995, amended section 17(3)(ii) of the Act to restrict the exclusion from the definition of "profits in lieu of salary" only payments which are covered under section 10(13) and not other payments from approved superannuation funds. This amendment has, however, been made with effect from April 1, 1996, and, accordingly, is applicable to the assessment year 1996-97 and subsequent years. Under section 1'7(3) of the Act, as it stood prior to April 1, 1996, payments from approved superannuation funds are not treated as income.

Fernandez (A.V.) v. State of Kerala AIR 1957 SC. 657; (1957) 8 STC 561 (SC) ref.

S.A. Diwan with R.V. Desai for the Commissioner.

A.P. Sathe for the Assessee.

2000 P T D 2222

[235 I T R 1]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and A. Y. Sakhare, JJ

COMMISSIONER OF INCOME-TAX

versus

E.R. SQUIBB & SONS INC.

Income-tax Reference No. 122 of 1987, decided on 15th September, 1998.

Income-tax--

----Capital gains---Non-resident---Computation of capital gains---Purchase and sale of shares of Indian company---Sale proceeds received in Indian currency and remitted to U.S.A. in foreign currency---Rule 115 was not applicable---Capital gains had to be computed in Indian currency---Indian Income Tax Act, 1961, S.45---Indian Income Tax Rules, 1962, 8.115.

Rule 115 of the Income Tax Rules, 1962, prescribes the rate of exchange for conversion into rupees of income expressed in 'foreign currency. It has no application to income expressed in Indian rupees.

The assessee was a non-resident company. On February 19, 1968, the assessee acquired 3,600 shares in an Indian company in United States currency at the face value of Rs.1,000. On April 21, 1978, the assessee sold 600 shares to another non-resident company. The sale proceeds were received by the assessee in Indian currency and remitted to the United States in foreign- currency. Before the Income-tax Officer, the assessee disclosed in its return an income in the sum of 5,084 U.S. Dollars as taxable capital gains and on the basis of Rule 115 of the Income Tax Rules, 1962, after conversion of the foreign currency into Indian currency, arrived at a figure of Rs.42,447 as the 'capital gains. The Income-tax Officer overruled the assessee's claim by holding that the capital gains arose to the assessee immediately. on the sale of the shares in India, and that the cost of acquisition of 600 shares was Rs.6 lakhs, and the sale consideration as approved by the Reserve Bank of India by its letter, dated April 15, 1978, was at the rate of Rs:1,800 per share. On this basis, the Income-tax Officer assessed Rs.4,80,000 as the capital gain. The Tribunal allowed the assessee's appeal and held that the capital gain was only Rs.42,687. On a reference:

Held, that the transaction was in Indian currency, the sale proceeds were received by the assessee in Indian currency and subsequently converted into. U.S. currency and remitted to the assessee. The income accrued to the assessee when the sale took place in India in Indian currency. Therefore, while computing the capital gain one had to reduce the cost of shares from the sale proceeds in Indian currency. This was not a case for application of Rule 115 of the Rules as the income earned by the assessee was in Indian currency and the said amount was subsequently converted into U.S. Dollars. The price was fixed in Indian currency with the approval of the Reserve Bank of India. The approval granted by the Reserve Bank of India was for a transaction in Indian currency. The capital gains - to be taxed was Rs.4,80,000.

CIT v. Pfizer Corporation (1993) 202 ITR 1.15 (Bon.) and Asbestos Cement Ltd. v. CIT (1993) 203 ITR 358 (Bon.) applied.

CIT v. Chowgule & Co. Ltd. (1996) 218 ITR 384 (SC) ref.

Milind Sathe with S.A. Diwan for the Commissioner.

P.I. Kaka instructed by T. Pooran & Company for the Assessee.

2000 P T D 2315

[236 I T R 780]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and Dr. Mrs. Pratibha Upasani, JJ

COMMISSIONER OF INCOME-TAX

versus

MENEZES FARMACO

LT.R. No. 167 of 1993, decided on 1st December, 1998.

Income-tax---

----Subsidy---Actual cost---Depreciation---Central subsidy received by assessee---Is not a payment directly or indirectly to meet any portion of "actual cost" but intended as an incentive to entrepreneurs---Not to be deducted from "actual cost" for calculating depreciation---Indian Income Tax Act, 1961, Ss.32 & 43(1).

The Central subsidy received by the assessee is not a payment, directly or indirectly, to meet any portion of the "actual cost" but intended as an incentive to the entrepreneurs. The fact that its quantification is determined as a percentage of the fixed capital cost does not change the nature and character of the subsidy. The amount of Central subsidy, therefore, cannot be deducted from the actual cost for calculating depreciation.

CIT v. P. J. Chemicals Ltd. (1994) 210 ITR 830 (SC) fol.

CIT v. Bhandari Capacitors (Pvt.) Ltd. (1987) 168 ITR 647 (MP); CIT v. Diamond Dies Mfg. Corporation Ltd. (1988) 172 ITR 655 (Kar.); CIT v. Elys Plastics (Pvt.) Ltd. (1991) 188 ITR 11 (Bom.); CIT v. Godavari Plywoods Limited (1987) 168 ITR 632 (AP); CIT v. Jindal Bros. Rice Mills (1989) 179 ITR 470 (P&H); CIT v. Premier Extraction (P.) Ltd. (1989) 175 ITR 22 (MP); CIT v. Sun Engineering Works (P.) Ltd. (1992) 198 ITR 297 (SC); Sahney Steel and Press Works Ltd. v. CIT (1997) 228 ITR 253 (SC) and Seaham Harbour Dock Co. v. Crook (1931) 16 TC 333 (HL) ref.

R. V. Desai with B. M. Chatterjee for the Commissioner.

G. S. Jetley: Amicus curiae.

2000 P T D 2336

[236 I T R 665]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and A. Y. Sakhare, JJ

COMMISSIONER OF INCOME-TAX

versus

CHASE TRADING CO.

I.T.R. No.329 of 1985, decided on 24th December, 1997.

Income-tax---

----Business loss---Firm---Firm dealing in shares---Loss arising from sale of shares to partners---Finding of Tribunal that sale was a commercial transaction---Loss was allowable---Indian Income Tax Act, 1961, S.28.

The assessee was a firm dealing in shares. During the course of business 10,000 shares in a company, K, were acquired at Rs.10 per share. The assessee had shown these shares as its stock-in-trade. Two partners of the assessee-firm, purchased 8,000 and 2,000 shares, respectively, from the assessee at the rate of Rs.4 per share. The assessee claimed a loss of Rs.60,000 as the result of this. transaction as a business loss for the assessment year 1972-73. The Income-tax Officer disallowed the claim but the Tribunal recorded its finding that the transaction in question, i.e., sale of shares by the assessee-partnership firm to its partners was purely a commercial transaction. It allowed the deduction. On a reference:

Held, that under the Income Tax Act, 1961, a firm is a distinct assessable legal entity. In commercial life, a firm borrowing from or lending to its partners, selling or purchasing goods or other assets to or from its partners or giving premises on lease or taking premises on lease from its partners are common and acceptable. Merely because the transaction is between the firm and its partners, it will not mean that there cannot be a trade or profit between the partnership firm and its partners. On the facts before it; the Tribunal was right in coming to the conclusion that the transaction in question was purely a commercial transaction. The loss was allowable as business loss.

CIT v. Kaluram Puranmal (1979) 119 ITR 564 (Bom.) and Malabar Fisheries Co. v. CIT (1979) 120 ITR 49 (SC) ref.

Dr. V. Balasubramaniam, Senior Advocate with T. U. Khatri and J. P. Deodhar for the Commissioner.

Nemo for the Assessee.

2000 P T D 2359

[236 I T R 881]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and Dr. Mrs. Pratibha Upasani, JJ

COMMISSIONER OF INCOME-TAX

versus

JOLLY STEEL INDUSTRIES (PVT.) LTD

Income-tax Reference No. 117 of 1988, decided on 2nd December, 1998.

Income-tax---

----Business expenditure---Fines and penalties---Sales tax---Penalty levied for delayed payment of sales tax---Not compensatory---Not expenditure laid out wholly and exclusively for purposes or business---Not an allowable deduction---Indian Income Tax Act, 1961, S.37---Bombay Sales Tax Act, 1959, S.36(3).

No part of the penalty levied for delayed payment of sales tax under section 36(3) of the Bombay Sales Tax Act, 1959, is compensatory and hence it is not an allowable deduction in computing income under section 37(1) of the Income Tax Act, 1961, as the expenditure is not wholly or exclusively laid out for purposes of business.

CIT v. Vegetable Vitamin Foods Co., (P.) Ltd. (1994) 209 ITR 840 (Bom.) and Prakash Cotton Mills. (P.) Ltd. v. CIT (1993) 201 ITR 684 (SC) fol.

R. V. Desai with B. M. Chatterjee for the Commissioner.

Nemo for the assessee.

2000 P T D 2463

]236 I T R 553]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and S. H. Kapadia, JJ

COMMISSIONER OF INCOME-TAX

versus

CEMENT ALLOCATION AND COORDINATING ORGANIZATION

I.T.R. No.591 of 1985. decided on 25th January, 1999.

Income-tax---

----Income---Accrual of income---Principle of mutuality---Association of cement manufacturers--Object of association was to ensure proper supply of cement to consumers on decontrol of cement---Members of association contributing to common fund and having right to participate in any surplus--- Principle of mutuality applied--Surplus was not assessable as income--­Indian Income Tax Act, 1961.

The cardinal principle to apply the test of mutuality is that all the contributors to the common fund are also entitled to participate in the surplus and that all participators in the surplus must be contributors to the common fund. In other words, there must be complete identity between the contributors and participators.

In December, 1965, the scheme of decontrol of cement came to be formulated. The object of the scheme was to enable a smooth change over from control to decontrol and to ensure that prices did not shoot up on decontrol. Accordingly, the Cement Manufacturers Association formed a central organization to take over the cement distribution functions. The object of the scheme to assure that supplies of cement to Consumers would continue uninterrupted. The association was a "no-profit-no-loss" organization. The freight pool of the organization was to be used for ensuring equal distribution of cement throughout the country by transporting cement over longer distances from surplus arrears to deficit arrears. Cement producers whose outward freight was low contributed to the freight pool so that such contributions could be utilised to subsidise higher freight for transporting cement to consumers at longer destinations. The pooling arrangement was mainly with the object of supplying cement to consumers at a uniform f.o.r. price. Under the scheme, the organization was given a licence. The members-producers would sell cement and supply cement to all. destinations throughout India on a uniform f.o.r. destination price to be realised by them and the members agreed to authorise the organization to fix a uniform f.o.r. destination price. Opt of the uniform f.o.r. destination price realised by each member, it would retain an aggregate of certain specified heads and pass on the balance to the assessee-organization. Out of the moneys contributed by member-producers under the surplus heads, losses were reimbursed to member-producers under deficit heads. The common fund of the assessee-organization fell under four accounts, namely, (1) Retention Price Adjustment Account, (2) D. G. S. and D. Public Supplies Account, (3) Freight Adjustment Account, (4) Oil Firing Adjustment Account. This was with a view to equalize the burden of various member ­producers under various, heads. Every member of the assessee-organization contributed to this -common fund under some head or the other and all participators in the benefit were contributories to the common fund. The Income-tax Officer held that the assessee-organisation in its transactions with its members derived income which was taxable- in its entirety. The Appellate Assistant Commissioner and the Tribunal, however, held that it was not assessable. On a reference.

Held, that in the present case, contributions were made by the members to the common fund and the contributors who were required to contribute to the fund were entitled as a matter of right to receive the distribution of the balance surplus on pro rata basis of despatches. The working of the scheme clearly indicated that the contributors contributed more than what was required and in the circumstances the distribution of the balance surplus was only apportionment of the savings amongst, contributors. The scheme and the record clearly indicated that the savings left over after meeting the establishment expenses of the organization and or outgoings were credited back to the member's account on proportionate despatch basis. There was a complete identity between the contributors to the common fund and the participators in the benefit arising out of the common fund. The principle of mutuality applied: The surplus did not constitute the profits of the assessee and was not assessable

CIT v. Bombay Oilseeds and Oil Exchange Ltd. (1993) 202 ITR 198 (Bom.) ref.

R. V. Desai with B. M. Chatterjee for the Commissioner.

S. J. Mehta for the Assessee.

2000 P T D 2471

[236 I T R 544]

[Bombay High Court (India)]

Before A. P. Shah, J

OIL AND NATURAL GAS COMMISSION

versus

McDERMOTT INTERNATIONAL. INC.

Arbitration Petition No-.233, in Award No.45 of 1995, decided on 4th September, 1998.

Income-tax---

----Representative assessee---Agent of non-resident---Liability of agent to its principal---Amount retained by agent towards payment of surtax in 1987--­Amount paid in response to notice under S. 226(3) of Income-tax Act, in .1990---Claim by non-resident that it was not liable to pay surtax and for return of such amount---Amount had not been retained wrongfully by agent---Difference due .to fluctuation in exchange rate between time when amount was retained and time when it was paid to Revenue was not payable by agent to non-resident---Indian Income Tax Act, 1961, S.162---Indian Arbitration Act; 1940, S.30.

The petitioner was a statutory public sector corporation engaged in oil exploration, development and production of oil and natural gas. It invited tenders from qualified marine construction contractors. M, a foreign company submitted a bid which was accepted by the petitioner. Thereafter, disputes arose between the petitioner and M which were referred to arbitration. One of the disputes pertained to the amount of US ,$ 432,500.35 retained by the petitioner towards payment of the surtax liability of M. According to M, its chargeable profit did not exceed 15 percent. of its capital as computed in accordance with the Surtax Act and it was, therefore, not labile to pay any surtax nor was any surtax due from or payable by it. This amount had been wrongfully withheld. Admittedly, the petitioner had on May 21, 1990, deposited with the Income-tax Authorities a sum of Rs.88,16,484 on the basis of notices under section 226(3) of the Income Tax Act, 1961, the said amount having been held to be due by the income-tax authorities from M. An alternative claim was made that giving credit for the amount paid to the Income-tax Authorities by the petitioner, M was entitled to get .US $ 100,733.89 and interest thereon. The stand taken by the petitioner was that it had really retained the amount- with it under section 162 of the Income Tax Act, 1961. The petitioner also referred to a letter received from the Income-tax Department by which the petitioner was directed not to release the surtax amount till further orders. Pursuant to an order under section 226(3) of the Income Tax Act, 1961, it had deposited Rs.88,16,484 which according to it was equivalent to US $ 689,807 in Government account on May 21, 1990. According to the petitioner, it was not liable for payment of any difference in Indian rupee valued and US dollar between the date when the deduction was made and the time when the amount was deposited, i.e., May 21, 1990. The umpire accepted the case of the petitioner that though an amount of US $ 432,500 was at one stage, considered by the petitioner as tax deducted at source, the said amount was really the amount retained by the petitioner out of monies payable by it having regard to the provisions of section 162(2) of the Income-tax Act. It was also accepted by the umpire that the Income-tax Department treated the petitioner both for the assessment year 1985-86 and assessment year 1986-87 as a representative assessee. It was observed by the umpire that having regard to the fact that the quantum of deduction was not disputed by the respondent and having regard to the fact that the Income-tax Department had treated the petitioner as a representative assessee it was not possible to hold that the petitioner had wrongfully made any deduction. However, the umpire accepted the alternative claim of the respondent towards the difference in Indian rupee value and US dollar between the date when the, deduction was made and the time when the amount was deposited, i.e., May 21, 1990. The rate of exchange at which conversion of the tax liability in rupees into US dollars would be the rate which was prevalent on May 21, 1990. As a consequence the balance due out of deduction made from the invoices would have to be refunded to the respondent in terms of dollars. Consequently the respondent would be entitled to the refund of US $ 100, 733.89 with interest thereon with effect from May 21, 1990. On a petition under section 30 of 'the Arbitration Act:

Held, that it was the finding of the umpire that the Income-tax Department treated the petitioner as representative assessee under section 162 of the Income-tax Act for the year 1986-87 and the deduction was legal. The petitioner was directed by the Income-tax Department not to refund but to retain the amount of surtax on the basis of computation under the Income-tax Act. The petitioner was informed by the Deputy Commissioner of Income­ tax that no demand had been raised against the respondent in respect of surtax, and he was directed to deposit the amount retained by it for surtax and informed that the amount was required to be paid pursuant to the notice under section 226(3) towards liability for income-tax. It is, thus, clear that the money retained in rupees in 1987 towards tax liability of the respondent was credited in the account of the respondent in the books of the account of the petitioner in rupees. In law the effect is that the petitioner had paid the amount to the respondent in 1987 as the money was held by it. as a deposit. The representative assessee could not be asked to pay the difference owing to fluctuation in the value of the foreign currency between the date of deduction of payment and the date of payment inasmuch as the date of payment was irrelevant as liability related to the period of assessment. The findings recorded by the umpire were totally ex facie inconsistent and self contradictory and the award made by the umpire was clearly erroneous as regards this claim.

Champsey Bhara & Co. v. Jivraj Balloo Spinning and Weaving Co. Ltd. AIR 1923 PC 66; Dutt (S.) (Dr.) v. University of Delhi AIR 1958 SC 1050; Hindustan Tea Co. v. K. Sashikant & Co. AIR 1987 SC 81; Poulose (K. P.) v. State of Kerala AIR 1975 SC 1259; Raghava Reddi (P.V.) v. CIT (1962) 44 ITR 720 (SC); Standard Triumph Motor Co. Ltd. v. CIT (1993) 201 ITR 391 (SC); State of Rajasthan v. Puri Construction Co. Ltd. (1994) 6 SCC 485; Sudarsan Trading Co. v. Government of Kerala AIR 1989 SC 890 and Turner Morrison & Co. Ltd. v. CIT (1953) 23 ITR 152; AIR 1953 SC 140 ref.

R. A. Dada with Saraf instructed by Vyas and Bhalwal for Petitioner.

D. D. Madon with Nurgis Colabawalla and S. B. Jijina instructed by Mulla and Mulla for Respondent.

2000 P T D 2691

[237 I T R 253]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and Dr. Mrs. Pratibha Upasani, JJ

COMMISSIONER OF INCOME-TAX

Versus

GWALIOR RAYON SILK MANUFACTURING (WEAVING) CO. LTD.

Income-tax Reference No. 175 of 1984, decided on 3rd November, 1998.

(a) Income-tax---

----Capital or revenue expenditure ---Tests---Assessee engaged in manufacture of staple fibre for which wood pulp raw material ---Assessee purchasing private forests developing them and planting eucalyptus trees in them for extracting wood pulp---Certain amount of consideration paid immediately on purchase and balance to be paid in instalments---Interest to be paid on unpaid balance and unpaid price to be secured by Bank guarantee---Lands of assessee taken over by Government on nationalisation---Expenditure incurred up to nationalisation in planting and maintaining eucalyptus trees allowed as business loss---Transaction of acquisition of land closely related to carrying on of business and integral part of profit-earning process---Interest and Bank guarantee commission paid are allowable deduction---Indian Income Tax Act, 1961, S.37.

The assessee was engaged in manufacture of staple fibre. Wood pulp was the main taw material for the manufacture of staple fibre. The assessee decided to manufacture the same out of bamboo but there was no sustained availability of bamboo. As a substitute for bamboo the assessee decided to have a project for eucalyptus trees and with that end in view the assessee entered into an agreement with the Government for purchase of private forests 'or a gum of Rs.75 lakhs. The assessee paid Rs.15 lakhs initially and the balance was to be paid to instalments. Interest was to be paid on the unpaid balance. The unpaid price was also secured by a bank guarantee. The assessee developed the land into an industrial plantation and eucalyptus trees weave planted in some areas. However, the Government acquired the lands of the assessee as all private forests were nationalised. The expenditure incurred by the assessee up to nationalisation in planting and maintaining eucalyptus trees were allowed as business loss. The assessee claimed deduction as business expenditure of the interest on unpaid price of land and the bank guarantee commission. The Income-tax Officer disallowed the claim for deduction on the ground that the expenditure was incurred on agricultural activities and such expenditure could be claimed only against the plantation division, which was a distinct business. On appeal, the Appellate Assistant Commissioner held that the expenditure was incurred for establishing a source of regular supply of raw materials for the pulp factory which was related to the assessee's business end that the plantation division was an essential part of the business carried on by the assessee. The Appellate Assistant Commissioner, however, held that all expenditure incurred before the land became fit for us as an asset was capital expenditure. On further appeal, the Tribunal held that the purchase of private forests with standing trees was for the purpose of the staple fibre unit and, therefore, allowed deduction of interest and bank guarantee commission as revenue expenditure. On a reference:

Held, affirming the decision of the Tribunal, that the transaction of acquisition of land was closely related to the carrying on of the business of the assessee and was an integral part of the profit-earning process. It was not the acquisition of an asset as such. Therefore, the interest paid by the assessee was business expenditure and was deductible under section 37(1) of the Income Tax Act, 1961. The bank guarantee commission paid was also allowable as revenue expenditure.

Challapalli Sugars Ltd. v. CIT (1975) 98 ITR 167 (SC); Mombay Steam Navigation Co. (1953) (P.) Ltd. v. CIT (1965) 56 ITR 52 (SC) and India Cements Ltd. v. CIT (1966) 60 ITR 52 (SC) applied.

Kinetic Engineering Ltd. v. CIT (1998) 233 ITR 762 (Bom.) and CIT v. Sivakami Mills Ltd. (1997) 227 ITR 465 (SC) fol.

The assessee purchased Government securities and sold the same immediately as they did not yield a good return, thereby incurring a loss in the transaction. The assessee claimed before the Income-tax Officer deduction of the loss on the ground that the Government securities were purchased by it under compulsion exerted by various Government authorities with whom, the assessee had to deal, as a condition for carrying yon of business. The Income-tax Officer rejected the claim of the assessee for deduction. On appeal, the Appellate Assistant Commissioner affirmed the order of the Income-tax Officer. On further appeal, the Tribunal held that Government officials often brought pressure op companies and induced them to buy Government securities and it was not normal for companies to make investment in such securities, that therefore, the investment was made only for purposes of business and hence the loss incurred on sale of such securities was deductible. On a reference:

Held, affirming the decision of the Tribunal that the loss incurred was an allowable deduction.

The assessee being engaged in manufacture of staple fibre was required to import spare parts. Due to the difficult foreign exchange situation, the Government had from time to time announced certain incentive schemes and allowed import of certain items under certain conditions. The incentive schemes were issued by the Textile Commissioner to the textile mills, which were exporting goods abroad. In respect of such exports, they were entitled to import entitlements and these import entitlements could be transferred freely. The assessee-company approached the Textile Commissioner for a clarification whether the import entitlements under that scheme could be transferred by a textile mill to rayon textile industries. The Commissioner agreed that such a transfer could be made. Thereafter, the assessee-company acquired import entitlements worth Rs.10 lakhs and necessary permission was granted by the Textile Commissioner to use these import entitlements for the purchase of the required spare parts for the textile machinery. In acquiring the import entitlements of Rs.10 lakhs, the assessee had to pay a premium of Rs.2, 95,000. However, when the assessee approached for permission to import spare parts, the Government advised it that except for a small amount towards import of reprocess spinners, it would not be possible for them to allow import of essential spares of rayon plant under that scheme. In view of this position, the import entitlements purchased by the assessee became useless. The assessee attempted to get the licences revalidated for a further period but was unsuccessful. The assessee, therefore, wrote off the premium of Rs.2, 95, 000 paid m the previous year relevant to the assessment year 1970-71. The assessee claimed deduction of this amount in computing its income. The Tribunal held that the amount of loss had to be allowed as deduction in the year in which the loss was written off. On a reference:

Held, affirming the decision of the Tribunal that the loss had to be allowed as deduction in the assessment year in which the loss was written off.

CIT v. Kusum Products Ltd. (1984) 149 ITR 250 (Cal.) and R.G.S. Industries v. CIT (1990) 183 ITR 31 (Gauhati) fol.

(b) Income-tax---

----Revenue expenditure---Loss---Purchase of Government securities---Sale of securities as same not yielding good return---On facts Tribunal holding investment in Government securities was for purposes of business---Loss deductible.

(c) Income-tax---

----Revenue expenditure ---Loss---Assessee by paying premium acquiring import entitlements for purchase of spare parts---Government not allowing import of spares except for a small amount---Import entitlements becoming useless as revalidating them unsuccessful---Premium paid for purchase of import entitlements written off as loss---Deduction allowable in year in which loss written off.

(d) Income-tax---

----Deduction---Export profit rebate---Export turnover---Computation of export turnover---Drawback of customs duty and refund of excise duty to be included---Premium gain on value of yarn entitlement not to be included--?Indian Finance Act, 1963, S.2(5)(i).

In computing the export turnover for purposes of export profit rebate, drawback of customs duty and refund of excise duty are to be included in the export turnover but premium gain on value of yarn entitlement is not to be included, for the assessment years 1966-67 and 1967-68.

Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. v. CIT (1983) 143 ITR 590 (MP) and Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd v. CIT (1988) 173 ITR 126 (MP) fol.

?(e) Income-tax---

----Business---Expenditure---Deduction of interest under S.36(1)(iii) or under S.37 or under S.28---Not deductible---Indian Income-tax Act, 1961, Ss.28, 36(1)(iii) & 37.

Tribunal was justified in holding that the assessee was not entitled to deduction of interest amounting to Rs.23, 14, 872 for the assessment year 1966-67 and Rs.14,65,279 for the assessment year 1967-68 under, section 36(1)(iii) or under section 37 or under section 28 while computing,,,:,,, the income from business.

CIT v. Ghatkopar Estate and Finance Corporation (Ptv) Ltd. (1989) 177 ITR 222 (Bom.) and Ferro Alloys Corporation Ltd. v. CIT (1992) 196 ITR 406 (Bom.) fol.

(f) Income-tax---

----Business expenditure---Company---Surtax---Surtax paid under Companies (Profits) Surtax Act, 1964---Not deductible---Indian Income Tax Act, 1961, Ss.28 & 37---Indian Companies (Profits) Surtax Act, 1964.

Surtax paid under the Companies (Profits) Surtax Act, 1964, is not an allowable deduction under section 28 or section 37 of the Income Tax Act, 1961.

Smith Kline and French (India) Ltd. v. CIT (1996) 219 ITR 581 (SC) fol.

Cambay Electric Supply Industrial Co. Ltd. v. CIT (1978) 113 ITR 84 (SC) fol.

(h) Income-tax---

----Trading loss---Devaluation of rupee---Extra amount payable on account of devaluation of rupee---Is trading loss and is allowable deduction.

The extra amount payable on account of devaluation of rupee is a trading loss and is an allowable deduction.

CIT v. V. S. Dempo & Co. (Pvt.) Ltd. (1994) 206 ITR 291 (Bom.) fol.

CIT v. Alembic Glass Industries Ltd. (1976) 103 ITR 715 (Guj.) ref.

R. V. Desai with B. M. Chatterjee for the Commissioner.

S. E. Dastur with S. J. Mehta, R. H. Toprani and P. R. Toprani, instructed by 1. M. Munim and S. J. Mehta for the Assessee.

2000 P T D 2744

[237 I T R 82]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and A. Y. Sakhare, JJ

Mrs. AMY F. CAMA (TRUSTEE OF THE ESTATE OF LATE M. R.

ADENWALLA)

versus

COMMISSIONER OF INCOME-TAX

Income-tax Reference No. 328 of 1984, decided on 1 0th June, 1980.

(a) Income-tax---

----Representative assessee---Trustee---Assessment of trustee---Effect of S.161---Trustee entitled to benefits available to beneficiary---Trustee can claim exemption under S.54---Indian Income Tax Act, 1961, Ss.54 & 161.

Section 161 of the Income Tax Act, 1961, makes a representative assessee subject to the same duties, responsibilities and liabilities as if the income was received by him beneficially. The fiction is created as it was never the object or intention of the Act to charge tax upon persons other than the beneficial owner of the income. Whatever benefits the beneficiary will get in the said assessment must be made available to the trustee while assessing him under section 161.

(b) Income-tax---

----Capital gains---Exemption---Sale of house used as residence and purchase of another .house for purposes of residence---Sale of house used by trustee and beneficiaries for residence and purchase of another house for residence--­Exemption under S.54 can be claimed---Indian Income Tax Act, 1961, 58.54 & 161.

T. the assessee, was the sole executrix and trustee of the will of her husband. As per the will, the trustee had absolute discretion to deal with the properties without being responsible or accountable for any loss or any diminution. The trustee was to collect and recover all interest, dividends, rents. etc., and was to pay all rents. taxes, assessment, etc., in respect of .the properties and the balance was to be utilised by her. On November 29, 1961, she sold an immovable property known as "Aden Hall" for approximately Rs.7 lakhs. By an agreement, dated November 9, 1961, she agreed to purchase a flat in the building "Wyoming". Part of the funds received from the sale of immovable property "Aden Hall" were used for purchase of the flat. 'Aden Hall' was being used by T alongwith her children for :residence and upon purchase of the new flat. T alongwith her children used the same for their residence. The assessee claimed that Rs.1,47,.775 used for purchase of the flat should be deducted from the capital gain arising out of the sale of the immovable property-Aden Hall. The assessee placed reliance upon section 54 of the Act for the .said deduction. The Income-tax Officer negatived the assessee's claim. This was upheld by the Tribunal. On a reference:

Held, that T in her dual capacity as the trustee and as a beneficiary having life interest was residing in the property which was sold and she used the newly acquired flat for residence. The assessee was entitled to the deduction of the purchase price of the flat from the- capital gain under section 54.

Arundhati Balkrishna (Mrs.) v. CIT (1989) 177 ITR 275 (SC); Bai Hamabai J. K. Mehta v. CIT (1948) 16 ITR 115 (Bom.); CIT v. Kamalini Khatau (1994) 209 ITR 101 (SC); CIT v. Trustees. T. Stanes & Co. Ltd. Staff Pension Fund (19,93) 200 ITR 396 (Mad.); CIT v. Wadia (J.B.) (1963) 48 ITR 135 (Bom.); CWT v. Official Trustee of West Bengal for Trust Murshidabad Estate (1982) 136 ITR 162 (Cal.); CWT v. Trustees of H.E.H. Nizam's Family (Remainder Wealth) Trust (1977) 108 ITR 555 (SC); N. V. Shanmugham & Co. v. CIT (1971) 81 ITR 310 (SC); Nagappa (C.R.) v. CIT (1969) 73 ITR 626 (SC) and Pandit (R.H.) v. CIT (1972) 83 ITR 136 (Bom.) ref.

J. D. Mistry with B. D. Damodar instructed by Kanga & Co. for the Assessee.

R. V. Desai with B. M. Chatterjee for the Commissioner

2000 P T D 2798

[236 I T R 706]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and S. H. Kapadia, JJ

SASWAD MALI SUGAR FACTORY LTD.

Versus

COMMISSIONER OF INCOME-TAX.

I.T.R. No.509 of 1985, decided on 13th January, 1999.

(a) Income-tax---

----Other sources---Business---Business income on income from other sources---Lease of plant and machinery ---Company manufacturing and selling sugar---Directors deciding to sell plant and machinery because State Government was encouraging only cooperative societies engaged in such business---Lease-cum-sale agreement with cooperative society--- suit by shareholders y against proposed sale---Lease rent increased arid lease period increased to thirty years with option of further renewal for another thirty years ---Assessee had no intention of re-starting business---Income from lease was assessable as income from other sources and not as business income--­Indian Income Tax Act, 1961, Ss.28 &. 56.

The question as to whether the assessee was exploiting an asset as a commercial asset or as an income yielding property is predominantly a matter of intention is an inference to be drawn from the relevant facts. Where either by word or conduct, the assessee expresses its intention to go out of business by converting the commercial asset into property, the income that accrues to such an assessee can only be income froth other sources and not business income.

The assessee-company was carrying on the business of manufacture and sale of sugar up to the end of the accounting year 1970-71 (assessment year 1972-73). On March 31, 1971, the sugar factory, machinery and the premises were leased out to S on a annual rent of Rs.3 lakhs. According to the assessee-company, the State Government was approached for financial assistance when it was made clear to the assessee-company that the State Government favoured only such sugar factories, which were not as co­operative societies. Accordingly, the society was registered on December 21, 1970. Under the circumstances, a lease came to be executed on March 31, 1971. By the lease agreement, the entire sugar plant was leased out to the society initially for two years on an annual rent of Rs.3 lakhs. Under the agreement, the company intended to sell the Karkhana as a going concern on the expiry of the lease to the society. The lease dated March 31, 1971 was in effect, a lease-cum-sale agreement. The directors' report for the 40th year of the company's working for the accounting year ending July 31, 1972, also made it clear that the assessee-company intended to sell its assets to the co­operative society. However, some of the shareholder challenged the lease­-cum-sale agreement and instituted a suit against the company. The co­operative society also filed a suit for specific performance. Ultimately, the company petition was disposed of by consent terms. Under the consent terms, the assessee-company and the society agreed for substitution of the lease-cum-sale agreement, dated March 31, 1971, by a new lease. According to the revised lease agreement, the original lease rent of Rs.3 lakhs for the user of lands, buildings, plant and machinery payable by the society was increased from Rs.3 lakhs to Rs.6.50 lakhs per annum for the period commencing from August 1, 1971 to July 31, 1974; the initial period of lease was increased from two years to thirty years from August 1, 1974 with an option to the society for extending the same for a further period of 30 years. Under the consent terms, the society agreed to withdraw the suit for specific performance. The Income-tax Officer held that the lease rent was assessable as income from other sources. This was upheld by the Tribunal.

The assessee had claimed deduction of Rs.3,91,104 for interest payments made by the assessee-company to United Western Bank for purchase of machinery. The Income-tax Officer found that the machinery was returned to the suppliers. ft never formed part of the assets of the assessee ­company nor was it ever used for the business of the assessee-company. Hence the claim for interest payment stood disallowed. This was confirmed by the Tribunal.

The assessee had claimed deduction of Rs.52,002 being compensation payable to suppliers of machinery for delayed payment of advances' against new sugar machinery ordered by the assessee-company. The Income-tax Officer found that the new machinery was not purchased by the assessee-company, but it was returned to the supplier. Hence, the Income-tax Officer rejected the claim for deduction of the above compensation as business expenditure. This was confirmed by the Tribunal.

The assessee-company claimed travelling expenses of Rs.36,729. The Income-tax Officer found that the expenses were incurred by the assessee-company for obtaining licence for another sugar factory. The Income-tax Officer found, therefore, that these expenses could not be said to be expenses for the purpose of the assessee's business. In the circumstances, travelling expenses to the tune of Rs.25,000 came to be disallowed. This was upheld by the Tribunal. On a reference:

Held, (i) that it was only on account of the intervention of the Court that the lease-cum-sale agreement stood substituted by the revised lease. However, the intention of the assessee-company in entering into the lease-­cum-sale agreement with the society' was to sell the plant and machinery and the premises to the society for which a price was also fixed. The long duration of the revised lease might not be a conclusive factor but it was a relevant factor to be taken into account. Even the memorandum of the company did not contemplate leasing to be a business activity of the assessee. The Tribunal was justified in holding that the lease rent received by the assessee-company was not assessable as business income and that it had been rightly assessed by the Income-tax Officer as income from other sources.

(ii) That in view of the finding that the assessee's intention was not to carry on business, but, to let out the business assets as income yielding properties, the claim of the assessee-company for deduction regarding the compensation paid to suppliers of machinery and for deduction on account of interest paid to United Western Bank as also the claim for deduction on account of travelling expenses could not be granted.

The assessee had set up a hostel. It was for the students studying in Pune and surrounding cities in the State of Maharashtra. Originally, income from this source was shown as income from property. Subsequently, a revised return was filed claiming income from the hostel as income from business. The Income-tax Officer rejected the claim of the assessee and treated the said income as income from property. However, the Appellate Assistant Commissioner as well as the Tribunal treated the said income as business income. On a reference:

Held, that the facts found by the Tribunal showed that a licence was given by the Pune Corporation enabling the assessee-company to run the hostel. Further, rent was charged to the students on college term basis and not month to month. In addition, licence fees exceeding Rs.500 were payable annually as also municipal charges, water charges, etc., which depended, on actual user and not a fixed rate. The memorandum of association produced by the assessee showed that one of the objects of the assessee-company was to earn income from the hostel. The students were permitted to occupy the hostel pursuant to a-licence which required them to vacate the premises on the expiry of the stipulated period. The running of the hostel was similar to a boarding or lodging house. In the circumstances, the premises were not let out to the students. There was no relationship of lessor and lessee vis-a-vis the students. It was a case of permissive occupation by the students. Hence income from the hostel constituted business income.

CEPT v. Shri Lakshmi Silk Mills Ltd. (1951) 20 ITR 451 (SC); CIT v. Vikram Cotton Mills Ltd. (1988) 169 ITR 597 (SC) and Veecumsees v. CIT (1996) 220 ITR 185 (SC) ref.

(b) Income-tax---

----Business---Business income---Lease of hostel to students---Students permitted to occupy hostel pursuant to licence---Object of assessee-company was to earn income from hostel---Income from lease was assessable as business income---Indian Income Tax Act, 1961, S.28.

(c) Income-tax---

----Interest on borrowed capital---Lease of machinery and plant---Income from lease assessable as income from other sources---Interest on capital for purchase of machinery was not deductible- under S.36---Tndian Income Tax Act, 1961, S.36.

(d) Income-tax---

----Business expenditure ---Assessee running business of manufacture and sale of sugar discontinuing business ---Assessee returning new machinery to vendors---Compensation consequent on such return was not deductible as business expenditure---Indian Income Tax Act, 1961, S.37.

(e) Income-tax---

----Business expenditure---Travel expenses---Travel for obtaining licence for a third party---Not deductible---Indian Income Tax Act, 1961.

K. B. Bhujle for the Assessee.

R. V. Desai for the Commissioner.

2000 P T D 3183

[237 I T R 676]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and S. H. Kapadia, JJ

COMMISSIONER OF INCOME-TAX

versus

MERCANTILE BANK LTD.

Income-tax Reference No.25 of 1987, decided on 9th March, 1999.

(a) Income-tax---

----Income---Accounting---Interest---Accrual of income ---Assessee following mercantile system of accounting---Interest on sticky advances credited to suspense account---Interest credited neither to suspense account nor to profit and loss account---Income assessable to tax---Indian Income Tax Act, 1961--­[Hindustan Motors Ltd. v. CIT (1985) 156 ITR 223 (Cal.) and Jeewanlal (1929) Ltd. v. CIT (1991) 187 ITR 709 (Cal.) dissented from].

The object of section 40-A(5) of the Income Tax Act, 1961 is to disallow excess salary and excess perquisites. Reading section 40-A(5)(a)(i) with section 40-A(4)(c)(i), we find that there is an aggregate amount of deduction. It is possible for a person to be an employee for a part of the relevant previous year i.e., up to the date of his retirement. Correspondingly, the same person, on his becoming a former employee in the relevant previous year, would be entitled to receive terminal benefits the gratuity, pension, etc. Section 40-A(5) deals with two separate contingencies. We have to see the status of an employee on the last date of the relevant previous year for fixing the limit of deduction. In this context, the definition of the word "salary" given in Explanation 2-refers to the meaning assigned to it in clause (1) read with section 17(3), subject to certain modifications. In other words, the word "salary" would include terminal benefits like pension and gratuity and if so read, the person who receives the terminal' benefits is described by the Legislature as a former employee in juxtaposition to the employee who is in service and who receives salary. In the case of an employee who receives salary before retirement -during the relevant accounting year, deduction beyond Rs.5,000 per month is disallowed, whereas in the case of a former employee who retires during that year, expenditure beyond Rs.60,000 is disallowed. However, that does not mean that two separate limits are prescribed by section 40-A(5). In fact, the figure of Rs.5,000 in the case of an employee in service and the figure of Rs.60,000 in the case of a former employee read with meaning of the word "salary" clearly shows that salary for the purposes of disallowance under section 40-A(5) includes terminal benefits like gratuity. This is particularly in view of section 17(1)(iii) of the Act. Hence, where an employee ceases to be an employee of an assessee during the relevant previous year, the aggregate limit of Rs.60,000 prescribed in section 40-A(5)(c)(i) applies. Therefore, the status of the person on the last date of the relevant previous year is crucial.

Hindustan Motors Ltd. v. CIT (1985) 156 ITR 223 (Cal.) and Jeewanlal (1929) Ltd v. CIT (1991) 187 ITR 709 (Cal.) dissented from.

Held, (i) that the assessee was liable to be taxed in respect of the amount credited to the interest suspense account and which interest had not been credited to the profit and loss account.

State Bank of Travancore v. CIT (1986) 158 ITR 102 (SC) and Banque Nationale De Paris v. CIT (1999) 237 ITR 518 (Bom.) fol.

(ii) that it was admitted that the assessee in the present case was maintaining account as per the mercantile system of accounting and that there was no finding of fact recorded that the assessee was maintaining a hybrid system of account. Hence, the assessee was liable to be taxed in respect of interest on debts of which the recovery was doubtful and the interest of which the assessee had neither credited to the interest suspense account nor to the profit and loss account.

State Bank of Travancore v. CIT (1986) 158 ITR 102 (SC) applied, (iii) that the expenses incurred by the assessee in respect of club membership subscription fees and in respect of repairs of the accommodation provided to the employees under section 40-A(5).

Otis Elevator Co. (India) Ltd. v. CIT (1992) 195 ITR 682 (Bom.) fol

(b) Income-tax---

----Business expenditure---Disallowance of expenditure beyond prescribed limit---Payments of salary to employees or former employees---Scope of S.40-A(5)---Section 40-A(5) does not prescribe two limits---Employee who retires before end of accounting year---Status of employee on last date of accounting year determines limit---Indian Income Tax Act, 1961, S.40-A(5).

(c) Income-tax---

----Business expenditure---Disallowance of expenditure beyond prescribed limit---Expenditure resulting in benefit or perquisite to employees---Club membership subscription fees---Expenditure on repairs of accommodation provided for employees---Not to be taken into account for purposes of S.40-A(5)---Expenditure on maintenance of accommodation provided to employees must be taken into account for purposes of S.40-A(5)---Indian Income Tax Act, 1961, S.40(5).

Expenses incurred by the assessee on account of maintenance of accommodation provided to the employees had to be taken into account for purposes of computing the disallowance under section 40-A(5).

Lubrizol India Ltd. v. CIT (1991) 187 ITR 25 (Bom.) fol.

CIT v. Citibank N.A. (1994) 208 ITR 930 (Bom.) ref.

R. V. Desai with B. M. Chatterjee for the Commissioner

R. Murlidharan instructed by Crawford Bayley & Co. for the Assessee

2000 P T D 3199

[237 I T R 278]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and S. H. Kapadia, JJ

COMMISSIONER OF INCOME-TAX

versus

BANQUE NATIONAL DE PARIS

Income-tax Reference No.371 of 1984, decided on 8th March, 1999.

(a) Income-tax---

----Business expenditure---Disallowance of expenditure above prescribed limit---Expenditure resulting in benefit or perquisite to employees--­Expenditure on maintenance of houses owned by assessee-company and flats hired by it for housing senior officers ---Expenditure would amount to benefits or perquisites for purposes of S.40-A(5)---Indian Income-tax Act, 1961, S.40-A.

The expenditure incurred by a company on the maintenance of houses owned by it and flats hired by it for housing senior officers amounts to benefits or perquisites for purposes of: section 40-A(5) of the Income Tax Act, 1961.

Lubrizol India Ltd. v. CIT (1991) 187 ITR 25 (Bon.) fol.

(b) Income-tax---

----Advance tax---Interest payable by Government---Interest payable up to date of regular assessment for assessment years 1973-74 and 1974-75--­Indian Income Tax Act, 1961, S.214.

For the assessment years 1973-74 and 1974-75 interest under section 214 of the Income Tax Act, 1961, is payable up to the date of regular assessment.

Modi Industries Ltd. v. CIT (1995) 216 ITR 759 (SC) applied.

(c) Income-tax---

----Interest on securities---Business income or interest on securities--­Discount on treasury bills is assessable as interest on securities---Indian Income Tax Act, 1961.

The discount on treasury bills is assessable as interest on securities.

British Bank of the Middle East v. CIT (1998) 233 ITR 251 (Bom.) fol:

Rayon Traders (P.) Ltd. v. ITO (1980) 126 ITR 135 (Mad.) ref.

R. V. Desai with P.S. Jetley for the Commissioner.

J. D. Mistry instructed by Crawford Bayley & Co. for the Assessee.

2000 P T D 3227

[237 I T R 518]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and S. H. Kapadia, JJ

BANQUE NATIONALE DE PARIS

Versus

COMMISSIONER OF INCOME-TAX

Income-tax Reference No.83 of 1986, decided on 18th February, 1999.

(a) C.B.R. Circulars--

----Powers of CBDT---CBDT cannot issue a circular which would override or detract from provisions of Act---Indian Income Tax Act, 1961, S.119.

Circulars cannot override or detract from the provisions of the Act inasmuch as section 119 of the Income Tax Act, 1961, has empowered Central Board of Direct Taxes to issue orders, instructions or directions for the proper administration of the Act. This has been laid down by the Supreme Court in Kerala Financial Corporation v. CIT (1994) 210 ITR 129. The judgment of the Supreme Court was not .per incuriam. The decision in Navnit Lal C. Javeri v. K.K. Sen, AAC of IT (1965) 56 ITR 198 (SC) was specifically considered by the Supreme Court in K.P. Varghese v. ITO (1981) 131 ITR 597 which in turn was specifically considered by the Supreme Court in Kerala Financial Corporation v. CIT (1994) 210 ITR 129. In the circumstances, the doctrine of per incuriam is not applicable. The decision of the Supreme Court in Kerala Financial Corporation v. CIT (1994) 210 ITR 129 is final and binding.

(b) Income-tax---

----Income---Accounting---Interest---Accrual of income ---Assessee following mercantile system of accounting---Interest on sticky advances accrues and is assessable---Indian Income Tax Act, 1961.

Interest of Rs.3,76,443 accrued the assessee on sticky advances in the previous year relevant to the assessment year 1975-76 which the Inspecting Assistant Commissioner included in the assessee's income. In appeal, the Commissioner of Income-tax (Appeals) deleted the same and this was upheld by the Tribunal. On a reference it was contended that in view of the Circular bearing No.201/21/84-ITA-II, dated October 9, 1984, interest on doubtful debts could not be charged to tax:

Held, that having regard to the admitted fact that the assessee's method of accounting was mercantile, the interest on sticky advances was liable to be assessed. The decision of the Supreme Court in Kerala Financial Corporation v. CIT (1994) 210 ITR 129 is final and binding and the said decision was clearly applicable to the controversy now sought to be raised on behalf of the assessee bank.

State Bank of Travancore v. CIT (1986) 158 ITR 102 (SC) and Kerala Financial Corporation v. CIT (1994) 210 ITR 129 (SC) fol.

B.S. Bajaj & Sons v. CIT (1996) 222 ITR 418 (P&H); CIT v. Sriram Agarwal (1986) 161 ITR 302 (Pat.); Ellerman Lines Ltd. v. CIT (1971) 82 ITR 913 (SC); Gautam (C.B.) v. Union of India (1993) 1999 ITR 530 (SC); Navnit Lal C. Javeri v. K. K. Sen, AAC of IT (1965) 56 ITR 198 (SC); State Bank of Travancore v. CIT (1977) 110 ITR 336 (Ker.) and Varghese (K. P.) v. ITO (1981) 131 ITR 597 (SC) ref.

(c) Income-tax---

----Interest on securities---Business---Discount on treasury bills---Assessable as interest on securities---Indian Income Tax Act, 1961.

Discount on treasury bills is assessable as interest on securities.

British Bank of the Middle East v. CIT (1998) 233 ITR 251 (Bom.) fol.

(d) Income-tax---

----Business expenditure---Disallowance of expenditure beyond prescribed limit---Expenditure resulting in benefit or amenity to exployees--­Expenditure on repairs and maintenance of flats owned or leased by company for housing employees---Expenditure must be taken into account for purposes of S.40A(5)---Indian Income Tax Act, 1961, S. 40A(5).

Expenses incurred on the repairs and maintenance of the flats owned by and/or taken on lease by the company ought to be considered as perquisites for the purposes of computing the disallowance under section 40A(5).

Lubrizol India Ltd. v. CIT (1991) 187 ITR 25 (Bom.) fol.

R. Muralidharan with S.E. Dastur, Senior Counsel instructed by Crawford Bayley & Co. for the Assessee.

R.V. Desai and B.M. Chatterjee for the Commissioner.

2000 P T D 3236

[237 I T R 587]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and Dr. Mrs. Pratibha Upasani, JJ

ANAND ELECTIRC C0. LTD.

Versus

COMMISSIONER OF INCOME-TAX

Income Tax Reference No.93 of 1985, decided on 5th November, 1998.

(a) Income-tax---

----Income---Solatium received by assessee is taxable.

The solatium of Rs.2,20,000 received by the assessee was taxable.

Akola Electric Supply Co. (Pvt.) Ltd. v. CIT (1978) 113 ITR 265 (Bom.) fol.

(b) Income-tax---

----Profits chargeable to tax ---Assessee's undertaking taken over by purchaser---Did not constitute a slump sale but only sale of individual assets of undertaking---Indian Income Tax Act, 1961, S.41(2).

Taking over of the undertaking of the assessee-company did not constitute a slump sale but only the sale of the individual assets of the undertaking for purposes of section 41(2) of the Income Tax Act, 1961.

CIT v. Artex Manufacturing Co. (1997) 227 ITR 260 (SC) fol.

Ms. V.B. Patel with U.I. Dalai for the Assessee.

R.V. Desai with B.M. Chattarjee for the Commissioner.

2000 P T D 3278

[237 I T R 814]

[Bombay high Court (India)]

Before Dr. B. P. Saraf and Dr. Mrs. Pratibha Upasani, JJ

COMMISSIONER OF INCOME-TAX

Versus

SHAH CONSTRUCTION CO. LTD.

Income-tax Reference No. 82 of 1988, decided on 25th November, 1998.

(a) Income-tax---

----Income---Addition to income--Assessee taking up contract works abroad-­Assessee receiving advances to be adjusted against running bills of assessee-­Assessee converting into Indian Rupees foreign currency lying in reserve for account purposes at end of year at prevailing exchange rate---Till amount lying in reserve was adjusted against future bills it did not belong to assessee---Such amount not income liable to tax.

The assessee had taken up some contract works in the Middle East countries. Against such contracts, advances were received by the assessee which had to be adjusted against the running bills submitted by the assessee from time to time. At the end of the accounting year relevant to the assessment year 1979-80, certain foreign currency had remained in reserve and for account purposes, the assessee converted them into Indian rupees at the prevailing exchange rate. The Income-tax Officer brought such amount to tax in the hands of the assessee. On appeal, the Appellate Assistant Commissioner deleted the addition on the ground that the credit balance in the foreign exchange reserve account did not represent any profit or gain under the Income Tax Act, 1961. The Tribunal affirmed the order of the Appellate Assistant. Commissioner. On a reference:

Held, affirming the decision of the Tribunal, that the amount lying in the foreign exchange reserve account did not belong to the assessee. It was part of the amount received by the assessee from the parties in the Middle East by way of advance to be adjusted against the running bills, Till the amount was adjusted against the running bills, it did not belong to the assessee. The conversion into Indian rupees at the end of the year was only for account purposes. The amount could not be regarded as income of the assessee till it was adjusted against the future bills. Therefore, the Tribunal was justified in deleting the addition of Rs.4,59,098 from the income of the assessee.

(b) Income-tax---

----Investment allowance---New industrial undertaking---Business of construction---Not an industrial undertaking entitled to .investment allowance---Indian Income Tax Act, 1961, S. 32-A(2)(b)(iii).

Tribunal was not right in holding that the business of construction carried on by the assessee was an industrial undertaking eligible for investment allowance under section 32-A(2)(b)(iii) of the Income Tax Act, 1961.

CIT v. N. C. Budharaja & Co. (1993) 204 ITR 412 (SC) fol.

(c) Income-tax---

----Investment allowance---Dumpers used in execution of civil engineering contract work---Are "road transport vehicles"---Not entitled to investment allowance---Indian Income Tax Act, 1961, S. 32-A(1), proviso (b).

Dumpers used by the assessee in the execution of civil engineering contract work were "road transport vehicles" and were not entitled to investment allowance under section 32-A(1), proviso (b) of the Act.

CIT v. N.C. Budharaja & Co. (1993) 204 ITR 412 (SC) fol.

R.V. Desai with B.M. Chatterjee for the Commissioner.

S.J. Mehta with I.M. Munim for the Assessee.

2000 P T D 3290

[237 I T R 472]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and S. H. Kapadia, JJ

COMMISSIONER OF INCOME-TAX

Versus

N. J. PAVRI

Income-tax Reference No. 158 of 1985, decided on 4th February. 1999

Income-tax---

----Exemption---Gratuity received from statutory corporation or, private employer---Ceiling for exemption---Law applicable---Effect of amendment of S.10(10) in 1974---Retirement gratuity received from more than one employer---Provision that amount exempted in earlier year will be taken into account in computing ceiling---Provision applicable to retirement gratuity received .prior to 1-4-1975---C.B.T. Circular No.108, dated 20-3-1973--­Indian Income Tax Act, 1961, S.10(10).

A bare reading of section 10(10) of the Income Tax Act, 1961, as it stood before the amendment by the Finance Act, 1974, shows that gratuity payable to the employees of he Government, local authority or a statutory corporation was totally exempted from payment of income-tax, whereas any other gratuity not exceeding 15 days' salary for each year of completed service stood exempted subject a maximum of twenty-four thousand rupees or fifteen months' salary, whichever is less. The Finance Act, 1974, was brought into force to remove anomalies in the above provision. Section 10(10) as amended by the Finance Act, 1974, consists of three sub­clauses. Retirement gratuities received by the employees of the Central Government, State Government and local authorities are fully exempted under sub-clause (i), whereas under sub-clause (ii) the tax exempt gratuity is put under ceiling. Under section 10(10)(ii), as amended, gratuity received by an employee under section 4 of the Payment of Gratuity Act, 1972, is exempted from income-tax, whereas under section 10(10)(iii) any other retirement gratuity exceeding 15 days' salary for each year of completed service is subject to a maximum of thirty thousand rupees or twenty months' salary, whichever is less. In this context, one has to see the two provisos to section 10(10). The provisos refer to an employee working successively or simultaneously with more than one employer. The first proviso deals with a case where gratuity is received by an employee from two or more employers in the same year,. whereas the second proviso. deals with a case where an employee who has received gratuity in an earlier year from a former employer, receives gratuity from another employer in a later year. In the case of the first proviso it is clear that the maximum amount of gratuity exempt from income-tax will not exceed Rs.30,000, whereas in the case of the second proviso. it is clear that the ceiling limit of Rs.30,000 shall be reduced by the amount of gratuity which has been exempted in the earlier year(s). Therefore, the overall monetary ceiling limit of Rs.30,000 will apply in relation to all other gratuities under section 10(10)(iii) whether received from the statutory corporations or private employers. The amendment made by the Finance Act, 1974, has come into force with effect from April 1, 1975. The expression "this clause" in the second proviso to section 10(10) applies only to sub-clause (iii) of section 10(10) and not to all the three sub-clauses of section 10(10). The ceiling limits prescribed by each of the sub-clauses vary. The object of the amendment clearly was to remove anomalies in the old section 10(10) between the employees in the private sector and the employees in the statutory. corporations. It is for this reason that the gratuities falling under the first part of the old section 10(10)-stand removed and brought into sub-clause (iii) of section 10(10) so that the gratuities payable to employees of statutory corporations and employees in the private sector are subjected to a common ceiling limit. Looking to the object of the amendment, there is no merit in the contention that the Finance Act, 1974, cannot apply to gratuities received by employees of statutory corporations prior to April 1; 1975, in the matter of aggregation of tax exempt gratuities. The Finance Act, 1974, has made, a specific provision to secure that the aggregate amount of tax exempt gratuity in such cases does not exceed Rs.30,000. In cases where an employee who has received gratuity in an earlier year from a former employer or employers, receives gratuity from another employer in a later year, the ceiling limit of Rs.30,000 will be reduced by the amount of gratuity which has been exempted in any earlier year or years. The overall monetary ceiling limit of Rs.30,000 will apply in relation to all gratuities received from statutory corporations or private employers. To that effect is also the circular by the Board bearing No. 108, dated March 20, 1973.

The assessee retired from Air India on August 1, 1968. At that time, the assessee availed of the full exemption of Rs.30,000 under section 1.0(10) as it then stood. In June, 1976, he retired from R. In June, 1976, he received gratuity of Rs.47,250. This time the assessee claimed Rs.23,333 as exempt under section 10(10)(iii). The Income-tax Officer and the Appellate Assistant Commissioner rejected the claim but the Tribunal allowed it. On a reference:

Held, that the assessee had fully availed of the exemption under section 10(10) when he received gratuity from Air India and, accordingly, the entire gratuity received from R was taxable under sub-clause (iii) of clause (10) of section 10 read with the second proviso.

B.M. Chatterjee with R. V. Desai instructed by L.S. Sherry for the Commissioner.

J.D. Mistry instructed by Crawford Bayley & Co. for the Assessee.

2000 P T D 3412

[237 I T R 549]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and Dr. Mrs. Pratibha Upasani, JJ

COMMISSIONER OF INCOME-TAX

Versus

Miss ESTHER P. CARVALHO and others

Income-tax Reference No.443 of 1985, decided on 3rd November 1998.

Income-tax---

----Reassessment---Failure to disclose fully and truly material facts necessary for assessment ---Assessees owning lands transferring them as capital in a firm in which they were partners---Transfer resulting in capital gains--­Transfer not disclosed in return or at time of assessment---Fact that Income­-tax Officer could have found out fact of transfer of lands by assessee to firm while assessing firm did not exonerate assessees from their duty to make full and true disclosure of material facts---Reassessment valid---Indian Income Tax Act, 1961, Ss. 147(a), 148 & 149.

The assessee who owned lands transferred them at market value as capital in a firm of which they were partners. For the assessment year, the Income-tax Officer reopened the assessment of the assessees under section 147(a) read with section 148 of the Income Tax Act, 1961, on the ground that in the returns filed by them the fact of transfer of lands to the firm, which resulted in escapement of capital gains liable to tax, was not' disclosed by the assessees. The assessees challenged the order of the Income-tax Officer before the Commissioner of Income-tax (Appeals) on the ground that the Income-tax Officer was aware of the transfer of the lands by the assessee to the firm as the very same lands had been sold by the firm to a limited company, that the Income-tax Officer when assessing the firm was aware of the capital gain arising from the transfer of the lands by the firm to the company and hence the Income-tax Officer was aware of all material facts relevant for the assessment of the assessees also and that, therefore, there was no necessity of disclosing these facts to the Income-tax Officer at the time of the assessment. The Commissioner of Income-tax (Appeals) accepted the contention of the assessee and cancelled the reassessment. On further appeal, the Tribunal affirmed the order of the Commissioner of Income-tax (Appeals). On a reference:

Held, that it is well-settled that it is the duty of the assessee to disclose all primary facts necessary for his assessment before the assessing authority. If the assessee fails to do so, he cannot be permitted later to contend that it was the duty of the Income-tax Officer to find out those facts and if he could not find out the same it was the failure on his part- and not on the part of the assessee. The fact that the Assessing Officer could have found out the fact of transfer of lands by the assessees to the firm from the assessment of the firm did not exonerate the assessees from their duty to make a full and true disclosure of the material facts. Therefore, the reassessment was valid.

CIT v. B.C. Srinivasa Setty (1981) 128 ITR 294 (SC); Phool Chand Bajrang Lal v. ITO (1993) 203 ITR 456 (SC); Sri Krishna Pvt. Ltd. v. ITO (1996) 221 ITR 538 (SC) and Zohar Siraj Lokhandwala v. M.G. Kamat (1994) 210 ITR 956 (Bom.) applied.

R.V. Desai with S.M. Chatterjee for the Commissioner.

Nemo for the Assessee.

2000 P T D 3442

[237 I T R 859]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and Dr. Mrs. Pratibha Upasani, JJ

CEAT INTERNATIONAL S.A.

Versus

COMMISSIONER OF INCOME-TAX

Income-tax Reference No. 18 of 1987, decided on 26th November, 1998.

Income-tax---

----Income deemed to accrue or arise in India---Royalty or fees for technical services---Foreign non-resident company entering into agreement with Indian company under which Indian company to pay to foreign company export commission for tyres and tubes exported by Indian company---Under agreement foreign company forgoing in favour of Indian company exports in various markets and in certain cases export orders to be transferred to Indian company---By doing so foreign company did not impart any information concerning technical, industrial, commercial or scientific knowledge, experience or skill nor render any managerial, technical or consultancy service---Payment of export commission made by Indian company to foreign company for such services did not amount to "royalty" or "fees for technical services" and was not assessable to tax--Indian Income Tax Act, 1961, S.9(1)(vi), (vii).

The assessee-company, a non-resident foreign company, entered into an agreement with an Indian company under which the Indian company was to pay to the assessee-company export commission at the rate of five percent. of the FOB value of the automotive tyres and tubes exported by the Indian company provided the company fulfilled its obligation to export 15 percent. of its production subject to a minimum value of Rs.4.70 crores in consideration of the following services to be rendered by the assessee: (a) The assessee would forgo in favour of the Indian company exports in various markets and in certain cases export orders were to be transferred to the Indian company; (b) The assessee was to allow the use of channels of distribution in overseas markets to the Indian company and after-sales services in those markets; (c) Detailed market information was to be furnished to the Indian company through their representatives in major international markets at the expense of the assessee; (d) The benefit of advertising expenditure of the assessee to establish CEAT brands overseas was to be permitted. During the previous year relevant to the assessment year 1978-79, in terms of the agreement, the assesee-company was to receive from the Indian company a sum of Rs.23,75,366 for the services rendered under the agreement. This agreement was made in accordance with the. proposal approved by the Government of India vide their letter, dated June, 1977. Though this agreement was executed in Switzerland, it was subject to laws prevailing in the Union of India. In its return filed for the assessment year 1978-79, the assessee claimed that the export commission received by it from the Indian company was not assessable to tax on the ground that the amount could not be treated as royalty/technical services fee as defined in Explanation 2 to section 9(1)(vi) and the Explanation to section 9(1)(vii) of the Income Tax Act, 1961. The Inspecting Assistant Commissioner of Income-tax (assessing authority) rejected the contention of the assessee held that the sum of Rs.23,75,366 received by the assessee was paid on account of royalty and technical service fees within the meaning of sections 9(1)(vi) and 9(1)(vii) of the Act. On appeal, the Commissioner-(Appeals) held that the commission received by the assessee for services referred to in clauses (b) and (d) 'of the agreement rendered to the Indian company was covered by the term "royalty" as defined in Explanation 2 to section 9(1)(vi): He also held that the commission received for the services falling under clauses (a) and (c), rendered by the assessee to the Indian company, did not fall within the definition of royalty or technical fees. As there was no bifurcation of the amount payable for different types of services, The Commissioner (Appeals) held that on pro rata basis, 50 per cent, of the commission received would be taxable as royalty or technical service fees under section 9 of the Act. He, accordingly, held that the assessee was not liable to tax in respect of the­ other 50 percent. of the amount received by it from the Indian company. On further appeal, both the assessee and the Revenue, the Tribunal held that the payment on account of services referred to in clauses (b), (c) and (d) of the agreement amounted to royalty or fees for technical services within the meaning of sections 9(1)(vi) and 9(1)(vii) of the Act. The Tribunal, therefore, held that 75 percent. of the amount of Rs.23,75,366 was assessable to tax under sections 9(1)(vi) and 9(1)(vii) of the Act. In regard to the remaining 25 percent. of the said amount which was attributable to the services falling under clause (a) of the agreement, it did not amount, to royalty or fees for technical services and hence was not assessable to tax under the Act. On a reference both at the instance of the assessee and the Revenue:

Held, (i) that the payment of the three service referred to in clauses (b), (c) and (d) of the agreement had been treated by the Tribunal as royalty or fees for technical services and the same had been held to be taxable under section 9 of the Act. The assessee did not want to challenge this finding of the Tribunal.

(ii) That the Tribunal was correct in holding that 25 percent. of the export commission attributable to services falling under clause (a) of the agreement could not be treated as "royalty" or "fees for technical services" under clauses (vi) and (vii) of section 9(1). The payment was made for. merely forgoing by the assessee in favour of the Indian company exports in various markets or transferring certain export orders to the Indian company. By doing so, the assessee did not impart any information concerning technical, industrial, commercial or scientific knowledge, experience or skill nor render any managerial, technical or consultancy service.

F.B. Andhyarujina for the Assessee.

R.V. Desai with B.M. Chatterjee for the Commissioner:-

2000 P T D 3599

[238 I T R 171]

[Bombay High Court (India)]

Before Dr. B. P. Saraf and S. H. Kapadia, JJ

COLOUR CHEM LIMITED

versus

COMMISSIONER OF INCOME-TAX

Income-tax Reference No.262 of 1987, decided on 10th March, 1999.

(a) Income-tax--

----Business expenditure---Disallowance of expenditure above prescribed limit---Payment of salary to employee---Proportionate salary paid during stay outside India in ordinary course of employment---Not includible while computing disallowance---Indian Income Tax Act, 1961, S.40A.

(b) Income-tax---

----Business expenditure---Disallowance of expenditure above prescribed limit---Expenditure resulting in benefit or amenity to employee---Medical reimbursement--Not includible while computing disallowance---Indian. Income Tax Act,, 1961, S.40A.

(c) Income-tax---

----Business expenditure-Surtax- --Not deductible---Indian Income Tax Act, 1961, S.37.

(d) Income-tax---

----Investment allowance---Machinery for manufacture of heavy chemicals-Meaning heavy chemicals"---Parameter of tonnage applies to decide if chemical is "heavy"---Machinery for manufacture of tanning agents--­Entitled to investment allowance---Indian Income Tax. Act, 1961, S.32A.

The proportionate salary of employees of the assessee for the period of their stay outside India in the ordinary course of their employment should be excluded from the total salary while computing disallowance under section 40A(5) of the Income Tax Act, 1961.

CIT v. Continental Construction Ltd. (1998) 230 ITR 485 (SC) fol.

The amount representing medical remibursement given to employees. Which was not treated as perquisite in computing disallowance under section 40A(5) should not be treated as, part of salary for computation of disallowance under the said provision.

CIT v. Indokem (Pvt.) Ltd. (1981) 132 ITR-125 (Bom.) fol.

Surtax is not deductible in computing profits and gains of business.

Smith Kline and French (India) Ltd. v. CIT (1996) 219, ITR 581 (SC) fol.

During the relevant accounting year, the assessee acquired and installed machinery at the cost of Rs.1,06,02,027 for manufacture of the following tanning ,agents, viz., (1) diketene, (2) Acetoacetarylides and acetoeretamides, (3) acetic anhydride, (4) synthetic tanning agents. The Assessing Officer held that the items manufactured by the assessee were not heavy chemicals within the meaning of entry 26 and entry 27 of the Ninth Schedule. The Assessing Officer came to the conclusion that the word­ "heavy chenucal" must be understood as in common parlance; that the word "heavy" was used as an adjective qualifying the quality of the chemical, such as large specific gravity, large molecular weight or chemical make up of heavier elements or consisting of heavier isotope of a particular element like heavy water which consists of a heavy isotope of hydrogen. This reasoning of the Assessing Officer was accepted by the Commissioner of Income-tax, (Appeals). However, the Tribunal relied upon the dictionary meaning given to word "heavy-chemical". It held that the assessee was entitled to investment allowance. On a reference:

Held, that according to the meanings given by the chemical dictionaries, it is clear that heavy chemical is described as heavy chemical on the basis of the tonnage whereas fine chemical is defined on the basis of smaller quantity. In other words, the parameter of tonnage applies in order to ascertain whether the chemical is a heavy chemical or a fine chemical. The Assessing Officer had applied a different test, which normally applies to cases of molecular weight. That test was not correct. The assessee was entitled to investment allowance.

J.D. Mistry with Ms. H. Desai instructed by T. Pooran & Co. for the Assessee.

R.V. Desai with B.M. Chatterjee for the Commissioner.

2000 P T D 96

[232 I T R 895]

[Calcutta High Court (India)]

Before Y. R. Meena and Bijitendra Mohan Mitra, JJ

COMMISSIONER OF INCOME-TAX

versus

SHIRINBAI ABDULLABHAI

Income-tax Reference No.5 of 1993, decided on 10th March, 1998.

Income-tax---

----Reassessment---Failure to disclose material facts---Assessment completed accepting income returned from house property---Subsequently Inspector finding that house constructed by assessee and his wives jointly,--Difference between investment cost in construction of house shown by assessee and report of Inspector more than Rs.1 lakh---Material information relating to construction of house by assessee along with his wives and also rent received duly disclosed---Report of Inspector and valuation report by the Departmental value obtained after completion of assessment---Report made basis for reopening assessment---No failure to disclose income fully and truly---Reassessment not valid---Indian Income Tax Act, 1961, Ss. 147(a) & 148.

The assessment of the assessee for the assessment year 1974-75 was completed under section 143(3) of the Income Tax Act, 1961, accepting the returned income from house property at Rs.6,785, Subsequently, the Inspector of Income-tax was deputed to evaluate the investment made. by the assessee in the construction of a house property, who found that the house had been constructed by the assesssee and his wives jointly, that the cost of investment during the year was Rs.8,08,000 as against Rs.5,08,776 shown by the three co-owners. Thereafter the Income-tax Officer issued notice under section 148 of the Act for reopening the assessment under section 147(a) and in the reassessment under section 143(3), the total income was assessed at Rs.22,77,200. On appeal to the Commissioner (Appeals), the assessee contended that all material information relevant to the construction of the house property was furnished. before the Assessing Officer and that the construction of the house was not completed during the previous year relevant to the assessment year 1974-75 and it was completed only in the assessment year 1975-76. The Commissioner of Income-tax (Appeals) found that in the reassessment the Income-tax Officer had wrongly relied on the valuation report of the Departmental value, which had been obtained after completion of the assessment aid that could not be made the as is for the reopening of the assessment and therefore, he held that the reopening of the assessment was bad in law. On further appeal, the Tribunal upheld the order of the Commissioner (Appeals). On a reference:

Held, affirming the order of the Tribunal, that the assessment has been completed on the basis of material placed by the assessee in respect of the construction of the house and the assessee also disclosed the rent received from the house so constructed. The material fact that the assessee along with his two wives had constructed the house had also been disclosed. Thus, it could not be said that any material fact. had been concealed by the assessee or the assessee had not disclosed fully and truly all material facts. The report of the Inspector was subsequently obtained and the valuation report of the Departmental value was also subsequently obtained. Therefore, it could not be said that the assessee had not disclosed his income fully and truly. The reassessment under section 147(a) was not valid.

Tarawati Debi Agarwal (Simt) v. I.T.O. (1986) 162 ITR. 606 (Cal.) fol.

Standing Counsel for the Commissioner.

Nemo for the Assessee.

2000 P T D 142

[231 I T R 737]

[Calcutta High Court (India)]

Before M. H. S. Ansari, J

DEBASISH MOULIK

Versus

DEPUTY COMMISSIONER OF INCOME-TAX and another

Writ Petition No.215 of 1998, decided on 6th February, 1998.

Income-tax---

----Recovery of tax --Power to grant stay of collection of tax---Appellate Authority has power to grant stay in appropriate cases for effective exercise of appellate powers---Power conferred on Assessing Authority to treat an assessee as not in default---Does not militate against power of Appellate Authority to grant stay ---Assessee directed to approach Appellate Authority for stay---Indian Income Tax Act, 1961, S.220(6)---Constitution of India, Art.226, The power to grant stay of collection of tax 'is an inherent and incidental power of the Appellate Authority for the effective exercise of the appellate powers. The Appellate Authority, i.e., the Commissioner (Appeals), thus, has an inherent power to grant stay of collection of tax in appropriate cases. Merely because power has been conferred upon the Assessing Authority under section 220(6)of the Income Tax Act, 1961,to treat an assessee as not in default, the same will not in any way militate against the power of the Appellate Authority to grant stay.

For the assessment year 1995-96, a demand of Rs.10, 41, 633 was raised on the petitioner upon assessment made under section 143(3) of the Income Tax Act, 1961. The petitioner preferred an appeal before .the Commissioner (Appeals). Meanwhile, the petitioner also filed an application under section 220(6)of the Act before the Assessing Authority requesting that the demand be stayed on account of pendency of the appeal before the Commissioner of Income-tax (Appeals) against the order of assessment and that the petitioner should not be treated as an assessee in default. The Assessing Authority by order, dated January 21,1998, directed the petitioner to pay 50 percent. of the demand and upon such payment the application for stay would be considered. Seven days time for payment was granted, failing which it was directed that the stay petition shall stand rejected and recovery measures shall be initiated. The petitioner tiled a writ petition challenging the said order of the Assessing Authority:

Held, (i) that the Appellate Authority before whom the appeal was pending had the power to grant stay of the demand in the appeal pending before him. Therefore, the petitioner should be relegated to avail of the said remedy before invoking the jurisdiction of the High Court under Article 226 of the Constitution of India.

(ii) That, however, in so far as the order of the Appellate Authority was concerned, the order was one passed without application of mind and was not in comformin with law. A bare reading of the order would show that the petitioner liaci been asked to pay the amount, that is 50 percent. of the demand, before his request for stay was considered, which meant that only if the assessee paid 50 percent. of the demand, the request of the assessee for staying the demand would be considered and not before. It was not as though that the stay application had been considered and orders thereon had been passed on the merits of the case. Therefore, the order of the' assessing authority, dated January 21, 1998, was liable to be set aside.

(iii) That if the petitioner filed an application within one week from the date of this order, for stay of collection of tax before the Appellate Authority before whom the petitioner's appeal was pending against the order of assessment, the Appellate Authority should consider the same and pass appropriate orders thereon in accordance with law after affording the petitioner an opportunity of being heard.

(iv) That until the stay petition was disposed of by the Appellate Authority, there should be stay of recovery of tax pursuant to the demand notice raised against the petitioner for the assessment year 1995-96.

ITO v. Muhammad Kunhi (M.K.) (1969) 71 ITR 815 (SC); Purushotharnan (V.N.).v. ITO (Agrl.) (1984) 149 ITR 120 (Ker.) and Prem Prakash Tripathi v. CIT (1994) 208 ITR 461 (All.) ref.

R. N. Dutt for Petitioner.

S. N. Datta and Ramesh Chowdhury for Respondent.

2000 P T D 217

[238 I T R 343]

[Calcutta High Court (India)]

Before Tarun Chatterjee, J

SRI SRI RADHSHYAM JEW and another

verses

VALUATION OFFICER and others

Writ Petition No. 1646 of 1996, decided on 15th June, 1998.

(a) Wealth tax---

----Writ---Valuation of assets---Valuation report---Valuation report or valuation order merges in order of assessment---Appeal can be filed against valuation report made under S.16A---Appellate Authority can also hold that reference to Valuation Officer was not necessary ---Effective remedy is available against valuation report---Writ will not issue to quash valuation report---Indian Wealth Tax Act, 1957, S.16A---Constitution of India, Art.226.

Section 16 of the Wealth Tax Act, 1957, deals with the procedure for making the assessment of wealth by the concerned officer under the Act. Section 16-A of the Act makes a provision for reference to a Valuation Officer by the Wealth Tax Officer. Section 23 of the Act clearly provides an appeal against an order passed by the Wealth Tax Officer under section 16A(5) of the Act and the appellate authority can very well set aside the valuation order or can cancel the valuation report on the ground that the same was not made in accordance with law, or it was arbitrary or without jurisdiction as the valuation report or the valuation order shall merge with the final order of assessment. The appellate 'authority also can hold that in the facts and circumstances of this case, it was not open to the Wealth Tax Officer to refer the valuation matter before the Valuation Officer. Therefore, all the questions that need to be considered against the valuation report or the valuation order can be dealt with by the appellate authority, Hence, before any order of assessment is passed on the basis of such valuation report or valuation order of the Valuation Officer under sub­section (5) of section 16A it would not be proper to entertain a writ application only in of the valuation report or the valuation order passed by the Valuation` Officer:

Held, dismissing the writ petition, that on the face of it the valuation report or the valuation order was not void, arbitrary and without jurisdiction the question whether the valuation report was illegal or without jurisdiction could well be taken up by the appellate authority. The High Court while disposing of the, writ application directed the concerned Valuation Officer to afford an opportunity of hearing to the writ petitioners. Since a written submission was filed after the order of the High Court, which was considered by the Valuation Officer at the time of passing the order of valuation there was no necessity to give an opportunity of personal hearing to the writ petitioners. The principles of natural justice had not been violated.

(b) Writ-

---- Existence of alternate remedy---Writ will not ordinarily issue--­Constitution of India, Art.226.

Abraham (C.A) v. ITO (1961) 41 I RT 425 (SC); Bharat Hari Sing hania v. CWT ( 1994) 207 TTR 1 (SC); Cantonment Board v. Taramani Devi AIR 1992 SC 61; (1992) (Suppl.) 2 SCC 501; CWT v. Rahman (H.) (Dr.) (1991) 189 ITR 307 (All); Dilip Kumar Mitra v. CWT (1993) 200 ITR 3(Cal.): Mool Chand Mahesh Chand v. CIT (1978) 115 ITR 1 (All.); Rattan Lal Sharma v. Managing Committee, Dr. Hari Ram (Co-education) Higher. Secondary School AIR 1993 SC 2155; Swadeshi Cotton Mills Co. Ltd. v. Union of India (1981) 51 Comp. Cas. 210; (1981) 58 FJR 190 (SC); Uday kaushish v. CWT (1982) 137 ITR 906 (Delhi) and Union of India v Jyoti Prakash Mitter AIR 1971 SC 1093 ref.

Bhattacharyya for Petitioner.

Dev for Respondent

2000 P T D 250

[238 I T R 572]

[Calcutta High Court (India)]

Before Yad Ram Meena, J

SRI SRI ISWAR BENODESWAR MAHADEV

versus

COMMISSIONER OF WEALTH TAX and others

Writ Petition No. 1559 of 1995, decided on 4th September, 1998.

Wealth tax---

---- Recovery of tax--Delay in payment of tax---Interest---Waiver of interest---Law applicable---Subsection (2A) of S. 31 inserted w. e. f. 1-10-1.984, docs not have retrospective effect---Conditions laid down in subsection (2A) of S.31 not fulfilled---Interest could not be waived---Indian Wealth Tax Act, 1957, S. 31.

Subsection (2A) of section 31 of the Wealth Tax Act, 1957, does not have retrospective effect. The Legislature has made its intention clear by giving the specific date from which this amendment will come into force, i.e., with effect from October 1,1984.

Saurashtra Agencies (P.) Ltd. v. Union of India (1990) 186 ITR 634 (Cal.) fol.

Held, that, in the instant case, it was not proper to direct the Commissioner to waive the interest not only on the ground that the amendment inserting subsection (2A) of section 31 did not have retrospective effect but also on the ground that the assessee had not proved that it had fulfilled all the three conditions laid down in subsection (2A) section 31.

2000 P T D 538

[232 I T R 202]

[Calcutta High Court (India)]

Before Vinod Kumar Gupta and Dipak Prakas Kundu, JJ

COMMISSIONER OF INCOME-TAX

versus

Smt. SOYA BAJORIA

Income-tax Reference No. 127 of 1992, decided on 24th December, 1997

Income-tax---

----Penalty---Concealment of income---Failure to furnish particulars of income in returns filed and particularly till such time as assessment order was passed---Amounts to concealment of particulars of income---Assessee effecting sale of jewellery on 21-3-1978, and sales proceeds received on 7-8-1978---Assessee not showing capital gain on sale of jewellery in original return filed on 18-1-1980, or in first revised return filed on 18-2-1982--­Failure to disclose capital gain not due to omission or oversight and not a technical or venial breach of law---Cancellation of penalty not valid---Indian Income Tax Act, 1961, S.271(l)(c).

The assessee filed her return for the Assessment Year 1979-80 on January 18, 1980, in which she declared a total income of Rs.1,550. She filed a revised return on February 18, 1982, wherein the total income was shown at Rs.45,130. The Assessing Officer made an ex parte assessment under section 144 of the Income Tax Act, 1961, on a total income of Rs.48,970 on March 10, 1982. Before the order, dated March 10, 1982, could be served on the assessee, she filed a second revised return on March 24, 1982, disclosing capital gain of Rs.45,120 on the sale of jewellery. The total income in the revised return was declared at Rs.88,220. The Assessing Officer cancelled the ex parte assessment made on March. 10, 1982, under section 146 of the Act and in the fresh assessment made on March 15, 1984, he held that the second revised return filed on March 24, 1982, was invalid and out of time. In the fresh assessment, the Assessing Officer made an addition on account of capital gain on sale of jewellery and also initiated proceedings under section 271(1)(c) of the Income-tax Act for not disclosing the capital gain in the original return. After considering the reply of the assessee, the Assessing Officer levied a penalty of Rs.20,503 under section 271(1)(c) of the Act, being 100 percent. of the tax sought to be avoided by the assessee on the concealed income. The First Appellate Authority affirmed the order of the Assessing Officer. On further appeal, the Tribunal set aside the order levying penalty under section 271(1)(c) of the Act on the ground that even though the assessee had not included the item of capital gains in the original return, or in the first revised return, and had included this item for the first time in the second revised return filed by her on March 24, 1982, which was after the assessment order, dated March 10, 1982, was passed, the assessee could not be held liable to pay penalty under section 271(1)(c) of the Act, because in the opinion of the Tribunal- it was merely through an oversight and an omission that she failed to disclose the capital gain in the first two returns and on discovery of the mistake she voluntarily placed information regarding the capital gains in the second revised return filed on March 24, 1982. The Tribunal was of the opinion that the breach of the statutory provisions on the part of the assessee was of a technical or venial nature and being, by way of an oversight or omission, .it did not attract the levy of penalty under section 271(1)(c) of the. Act. On a reference:

Held, (i) that if the assessee failed to furnish the particulars of the income in the returns filed and particularly till such time as the assessment order was passed, she could be said to have concealed the, particulars of her income, and thus, become liable to be proceeded against under section 271(1)(c) of the Act. The assessee did not include in, the original return or in the first revised return the particulars of the capital gain. Therefore, it could be said that she concealed the particulars of this part of her income from the return filed by her:

(ii) That the sale of the jewellery by the assessee was effected on March 21, 1978, and the sale proceeds were received by her on August 7, 1978, and the same was deposited in a bank on August 8, 1978. Thereafter, this amount was given as a loan to a family concern of the assessee. These facts clearly established beyond any doubt that even as on the day when she filed the original return, it was in her knowledge that she had earned this income by way of capital gains. Yet she did not disclose this in the original return. When she filed the first revised return, again she did not disclose this part of the income. Therefore, the Tribunal was wrong in holding that the failure on the part of the assessee to disclose the particulars of income was either due to an omission or by way of an oversight or that it was a mere technical or venial breach of the law.

(iii) That, therefore, the Tribunal was not right in cancelling the penalty under section 271(l)(c) of the Act.

Hindustan Steel Ltd. v. State of Orissa (1972) 83 ITR 26 (SC); (1970) 25 STC 211 (SC); Kumar Jagadish Chandra Sinha v. CIT (1982) 137 ITR-722 (Cal.) and Sulemanji Ganibhai v. CIT (1980) 121 ITR 373 (MP) ref.

Prabir Kumar Bhowmick for the Commissioner.

Sukumar Bhattacharya for the Assessee.

2000 P T D 598

[232 I T R 324]

[Calcutta High Court (India)]

Before Shyamal Kumar Sen and Barin Ghosh, JJ

COMMISSIONER OF INCOME-TAX

versus

COATES OF INDIA LTD.

Income-tax Reference No.5 of 1995, decided on 23rd February, 1998

Income-tax---

----Bad debt--Deduction---Conditions precedent for claiming deduction--­Assessee must arrive at honest judgment that on facts and circumstances debt not realisable for some fault or supervening impossibility on part of debtor to pay but not possible difficulties or hurdles assessee may have to incur to compel recalcitrant debtor to pay---Judgment of assessment should reveal irrecoverability of debt from angle of debtor and not on ability of assessee to recover same---Amounts due to assessee from S & A---Amount payable by A to assessee not small---No legal action taken by assessee against A---I.T.O. disallowing claim for deduction of bad debt ---C.I.T. (Appeals) and Tribunal deleting disallowance of bad bebt---C.I.T. (Appeals) and Tribunal taking into consideration feasibility of recovery of debt from angle of assessee and not of debtor---Tribunal not justified in deleting disallowance of bad debt---Indian Income Tax Act, 1961; S. 36(1)(vii).

In order to claim deduction under section 36(l)(vii) of the Income Tax Act, 1961, as it stood at the relevant time, the assessee is required to show that, on the facts and circumstances pertaining to a particular debt, he has taken an honest judgment that the said debt has become a bad debt. If the judgment is an honest judgment and not a convenient judgment, then the Department would be able to insist on demonstrative or infallible proof.

The judgment of the assessee must be established to have been taken on relevant facts and circumstances, which should show that the debt is not realisable for some fault on the part of the debtor or some supervening impossibility on the part of the debtor to pay, but not the possible difficulties or hurdles the assessee may have to incur to compel the recalcitrant debtor to pay. The assessee for his convenience may decide that the debt is too small and it is not worthwhile to pursue the debtor but that judgment will not be an honest judgment which would establish that the debt has become a bad debt.

During the previous year relevant to the assessment year 1986-87, the assessee wrote off a sutra of Rs.12,439 and a sum of Rs.1,23,277 payable by S and A, respectively, treating the same to be bad debts on the grounds that in spite of the best efforts of the assessee, the payments were not forthcoming and that due to the smallness of the amounts it was not considered worthwhile to take legal action to recover the debts. The Income­ tax Officer found that S had informed the assessee that it was ready and would start sending the payments from the month of April, 1985, that A had confirmed the balance due and payable by it to the assessee and had also made certain payments, that the amount payable by A to the assessee could not be said to be a small amount and since no legal action had been taken by the assessee against A, the claim of the assessee that the debts could not be recovered from S and A could not be accepted and, therefore, he disallowed the claim for deduction. The Commissioner of Income-tax (Appeals) allowed the claim of the assessee for deduction of the bad debts. On further appeal, the Tribunal affirmed the order of the Commissioner of Income-tax (Appeals). On a reference:

Held, that what had been taken into consideration by the Commissioner of Income-tax (Appeals) and the Tribunal was the ability or feasibility of the recovery of the debt from the angle of the assessee and not of the debtor and in those circumstances both of, them erred in law. Therefore, the Tribunal was not justified in law in deleting the disallowance of the bad debts.

Bank of Bihar Ltd. v. CIT (1962) 45 ITR 427 (SC); CIT v. Dunlop India Ltd. (1994) 209 ITR 987 (Cal); Devi Films Ltd. v. CIT (1963) 49 ITR 874 (Mad.); Jethabhai Hirji and Jethabhai Ramdas v. CIT (1979) 120 ITR 792 (Bom.) and Kamla Cotton Co. v. CIT (1997) 226 ITR 605 (Guj.) ref.

2000 P T D 618

[232 I T R 945]

[Calcutta High Court (India)]

Before Y. R. Meena and B. M. Mitra, JJ

COMMISSIONER OF INCOME-TAX

versus

MACNEILL MAGORE LTD.

Income-tax Reference No. 136 of 1992, decided on 11th March, 1998.

(a) Income-tax---

----Revision---Commissioner---Order prejudicial to interests of Revenue--­Export markets development allowance---Weighted deduction-7 Not necessary that assessee himself should maintain an office or agency outside India---Payment made to agent who sells goods of assessee outside India--­Assessee. entitled to weighted deduction---Order of Assessing Officer not prejudicial to interests of Revenue---Revision not valid---Indian Income Tax Act, 1961, Ss. 35B(1)(b)(iv) & 263.

(b) Income-tax---

----Revision---Commissioner---Order prejudicial to interests of Revenue--­Business expenditure--Company--Disallowance of expenditure--Retirement gratuity paid to employee---Not a periodical payment like salary---Cannot be included for disallowance under S.40A(5)---No error in order of. Assessing Officer---Revision not valid---Indian Income Tax Act, 1961, Ss. 40A(5) & 263.

On an examination of the assessment records of the assessee, the Commissioner of Income-tax found that the assessee had claimed weighted deduction under section 35B(1)(b)(iv) of the Income-tax Act, 1961 on payment of commission of Rs.12,94,776 paid to a foreign, agent and the Assessing Officer had allowed weighted deduction on that amount to the extent of Rs.4,31,592. Similarly, the Commissioner of Income-tax found while considering the provisions- of section 40A(5) that the amount paid by way of gratuity to a retired employee had not been included for the purpose of disallowance under section 40A(5) of the Act. The Commissioner of Income-tax in exercise of his powers of revision under section 263 set aside the assessment order with a direction to make assessment afresh for disallowance under section 40A(5) including the gratuity amount paid to the retired employee. Similar direction was given to re-mpute the income in accordance with the provisions of section 35B after disallowing weighted deduction on payment of commission. The assessee appealed to the Tribunal challenging the revision order of the Commissioner of Income-tax. The Tribunal held in favour of the assessee in respect of the allowance of weighted deduction on commission paid to the foreign agent. Similarly, the Tribunal held that no disallowance was warranted under section 40A(5) as the gratuity payment could not be included in the amount for purpose of disallowance under section 40A(5). On a reference:

Held, (i) that under section 35B of the Act, it is not the intention of the Legislature that weighted deduction should be allowed only to an assessee who maintained an office or agency outside India. Any payment made to any agent who sells the goods of the assessee outside India is entitled to weighted deduction. The commission had been paid to a foreign agent who sold the goods of the assessee outside India. Therefore, the order of the Assessing Officer was neither erroneous nor prejudicial to the interests of the Revenue. The order of revision under section 263 was not valid.

(ii) That under section 40A(5) of the Act, the payment of gratuity which is payable once on retirement of the employee is not a periodical payment like salary and should not be included for disallowance under the section. There was no error in the order of the Assessing Officer. The order of revision was not valid.

CIT v. Chloride India Ltd: (1992) 193 ITR 355 (Cal.); CIT v. Colgate Palmolive (India) (Pvt.) Ltd. (1994) 210 ITR 770 (Bom.); CIT v. Godrej and Boyce Mfg. Co. (P.) Ltd. (1984) 149 ITR 594 (Bom.) and CIT v. Usha Telehoist Ltd. (1995) 212 ITR 177 (Cal.) ref.

Standing Counsel for the Commissioner.

Dr. Debi Pal for the Assessee.

2000 P T D 641

[232 I T R 759]

[Calcutta High Court (India)]

Before Vinod Kumar Gupta and Dipak Prakas Kundu, JJ

COMMISSIONER OF INCOME-TAX

versus

Smt. JOYTSNA PODDAR

Income Tax Reference ,No.32 of 1992, decided on 12th December, 1997.

Income-tax---

----Revision---Transfer of shares---Validity of transaction not challenged--­C.I.T. was not justified in setting aside assessment on the ground that transaction was not genuine---Indian Income Tax Act, 1961, S. 263.

The assessee, a resident individual, transferred in June, 1983, certain shares and debentures belonging to her shown in the books of account. As per the books of account maintained by the assessee the total value of these shares was shown at Rs.15,19,503. The assessee transferred these shares to a company newly formed by the name of A. The book value of the shares was the value shown by the assessee which she received on transfer of the shares belonging to her to the company A. According to the Assessing Officer, the ascertained market value of these shares on transfer ought to have been Rs.23,62,014 and after deducting the price of book value being Rs.15,19,603, Rs.8,42,414 was calculated as the income that the assessee ought to have received by the sale of these shares. The Commissioner of Income-tax, however, took an entirely different view of the matter. Holding that notwithstanding the difference in the sale value of the shares as determined by the Assessing Officer, since the assessee had adopted the transfer of shares as a subterfuge in order to deprive the Revenue of the dividend income, and based on the ratio in the case of McDowell & Co. Ltd. v. CTO (1985) 154 ITR 148 (SC), the Commissioner of Income-tax passed an order under section 263 of the income Tax Act, 1.961, setting aside the assessment order passed by the Assessing Officer directing him to pass a fresh assessment order based on the observations made by him. The Tribunal set aside the order of the Commissioner of Income-tax. On a reference:

Held, that since the transfer was valid and proper and execution had taken place between the transferor and the transferee, it was improper on the part of the Commissioner of Income-tax to hold that the assessment was erroneous in this case. The :reliance placed-by the Commissioner Income-tax on the judgment of, the Supreme Court in the case of McDowell & Co. Ltd. was wholly incorrect since the ratio in that case could not be applied to the facts of the present base.

McDowell & Co. Ltd. v. CTO (1985) 154 ITR 148 and (1985) 59 STC 277 (SC) ref.

2000 P T D 660

[232 I T R 875]

[Calcutta High Court (India)]

Before Y.R. Meena and B.M. Mitra, JJ

COMMISSIONER OF INCOME-TAX

versus

TRUSTEES OF KESHAV MOHTA FAMILY TRUST

Income-tax Reference No.3 of 1993, decided on 9th March, 1998.

Income-tax---

----Trust---Representative assessee--Trust for benefit of "would be wife" of minor--- "Would be wife" not in existence when trust was created---No certainty that such marriage would ever take place to fulfil object of trust--­Trust not for benefit of beneficiary who is known and determinate---Trust to be assessed at maximum marginal rate and not at the rate applicable to an AOP---Indian Income Tax Act, 1961, S. 164(1), (3) & Expln. 1.

The trust deed of the assessee-trust showed that KM settled Rs.5,000 on the "would be wife" of the minor M. KM, the settlor, had made himself trustee of the trust jointly with NKM. The source of income of the trust was share income from a -firm and income from share dealing. For the assessment year 1981-82, the Income-tax Officer found that the beneficiary was not definite and that the trust had been formed for the benefit of some unknown person which cannot be determined at any length of time, that the trust was a discretionary trust, that section 164(1) of the Income Tax Act, 1961, was applicable to the case and that, therefore, the assessee had to pay tax at the maximum marginal rate as a representative assessee. On appeal, the Appellate Assistant Commissioner found that clause 5 of the trust deed expressly stated the share of the sole beneficiary and hence there was no violation by the assessee of the Explanation to section 164, that the trust was to be assessed in the status of an association of persons and the tax would be charged at the rate applicable to an association of persons. On further appeal, the Tribunal held that so long as the trust deed gave the description of the person who was to be benefited, the beneficiary could not be said to be uncertain merely because the actual beneficiary could not be known until the marriage of the minor took place, that the clause in the trust deed that the "would be wife" was the sole beneficiary made it clear that not only the beneficiary was certain but the extent of the share in the trust property was also certain and that, therefore, the assessee-trust was to be assessed in the status of an association of persons. On a reference:

Held, that in view of the Explanation (1) to section 164(3) the benefit of the section could not be obtained unless the beneficiary was known and determined. The trust deed provided that the trust was for the benefit of the "would be wife", who was not in existence when the trust was created and there was no certainty that such marriage would ever take place to fulfil the object of the trust. Therefore, the Tribunal was not justified in holding that the trust was for the benefit of the individual, i.e., the "would be wife" of the minor, who was determinate and known rendering section 164(1) inapplicable.

CIT v. Atreya Trust (1992) 193 ITR 716 (Cal.) fol.

2000 P T D 697

[232 I T R 467]

[Calcutta High Court (India)]

Before Samaresh Banerjea, J

J.M.D. MEDICARE LTD. and another

versus

UNION OF INDIA and others

C.O. No. 1172 (W) of 1996, decided on 1st September, 1997.

Income-tax---

----Exemption---Industrial undertaking--- "Manufacture or processing of goods", meaning of---Assessee, A medical diagnostic centre- --Purchase of scanner from abroad on part payment---Balance to be paid on supplier's credit for five years - payment to carry interest and rate fixed in consultation with Central Government---Diagnostic centre does not process goods as an industrial undertaking when exposing films by use of scanner---Diagnostic centre is engaged in diagnosis of ailments of human body---Interest payable not exempt from tax---Indian Income Tax Act, 1961, S.10(15)(iv)(c).

The petitioner-assessee purchased a nuclear magnetic resonance scanner from abroad on part payment and the balance of the amount was to be paid by the petitioner on supplier’s credit for five years. The payment was to carry interest at the rate of 8.1 per cent. per annum which was fixed in consultation with the Central Government. The petitioner claimed that the interest so payable was exempt from tax under sub-clause (iv)(c) of clause (15) of section 10 of the Income Tax Act, 1961. The Central Government rejected the claim for exemption on the ground that the petitioner was a medical diagnostic centre and the same was not processing goods which are sold as such, but the films were to be processed as a tool for making diagnosis and any activity carried on material as a part of a prominently professional activity would not convert the same into an industrial activity. On a writ application, the petitioner contended that although the petitioner was only carrying on a medical diagnostic centre, the scanner machine was actually used by the petitioner for processing of goods as unexposed films were inserted in the scanner and information and status of various parts of the human body were analysed and depicted on such films with the aid of the scanner for making them useful tools in making diagnosis of human body ailments to a considerable depth, that the unexposed films after having been processed underwent change in their character altogether and that, therefore, the petitioner was carrying on processing of goods and, therefore, it is an industrial undertaking within the meaning of section 10(15.)(iv)(c).

Held, that an undertaking .to be an industrial undertaking within the meaning of section 10(15)(iv)(c) must be engaged in processing of goods meaning thereby the very business of the concerned undertaking would be to process goods for the purpose of marketing the goods and sale of such processed goods. The processed films were not sold in the market. Therefore, the medical diagnostic centre could not be said to be engaged in processing of goods, but the same was engaged in diagnosis of human ailments through different processes. Simply because one of such processes requires use of unprocessed films and the same is processed through such scanner, would not make the activity, a business of processing of goods.

Chowgule & Co. (P.) Ltd. v. Union of India (1981) 47 STC 124 (SC); CIT (Addl.) v. A. Mukherjee & Co. (P.) Ltd. (1978) 113 ITR 718 (Cal.); CIT v. Peerless Consultancy Services (Pvt.) Ltd. (1990) 186 ITR 609 (Cal.); CIT v. Upasana Hospital (1997) 225 ITR 845 (Ker.) and J. M. D. Medicare Ltd. v. Union of India (1996) 218 ITR 184 (Cal.) ref.

Sukumar Bhattacharijee and R. N. Saha for Petitioners.

R. N. Mitra and Miss S. Das for Respondents.

2000 P T D 732

[232 I T R 612]

[Calcutta High Court (India)]

Before Pinaki Chandra Ghose, J

SALBONI HATCHERIES and another

versus

UNION OF INDIA and others

Writ Petition No 22335(W) of 1997, decided on 17th November, 1997.

Income-tax---

----Assessment---Writ---Alternate remedy---Sample scrutiny under S.143(3)-­Assessee having alternate remedy by way of appeal---Writ petition could not be entertained----Indian Income Tax Act, 1961, Ss. 143 & 253---Constitution of India, Art. 226.

Held, dismissing the writ petition, that the writ petitioner had an alternative remedy to prefer an appeal to the -Appellate Tribunal under section 253 of the Income Tax Act, 1961. Hence, the writ petition could not be entertained.

Navnit Lal C.. Javeri v. K. K. Sen, A.A. C. of I. T. (1965) 56 ITR 198 (SC); Raza Textiles Ltd. v. ITO (1973) 87 ITR 539 (SC) and Varghese (K.P.) v. ITO (1981) 131 ITR 597 (SC) ref.

Dr. Debi Pal and Amal Sen for Petitioners.

D. Shome and D. Chowdhury for Respondents.

2000 P T D 823

[233 I T R 18]

[Calcutta High Court (India)]

Before Yad Ram Meena and Bijitendra Mohan Mitra, JJ

COMMISSIONER OF INCOME-TAX

versus

ANAND & CO.

Income-tax Reference No. 133 of 1992, decided on 24th March, 1998.

Income-tax---

---Income---Subsidy---Assessee-company carrying on export business --­Subsidy or cash-assistance received from Indian Cotton Mills Federation--­Federation only a private. -organisation---Subsidy was received without rendering any service to Federation- No--nexus which would give rise to right of cash assistance from'- Federation to---assessee---Cash assistance depended on discretion of cash assistance panel which would depend upon particular item and destination selected by panel---Such voluntary assistance of gift payment not: income liable to tax ---Indian--Income Tax Act, 1961, S.28(iiib).

The assessee-firm- which - carried on manufacture and export of hosiery goods and also commission business in several commodities, received a sum of Rs.2,85,923 from the Indian Cotton Mills Federation and claimed that it was a casual receipt in the form of a reward not liable to tax. The Income-tax Officer rejected the claim of the assessee on the grounds that it arose out of their export business, that it was not a case of a casual receipt, since, the subsidy or cash incentive was allowed by the Government to all similar business concerns, whoever, was carrying on the business of export in India and that the subsidy could not be said to be non-recurring in nature, since the assessee itself described that the subsidy was declared by the federation from time to time. On appeal, the Appellate Assistant Commissioner held that the payment of Rs.2,85,923 to the assessee was purely a voluntary act by the federation for no services rendered by the assessee to the federation, that the subsidy was nothing but donations or gifts and the same could not be said to be income taxable under section 28 of the Income Tax Act, 1961, and hence deleted the additions made by the Income­tax Officer, On further appeal, the Tribunal found that the federation was not a body corporate established by any law for the time being in force and it was purely a private organisation, that there was no material on record to show that there was any nexus or connection or relationship which would give rise to a right, claim or expectation of cash assistance from the said federation to the assessee, that the cash assistance from the federation purely depended on the discretion of the cash assistance panel and that would depend on the particular item and destination selected by the panel and that, therefore, such voluntary assistance of gift payment by the federation could not be regarded as income liable to tax under the Act. On a reference:

Held, affirming the decision of the Tribunal, that the subsidy of Rs.2,85,923 received from the Indian Cotton Mills Federation was in the nature of voluntary and gratuitous payment and was not liable to tax.

Mitra for the Commissioner.

Dr. Pal for the Assessee.

2000 P T D 853

[233 I T R 123]

[Calcutta High Court (India)]

Before Y. R. Meena and B. M. Mitra, JJ

COMMISSIONER OF INCOME-TAX

versus

R.P. GOENKA AND J.P. GOENKA

Income-tax Reference No. 235 of 1991, decided on 24th March, 1998.

Income-tax--

----Income from house property ---Deductions---Assessee initially borrowing a certain sum from B for purchase of house and paying part consideration--­Balance sale consideration agreed to be paid to vendor in yearly instalments ---Assessee borrowing further amount for payment of unpaid purchase price of house and also interest due thereon ---Unpaid sale price is to be treated as borrowed capital ---Assessee entitled to deduction of all interest paid to vendor on balance purchase price as well as interest paid to B on such sum borrowed subsequently for payment of principal sum of unpaid purchase price to vendor---Indian Income Tax Act, 1961, S.24(1)(vi).

The assessee purchased a property for a consideration of Rs.11,50,000 from Jaipur Investment Co. Ltd., the vendor. The assessee initially borrowed Rs.3,50,000 from B and paid part of the consideration. The balance sum of Rs.8 lakhs was agreed to be paid by the assessee to the vendor in yearly instalments of Rs.1 lakh each with interest at 8 percent. per annum. Thereafter, the assessee further borrowed a sum of Rs.8 lakhs from B for payment of the unpaid price of the house and also interest due thereon. The Income-tax Officer allowed interest only on capital borrowed initially and did not allow interest to the assessee on the subsequently borrowed money. The Commissioner of Income-tax (Appeals) directed the Income-tax Officer to allow the deduction in respect of interest on monies borrowed from B which had been utilised to pay the mortgagee together with interest thereon to the vendor company. The Tribunal- held that the assessee was entitled to deduction of interest paid to B on Rs.3,50,000 and also entitled to deduction of all interest paid to the vendor on the balance of the purchase price and was further entitled to deduction of interest paid to B on such borrowing for payment of the principal sum of the unpaid purchase price of the vendor, but that, however, the assessee was trot entitled to deduction of interest on the amount borrowed from B for payment of interest to the vendor on the unpaid purchase price. On a reference:

Held, that the unpaid sale price had to be treated as borrowed capital within the meaning of section 24(1)(vi) of the Income Tax Act, 1961, and that the assessee was entitled to deduction of all interest paid to the vendor company on-the balance purchase price as well as interest paid to B on such sum borrowed subsequently for payment of the principal sum of the unpaid purchase price to the vendor company.

Standing Counsel for the Commissioner.

2000 P T D 1001

[233 I T R 354]

[Calcutta High Court (India)]

Before Bhagabati Prosad Banerjee and Dibyendu Bhusan Dutta, JJ

COMMISSIONER OF INCOME-TAX

versus

BALLABH PRASAD AGARWALLA

Matter No. 233 of 1995, decided on 1st February, 1956.

Income-tax---

----Appellate Tribunal---Has no inherent power of review---Power of review must be expressly conferred by statute---Tribunal disallowing certain payments as they were not made by crossed Bank drafts ---Assessee filing miscellaneous application before Tribunal for reconsideration of decision of Tribunal as payments were made to new parties---Tribunal recalling its earlier order for fresh hearing as matter not considered properly by it---Not a case where Tribunal lead reviewed or intended to review its earlier order--­Not a case where power of rectification sought to be made on ground of subsequent provision of law the retrospective effect---Rectification made to correct a particular mistake---Order. of Tribunal rectified to bring it in conformity with law and circular of CBDT---No fresh material sought to lie considered by Tribunal---No question of law arose from order of Tribunal--­Rectification of earlier order of Tribunal valid---Income Tax Act, 1961, Ss.40A(3), 154 & 254(2)---Indian Income Tax Rules, 1962, R. 6DD(j).

A Tribunal, or a statutory body has no inherent power of review. The power of review must be expressly conferred by the statute. Review of an order means re-examination or to give a second view of the matter fox the purpose of alteration or reversal of the view already taken after changing the earlier opinion.

Section 254(2) of the Income Tax Act, 1961, expressly confers power upon the Tribunal to correct any mistake apparent from the record and power to amend any order passed under subsection (1) of section 254.

Section 154 of the Act also provides power for rectification of a mistake apparent from the record.

It is a well-settled proposition that an act of Court (which means and includes a Tribunal of the nature of the Income-tax Appellate Tribunal) should not prejudice a party. In such a case, it would not be just to drive the party to a reference under section 256. It must be left to the Tribunal to reopen appeal if it finds that it has omitted to deal with an important ground urged by the party. It is not correct to say that expression "record" in the phrase "mistake apparent from the record" in section 254(2) means, only the judgment. The record means the record before the Tribunal. Failure to deal with a preliminary objection amounts to a mistake apparent from the record.

The provisions of section 254(2) could not be construed in a manner which would produce an anomaly or otherwise produce an irrational or illogical result.

The primary aim of legal policy is to do justice. It must be assumed that Parliament does not intend to do injustice or to allow a wrong thing to continue contrary to law or public policy.

It is one of the basic principles and a legal policy that when there is a provision for rectification of a mistake apparent on the record, that power should be allowed to be exercised for correcting mistakes and/or error on the record and if the Tribunal feels that Trill has committed an error of law, it would be against the concept of justice and fair play and also against principle of legal policy not to allow the Tribunal to exercise such power.

In the assessment of the assessee, the Assessing Officer disallowed a sum of Rs.9,87,295 under section 40A(3) of the Income Tax sect, 1961. The Commissioner (Appeals) deleted the entire addition made by the Assessing Officer. On further appeals, the Tribunal held that section 40A(3) bad been enacted to curb evasion of tax and to control the use and circulation of unaccounted or black money and that since the payments in question could have been made by crossed bank drafts and when the assessee made part payments to the sellers by crossed bank drafts, the part payment to the same sellers in cash was .rightly disallowed by the Assessing Officer and accordingly .reversed the order of the Commissioner (Appeals). The assessee filed a miscellaneous application before the Tribunal for reconsideration of the decision of the Tribunal in so far as the rejection of the claim of assessee that certain payments should have been allowed under section 40A(3) read with rule 6DD(j) of the Income-tax Rules, 1962, as the payments were made to new parties (new to the assessee) was concerned. The Tribunal held that payments were made to parties who were new to the assessee and those .payments should not be disallowed under section 40A(3), if rule 6DD(j) was properly considered and accordingly the Tribunal recalled it earlier order for a fresh hearing. Against this order of the Tribunal; the Revenue filed an application for reference under section 256(1) which was rejected by the Tribunal. On a reference application under section 256(2):

Held, (i) that it was not a case where the Tribunal had reviewed or intended to review its earlier order. It was not a case where there was any scope for change of opinion or view already taken. But it was a Vase where the Tribunal found that the Tribunal had not considered properly the effect of rule 6DD(j), which was a statutory rule and the circular of the Department in the matter of application of the provisions of section 40A(3).

(ii) That it was also not a case where the power of rectification was sought to be made on the ground of subsequent amendment of the provisions of law with retrospective effect, but to correct a particular mistake or error in the order which in law might be required to be rectified. This power of rectification of mistake was executed for the ends of justice.

(iii) That, therefore, it could not be said that the Tribunal wanted to exercise its power of review. The Tribunal had recalled its earlier order which the Tribunal was of the view was passed in contravention and/or in ignorance of statutory provisions.

(iv) That, therefore, the power sought to be exercised by the Tribunal came within the scope and ambit of the provisions of section 154 read with section 254(2) and no question of law arose from the order of the Tribunal.

Kill Kotagiri Tea and Coffee Estates Co. Ltd. v. ITAT (1988) 174 ITR 579 (Ker.); Laxmi Electronic Corporation Ltd. v. CIT (1991) 188 ITR 398 (All.); Municipal Corporation of Delhi v. Gurnam Kaur AIR 1989 SC 38 ;(1989) 1 SCC 101; Neeta S. Shah v. CIT (1991) 191 ITR 77 (Kar.); Punjab Land Development and Reclamation Corporation Ltd. v. Presiding Officer (1990) 77 FJR 17; (1990) 3 SCC 682; Shew Paper Exchange v. ITO (1974) 93 ITR 186 (Cal.) and Suman (H.C.) v. Rehabilitation Ministry Employees' Cooperative House Building Society Ltd. AIR 1991 SC 2160 ref.

Ram Chandra Prosad for Applicant.

200 P T D 1018

[233 I T R 377]

[Calcutta High Court (India)]

Before Samaresh Banerjea, J

CHOTANAGPUR INDUSTRIAL GASES (P.) LTD. and others

versus

COMMISSIONER OF INCOME-TAX and others

Writ Petitions Nos. 2110 to 2117 of 1996, decided on 11th October, 1996.

Income-tax--

----Transfer of case---Condition precedent---Opportunity to be heard--­Opportunity to be heard will not be effective unless reasons for transfer are given in notice under S.127---Reply to notice which does not give reasons would not amount to waiver or estoppel against right to have reasonable opportunity to be heard---Indian Income Tax Act, 1961, S. 127

Section \127 of the Income Tax Act, 1961, specifically. provides that the Director-General or Chief Commissioner or Commissioner may after giving the assessee a reasonable, opportunity of being heard in the matter wherever it is possible to do so and after recording his reasons for doing so, transfer any case from one Assessing Officer to any other Assessing Officer. When the section requires giving of a reasonable opportunity of hearing to an assessee before passing an order of transfer, the same would obviously mean that the assessee will be entitled to make his objection or representation against the proposed order of transfer and such representation and objection cannot be an effective one unless it is known to him for what reason or on what grounds such proposal is being made. If such reason for proposal of such transfer is not indicated in the show-cause notice, the opportunity of the petitioner to represent against such, proposal will be entirely an illusory and not effective one. A reply to the notice under section 127 without giving reasons would not amount to either waiver of or estoppel, against provisions of reasonable opportunity of hearing, the same being mandatory:

Held, that, admittedly, in the instant cases, in the show-cause notice the grounds or reason for proposed transfer was not indicated. Hence, the entire proceedings were vitiated and were liable to be set aside.

Ajantha Industries v. CBDT (1976) 102ITR 281 (SC); Pannalal Binjraj v. Union of India (1957) 31 ITR 565 (SC); Saptagiri Enterprises v. CIT (1991) 189 ITR 705 (AP) and Vijayasanthi Investments (Pvt.) Ltd. v. Chief CIT (1991) 187 ITR 405 (AP) ref.

Kappoor for Petitioners.

2000 P T D 1757

[234 I T R 481]

[Calcutta High Court (India)]

Before K. J. Sengupta, J

PEERLESS GENERAL FINANCE AND INVESTMENT CO. LTD.

versus

DEPUTY COMMISSIONER OF INCOME­ TAX and others

Writ Petition No.751 of 1998, decided on 16th April, 1998.

Income-tax---

----Assessment---Auditing---Condition precedent for getting accounts verified---Sanction of CIT---Order of CIT nominating particular firm to act as accountant does not amount to sanction---Petition challenging validity of S.142(2A)---Order passed staying proceedings under S.142(2A)---Indian Income Tax Act, 1961, S. 142.

Held, that prima facie the order asking the writ petitioner to get its accounts audited in terms of section 142(2A) of the Income Tax Act, 1961, was not passed in consonance with the provisions of the section. From a plain reading of the order, it did not appear that the Assessing Officer had formed his opinion for getting the accounts verified .under the section, nor did it appear from the order, that any prior approval was obtained from the Chief Commissioner or Commissioner of Income-tax. An order, dated March 18, 1998, had been passed by the Commissioner of Income-tax, whereby he had nominated G. P. Agarwal & Co. to act as an accountant within the meaning of subsection (2A) of the section 142 of the Income Tax Act, 1961. This could not be termed as an approval as required under the section. Besides, the vires of the section had also been challenged. Hence, the proceedings under section 142(2A) had to be stayed. The interim order would continue till June 18, 1998, or until further order whichever was earlier.

Dr. D. Pal and P.K. Pal, Senior Advocates with Ms. M. Seal for Petitioner.

R. N. Mitra and J. C. Saha for Respondents.

2000 P T D 1874

[234 I T R 5891

[Calcutta High Court (India)]

Before Ajoy Nath Ray and Dipak Prakas Kundu, JJ

ASSOCIATED PIGMENTS LTD.

versus

COMMISSIONER OF INCOME-TAX

Income-tax Reference No. 148 of 1991, decided on 3rd September, 1998.

(a) Income-tax---

----Business expenditure---Deduction to be allowed only on actual payment--­Scope of S.43B---Assessee following mercantile system---Assessee claiming deduction of actual payment of purchase tax---Tribunal holding that deduction not allowable unless provision was made in year in which liability for tax or duty accrued---Not justified---Indian Income Tax Act, 1961, S.43B.

There is no part of section 43B or the Income Tax Act itself which requires that when deduction is claimed on the basis of section 43B the assessee must satisfy the twin test of both proving actual payment of the due tax or cess in the previous year in question as well as satisfying the Department that due provision had been made in the books in regard to such duty or tax for which payment was made later on. To introduce this double test would be writing words into the section which neither the Tribunal nor the Court is entitled to do.

The Tribunal cannot remand that part of the order which had come before it unchallenged:

Held accordingly, that the Tribunal was not correct in directing consideration afresh of the entire payment -of- Rs.T30,284 as, out of this, Rs.1,23,695 had already been allowed as deduction nor was the Tribunal correct in law in holding that where the mercantile system is followed deduction of tax under section 43B is impermissible unless the provision was made in the year in which the liability for tax accrued or arose.

(b) Income-tax---

----Appeal to Appellate Tribunal---Powers of Tribunal---No appeal on a particular issue---Tribunal has no power to remand matter with regard to such issue---Indian Income Tax Act, 1961.

R.N. Bajoria, J. P. Khaitan and Sanjay Banerjee for the Assessee.

A.C. Moitra for the Commissioner.

2000 P T D 2283

[236 I T R 845]

[Calcutta High Court (India)]

Before V. K. Gupta. J

HUM BOLDT WEDAG INDIA LTD. and others

versus

ASSISTANT COMMISSIONER OF INCOME-TAX and others

C. O. No. 8283(W) of 1996, decided on 23rd May,. 1997.

Income-tax---

----Reassessment---Income escaping assessment, meaning of---Assessee filing revised return showing loss on ground of receipt shown in original return taxable in preceding year---Receipt taxed in year in question---Reassessment for earlier year to bring receipt to tax---Not permissible---Receipt in question did not escape assessment---Indian Income Tax Act, 1961, Ss, 147 & 148.

For the assessment year 1984-85, the petitioner filed its original return on June 27, 1984, declaring a total income of Rs.8,22,400. Subsequently, however, it filed a revised return showing a loss of Rs.55,660 on the ground that a sum of Rs.8,52,000 had been received on cash basis for engineering services and was to be included in the assessment year 1983-84, and excluded for 19.$4-85. The Assessing Officer held that the income of Rs.8,52,000 was to be included in the assessment year 1984-85 and accordingly passed an appropriate order. By an order under section 147 of the Income Tax Act, 1961, the income of Rs.8,52,000 was brought to tax in the assessment year 1983-84. On a writ petition:

Held, allowing the petition, that the order of reassessment was patently illegal. The question of income escaping assessment did not arise at all at any point of time, because the petitioner had all along been informing and requesting the Assessing Officer and other authorities of the Income-tax Department that its income of Rs.8,52,000 should be included in the assessment year 1983-84. In fact, the Assessing Officer after taking into consideration this aspect of the matter and pursuant to the direction of the Tribunal to decide the issue with reference to documents available, assessed this income for the assessment year 1984-85. Once the income was subjected to assessment for any particular year, it cannot be said to have escaped assessment, thus, permitting the Assessing Officer to invoke section 147 of the Act.

Pradip Dutta, Pratima Mishra and Swapna Misra for Petitioners

R. C. Prasad for Respondent.

2000 P T D 2506

[236 I T R 702]

[Calcutta High Court (India)]

Before Y. R. Meena, J

PEICO ELECTRONICS AND ELECTRICALS LIMITED and another

versus

DEPUTY COMMISSIONER OF INCOME-TAX and others

Matter No. 1950 of 1991, decided on 24th November, 1.998

Income-tax---

----Assessment---Intimation under S.143(1)(a)---Intimation under S.143(1)(a) cannot be issued after notice has been given under S.143(2)---Indian Income Tax Act, 1961, S.143.

There is a difference in the nature of jurisdiction exercised by the Assessing Officer under sections 143(2) and 143(l)(a) of the Income Tax Act, 1961. The jurisdiction under section 143(1)(a) is a summary one whereas section 143(2) precedes an assessment under section 143(3) or what can be described as a regular assessment. A plain reading of the provisions of section 143(1)(a) of the Income Tax Act, 1961, shows that a notice under section 143(2) can. be issued even after intimation under section 143(1)(a), but no intimation can be issued under section 143(1)(a) after issuance of the notice under section 143(2) of the Act.

Gujarat Poly-AVX Electronics Ltd. v. Deputy CIT (1996) 222 ITR 140 (Guj.); Lakhanpal National Limited and Hytasiun Magnetics Limited v.

Deputy CIT (1996) 222 ITR 151 (Guj.) and Modern Fibotex India Ltd. v. Deputy CIT (1995) 212 ITR 496 (Cal.) fol.

CIT v. Rai Bahadur Bissesswarlal Motilal Malwasie Trust (1992) 195 ITR 825 (Cal.) ref.

Dr. Debi Prosad Pal, Pronab Kumar Pal and Miss Manisha Seal for Petitioners.

Dipak Kumar Shome acrd Md. Nizamuddin for Respondent.

2000 P T D 2582

[236 I T R 671]

[Calcutta High Court (India)]

Before Satyabrata Sinha, J

PEERLESS GENERAL FINANCE AND INVESTMENT CO. LTD. and another

versus

DEPUTY COMMISSIONER OF INCOME­ TAX and others

Writ Petition No. 751 of 1998, decided on 24th December, 1998.

(a) Income-tax---

----Assessment---Compulsory audit---Conditions precedent for application of S.142(2A)---Complexity of accounts and interests of Revenue---Both conditions should be fulfilled---Application of mind by Assessing Officer and Chief CIT is necessary---Mere proposal without providing material to Chief CIT---Assessing Officer forming opinion on basis of assessee's litigation with R.B.I. and Income-tax Department ---Litigations did not mean accounts were complex or that appointment of auditor was beneficial to Revenue---Appointment of auditor under S.142(2A) without application of mind--­Appointment was not valid---Indian Income Tax Act, 1961, S.142-­Constitution of India, Art. 226.

Section 142(2A) of the Income Tax Act, 1961, enables the assessing authority to direct the accounts to be audited in the event of complexity of the accounts. This power can be exercised in respect of all assessees. A bare perusal of subsection (2A) of section 142 leaves no manner of doubt that an opinion has to be formed having regard to the nature and complexity of the accounts of the assessee and the interest of the Revenue. The word "and" signifies conjunction. Thus both nature and complexity of the accounts as also the interests of. the Revenue are necessary ingredients for exercise of the said power. The word "complexity" means the state or quality of being intricate or complex or that it is difficult to understand. The expression "having regard to" indicates that in exercising the power, regard must be had to the factors enumerated in the provision. Where an authority is conferred with a power to exercise its discretion in a particular manner, such discretion has to be exercised bona fide and with a view to achieve the object laid down under the statute. No discretion is beyond the scope of judicial review. Principles of natural justice shall be presumed to be necessary unless there exists a statutory interdict. A prior approval is not an empty ritual. Before an. approval is sought for, the Assessing Officer must form an opinion as regards the conditions laid down therein. It further envisages application of mind on the part of the Assessing Officer as also the Commissioner or Chief Commissioner as the case may be:

Held, that a bare perusal of the Assessing Officer's order would clearly show that he had taken into consideration several litigations. between the petitioner and the Reserve Bank of India which related to a notification issued by the Reserve Bank of India limiting the operation of non-banking companies.` Such litigations had got nothing to do with the orders of the assessment. He further took into consideration the fact that a lot of litigation was pending before the Income-tax Department by way of appeals and writ petitions for almost every year: Pendency of such litigations was no ground whatsoever to take recourse to the provisions of section 142(2A). A proposal was made without placing the materials before the Chief Commissioner of Income-tax and an auditor had been appointed without any Application of mind. The impugned order was not valid and was liable to be quashed.

Assistant Collector of Customs and Superintendent, Preventive Service Customs v. Charan Das Malhotra AIR 1972 SC 689; Barium Chemicals Ltd. v. Company Law Board (1966) 36 Comp. Cas. 639 (SC); '(1966) Supply. SCR 311; Chaitnya Charan Das v. State of West Bengal AIR 1995 Cal. 336; Chandra Kumar (L.) v. Union of India (1997) 228 ITR 725 (SC); Chhugamal Rajpal v. S. P. Chaliha (1971) 79 ITR 603 (SC); CIT v. Mahindra and Mahindra Ltd. (1983) 144 ITR 225 (SC); CIT v. Walchand & CO. (Pvt.) Ltd. (1967) 65 ITR 381 (SC); Duryodhan Sahu (Dr.) v. Jitendra Kumar Mishra (1998) WBLR SC 405; Franklin v. Minister of Town and Country Planning (1947) 2 All ER 289; (1948) AC 87 (HL); Harbans Lai v. Collector of Central Excise AIR 1993 SC 2487; (1993) 67 ELT 20 (SC); Jenson and Nicholson (India) Ltd. v. Union of India AIR 1997 Cal. 308; (1997) 3 ICC 621; J. K. Woollen Manufacturers v CIT (1969) 72 ITR 612 (SC); John v. Rees (1970) 1 Ch. D 345; Maneka Gandhi (Smt.) v. Union of India AIR 1978 SC 597; Minerva Mills Ltd. v. Union of India AIR 1980 SC 1'789; Rasheed (M. A. ) v. State of Kerala AIR 1974 SC 2249; Sarnia (A. S.) v. Union of India (1989) 175 ITR 254 (AP); Shalini (Smt.) v. Union of India AIR 1981 SC 431; (1981) 1 SCR 962 and Sri Hanuman Steel Rolling Mill v. CESE Ltd. AIR 1996 Cal. 449 ref.

(b) Income-tax---

----General principles---Principles of natural justice applicable unless specifically excluded.

Dr. Debi Prosad Pal, Pronab Pal and Miss Manisha Seal for Petitioners.

Mukul Prakash Banerjee, Rupendra Nath Mitra and Jaydeb Chandru Saha for Respondents.

2000 P T D 2609

[236 I T R 595]

[Calcutta High Court (India)]

Before Bhagabati Prosad Banerjee and Dibyendu Bhusan Dutta, JJ

DEPUTY COMMISSIONER OF INCOME-TAX and others

versus

CENTRAL CONCRETE AND ALLIED PRODUCTS LIMITED and another

Appeal No.472 of 1994 (in Matter No.3145 of 1993), decided on 10th January, 1997.

(a) Income-tax---

----Deduction of tax at source---Refund---Interest---Constitutional validity of provisions---Section 244A is valid---Income Tax Act, 1961, S.244A--­Constitution of India, Art. 14.

The Income Tax Act, 1961, is a fiscal legislation the same is also subject to Article 14. But in respect of taxation laws the power of the Legislature to classify goods, things or persons is necessarily wide and flexible so as to enable it .to adjust the system of taxation in all proper and reasonable ways. In fiscal legislation, the rate of tax varies from year to year. Exemptions, which were not there are introduced and exemptions, which were there are deleted. When new exemptions and new concessions are granted by the Finance Act, similarly situated persons are bound to face a differential treatment inasmuch as for pending assessments for earlier years one is not entitled to get such concessions and deductions, but in later years they are entitled. This sort of treatment is a peculiar feature under the Income-tax Act and this is dependent on the economic wisdom which is within the exclusive province of the Legislature. Section 244A does not offend Article 14 of the Constitution. It is valid.

(b) Income-tax---

----Deduction of tax at source---Refund---Interest---Law applicable--­Section 244A providing for payment of interest on excess tax deducted at source---Right to interest is a substantive right---Section 244A is not procedural---Section 244A is applicable from assessment year 1989r90--­Section 244A is not applicable to pending assessments; Indian Income Tax Act, 1961, Ss.214 & 244A---[Central Concrete and Allied Products Ltd. v. Deputy CIT (1994) 210 ITR 506 reversed].

Section 244A has specifically been made effective from the assessment year 1989-90. It is only from the assessment year 1989-90, that the right to get interest on the tax deducted at source, if it is refunded or refundable was recognised. The right to receive interest is a substantive right: Section 244A is not procedural and is not applicable to pending cases.

Central Concrete and Allied Products Ltd. v. Deputy CIT (1994) 210 ITR 506 reversed.

Cape Brandy Synidicate v. I RC (1921) 1 KB 64; Malwa Bus Service (Private) Limited v. State of Punjab AIR 1983 SC 634; Middleton v. Texas Power and Light Company (1918) 249 US 152 (ASC); R. v. City of London Court Judge (1892) 1 QB 273 and R. v. Skeen and Freeman 28 LJMC 91 ref.

(c) Interpretation of statutes---

---- Principle of purposive construction is not applicable.

While interpreting taxing statutes and the provisions of a fiscal statute, the Court cannot invoke the principles of purposive construction. There is no scope for widening the scope of section 214 of the Income Tax Act, 1961, by means of applying the principles of purposive construction of the statute.

P. K. Mallick and R. C. Prasad for Appellants.

N. K. Poddar, Pranab Pal and Subrata Das for Respondents.

2000 P T D 2619

[236 I T R 577]

[Calcutta High Court (India)]

Before Ajoy Nath Ray and Dipak Prakas Kundu, JJ

NATIONAL ENGINEERING INDUSTRIES LTD.

versus

COMMISSIONER OF INCOME-TAX

Income-tax Reference No.210 of 1993, decided on 3rd September, 1998.

(a) Income-tax---

----Business expenditure ---Company---Debentures---Premia in respect of debentures---No difference between discount and premium---Deduction for liability to pay debenture premium---Is to be spread over the years between date of issue and date of redemption---Amount relevant to accounting year is deductible---Indian Income Tax Act, 1961, S.37.

The Supreme Court has made observations to the effect that when a debenture carries a payment clause, say in the nature of a discount, that payment clause is to be spread over as a liability of the issuing assessee-company over the years ranging from issue to redemption. (Madras Industrial Investment's case (1997) 225 ITR 802). There is no distinction between a discount and a premium. The result in both is that something over and above 'the face value and the specified interest is paid, the accounting procedure in one case being by way of a preliminary deduction from the mentioned amount, and the accounting procedure in the other case being an addition at the end over the prescribed and mentioned face value amount. The extra premium is to be spread over all the years which are occupied between the date of issue and the date of ultimate redemption.

Madras Industrial Investment Corporation. Ltd. v. CIT (1997) 225 ITR 802 (SC) fol.

(b) Income-tax----

----Investment allowance---Data processing machinery---No finding that data processing machines were used only for accounting purposes ---Assessee entitled to investment allowance in respect of data processing machines--­Indian Income Tax Act, 1961, S.32A.

Coates of India Ltd. v. CIT (1994) 205 ITR 373 (Cal.); CIT v. Fort Gloster Industries Ltd. (1996) 219 ITR 223 (Cal.); CIT v. Indian Jute Mills Association (1982) 134 ITR 68 (Cal.); CIT v. Technico Enterprise (Pvt.) Ltd. (1994) 206 ITR 36 (Cal.); CIT v. Tungabhadra Industries Ltd. (1994) 207 ITR 553 (Cal.) and M. P. Financial Corporation v. CIT (1987) 165 ITR 765 (MP) ref.

(c) Income-tax---

----Business expenditure---Company---Disallowance of expenditure---Motor cars---Expenditure on repair and insurance of motor cars, provident fund and bonus payable to drivers---Deductible--Ceilings and restriction under S.37(3A) not applicable---Indian Income Tax Act, 1961,.S.37.

The ceilings and restrictions under section 37(3A) of the Income Tax Act, 1961, are not applicable in regard to repairs and insurance of motor cars and provident fund and bonus payable to drivers by a company:

Held, that, in the instant case, there was no finding, still less an admission of the assessee, that the data processing machines were for accounting purposes only and were not for production of data, which must be in the nature of goods (as data are valuable articles of modern commerce and are neither land nor goodwill). Hence, the assessee was entitled to investment allowance in respect of the data processing machines.

M. P. Agarwal and J. C. Saha for the Commissioner.

R. N. Bajoria, J. P. Khaitan and Prabhay Khaitan for the Assessee.

2000 P T D 2765

[236 I T R 156]

[Calcutta High Court (India)]

Before Ajoy Nath Ray and Dipak Prakash Kundu, JJ

COMMISSIONER OF INCOME-TAX

Versus

HOWRAH FLOUR MILLS LTD.

Income-tax Reference No. 189 of 1992, decided on 17th December, 1998.

(a) Income-tax---

----Bad debt---Year in which debt passed through accounts of assessee need not be immediately preceding accounting year---Debts taken over by third person--Not a factor which would disentitle assessee from claiming it as a bad debt---Indian Income Tax Act, 1961, S.36(1)(vii), (2).

In construing section 36(1)(vii) of the Income Tax Act, 1961, there is no justification for holding that the previous year should be proximate to the earlier previous year when the debt had passed through the revenue accounts. When the statute provides that an earlier previous year will do, any earlier previous year will suffice, unless of course, there are other disentitling factors not connected with the remoteness of the earlier year from the previous year in question.

(b) Income-tax---

----Revision---Appeal to Appellate Tribunal---Appeal from order passed by CIT in revision---Tribunal cannot justify order on grounds other than those mentioned by CIT in his order---Indian Income Tax Act, 1961, Ss.254 & 263.

The Income-tax Appellate Tribunal cannot seek to justify an order passed under section 263 on grounds other than those mentioned by the Commissioner in the revising order itself. Under section 263 of the Act it is only the Commissioner who has been authorised to proceed in the matter, and therefore, it is his satisfaction according to which he may pass necessary orders thereunder in accordance with law. If the grounds, which were available to him at the time of the passing of the order, do not find a mention in his order, appealed against, then it will be deemed that he rejected those grounds for the purpose of any action under section 263(1) of the Act. In this situation, the Tribunal, while hearing an appeal filed by the assessee cannot substitute the grounds, which the Commissioner of Income-tax himself did not think proper to form the basis of his order.

The assessee claimed Rs.46 lakhs as a bad debt in the assessment year 1984-85. Excepting for a very small portion of this sum, which was only of the order of Rs.50,000 and about which there was not much dispute, the rest was a long-standing and old debt. The Income-tax Officer accepted the assessee's claim. The Commissioner of Income-tax, however, set aside the order under section 263. He held that the debt had arisen some time prior to 1966-67 as a result of supplies to eleven parties; that in or about 1167, the debt was taken over by E, and hence after such takeover, the debts could not be treated as trade debts. The Tribunal restored the order of the tax Officer. On a reference:

Held, (i) that the Commissioner of Income-tax proceeded on the basis that the debtor having changed, the debt must also have changed into something other than a trade debt. That the debt had become bad a long time ago, that the assessee was carrying a bad debt in the assessee's books with the dishonest and improper motive of claiming the debt as a bad debt during a year when profits arose, was not a ground for the order of the Commissioner of Income-tax. The Tribunal did not enter into this question and hence it could not be considered by the High Court.

(ii) That the Income-tax Officer had held that the nature of the debt was a trade debt. This finding had not been negatived by the Commissioner of Income-tax. The bad debt passed through the revenue accounts of the assessee at least in the stages of inception. It would not lose its character merely because it was carried in its accounts for seventeen years.

(iii) That the nature and character of the debt did not change by reason of the takeover of the debt by E from the 11 original purchasers. The fact that E had become the debtor and had been accepted as the debtor instead of the 11 original purchasers was found by the Income-tax Officer in the assessment order. The Commissioner did not revise the order on the ground that a takeover of liability was not permitted in the circumstances and there was no debt at all owing to the assessee whether from E or any other party. This point was an absolutely new one and could not be considered by the High Court. The amount was deductible as a bad debt.

Champa Lal Ramsarup (R. B.) v. CIT (1964) 52 ITR 194 (All.); CIT v. Chandrika Educational Trust (1994) 207 ITR 108 (Ker.); CIT (Addl.) v. Ganesh Das (1981) 129 ITR 467 (Ail.); CIT v. Groz-Beckert Saboo Ltd. (1979) 116 ITR 125 (SC); CIT v. Hanuman Das Himatsinhka (1971) 82 ITR 356 (Pat.); CIT v. Jagadhri Electric Supply and Industrial Co. (1983) 140 ITR 490 (P&H); CIT v. Jnhilla Coalfields (P.) Ltd. (1984) 146 ITR 276 (M.P.); CIT v. Sarabhai Sons Ltd. (1983) 143 ITR 473 (Guj.);CIT v. Veerabhadra Rao (T.) Koteswara Rao (K.) & Co. (1985) 155 ITR 152 (SC); Investment Ltd. v. CIT (1970) 77 ITR 533 (SC); Jethabhai Hirji and Jethabhai Ram Das v. CIT (1979) 120 ITR 792 (Bom.); Seth Champa Lal Ram Swarup (R. B.) v. CIT (1968) 68 ITR 181 (SC) and Sutlej Cotton Mills Ltd. v. CIT (1979) 116 ITR 1 (SC) ref.

Mullick for the Commissioner.

N. K. Poddar for the Assessee.

2000 P T D 2833

[236 I T R 950]

[Calcutta High Court (India)]

Before Shyamal Kumar Sen and Bijitendra Mohan Mitra, JJ

COMMISSIONER OF INCOME-TAX

versus

SHEKHAWATI RAJPUTANA TRADING CO.(P.) LTD.

Income-tax Reference No. 180 of 1992, decided on 17th April, 1998.

(a) Income-tax---

----Business loss---Loss on sale of shares by assesee-company to its Chairman ---Assessee not proving that transaction was genuine---No evidence that there was no other buyer---Sale not effected through broker---Cheques issued for purchase and repurchase when both parties did not have enough funds in Bank---Transaction of sale was not genuine---Loss on sale of shares was not deductible---Indian Income Tax Act, 1961.

The assessee-company claimed deduction of loss sustained in sale of shares to its Chairman. The claim was negatived by the Income-tax Officer and the Commissioner of Income-tax (Appeals) but allowed by the Tribunal. On a reference:

Held, that the transaction in the instant case was between the assessee-company and its Chairman. Hence, the onus lay heavily on the assessee to prove the genuineness of the transaction. It had not discharged the onus. Cheques were issued simultaneously by the parties in favour of each other for purchase and repurchase on the same day without both the parties having sufficient funds in the bank, and that itself showed that the transaction was not genuine. This aspect, however, could not be explained by the assessee. Regarding sale of shares of three companies particularly J, no evidence was produced on behalf of the assessee that there was no other buyer of the shares except K, its Chairman, although those shares were quoted in the stock exchange. The fact that sale through broker of listed shares is essential under the Securities Contracts (Regulation) Act, 1956 and that it was not done in the instant case was also ignored by th8 Tribunal. The order of the Tribunal was perverse. The Tribunal was not correct in law in directing the Assessing Officer to allow the share of loss of Rs.3,38,651.50 to the assessee-company.

CIT v. S.P. Jain (1973) 87 ITR 370 (SC); Kamani Properties Ltd. v. CIT (1971) 82 ITR 547 (SC); Latilla v. IRC (1943) 25 TC 107 (HL); McDowell & Co. Ltd. v. CTO (1985) 154 ITR 148 (SC); (1985) 59 STC 277 (SC) and McDowell & Co. Ltd. v. CTO (1977) 39 STC 151 (SC) ref.

(b) Income-tax---

----Reference---Powers of High Court and Supreme Court---Power to set aside finding of Tribunal---Indian Income Tax Act, 1961, S.256.

The High Court and the Supreme Court have always the jurisdiction to intervene if it appears that either the Tribunal has misunderstood the statutory language as a matter of law, or it has arrived at a finding based on no evidence or where the finding is inconsistent with the evidence or contradictory of it, or it has acted on material partly relevant and partly irrelevant or where the Tribunal draws upon its own imagination, imports facts and circumstances not apparent from the record, or bases its conclusion on mere conjectures or surmises, or where no person judicially acting and properly instructed as to the relevant law could have come to the determination reached. In all such cases the findings arrived at are vitiated.

2000 P T D 3454

[ 238 I T R 354]

[Calcutta High Court (India)]

Before R. Dayal and S. B. Sinha, JJ

SARDA PLYWOOD INDUSTRIES LTD.

versus

COMMISSIONER OF INCOME-TAX

Income-tax Reference No.22 of 1994 with Income-tax Reference No.32 of 1996, decided on 27th January, 1999.

(a) Income-tax---

----Business expenditure---Disallowance---Expenditure incurred above prescribed ceiling---Expenditure on advertisement---Meaning of "advertisement"---Presentation of articles to dealers does not amount to advertisement---Expenditure on such articles cannot be disallowed---Indian Income Tax Act, 1961, S.37.

(b) Income-tax---

----Business expenditure---Expenditure incurred in sponsoring horse race and golf competition---Deductible, Indian Income Tax Act, 1961, S.37.

When on admitted facts the inference drawn by the Tribunal is erroneous, a mixed question of fact and law arises. A question with regard to the interpretation of Rule 6B would essentially be a question of law.

If, in a given case the High Court while exercising its jurisdiction comes to a conclusion that the Tribunal had failed to take into consideration the relevant fact and/or relevant provision of law, it has the power and the jurisdiction to remit the matter back to the Tribunal.

(c) Income-tax---

----Business expenditure---Disallowance---Expenditure above prescribed ceiling---Entertainment expenditure---Expenditure on holding conference of dealers is not entertainment expenditure---Payments to club, expenditure on meals, lunch and drinks at branch office--No finding whether expenses amounted to entertainment expenditure---Matter remanded--Indian Income Tax Act, 1961, S.37.

The assessee held a dealers' conference wherein presentation of 180 boxes of silver was made to the dealers costing Rs.1,16,570. The Revenue treated the expenditure to be entertainment expenses as laid down under section 37(2A) of the Income Tax Act, 1961, and allowed only a sum of Rs.50 per silver box. This was confirmed by the Tribunal.

The assessee had incurred expenses amounting to Rs.39,824 in connection with a dealers' conference organised at Kothmandu in Nepal. The Assessing Officer disallowed it on the ground that it amounted to entertainment expenses. The Commissioner of Income-tax (Appeals) took the view-that a part of the expenditure relating to the hiring of conference hall, was an allowable deduction which he estimated at Rs.5,000. He accordingly reduced the disallowance by Rs.5,000. An amount of Rs.30,000 by way of payment to clubs; Rs.11,422 towards expenditure for supply of meals, lunch and drinks at branch office and Rs.11,I83 by way of sales-promotion, had also been disallowed and this was upheld by the Tribunal. The assessee had spent Rs.30,000 in sponsoring a horse race and a similar amount 6n a golf competition which had been disallowed by the Tribunal. On a reference:

Held, (i) that the contention that the presentation -of articles to the dealers would amount to "entertainment" had not been raised by the Revenue before the Tribunal and the same could not be allowed to be raised for the first time in the reference.

(ii) That any presentation made to the delegates, directors or shareholders who essentially are not members of the public and thus being not potential buyers, would not amount to "advertisement". The disallowance of a sum of Rs.1,07,570 towards the price of the silver boxes was not justified.

(iii) That the question before the Assessing Officer, the appellate authority as also before the Tribunal was as to whether expenses incurred under all the four heads amounting to Rs.1,22,976 was allowable as business expenditure; wherefore the assessing authority allowed a sum of Rs.33,000 and odd towards payments to clubs only. The appellate authority allowed a sum of Rs.5,000 towards the rental charges of the conference hall at . Kathmandu where the conference had been held. The Tribunal noticed that a sum of Rs.39,824, was incurred in connection with the dealers' conference and without taking into consideration the fact that other expenses were under the head "payment to club", "meals, lunch and drinks at branch office" and "sales promotion" although the same had nothing to do with the dealers' conference proceeded to reject the same on the only ground that Kathmandu being in Nepal and the same neither being the business place of the assessee nor the head office being located there, the said expenditure could not have been allowed. The question raised was as to whether holding of a dealers' conference would be an "entertainment". Holding of a dealers' conference would not come within the purview of entertainment or advertisement. As the points raised by the assessee had not been taken into consideration by the Tribunal, it was a fit case where the matter should be remitted back. (Matter remanded).

(iv) That, once it is found that the expenditure had been, as a matter of fact, incurred by the assessee for publicity or advertisement, it is not for the Department to consider whether commercial expediency justified the expenditure. The disallowance of Rs.25,000 out of expenditure incurred on sponsoring a horse race and of Rs.25,000 out of expenditure on sponsoring a golf competition by the appellant-company for publicity of its products was not justified.

The assessee had been granted a subsidy of Rs.3,26,912 under the ,Transport Subsidy Scheme. This amount was held to be a revenue receipt by the Tribunal agreeing with the Departmental authorities. On a reference;

Held, that the Transport Subsidy Scheme came into force for the purpose of granting subsidy on the transport of raw materials and finished goods to and from certain selected areas with a view to promoting growth of industries there. The subsidy was granted only for the purpose of recouping or reimbursing a portion of the transport costs incurred by an owner of a manufacturing unit set up in a backward area, so as to enable him to recoup the loss which he may suffer by way of additional transport costs. It was a revenue receipt.

Jeewanlal (1929) Ltd. v. CIT (1983) 142 ITR 448 (Cal.); Merinoply and Chemicals Ltd. v. CIT (1994) 209 ITR 508 (Cal.) and Kesoram Industries and Cotton Mills Ltd. v. CIT (1991) 191 ITR 518 (Cal.) applied. , Bombay Burmah Trading Corporation Ltd. v. CIT..(1988) 169 ITR 148 (Bom.); CIT v. Aditya Mills Ltd. (1994) 209 ITR 933 (Raj.); CIT v. Aluminium Industries Ltd. (1995) 214 ITR 541 (Ker.); CIT v: Anand & Co. (1998) 233 ITR 18 (Cal.); CIT v. Assam Asbestos Ltd. (1995) 215 ITR 847 (Gauhati); CIT v. Bennett Coleman & Co. Ltd. (1994) 73 Taxman 64 (Bom.); CIT v. Chitra Kalpa (1989) 177 ITR 540 (AP); CIT v. Delhi Cloth and General Mills Co. Ltd. (1978) 115 ITR 659 (Delhi); CIT (Addl.) v. Delhi Cloth and General Mills Co. Ltd. (1983) 144 ITR 280 (Delhi) (Appex. 1); CIT v. Eskaps (India) (P.) Ltd. (1991) 191 ITR 674 (Cal.); CIT v. Green Roadways (1985) 154 ITR 639 (Raj.); CIT v. ,Groz Beckert Saboo Ltd. (1979) 116 ITR 125 (SC); CIT (Addl.) v. Handicrafts and Handloom Export Corporation (1982) 133 ITR 590 (Delhi); CIT v. Indo Asian Switchgears (R.) Ltd. (1996) 222 ITR 772 (P&H); CIT v. Khem Chand Bahadur Chand (1981) 131 ITR 336 (P & H); CIT v. Modi Spinning and Weaving Mills Co. Ltd: (1993) 202 ITR 708 (Delhi); CIT v. Nadh Shah Kapur & Sons (1980) 122 ITR 972 (P&H); CIT v. Orissa Industries Ltd. (1992) 198 ITR 251 (Orissa); CIT v. P.J. Chemicals Ltd. (1994) 210 ITR 830 (SC); CIT v. Raj Brothers (1988) 171 ITR 249 (AP); CIT v. Santosh Agencies (1994) 210 ITR 78 (Cal.); CIT v. The Statesman Ltd. (1992) 198 ITR 582 (Cal.); CIT v. Tirrihannah Co. Ltd. (1992) 195 ITR 393 (Cal.); Controller of Estate Duty v. Mahant Umesh Narain Puri (1982) j35 ITR 139 (SC); Delhi Cloth and General Mills Co. Ltd. v. CIT (1992) 198 ITR 500 (Delhi); Gemini Pictures Circuit (P.) Ltd. v. CIT (1981) 130 ITR 686 (Mad.); Kalpetta Estates Ltd. v. CIT (1996) 221 ITR 601 (SC); Karjan Cooperative Cotton Sales Ginning and Pressing Society v. CIT (1993) 199 ITR 17 (Guj.); Meenakshi Achi (V.S.S.V.) v. CIT (1966) 60 ITR 253 (SC); Phool Chand Gajanand v. CIT (1989) 177 ITR 265 (All); Phoolchand Gajanand v. CIT (1989). 178 ITR 535 (All.); Sadichha Chitra v. CIT (1991) 189 ITR 774 (Bom.); Sahney Steel and Press Works Ltd. v. CIT (1997) 228 ITR 253 (SC); Senairam Doongarmall v. CIT (1961) 42 ITR 392 (SC) and Seth Keshrichand Khaitan Education and Welfare Trust v. CIT (1982) 138 ITR 351 (Cal.) ref.

(d) Income-tax---

----Income or capital---Subsidy---Subsidy for transport of raw materials and finished goods to and from selected areas---Subsidy was granted to recoup expenditure on transport---Subsidy constituted a revenue receipt---Indian Income Tax Act, 1961.

(e) Income-tax---

----Reference---Question of fact or law---Powers of High Court---Question regarding interpretation of a provision is a question of law---High Court has power to remand a case to Tribunal---Question not raised before Tribunal cannot be considered by High Court---Indian Income Tax Act, 1961, S.256.

(f) Words and phrases---

-------Advertisement"---Meaning of.

The word "advertisement" has been stated to mean a notice given in a manner designed to attract public attention. Any expenses incurred by way of advertisement must be considered from the point of view of the assessee and from any other angle.

N.K. Poddar and C. Banerjee for the Assessee.

P. Mallik and B.M. Prasad for the Commissioner.

2000 P T D 3510

[238 I T R 319]

[Calcutta High Court (India)]

Before Y. R. Meena and Bijitendra Mohan Mitra, JJ

COMMISSIONER OF INCOME-TAX

versus

SUBARNA PLANTATION AND TRADING CO. LTD.

Income-tax Reference No.97 of 1992, decided on 19th March, 1998

(a) Income-tax---

----Reference---Powers of High Court---High Court can consider whether question referred arises out of order of Tribunal whether it is a question of law ,and whether it is academic---Power to reframe question---Question cannot be refrained in such a way as to widen its scope---Indian Income Tax Act, 1961, S.256.

In a case where the High Court has directed the Tribunal and called for the statement of a case, the Court can consider at the time of hearing whether it arises out of the order of the Tribunal, whether it is a question of law or whether it is academic, unnecessary or irrelevant. When a question is refrained by the High Court, its scope cannot be widened:

Held, (i) that after the merger of the order of the Income-tax Officer with the order of the Commissioner of Income-tax (Appeals), the' Commissioner of Income-tax had no power, under section e63 of the Income Tax Act, 1961, to revise the order of the Income-tax Officer which became final so far as the assessment year 1980-81 is concerned. The answer to the question whether the order of the Income-tax Officer was erroneous and prejudicial to the interests of the Revenue would be of academic interest and could not be answered.

(ii) that so far as the question raised for the assessment year 1981-82 was concerned, the doctrine of merger had not been, applied because though the appeal was filed against the assessment order, no order was passed prior to the order passed by the Commissioner of Income-tax under section 263 of the Act. Therefore, there was no question of merger of the Income-tax Officer's order with the order of the Commissioner of Income-tax (Appeals) prior to the order of the Commissioner of Income-tax under section 263 of the Act. Considering the error, found out by the Commissioner of Income­-tax, in the order of the Income-tax Officer, the order of the Income-tax Officer had rightly been revised and set aside for the year 1981-82.

CIT v. Anusuya Devi (Smt.) (1968) 68 ITR 750 (SC) and Lakshmiratan Cotton Mills Co. Ltd. v. CIT (1969) 73 ITR 634-(SC) ref.

(b) Income-tax--

----Revision---Powers of CIT---Appeal---Doctrine of merger of order of Assessing. Officer in that of appellate order---Order of Assessing Officer which has merged in appellate order cannot be revised---Appeal pending before CIT(A)---Order of Assessing Officer had not merged in appellate order ---CIT could revise order---Indian Income Tax Act, 1961, S.263.

Khaitan for the Assessee.

2000 P T D 3557

[238 I T R 143]

[Calcutta High Court (India)]

Before Ajoy Nath Ray, J

J.C.T. LIMITED and another

Versus

COMMISSIONER OF INCOME-TAX and others

W. P. No. 184 of 1999, decided on 2nd February. 1999.

(a) Income-tax---

----Revision---Writ---Notice under S.263---Writ petition maintainable against notice if it were issued without jurisdiction or mala fide or under circumstances which were not reasonable---Auditor's note that assessee had borrowed funds paying huge interest and advanced amounts without charging interest ---CIT issuing notice under 5.263 directing Assessing Officer to enquire whether there was a nexus between borrowings and interest-free advances---Notice was valid---Indian Income Tax Act, 1961, S.263--­Constitution of India, Art.226.

(b) Writ-

--Existence of alternate remedy---Not a bar to issue of writ---Constitution of India, Art.226

The mere existence of an alternative remedy is not enough to throw out the writ petition in limine or even refuse to pass interim orders.

If it appears to the Court that a notice under section 263 of the Income Tax Act, 1961, was issued without jurisdiction, or mala fide, or under circumstances in which no reasonable Commissioner could ever issue such a notice, then in that event a writ could be issued against such a notice, and that, too even at the very preliminary stage of issuance of notice.

The Commissioner of Income-tax found from the note of the auditor that the assessee had taken loans from different financial units and paid huge interest and had given interest-free loans to its subsidiaries. The Commissioner of Income-tax opined that the Assessing Officer should have made enquiries about the existence of any possible nexus between the borrowed fund and the interest-free advances. He issued a notice under section 263. On a writ petition to quash the notice:

Held, (i) that the writ petition was maintainable.

(ii) that, in the instant case, the Commissioner of Income-tax had applied his mind to the facts and he had jurisdiction to issue the notice. There was no indication that the notice had been issued mala fide. It could not also be said that the jurisdiction was exercised on circumstances and grounds, which cannot reasonably be used by any Commissioner ever to issue a notice under section 263. The notice was valid.

B.K. Roy (Pvt.) Ltd. v. CIT (1995) 211 ITR 500 (Cal.); Brooke Bond Lipton India Ltd. v. CIT (1996) 222 ITR 540 (Cal.); Calcutta Discount Co. Ltd. v. ITO (1961) 41 ITR 191 (SC); Indo-Asahi Glass Co. v. ITO (1996) 222 ITR 534 (Cal.); Jeewanlal (1929) Ltd. v. Addl. CIT (1977) 108 ITR 407 (Cal.) and Russell Properties (Pvt.) Ltd. v. A. Chowdhury (Addl. CIT) (1977) 109 ITR 229 (Cal.) ref

Dr. Pal for Petitioner.

Agarwal for Respondent

2000 P T D 3582

[238 I T R 680]

[Calcutta High Court (India)]

Before YR. Meena and Debi Prasad Sircar-I, JJ

COMMISSIONER OF INCOME-TAX

versus

BASANT INVESTMENT CORPORATION

I.T.R.No.72 of 1993, decided on 17th May, 1999.

(a) Income-tax---

----Business loss---Loss in purchase and sale of jute---Some discrepancies 'found by ITO on scrutiny of books of account of sellers---Disallowance of loss by ITO holding transactions were not genuine ---Assessee could not .be punished for mistakes in sellers' books---Tribunal holding transaction genuine and allowing loss---Justified.

(b) Income-tax---

----Reference---Possibility of some other conclusion did not make finding of fact perverse---Indian Income Tax Act, 1961, S.256.

The assessee claimed loss of Rs.17,56,071 in purchase and sale of jute. The Assessing Officer found that originally the assessee had shown purchase of raw jute from R. But subsequently it was stated by the assessee that the jute was purchased from four parties. By examining all the books of account of the four parties, the Income-tax Officer found some discrepancies and disallowed the claim of loss of the assessee. On appeal both the Commissioner of Income-tax (Appeals) and the Tribunal found the loss as well as transactions genuine and allowed the loss. On a reference:

Held, that it was true that some discrepancies were found by the Income-tax Officer on scrutiny of the books of account of the four sellers in question, but if the books were not properly maintained by those sellers, the assessee could not be punished for their mistake. The concurrent finding of the Commissioner of Income-tax (Appeals) as well as the Tribunal was that the transaction was genuine and the assessee suffered the loss. Whether the transaction was genuine or not was basically a question of fact, and, on the given materials, it could not be said that the finding was perverse.

2000 P T D 67

[231 I T R 628]

[Delhi High Court (India)]

Before R. C. Lahoti and Dalveer Bhandari, JJ

Smt. KRISHNA GUPTA

versus

COMMISSIONER OF INCOME-TAX

C. W. P. No. 1756 of 1997, decided on 18th February, 1998.

Income-tax---

----Writ---Existence of alternative remedy---Whether order of assessment to he annulled or order of remand justified---Are questions which could be examined by Tribunal in Appellate jurisdiction---Writ petition not, maintainable- -Constitution of India, Art.226.

An order of assessment was passed by the Income-tax Officer against the petitioner against which the petitioner preferred an appeal before the Commissioner of Income-tax (Appeals), who set aside the assessment order and remanded the case for passing a fresh assessment order. The petitioner filed a writ petition and contended that the Assessing Officer had repeated his earlier mistake, that ht had, violated the direction given in the earlier order of remand, that the Commissioner of Income-tax (Appeals) should have annulled the assessment proceedings instead of again remanding the matter and that the petitioner was seeking a writ of certiorari wherein the fear of alternative remedy was not attracted and the order of assessment having been framed in violation of the principles of natural justice, was liable to be quashed in exercise of the writ jurisdiction of the High Court. The Revenue raised a preliminary objection and contended that the instant case was not one where the order of assessment could be annulled, that the order of remind was justified, that it was only in. a very limited category of cases, that power to annul the assessment could be exercised by the appellate authority and that the petitioner had an alternative efficacious remedy by filing an appeal to the Tribunal and that, therefore, the writ petition was not maintainable:

Held, that whether or not the order of assessment was liable to be annulled or an order of remand as made by the Commissioner of Income-tax (Appeals) was justified, were questions, which could well be examined by the Tribunal exercising its appellate jurisdiction. Therefore, the writ petition was not maintainable.

Amritsar Sugar Mills Co. Ltd. v. Union of India (1983) AIR 1983 Delhi 337; (1983) 62 FJR 309 (Delhi); Calcutta Discount Co. Ltd. v. ITO (1961) 41 ITR 191 (SC); CIT v. Gyan Prakash Gupta (1987) 165 ITR 501 (Raj,) CIT v. Sham Lal (1981) .127 ITR 816 (P&H); Hindustan Aluminium Corporation Ltd. v. Controller of Aluminium AIR 1976 Delhi 225; ITO (Addl.) v. Ponkunnam Traders (1976) 102- ITR 366 (Ker.); Katklakshi Finance Corporation v. Union of India (1990) 47 ELT 231 Raja Jagdambika Pratap Narain Singh v. CBDT (1975) 100 ITR 698 (SC); Sant Baba Mahan Singh v. CIT (1973) 90 ITR 197 (All.) and Union of India v. Kamlakshi Finance Corporation Ltd. (1992) AIR 1992 SC 711 ref.

Wazir Singh and Mukul Gupta for Petitioner.

R. D. Jolly and Ajay Jha for Respondent.

2000 P T D 91

[231 I T R 945]

[Delhi High Court (India)]

Before R. C. Lahoti and Dalveer Bhandari, JJ

COMMISSIONER OF INCOME-TAX

versus

ARUN KUMAR SEN

Income-tax Reference No. 104 of 1980, decided on 7th January, 1998, (a) Income-tax---

----Capital gains---Cost of acquisition---Amount received as compensation for vacating leasehold premises---No cost of acquisition for tenancy right--­Compensation not chargeable to tax on capital gains---Indian Income Tax Act, 1961, S.45.

(b) Income-tax---

----Reference---High Court---Jurisdiction is advisory while hearing a reference---High Court to confine itself to questions arising out of order of Tribunal and referred as such to High Court---Reference of question whether compensation for vacating leasehold premises chargeable as capital gains--­Alternative contention that sum may be charged as casual income---Not raised by Revenue at any stage of assessment proceedings and also on appeals against order or assessment---Cannot be raised for first time while hearing reference---Indian Income Tax Act, 1961, Ss. 10(3) & 256.

The assessee received Rs.50,000 as compensation for surrendering possession of a house. The assessee contended before the Income-tax Officer that the tenancy right was not an enforceable right and the compensation was a casual receipt of a capital nature and it was also for the maintenance and upkeep of the house. The Income-tax Officer held that the assessee had a right of occupation under the rent control law and there were negotiations prior to receiving the payment which made it a business deal but since the right to tenancy was a capital asset, it had to he treated as a capital gain, under section 45 of the Income Tax Act, 1961. The Income-tax Officer assessed the sum of Rs.50,000 as long-term capital gains as there was no cost involved in acquiring the property by the assessee. On appeal, the Appellate Assistant Commissioner upheld the order of the Income-tax Officer. On further appeal, the Tribunal held that the transfer resulting in payment of Rs.50,000 would fall under the definition of transfer of capital asset. However, the Tribunal further held that since there was no cost of acquisition of the tenancy by the assessee, the compensation received by the assessee was not liable to tax on capital gains. On a reference, the Revenue contended before the High Court, that though the amount received as compensation for the surrender of the tenancy was not chargeable to tax on capital gains under section 45 for the reason that there was no cost of acquisition for the tenancy right, the receipt was of a casual and non-recurring nature within the meaning of section 10(3) of the Act:

Held, (i) affirming the order of the Tribunal, that the assessee was not liable to tax on capital gains of Rs.50,000 received as compensation for vacating the leasehold premises;

(ii) That the High Court while hearing a reference under section 256 of the Act, could not direct the amount to be taxed as casual income in view of the advisory nature of its jurisdiction. The High Court has to confine itself to the questions arising out of the order of the Tribunal and referred as such to the High Court. The contention that in the event of the receipt being held not liable to capital gains tax, the same would be liable to be taxed as casual income was not raised on behalf of the Revenue at any stage during the assessment proceedings and the hearing of the appeals preferred against the order of assessment. Such a contention could not be raised for the first time while hearing a reference before the High Court.

(The question whether the receipt of compensation was liable to tax as casual income was left open for consideration in an appropriate case).

Bawa Shiv Charan Singh v. CIT (1984) 149 ITR 29 (Delhi); CIT v. Merchandisers (P.) Ltd. (1990) 182 ITR 107 (Ker.) and CIT v. Neba Ram Hansraj (1997) 223 ITR 854 (Pat.) fol.

CIT v. Gulab Chand (1991) 192 ITR 495 (All.); CIT v. Rathnam Nadar (K.) (1969) 71 ITR 433 (Mad.) and Jagdev Singh Mumick v. CIT (1971) 81 ITR 500 (Delhi) ref.

Sanjeev Khanna with Ajay Jha and Ms. Prem Lata Barisal for the Commissioner.

Nemo for the Assessee.

2000 P T D 154

[231 I T R 785]

[Delhi High Court (India)]

Before R. C. Lahoti and Dalveer Bhandari, JJ

COMMISSIONER OF INCOME-TAX

versus

PYARE LAL

Income-tax Reference No.181 of 1982, decided on 20th January, 1998.

Income-tax---

----Capital gains---Exemption---Capital asset---Agricultural lands--­Conditions for exemption---Sale of agricultural lands Within Municipality--­Population of entire Municipality to be taken into account---Not population of any area or village within Municipality---Indian Income Tax Act, 1961, Ss.2(14)(iii) & 45.

For claiming exemption from capital gains under section 45 of the Income Tax Act, 1961, on sale of agricultural lands within a Municipality, the population of the entire Municipality is to be taken into account and not the population of any area or village within the Municipality.

Hidhayathullah Sahib (S.) v. CIT (1986) 158 ITR 20 (Mad.) and Omer Khan (G.M:) v. CIT (Addl.) (1992) 196 ITR 269 (SC) fol.

R .D. Jolly, Sanjeev Khanna with Ajay Jha and Ms. Prem Lata Bansal for the Commissioner.

Nemo for the Assessee.

2000 P T D 201

[232 I T R 688]

[Delhi High Court (India)]

Before R. C. Lahoti and J. B. Goel, JJ

DIRECTOR OF INCOME-TAX (EXEMPTION)

versus

INCOME-TAX APPELLATE TRIBUNAL and another

C. W. P. No. 1782 of 1996, decided on 13th November, 1997.

(a) Income-tax---

----Reference---Application to direct reference---Limitation---Limitation starts -from date when order rejecting application under 5.256(1) was received by C.I.T. who had jurisdiction to file application---Indian Income Tax Act, 1961, S.256(2).

(b) Income-tax---

----Reference---High Court---Writ petition---Order rejecting application for reference as time-barred---Tribunal remanding matter as to assessment to Assessing Officer on 21-2-1994---Order received by Commissioner on 9-6-1994---On 8-8-1994, Revenue filing application for reference under S.256(1)---Application dismissed by Tribunal as filed beyond period of limitation---Revenue- filing application cinder S.254(2) for rectification of order, dated 7-11-1994---Application rejected on ground S.254(2) inapplicable for seeking rectification in an order rejecting an application under S.256(1)---Subsequent to order of remand, Assessing Officer passing fresh order of assessment on 30-3-1995---CIT (Appeals) dismissing appeal of assessee on 15-1-1996, upholding order of assessment---Writ petition filed after a lapse of 18 months from order, dated 7-11-1994, rejecting Revenue's application as barred by time---Assessment itself reaching finality and vested right accrued in favour of assessee---Writ petition liable to be dismissed--­Indian Income Tax Act, 1961, Ss.254(2) & 256---Constitution of India, Art.226.

On February 21, 1994, the Tribunal passed an order remanding the matter as to assessment of the respondent-assessee to the Assessing Officer. The order was received by the Commissioner of Income-tax on June 9,1994. On August 8, 1994, an application under section 256(1) of the Income Tax Act, 1961, was filed by the petitioner (Director of Income-tax (Exemption)) seeking reference to the High Court on certain questions of law arising out of the order, dated February 21,1994. The Tribunal held that the application having been filed beyond the period of limitation calculated from the date of order passed by the Tribunal, was liable to be dismissed, as the Department had failed to file any application seeking condonation of delay in filing the application. The petitioner moved an application under section 254(2) of the Act seeking rectification of the order of the Tribunal, dated November 7,1994, on the ground that the said order was passed by overlooking the law laid down by the jurisdictional High Court, i.e., the Delhi High Court in CIT v. Arvind Construction Co. (Pvt.) Ltd. (1992) 193 ITR 330. This application was rejected on the ground that section 254(2) of the Act was inapplicable for seeking rectification in an order rejecting an application under section 256(1) of the Act. On a writ petition filed for quashing the order of the Tribunal, dated November 7,1994;

Held, (i) that so far as the order, dated November 7,1994, rejecting the petitioner's application as barred by time was concerned, the same was erroneous as the limitation for filing an application under section 256(1) of the Act would commence from the date of receipt of the order by the Commissioner of Income-tax. However, on the facts and circumstances pointed out by the assessee, the writ jurisdiction of the High Court could not be exercised.

(ii) That subsequent to the passing of the order of remand, the matter reached the Assessing Officer who passed a fresh order of assessment on March 30,1995.The assessee went in appeal and the Commissioner of Inconie-tax (Appeals) dismissed the appeal on January 15,1996, upholding the order of assessment. The writ petition was filed on April 26,1996, i.e., after a lapse of about 18 months from the date of passing of the order, dated November 7,1994. By this time the assessment itself had achieved finality.

(iii) That the Department was not justified in moving the application under section 254(2) and, therefore, the Department could not be extended any benefit of the time lost in prosecuting those proceedings.

(iv) That it could not be said that the order rejecting the reference application as barred by time, assuming it to be wrong, could be said to puffer from such an error apparent as might be capable of being rectified merely. The Department should have promptly and with reasonable despatch filed a writ petition challenging the order, dated November 7,1994, and sought for stay of the assessment proceedings. This was not done. No prayer was made either before the Assessing Officer or before the Commissioner of Income-tax (Appeals) for postponing finalisation of taxation proceedings in view of the fact that the Department was disputing the correctness of the order, dated November 7,1994.

(v) That not only was there delay in filing the writ petition, but a vested right had also accrued in favour of the assessee-respondent by the order of assessment having been framed and achieving finality consequent to the order of remand which would be disturbed if the writ petition were to be allowed, (vi) That, therefore, the writ petition was liable to be dismissed.

CIT v. Kabir Das Investment Ltd.(1994) 210 ITR 898 (Delhi) fol.

Ashok Kumar Mishra v. Collector, Raipur AIR 1980 SC 112; CIT v. Arvind Construction Co. (Pvt.) Ltd. (1992) 193 ITR 330 and State of M.P. v. Nandlal Jaiswal AIR 1987 SC 251 ref.

R. D, Jolly with Ms. Premlata Barisal for Petitioner.

Manoj Kumar for Respondents.

2000 P T D 228

[238 I T R 414]

[Delhi High Court (India)]

Before R. C. Lahoti and C. K. Mahajan, JJ

COMMISSIONER OF WEALTH TAX

versus

PREM NATH MOTORS (PVT.) LTD.

W.T.C. No. 7 of 1996, decided on 11th August, 1998.

Wealth tax--

----Reference---Investment in incomplete and unfinished factory building--­Tribunal justified in holding that value could not be included in total wealth of assessee--No question of law arose---Indian Wealth Tax Act, 1.957--­Indian Finance Act, 1983, S. 40(3)(vi).

Held, dismissing the application for reference that in order to attract the applicability of section 40(3)(vi) of the Finance Act, 1983, the building or part thereof must be capable of being used by the assessee. The facts as found and the question itself suggested that the investment was in an incomplete and unfinished factory building, the construction whereof was still in progress. It was not the case of the Revenue that the building or part thereof as it stood in the relevant assessment year was capable of being subjected to any use by the assessee. Obviously, the building or part thereof was not covered by clause (vi) above-said. The answer to the question was obvious. The Tribunal was correct in holding that the investment was not liable to be included in the wealth of the assessee-company. No question of law arose from its order.

R. D. Jolly for Petitioner.

Sanjeev Rajpal for Respondent.

2000 P T D 442

[232 I T R 129]

[Delhi High Court (India)]

Before R. C. Lahoti and Mukul Mudgal, JJ

COMMISSIONER OF INCOME-TAX

Versus

BANARAS HOUSE LTD.

I. T. C. No.55 of 1996, decided on 4th March, 1998.

(a) Income-tax---

----Reference---High Court---Appellate Tribunal---Jurisdiction of---Question based on a plea not raised before Tribunal---Cannot be raised for first time before High Court---High Court not precluded from considering another aspect of same question provided question was raised before Tribunal when appeal was decided---Indian Income Tax Act, 1961, (b) Income-tax--

----Reference---Question of law---Export business---Assessing Authority disallowing deduction under S.80HHC---Matter contested up to stage of Tribunal solely by reference to controversy whether total turnover would include turnover from export sales or domestic sales would also be taken into '' account---Plea of revenue that certain income was income from other sources raised for first time in application for reference under S.256(l) and later in application under S.256(2)---Not permissible---No question of law arises for reference---Indian Income Tax Act, 1961.

It is well settled that while invoking the jurisdiction under section 256 of the Income Tax Act, 1961, either of the Tribunal or of the High Court, a party cannot be allowed to suggest a question based on a plea which was not raised before the Tribunal when the appeal came to be heard and decided. The High Court is not precluded from considering another aspect of the same question provided the question was before the Tribunal when the appeal was decided. But a new question cannot be urged in the proceedings under section 256 of the Act.

The assessee claimed deduction under section 80HHC of the Act amounting to Rs.15,39,752. The Deputy Commissioner of Income-tax disallowed the claim for deduction on the ground that from the profit and loss account it was seen that there were other incomes amounting to Rs.84,70,024 out of Which income amounting to Rs.2,93,239 could be treated to be the income from export business only and the balance income of Rs.81,76,785 did not pertain to export business, that if the balance income was excluded from the total income, there would result a minus figure and that, therefore, the assessee was not entitled to deduction under section 80HHC read with section 80AB. On appeal, the Commissioner of Income-tax (Appeals) allowed the claim for deduction. On further appeal by the Revenue, the Tribunal dismissed the appeal and affirmed the order of the Commissioner of Income-tax (Appeals). The Tribunal dismissed the application of the Revenue for referring a question of law. On an application filed under section 256(2), the Revenue contended that the source of income of the assessee consisted of (i) income from export business; (ii) income from other business, and (iii) income from other sources such as interest, insurance, etc., which would not be classified as income relatable to business and if the income from sources other than business was excluded from consideration, the income from export business would be a negative figure and the question of allowing deduction to the assessee would not arise, that, therefore, the Commissioner of Income-tax (Appeals) and the Tribunal were not justified in allowing the deduction under section 80HHC to the assessee and that, therefore, the Tribunal ought to have stated a question of law for reference to the High Court. The assessee opposed the application and contended that the Department was trying to raise a new question which was never raised before any of the assessing or appellate authorities.

Held, that a perusal of the orders of assessment and the orders in the two appeals showed that up to that stage the matter was contested solely by reference to the controversy as to whether total turnover would include the turnover from export sales only or the domestic sales would also be taken into account, and if so, in what ratio the total turnover should be bifurcated. Only for the first time before the Tribunal in the statement of case to application under section 256(1) a plea was sought to be raised that certain income was income from other sources which should have been excluded from consideration while examining the plea of the assessee for the deduction under section 80HHC. However, no such plea was raised before the assessing or appellate authorities. Therefore, no question of law arose for reference.

T.D. Kumar and Brothers (P.) Ltd. v. CIT (1967) 63 ITR 67 (SC) ref.

R.D. Jolly with Ms. Premlata Barisal for Petitioner.

R.S. Suri for Respondent.

2000 P T D 524

[232 I T R 170]

[Delhi High Court (India)]

Before R. C. Lahoti and J. K. Mehra, JJ

COMMISSIONER OF INCOME-TAX

versus

MAHARISHI VED VIGYAN VISHWA VIDYA PEETHAM

I.T.C. No.45 of 1996, decided on 4th November, 1997.

Income-tax---

----Reference---Jurisdiction of High Court---Facts not disputed or facts as found by Tribunal are enough to enable question of law to be answered by High Court---High Court instead of issuing mandamus to Tribunal and directing statement of case to be drawn up, may straightaway proceed to answer question---Indian Income Tax Act, 1961, Ss.254 & 256(2)---[CIT v. Wandoor Jupiter Chits (P.) Ltd. (In liquidation) (1995) 213 ITR 73 (Ker.) dissented from].

The jurisdiction conferred on the High Court under section 256 of the Income Tax Act, 1961, is an extraordinary advisory jurisdiction. The scope of hearing is confined to the aspects of law and law only. The object is clear. So far as the facts are concerned, the word of the Tribunal is final. If need be, such as where the statement of case made by the Tribunal is found to be deficient, the High Court may call -for an additional statement of facts or may even direct the Tribunal to hold an inquiry and collect such additional information as may be required to provide foundation for answering the question posed before the High Court. It cannot be lost sight of that no question can be referred to the High Court, unless it arises out of the order of the Tribunal. .

The statement of the case must be founded on the facts as found or on the findings as upheld by the Tribunal. The Tribunal may reject the application under subsection (1) of section 256, if it finds (i) that the question sought to be referred is not a question of law, or (ii) that the question of law does not arise out of the order of the Tribunal.

Feeling aggrieved by the rejection under subsection (1) of section 256 of the Income Tax Act, 1961, the aggrieved party may approach the High Court under subsection (2). The High Court may direct the Tribunal to draw up a statement of the case and refer the question to it, if it is not satisfied with the correctness of the decision of the Tribunal under subsection (1).

That being the position of law, two situations may emerge before the High Court allowing the application under subsection (2) and issuing a mandamus to the Tribunal: (i) the High Court may find that the question sought to be referred is a question of law, though not held to be so by the Tribunal; (ii) the High Court may find that the question arises from the order of the Tribunal though in the opinion of the Tribunal it did not so arise. While issuing mandamus to the Tribunal, the High Court, having scrutinised the order of the Tribunal, may feel that a comprehensive statement of facts is required so that the question of law may be effectively answered. Then there is no difficulty in directing the Tribunal to draw up a statement of case. However, there may be cases where the question of law is a pure question of law and the facts found by the Tribunal are such as are either not disputed or need hardly any restatement over and above what is already contained in the order of the Tribunal. In such a case when the facts are not disputed or the facts as found by the Tribunal and contained in its appellate order are enough to enable the question of law arising there from being appreciated and answered by the High Court, the High Court, instead of issuing a mandamus to the Tribunal and directing a statement or case to be drawn up and sent to the High Court, may straightaway proceed to answer the question.

The administration of justice has to keep pace with the march of the times. The nature of the procedure prescribed by the statute---whether it is mandatory or directory merely---has to be judged by reference to the purpose sought to be achieved.

CIT v. Wandoor Jupiter Chits (P.) Ltd. (In liquidation) (1995) 213 ITR 73 (Ker.) dissented from.

CIT v. Scindia Steam Navigation Co. Ltd. (1961) 42 ITR 589 (SC); Maharana and Maharana v. State of Orissa (1991) 82 ST 242 (Orissa) and State of Orissa v. Mahabir Prasad Agrawalla (1990) 79 STC 163 (Orissa) ref.

R. D. Jolly with Ms. Prem Lata Bansal for Applicant.

Manoj Arora for Respondents.

2000 P T D 542

[232 I T R 207]

[Delhi High Court (India)]

Before R. C. Lahoti and Dalveer Bhandari, JJ

COMMISSIONER OF INCOME-TAX

versus

INCOME-TAX APPELLATE TRIBUNAL and another

C. W. P. No. 1725 of 1996, decided on 27th March, 1998.

Income-tax--­--

--Reference---Jurisdiction of High Court---Application for reference--- Tribunal rejecting application for reference under S.256(1) of Department by relying on circular of C.B.D.T. that Department not to seek reference even if question had arisen out of order of Tribunal if tax effect involved was less than Rs. 30000--Department filing application under S.256(2) and also writ petition under Art 226 of Constitution for quashing order passed by Tribunal under S.256 (l)---Tribunal had refused to apply its mind to questions, influenced by instructions issued by C.B.D.T.---Remedy of Department was to invoke jurisdiction of High Court under Art.226 as remedy under S.256(2) not available to it---Instructions issued by C.B.D.T. cannot take away jurisdiction of Tribunal to refer questions of law---Matter remanded to Tribunal for consideration afresh---Indian Income Tax Act,. 1961, S.256--­Constitution of India Arts.226 & 227.

The following principles are well-settled regarding the jurisdiction of the High Court it; a reference under section 256 of the Income Tax Act, 1961, as laid down in CIT v: Scindia Steam Navigation Co. Ltd. (1961) 42 ITR 589 (SC):

(i) When a question is raised before a Tribunal and is dealt with by it, it is clearly one arising out of its order.

(2) When a question of law is raised before the Tribunal but the Tribunal fails to deal with it, it must be deemed to have been dealt with by it, and is, therefore, one arising out of its order. -

(3) When a question is not raised before the Tribunal but the Tribunal deals with it, that will also be a question arising out of its order.

(4) When a question of law is neither raised before the Tribunal nor considered by it, it will not be a question arising out of its order notwithstanding that it may arise on a finding given by it.

The Tribunal rejected the application filed under section 256(1); of the Act by the Department for referring a question of law without expressing any opinion as whether the questions sought to be raised were questions of law arising out of the order of the Tribunal, by relying on Circular No.319/11 of 1987 issued by the Central Board of Direct Taxes according to which the Department would not seek reference to the High Court even if a question of law had arisen out of the order of the Tribunal, if the tax effect involved was less than Rs.30,000. The Department filed an application under section 256(2) of the Act. The Department also filed a writ petition under Article 226 of the Constitution for quashing the order passed by the Tribunal under section 256(1) of the Act following by the direction to the Tribunal to hear old decide the petition on merits. However, the income-tax case was kept pending. The question which arose for consideration was what was the appropriate remedy available to the Department whether the Department could file an application under section 256(2) feeling aggrieved by the Tribunal's order rejecting the application of the Department under section 256(1) for referring a question of law, or (ii) invoke the writ jurisdiction of the High Court under Article 226 of the Constitution, or (iii) the power of superintendence under Article 227 of the Constitution was the appropriate remedy. The question also arose whether the Tribunal was justified in refusing to make a reference on the ground that the tax effect involved in the case was less than Rs.30,000:

Held, (i) that the Tribunal had not even formed an opinion as to whether the suggested questions were questions of law arising out of its appellate order or not. It had simply refused to apply its mind to the questions influenced by the instructions issued by the Central Board of Direct Taxes. It was not a case of mere failure on the part of the Tribunal to deal with a question raised before it---a situation contemplated by principle No.2 of Scindia Steam Navigation Co. Ltd.'s case (1961) 42 ITR 589 (SC). The remedy of the person aggrieved (i.e., the Department) was to invoke the jurisdiction of the High Court under Article 226/227 of the Constitution. The remedy under section 256(2) was not available to it. The petitioner was rightly advised to file the writ petition.

(ii) That if the Tribunal or the High Court is satisfied that the question sought to be referred is a question of law and arises from the order of the Tribunal, then a reference has to be made to the High Court. The Central Board of Direct Taxes instructions cannot take away such jurisdiction of the Tribunal as is vested in it by the statute and so the Tribunal should not have felt inhibited from drawing up the statement of case and stating the questions for the opinion of the High Court solely on account of the Central Board of Direct Taxes instructions.

(iii) That the Central Board of Direct Taxes instructions are binding on the Department. If the instant case was covered by a policy laid down by the Central Board of Direct Taxes, in that case no fault could be found with the order of the Tribunal refusing to state the case and there was no reason why the High Court should interfere with such discretion of the Tribunal as has been exercised. The High Court would not ordinarily encourage breach of policy, decisions and Departmental instructions which have a public purpose behind it. However, if the case is not covered by the said instructions or is covered by one of the exceptions carved out in the instructions themselves, in that event the denial of reference would be failure to exercise a jurisdiction statutorily vested in the Tribunal. Inasmuch as the Tribunal has not examined the case from that point of view and adequate material was not available before the High Court enabling formation of an opinion either way, the present case should be sent back to the Tribunal for consideration afresh.

CIT v. Imperital Surgical Co. (P.) Ltd. (1991) 192 ITR 646 (SC); CIT v. Income-tax Appellate Tribunal (1987) 167 ITR 250 (Mad.); CIT v. Nopany Education Trust (1986) 159 ITR 367 (Cal.); CIT v. Poonam Chand Manmal Trust (1988) 171 ITR 153 (Raj.); CIT v. Prakashwati (Smt.) (1994) 210 ITR 567 (All.); CIT v. Scindia Steam Navigation Co. Ltd. (1961) 42 ITR 589 (SC); CWT v. Executors of late D.T. Udeshi (1991) 189 ITR 319 (Bom.); CWT v. Girdhari Lai Saraf (1991) 190 ITR 264 (Raj.); Jaiswal (S.P.) v. CIT (1969) 73 ITR 179 (P&H) and Prem Narain Khurana v. CIT (1986) 162 ITR 297 (All.) ref.

R.D. Jolly with Ms. Prem Lata Barisal for Petitioner.

D. N. Sawhney for Respondents.

2000 P T D 622

[233 I T R 949]

[Delhi High Court (India)]

Before R. C. Lahoti and J. K. Mehra, JJ

COMMISSIONER OF INCOME-TAX

versus

N. K. RAJGARHIA

I.T.C. No.52 of 1996, decided on 17th October, 1997

(a) Income-tax---

----Reference---Question of law---Capital or revenue expenditure ---Assessee deriving income from export of spare parts and commission from Indian and foreign authorities---Deduction claimed on account of commission paid to G---Tribunal finding that G had helped assessee in obtaining better price and commission paid to G in accordance with memorandum of understanding reached between assessee and G---Assessee receiving repeated orders for supply of detergent but no commission paid to G on that account or in respect of every contract---Both assessee and G free to compete with each other---Tribunal finding that expenditure by way of commission to ward off competition in individual transaction and leaving competitor surviving in field is only revenue expenditure---Finding of Tribunal is finding of fact--­No question of law arises for reference---Indian Income Tax Act, 1961, S.256(2).

(b) Income-tax---

----Reference---Question of law---Business expenditure---Assessee receiving commission for sale of textile machinery imported from USSR against which assessee paying commission to A---A introducing assessee to P mills which was purchasing textile machinery on assessee's persuasion---P mills purchasing machinery from USSR---Tribunal finding exchange of regular correspondence between assessee and A showing role played by A in securing orders to assessee---A confirming receipt of commission from assessee and payment made to A by account payee cheques or drafts---Bank confirming transactions between assessee and A on inquiries from revenue--­Commission paid to A only, one-fifth of total commission receipts of assessee---A was an independent entity and was filing Income Tax Returns--­Tribunal deleting disallowance of commission -paid to A---Finding of Tribunal finding of fact and no question of law arises for reference---Indian Income Tax Act, 1961, S. 256(2).

It is well-settled that whether an expenditure was incurred or not, is a question falling within the domain of facts. Whether such expenditure is allowable as a deduction or not and how the nature of such expenditure is to be classified under the relevant legal provision is a question of law.

The assessee derived income from exports of spare parts to Russia and also commission received from various Indian and foreign authorities. As against his receipts from commission the assessee claimed deduction on account of commission paid to G amounting to Rs.22,50,000. The Assessing Officer held the expenditure was capital in nature. The Commissioner of Income-tax (Appeals) affirmed the order of the Assessing Officer. The Tribunal accepted the contention of the assessee that G had helped the assessee in obtaining a better price and there was a regular memorandum ' of understanding arrived at between the assessee and G specifying the terms of the understanding and the commission was paid to G in accordance with those terms. The Tribunal found that the assessee received repeated orders for supply of detergent for which he earned commission but no amount was paid to G, that the amount was paid by the assessee only in respect of a contract for 6000 mt (and not in respect of every contract) for supply of detergent goods or commodities to USSR or any other contract though the assessee was receiving repeated orders and that both the assessee and G were free to compete with each other in the manner best suited to them. The Tribunal observed that if an expenditure eliminated for good a competitor, then it was a capital expenditure but if the expenditure related to. warding off competition in an individual transaction and leaving the competitor surviving in the field, then it was merely revenue expenditure. On an application seeking a reference under section 256(2) of the Income Tax, Act, 1961:

Held, that the finding recorded by the Tribunal was a finding of fact and no question of law arose for reference.

The assessee had received commission for sale of textile machinery imported from the USSR against which he made a claim for payment of Rs.46,65,600 to A. It was explained that A had introduced the assessee to P cotton mills which was interested in purchasing textile machinery on the assessee's persuasion. P cotton mills purchased the textile machinery from the USSR. The Assessing Officer made enquiries under section 131 of the Income Tax Act, 1961, but found no such party as A at the given address. The assessee also could not produce A before the Assessing Officer. The Assessing Officer found that there was no written agreement for payment of commission between the assessee and A, that the commission paid to A was totally disproportionate to the quantum of commission earned by the assessee, that A had not filed any returns of income and hence rejected the claim of the assessee for deduction of the commission paid to A. The Commissioner of Income-tax (Appeals) upheld the order of the Assessing Officer. The Tribunal found that there was regular exchange of correspondence between the assessee and A showing the role played by A in helping the assessee in securing orders, that A had confirmed the receipt of the commission in part and then reminded the assessee for releasing the balance commission, that the payments made by the assessee to A were all by account payee cheques or drafts, that inquiries made by the Revenue from the bank confirmed these transactions by entries having been made in the accounts of the assessee and A, that the amount paid to A was 18 percent. of the total commission receipts of the. assessee, that A being an independent entity and very much in existence, as it was found to have filed its returns prior to the assessment year in question and its records having been taken into custody by the police in connection with some investigation, the factum of such payment could not be doubted and that it was not the case of Revenue that the amount paid to A had come back to the. assessee. The Tribunal, therefore, deleted the addition. On a reference:

Held, that the finding recorded by the Tribunal was a finding of fact. Merely' because the fact finding Tribunal could have arrived at a different finding by a parity of reasoning, a question of law would not arise. The question as proposed by the Revenue as to the payment of Rs.46,65,600 to A did not arise as a question of law in view of the finding of fact arrived at by the Tribunal.

The Supreme Court dismissed the special leave petition filed by the Department against this judgment.

Chelpark Co. Ltd. v. CIT (1991) 191 ITR 249 (Mad.) ref.

R. D. Jolly with Ms. Prem Lata Bansal for the Commissioner.

G. C. Sharma, Senior Advocate with Tarim Dua for the Assessee

2000 P T D 768

[232 I T R 533]

[Gauhati High Court (India)]

Before D. N. Choudhury, J

ANANT KUMAR SAHARIA

Versus

COMMISSIONER OF INCOME-TAX and others

Civil Rules Nos. 2228 and 2227 of 1993, decided on 19th February, 1998.

Income-tax---

----Reassessment---Writ---Notice of reassessment---Condition precedent--­Material to justify belief that income has escaped assessment---High Court will not consider adequacy of material---Original assessments on the basis of returns submitted on behalf of the same person as trustee of sole beneficiary and father of minor---Notice of reassessment was valid---Indian Income Tax Act, 1961, S. 147---Constitution of India, Art. 226.

The power conferred under section 147 of the Income Tax Act, 1961, is very wide. But at the same time it cannot be stated to be a plenary power. The assumption of jurisdiction under section 147 of the Income Tax Act, therefore; must be on existence of materials before the authority. It will not depend on the mere whim or fancy of the Assessing Officer. The existence of the materials, therefore, must be real. Secondly, there must be nexus between the material and the belief of escapement. The exercise must contain a definite application of mind by the Assessing Officer. The belief is that of the Assessing Officer and the reliability or credibility attached to the material depends on the judgment of the Assessing Officer. The High Court in exercise of power under Article 226 of the Constitution of India cannot go the sufficiency or adequacy of the materials.

The father and the natural guardian of the minor (petitioner) submitted returns on behalf of the minor. The same person as the trustee of a trust where the said minor (petitioner) was the sole beneficiary, submitted returns on behalf of the trust. The beneficial interest of the petitioner who was the sole beneficiary in the trust was disclosed in the hands of the trust, whereas a separate return in respect of the petitioner was submitted showing the income and benefit whatsoever that accrued or arose to the petitioner, other than from the trust. Deduction under sections 80L, 80C, 80CCA and 80CCB was claimed to the maximum permissible limit in both the cases. Subsequently. notice under section 148 was issued. It was stated that it was incumbent on the part of the representative assessee to disclose and/or mention in the return the other income or benefit from other sources of the assessee. This non-disclosure had caused escapement of assessment and there had been claim of excessive deduction or relief in the return. The Assessing Officer issued notice to show cause as to why the assessment for the years 1985-86 to 1991-92 should not be reopened. On a writ petition to quash the notices:

Held, dismissing the writ petition, that in the instant case, the Assessing Officer on taking note of the. returns thought, it fit to reopen the assessment on the ground of alleged failure to disclose fully and truly all material facts necessary for assessment. The case of the petitioner was fairly considered and thereafter, the notices of reassessment had been issued. The notices were valid.

Dr. A. K. Saraf, S. Mitra and R. K. Agarwalla for Petitioner.

G. K. Joshi and U. Bhuyan for Respondent.

2000 P T D 789

[232 I T R 381]

[Delhi High Court (India)]

Before R. C. Lahoti and J. K. Mehra, JJ

COMMISSIONER OF INCOME-TAX

versus

EURASIA PUBLISHING HOUSE (P.) LTD

Income-tax References Nos. 52, 53, 54 and 55 of 1980, decided on 28th October 1997.

(a) Income-tax---

----Revision---Appeal to AAC---Rectification of mistakes---Doctrine of merger---Scope of doctrine---Application for revision to CIT and appeal to AAC---Order passed in revision by CIT---ITO's order merged in order of CIT---Appeal to AAC rendered incompetent---Order passed by AAC contrary to order of CIT was not valid---Indian Income Tax Act, 1961, Ss. 154 & 264...

(b) Income-tax---

----Rectification of mistakes---Decision on debatable point is not a mistake and cannot be rectified---Mistake which is patent and obvious can alone be rectified ---Concessional rate of tax---Manufacturing concern---Question whether a publishing concern is a 'manufacturing concern is a debatable issue---Order refusing concessional rate of tax to a publishing concern cannot be rectified---Indian Income Tax Act, 1961, S.154.

The following are the principles with regard to the merger of an order of an inferior authority in that of a superior authority; (i) the application of the doctrine of merger cannot be rendered inapplicable by drawing a distinction between an application for revision and an appeal; (ii) the application of the doctrine of merger depends on the nature of the appellate or revisional order in each case and on the scope of the statutory provisions conferring the appellate or revisional jurisdiction. The doctrine of merger is not a doctrine of rigid and universal application. Whether there is fusion or merger of the order of the inferior tribunal into an order by a superior tribunal shall have to be determined by finding out the subject matter of the appellate or revisional order and the scope of the appeal or revision contemplated by the particular statute; (iii) ordinarily, a judgment pronounced in appellate or revisional jurisdiction after issuing a notice of hearing to both the parties would replace the judgment of the lower Court thus constituting the appellate or revisional judgment as the only final judgment; (iv) the doctrine of merger does not apply where an appeal is dismissed (a) for default, (b) as having abated by reason of the omission of the appellant to implead the legal representatives of a deceased respondent; (c) as barred by limitation; (v) an appeal dismissed in limine on the ground of bar of limitation may still be an order in appeal for the purpose of determining whether a right of further appeal would be available or not but that does not amount to saying that the order appealed against merges into the appellate order dismissing the appeal in limine as barred by time.

Only a glaring and obvious mistake of law or of fact being apparent from the record can be rectified.

The assessee a publishing concern was treated as a non-manufacturing company liable to income-tax at the higher rate of tax for the four assessment years 1965-66 to 1968-69. The assessment orders for these years were passed on January 5, 1970, January 19, 1970 and February 7, 1970. On June 12, 1970, the assessee moved application under section 154 of the Income Tax Act, 1961, before the Income-tax Officer for each of these four assessment years, requesting therein that concessional rate of tax should have been applied on the net taxable income as it was an industrial company engaged in publishing books and journals. On December 21, 1970, the Income-tax Officer rejected all the four applications. On December 17, 1970, the assessee-company filed four revision petitions before the Commissioner of Income-tax under section 264 of the Act challenging the orders of assessment in respect of these very assessment years. The common contention raised in all the four revision petitions was that the assessee being a manufacturing company it should have been taxed at the concessional rate applicable to a manufacturing company. All the four revision petitions were dismissed on the merits by the Commissioner of Income-tax by a combined order dated March 28, 1972. The assessee did not challenge the orders of the Commissioner of Income-tax. The assessee on January 4, 1971, preferred appeals to the Appellate Assistant Commissioner against the four orders of the Income-tax Officer dated December 21, 1970, passed under section 154 of the Act. The assessee raised a common plea in these appeals that the Income-tax Officer had gone wrong in rejecting the applications under section 154 and not treating the company as a manufacturing company. The Appellate Assistant Commissioner allowed the appeals on February 22, 1973, and upheld the claim of the company to treat it as a manufacturing concern by following the Appellate Assistant Commissioner's order dated February 14, 1972, referable to the assessment year 1969-70. In the appeals before the Appellate Assistant Commissioner his attention was not invited to the order dated March 28, 1972 of the Commissioner of Income-tax dismissing the assessee's revision petitions. Subsequently, the Appellate Assistant Commissioner exercising jurisdiction under section 154 of the Act on the request of the Income-tax Officer, rectified his appellate orders dated February 22, 1973, after giving a show-cause notice and opportunity to the assessee, and dismissed the appeals resulting in the rejection of the assessee's claim for applicability of the lower rate of tax for the four assessment years 1965-66 to 1968-69. The Tribunal held that the appellate orders of the Appellate Assistant Commissioner dated February 22, 1973, did not suffer from any such infirmity as was required to be rectified by exercising jurisdiction under section 154 for the theory of the assessment orders having merged into the revisional orders of the Commissioner of Income-tax was not applicable on that day, and by the time the Appellate Assistant Commissioner exercised his jurisdiction under section 154 of the Income-tax Act, the order of the Income-tax Appellate Tribunal holding the assessee-company to be a manufacturing company was available which should have been held binding by the Appellate Assistant Commissioner and not the finding recorded in the revisional orders of the Commissioner of Income-tax. Thus both on facts and law the Income-tax Appellate Tribunal held that the order of the Appellate. Assistant Commissioner was liable to be set aside. Accordingly the assessee's appeals were allowed. On a reference at the instance of the Revenue:

Held, reversing the orders of the Appellate Tribunal, that the original orders of assessment---all the four----were dealt with in revision by the Commissioner and the questions---whether the petitioner was a manufacturing company of not and hence entitled to a lower rate of tax or not were adjudicated upon and decided adversely to the assessee by the order of the Commissioner dated March 28, 1972. The assessment orders stood merged in the revisional order of the Commissioner to the extent of that issue. The Appellate Assistant Commissioner could not have thereafter passed any such order (whether original or appellate) which would have had the effect of rectifying the orders of assessment passed by the Income-tax Officer which had ceased to exist as per the theory of merger. Even on the merits in the 60s and early 70s wherein fellthe assessment year 1965-66 to 1968-69, the years relevant for the - purpose of the case at hand, when the Income-tax Officer and the Appellate Assistant Commissioner passed their initial orders, it was a highly debatable question of law as to whether a company not owning its own printing press and binding machine and having processual activities performed elsewhere though for and on behalf of itself could be called a manufacturing company. The opinion on this aspect of law came to be settled much thereafter by the Tribunal deciding appeals relevant to the subsequent years of assessment, i.e., 1969-70 to 1971-72. An order of assessment which had already achieved finality (And where the -plea that the assessee was liable to tax at a lower rate being a manufacturing company was not even raised) could not have been rectified by exercising jurisdiction under section 154, of the Act so as to grant a relief on the merits by upholding a claim based on subsequent change or development of judicial opinion.. On the facts and in the circumstances of the case, the Appellate Tribunal was not justified in holding that the assessee was a manufacturing company and was, therefore, liable to tax at the lower rate for assessment years 1965-66 to 1968-69 which were the subject-matter of appeal before the Tribunal.

Amrit Sagar Gupta v. Sudesh Behari Lal AIR 1970 SC 5; CIT v. Amritlal Bhogilal & Co. (1958) 34 ITR 130 (SC); CIT v. Indian Institute of Public-Opinion Co. (P:) Ltd. (1982) 134 ITR 23 (Delhi); CIT (Addl.) v. Motors and General Finance Ltd. (1983) 142 ITR 424 (Delhi); Balaram (T.S.) v. Voikart Bros. (1971) 82 ITR 50 (SC); Gojer Bros. (P.) Ltd. v. Shri Ratan Lal Singh AIR 1974 SC 1380; Jokhan Rai v. Baikunth Singh AIR 1987 Pat. 133; Mirza Muzamdar Hussain v. Dodla Bhaskara Reddy AIR 1988 AP 13; Nanikutty Amma Kamalamma v. Trivandrum Permanent Bank AIR 1987 Ker. 161; Rathore (S. S.) v. State of M. P. (1989) 74 FJR 425; AIR 1990 SC 10; Satyanarayan Laxminarayan Hegde v. Mallikarjun Bhavanappa Thirumale AIR 1960 SC 137; Shanmugam (K. M.) v. S. R. V. S. (P.) Ltd. AIR 1963 SC 1626; Sita Ram Goel v. Municipal Board, Kanpur AIR 1958 SC 1036 and Venkatachalam (M.K.), ITO v. Bombay Dyeing ,end Manufacturing Co. Ltd. (1958) 34 ITR 143 (SC) ref.

Sanjeev Khanna, Senior Standing Counsel with Ms. Prem Lata Bansal and Ajay Jha for the Commissioner.

Nemo for the Assessee.

2000 P T D 828

[233 I T R 43]

[Delhi High Court (India)]

Before R. C. Lahoti and J.B. Goel, JJ

COMMISSIONER OF INCOME-TAX

versus

K. L. PURI (HUF)

Income-tax Case No. 17 of 1995, decided on 10th December, 1997

(a) Income-tax---

----Reference---Powers of High Court---Application for directing reference under S. 256(2)---High Court to confine itself to aspect whether questions as proposed are questions of law and whether they arise from order of Tribunal---Indian Income Tax Act, 1961, S. 256(2).

(b) Income-tax---

----Reference---Question of law---Status of assessee---Tribunal holding that since assessment years 1982-83 up to 1988-89 property assessed in hands of assessee as H.U.F. and assessing same in hands of assessee as individual for assessment year 1989-90 barred by principles of res judicata and estoppel--­Revenue contending that assessments for earlier years summarily made and not made after scrutiny---Assessing officer not debarred from making scrutiny for assessment year in question and coming to conclusion at variance with that arrived at for earlier years---Questions of law arise for reference--­Indian Income Tax Act, 1961, Ss.64(2) & 256 (2).

(c) Income-tax---

----Reference---Question of law---Income from house property and income from other sources ---Assessee letting out house to tenant and deriving rent therefrom---Furniture and fixtures also let out to tenant under separate deed---Tribunal finding that furniture and fixtures not let out to tenant as an amenity attaching to house property---Same provided to tenant at his instance to make his stay at premises comfortable---Rent realised from letting out furniture and fixtures not assessable as "Income from property" but is to be assessed as "Income from other sources"---Rent realised from letting out house to be assessed as "Income from property"---Finding of Tribunal is finding of fact---No question of law arises for reference---Indian Income Tax Act, 1961, S.256(2).

The Tribunal found that ever since the assessment years 1982-83 up to 1988-89, the property in question was assessed in the hands of the assessee as a Hindu Undivided Family and, therefore, in the assessment year 1989-90 the Assessing Officer was precluded from treating the property as belonging to an individual member of the family and hence assessing the same in the hands of the assessee as individual was barred by. the principles of res judicata and estoppel. On an application filed by the Revenue under section 256(2) of the Income Tax Act, 1961, for referring certain questions of law, the Revenue contended that the assessments for the earlier years were made summarily under section 143(1) of the Act and were not made after scrutiny and hence for the assessment year in question the Assessing Officer was not debarred from making a scrutiny and, therefore, coming to a conclusion at variance with that arrived at for the earlier years. The assessee contended in reply that even if the assessments were summarily made, they were deemed to have been made after due application of mind and, therefore, the principles of res judicata and estoppel would be attracted:

Held, that while dealing with an application under section 256 (2) of the Act, the High Court has to confine itself to the questions (i) whether the question as proposed are questions of law; (ii) whether they do arise from the order of Tribunal. Therefore, the questions (i) whether the Tribunal was right in holding that it was no longer open to the Department to question the status of the assessee in the year under consideration when the said point had been accepted in earlier years and whether the principles of estoppel and res judicata are applicable, and (ii) whether the income for the house property should be clubbed in the hands of the individual by virtue of the provisions of section 64(2) of the Act, arose as question of law for reference to the High Court.

The assessee had let out his house to a tenant wherefrom he was deriving rent. The assessee had also let out some furniture to the tenant under a separate deed of rent. The Assessing Officer treated the rent from the property as well as the rent from the furniture as "income from property" and taxed the same accordingly. On appeal, the Deputy Commissioner of Income-tax reversed the order of the Assessing Officer and held that the fixtures and furniture provided by the assessee to the tenant were not permanent fixtures to the building, that they were separable in nature for which a separate agreement had been entered into by the tenant with the landlord and hence he directed the rent from the property to be assessed as "income from property" and rent for furniture and fixtures to be assessed as "income from other sources". On further appeal, the Tribunal upheld the order of the Deputy Commissioner of Income-tax. On a reference under section 256(2) of the Act, the Revenue contended that if the assessee had let out the house property to the tenant and also let out furniture and fixtures to the same tenant then the transaction though evidenced by two separate documents was in essence and substance only one, the two documents being part and parcel of the same transaction, and, therefore, the rent derived by the assessee under the two documents should be clubbed and treated as one and taxed as "income from house property":

Held, that it had been found as a fact by the Tribunal that the transactions of letting out the house and that of letting out the furniture and fixtures to the tenant. were severable transactions. It had not been found as a fact that either the furniture and fixtures were let out to the tenant as an amenity attaching to the house property let out to the tenant or that the two transactions though evidenced by two different documents were in substance part and parcel of the same transaction. Inasmuch as the finding of fact arrived at was that the various fixtures and furniture provided by the assessee to the tenant formed the subject-matter of a separate agreement with the tenant and they were so provided "to the tenant at his instance so as to make his stay in the premises comfortable" the rent realised pursuant to such agreement referable to the fixtures and furniture could not have been treated as "income from property". Therefore, no question of law arose for reference.

ITO v. Ch. Atchaiah (1996) 218 ITR 239 (SC); Inder Vijay Singh v. NDMC (1995) 1 AD 1389 (Delhi); Karnani Properties Ltd. v. Miss Augustine AIR 1957 SC 309; Radhasoami Satsang v. CIT (1992) 193 ITR 321 (SC) and Surijit Singh v. Pahilai (J. N.) (1996) VAD 482 ref.

Sanjiv Khanna with Ms. Prem Lata Barisal for the Commissioner.

Vikram Kapur for the Assessee.

2000 P T D 905

[232 I T R 395]

[Delhi High Court (India)]

Before R. C. Lahoti and J. K. Mehra, JJ

Ms. DEEKSHA SURI and 3 others

versus

INCOME-TAX APPELLATE TRIBUNAL and others

Civil Writs Nos. 2796 to 2799 of 1997, decided on 5th November, 1997.

(a) Income-tax---

----Appeal to Appellate Tribunal---Powers of Tribunal---Review--- Rectification of mistakes---Tribunal cannot review its order---Tribunal can rectify mistakes in its order which are patent and obvious ---Assessee filing application to adduce additional evidence but arguing appeal on merits without referring to its application---Tribunal dismissing appeal---Application for review of order on the ground that failure to deal with application for admission of additional evidence was a jurisdictional error---Tribunal could not review its order---Controversy on the question whether there was any error at all and whether error was jurisdictional or procedural--Tribunal could not rectify its order---Writ petition against order by one of petitioners dismissed by High Court and Supreme Court on the ground that assessee had alternate remedy---Decision was binding on other petitioners---Indian Income Tax Act, 1961, S.254---Constitution of India, Art. 226.

(b) Income-tax---

----General principles---Similar matters should receive similar treatment--­Statement recorded by Court or Tribunal is presumed to be correct.

(c) Writ---

----Alternate remedy available---Writ will not normally issue---Constitution of India, Art. 226.

The Income-tax Appellate Tribunal is a creature of the statute. It has not been vested with the review jurisdiction by the statute creating it. The Tribunal does not have any power to review its own judgments or orders. The grounds on which the Courts may open or vacate their judgments are generally matters which render the judgment void or which are specified in the statutes authorising such actions. A judgment will not be opened or vacated on grounds which could have been pleaded in the original action. A motion to vacate will not be entered when the proper remedy is by some other proceeding, such as by appeal. The right to vacation of a judgment may be lost by waiver or estoppel. Where a party injured acquiesces in the rendition of the judgment or submits to it, waiver or estoppel results.

The language of section 254(2) of the Income Tax Act, 1961, is clear. The foundation for exercising the jurisdiction is "with a view to rectify' any mistake apparent on the record" and the object is achieved .by "amending any order passed by it". A mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long-drawn process- of reasoning on points on which there may be conceivably two opinions. A decision on a debatable point of law is not a mistake apparent on the record.

The statement of facts recorded by a Court or quasi judicial Tribunal in its proceedings as regards the matters which transpired during the hearing before it would not be permitted to be assailed as incorrect, unless steps are taken before the same forum. It is not open to the parties or counsel to say that the proceedings recorded by the Tribunal are incorrect.

The need for consistency of approach and uniformity in the exercise of judicial discretion respecting. similar causes and the desirability to eliminate occasions for grievances of discriminatory treatment requires that all similar matters should receive similar treatment.

The four petitioners were individuals who had declared in the statement of income attached with their returns, amounts received and deposited in their accounts in the Hong Kong and Shanghai Banking Corporation Ltd. On November 22, 1991, under the Remittance of Foreign Exchange and Investment in Foreign Exchange Bonds. (Immunities and Exemptions) Act, 1991, and the scheme framed there under, the Assessing Officer issued noticed under sections 143(2) and 142(1) and noted that the returns filed by the assessee did not contain any evidence in the form of copy of the declaration to be made before the authorised dealer of foreign exchange as prescribed in Notification G. S. R. No. 504, dated September 28, 1991, of the Reserve Bank of India and the return only contained a photo copy of the instrument of remittance. He, therefore, called upon the assessee to file a copy of the prescribed declaration. The assessee failed to do so in spite of several adjournments sought for the purpose. The Assessing Officer wrote a letter to the bank on January 13, 1995, asking for a copy of the declaration. The bank in its reply, dated January 18, 1995, informed the Assessing Officer that no declaration under the scheme had been filed. In the opinion of the Assessing Officer, the assessee had failed to discharge the burden of proof regarding the, source of the remittance. He proceeded to treat the receipts as unexplained cash credits under section 68 of the Act. On appeal to the Commissioner of Income-tax (Appeals), the petitioners also moved an application under rule 46A of the Income-tax Rules, 1962, seeking admission by way of additional evidence of a set of documents mostly originating from the custody of the bank. The Commissioner of Income-tax (Appeals) rejected the application under rule 46A as also the appeals. On further appeal the petitioner moved applications under rule 29 of the Income tax (Appellate Tribunal) Rules, 1963, seeking admission by way of additional evidence before the Income-tax Appellate Tribunal of the very same set of documents which formed the subject-matter of application under rule 46A before the Commissioner of Income-tax (Appeals). On October 23, 1996, the Tribunal passed an order stating that it would first deal with the application under rule 29. Therefore, the matter was adjourned. The appeals were argued on the merits and by a common order, dated January 3, 1997, the appeals were dismissed. The petitioners moved on February 5, 1997 and April 4, 1997, applications under section 254(2) of the Act read with section 151 of the Civil Procedure Code, 1908. In this application, a grievance was raised that the order, dated January 3, 1997, having been passed by overlooking the earlier order, dated October 23, 1996, of the Tribunal, the order, dated January 3, 1997, deserved to be recalled. The application was rejected. A writ petition was filed against this order. An application was also moved under section 256(1). Meanwhile, on March 18, 1997, JS, one of the petitioners, had filed a writ petition of her own challenging the order, dated January 3, 1997, passed by the Income-tax Appellate Tribunal and seeking its quashing followed by a direction to rehear the appeal on the merits after recalling the order, dated January 3, 1977. The High Court dismissed the petition on ground that the petitioner had an alternative remedy under the Income-tax Act. On a petition for the special leave to appeal to the Supreme Court, the Supreme Court dismissed the special leave petition by a speaking order which stated that the High Court had correctly rejected the writ petition on the ground of existence of alternate remedy:

Held, that the order of the Tribunal, dated January 3, 1997, was not even suggested to be an outcome of fraud or collusion. None of the grounds which according to the well-settled, legal principles vitiate a judgment rendering it void or null, had been alleged. Merely because the Tribunal overlooked an interim order of its own while deciding the appeal finally (assuming it to be so) it would not render the judgment void or null. At worst it may be an order vitiated by an irregularity of procedure or an illegality. Such an order cannot be recalled. Moreover, it followed from the statement of facts recorded by the Tribunal that the petitioners had acquiesced in the appeal being decided on the merits without insisting on the application under rule 29 being decided first. The principle of waiver and estoppel would exclude the right of the petitioner seeking a recall of. the order assuming it would have been permissible to invoke the jurisdiction of the Tribunal to recall its order otherwise. The circumstances in which the order, dated October 23, 1996, came to be passed, was a matter of controversy. According to the petitioner, it was the opinion of the Tribunal that it should first hear the application for additional evidence. According to the respondent, the petitioners were trying to create a procedural mess, by insisting on arguing the appeal first on the merits and strategically reserving submissions on the application to be made in the event of their failing on the merits. It was also a matter of controversy, whether the Tribunal committed a procedural or jurisdictional error in not disposing of the application or the application should be deemed to have been abandoned as not pressed by the petitioners. Thus, the mistake (assuming it was committed) ceased to be an obvious and patent mistake, Section 254(2) of the Act was not, therefore, attracted. There was no jurisdictional error or irregularity in exercise of jurisdiction committed by the Tribunal passing the order, dated January 3, 1997, nor such a failure to exercise the jurisdiction in rejecting the applications under section 254(2), dated February 5. 1997, and April 4, 1997, by order, dated June 27, 1997, as to warrant exercise of writ jurisdiction of the High Court. Moreover, the order, dated March 21, 1977, passed by the High Court in the writ petition filed by JS, dismissing the writ petition as not maintainable on the ground of availability of alternative efficacious remedy would bind all the four assessees not only as a precedent but also on the principle of propriety and consistency.

[The petitioners were at liberty to invoke the Tribunal's jurisdiction under section 256 seeking reference on such questions of law as in their submission arose out of the order, dated June 27, 1997. They could seek condonation of delay in moving the application also seeking exclusion of time lost in the proceedings before the High Court. Such prayer for condonation of delay could be considered by the Tribunal sympathetically.]

Antulay (A.R.) v. Nayak (R. S.) AIR 1988 SC 1531; Balaram (T.S.) ITO v. Volkart Bros. (1971) 82 ITR 50 (SC); Bhagwati Prasad v. Delhi State Mineral Development Corporation AIR 1990 SC 371; CIT v. Bhatia (K.L.) (1990) 182 ITR 361 (Delhi); CIT v. Eurasia Publishing House (P.) Ltd. (1998) 232 ITR 381 (Delhi); CIT v. ITAT (1994) 206 ITR 126 (AP); CIT v. Kannan Kunhi (K.S.) (1973) 87 ITR 395 (SC); CIT (Asst.) v. Ved Pradash (Dr.) (1994) 209 ITR 448 (AP); ITO v. President ITAT (1998) 232 ITR 420 (Delhi); Kashinath G. Jalmi (Dr.) v. The Speaker AIR 1993 SC 1873; (1993) 3 JT 594 (SC); Kuntesh Gupta (Smt.) (Dr.) v. Management of Hindu Kanya Mahavidy Alaya AIR 1987 SC 2186; Mangat Ram Kuthiala v. CIT (1960) 38 ITR 1 (P&H); Manoharlal Verma v. State of Madhya Pradesh AIR 1970 MP ~ 131; Patel Narshi Thakershi v. Pradyumansinghji Arjunsingliji AIR 1970 SC 1273; Popular Engineering Co. v. CIT (1983) 140 ITR 398 (MP); Punjab National Bank v. ITAT (1990) 87 CTR 122 (Delhi); Satyanarayan Laxminarayan Hegde v. Mallikarjun Bhavanappa Tirumale AIR 1960 SC 137; Shanmugam (K. M.) v. S. R. V.S. (P.) Ltd. AIR 1963 SC 1626 and Vishnu Trader v. State of Haryana (1995) Suppl. 1 SCC 461 ref.

G. C. Sharma with Anoop Sharma for Petitioners.

M. S. Syali, Sanjeev Khanna with Ms. Prem Lata. Bansal for Respondents.

2000 P T D 976

[233 I T R 669]

[Delhi High Court (India)]

Before R. C. Lahoti and J. B. Goel, JJ

COMMISSIONER OF INCOME-TAX

versus

TARA SINGH

Income-tax References Nos. 174 and- 211 of 1985, decided on 2nd December, 1997.

Income-tax---

----Income---Perquisite---Assessee, Director in company---Certain debit balance in books of company against assessee---I.T.O. adding value of benefit as income of assessee---Finding by Tribunal that value of benefit was not income within the meaning of S.2(24)(iv)---Is not correct in view of decision in Lingappan's case---No contrary view taken by other High Court---Addition of value of benefit as income of assessee---Justified--­Indian Income Tax Act, 1961, S.2(24)(iv).

For the assessment years 1973-74 and 1974-75, the Income-tax Officer noticed certain debit balances in the accounts of the company G, against the assessee and formed an opinion that the assessee, who was one of the directors of the company, had derived benefit from the company assessable to tax within the meaning of section 2(24)(iv) of the Income Tax Act, 1961, and, accordingly, the value of the benefit was added to the income of the assessee. The Appellate Assistant Commissioner, on appeal by the assessee, deleted the addition. The Tribunal held that the value of benefit derived by the assessee from the company was not income within the meaning of section 2(24)(iv) of the Act. On a reference:

Held, that the Tribunal was not correct in holding that no income within the meaning of section 2(24)(iv) was assessable in the hands of the assessee.

CIT v. S. S. M. Lingappan (1981) 129 ITR 587 (Mad.) and CIT (Addl.) v. A. K. Lakshmi (1978) 113 ITR 368 (Mad.) fol.

R. D. Jolly with Ms. Premlata Barisal for the Commissioner.

Nemo for the Assessee

2000 P T D 999

[233 I T R 351]

[Delhi High Court (India)]

Before R. C. Lahoti and Dalveer Bhandari, JJ

ORIENT ROADWAYS

versus

COMMISSIONER OF INCOME-TAX

Income-tax Case No. 57 of 1996, decided on 12th February, 1998

Income-tax---

----Reference---Question of law---Appeal to Appellate Tribunal---Appeal barred by time---Assessee-firm filing application for condonation of delay in filing appeal---Tribunal rejecting application on the ground that continued ailment of one of partners was not sufficient cause for delay as assessee-firm had legal assistance and other partners and employees---Finding of Tribunal was a finding of fact---No question of law arose for reference---Indian Income Tax Act, 1961, S. 256(2)---Indian Limitation Act. 1963, S. 5.

For the assessment year 1982-83, the assessee-firm being aggrieved by the order of assessment, dated March 14, 1985, preferred an appeal before the Commissioner of Income-tax (Appeals) which was dismissed as barred by time by order, dated October 9, 1985. The order was communicated to the assessee on 6th November, 1985. The assessee preferred an appeal to the Tribunal on February 2, 1993, which was barred by time by seven years and three months. The assessee filed an application under section 5 of the Limitation Act, 1963, and sought condonation of delay in filing the appeal. The Tribunal dismissed the application for condonation of delay as also the appeal on the grounds that the continued ailment of one of the partners was set up as a ground for condonation of delay in filing the appeal, that the assessee had legal assistance available to it, that there were other partners and employees of the firm who could have taken care of filing the appeal even in the absence of one of the partners and that the delay in filing the appeal was not bona fide and could not be condoned. The Tribunal dismissed the application of the assessee under section 256(1) of the Income Tax Act, 1961, for referring a question of law. On an application filed under section 256(2):

Held that whether or not there was sufficient cause within the meaning of section 5 of the Limitation Act, 1963, for condoning the delay in filing the appeal is basically a question of fact. The Tribunal is the final fact ­finding authority and a finding of fact recorded by the Tribunal cannot be said to give rise to a question of law worth being answered by the High Court. In the instant case, the findings of the Tribunal were findings of fact and no question of law arose for reference. .

Collector, Land Acquisition v. Mst. Katiji (1987) 167 ITR 471 (SC); Ramachandran (P.K.) v. State of Kerala (1997) 6 Scale 269; State of Haryana v. Chandra Mani AIR 1996 SC 1623 and (1996) 3 SCC 132 ref.

A. Raghubir with Ms. Lakshmi lyengar for the Assessee

R. D. Jolly with Ajay Jha for -the Commissioner.

2000 P T D 1031

[233 I T R 389]

[Delhi High Court (India)]

Before R. C. Lahoti and J. B. Goel, JJ

COMMISSIONER OF INCOME-TAX

versus

NAGPUR GOLDEN TRANSPORT CO.

Income-tax Reference No. 209 of 1981, decided on 1st December, 1997.

(a) Income-tax---

----Depreciation---Machinery purchased by assessee on hire purchase basis--­Assessee is owner of machinery and is entitled to deperciation---Indian Income Tax Act, 1961, S.32.

(b) Income-tax---

----Firm.---Partners----Firm and its partners are two separate legal entities--­Payment of interest to a firm cannot be treated as payment of interest to its partners--.-Payment of interest by one firm to another firm---Cannot be treated as payment to partners of that firm though partners in both firms are common---Indian Income Tax Act, 1961, S. 40(b).

Held, that the Tribunal was right in law in allowing depreciation on trucks purchased by the assessee on hire purchase basis.

CIF (Addl.) v. General Industries Corporation (1985) 155 ITR 430 (Delhi) fol.

The assessee-firm paid interest to another firm, L, the partners in both the firms being, common. The Income-tax Officer held that the payment of interest by one firm to another firm was a payment to the partners of the firm inasmuch as the partners in the two firms were common, which attracted the applicability of section 40(b) of Income Tax Act, 1961, and which had an overriding effect on the provisions of section 36 of the Act. The Tribunal held that payment of interest by one firm to another firm could not be treated as payment of interest to the partners of that firm within the meaning of section 40(b) though the partners in the two firms were common. On a reference:

Held, that while framing an order of assessment under the provisions of the Income Tax Act, 1961, the firm and its partners are to be treated as two separate legal entities and payment of interest to a firm cannot be treated as payment of interest to its partners.

R. D. Jolly and Ms. Prem Lata Bansal for the Commissioner.

Nemo for the Assessee

2000 P T D 1242

[233 I T R 666]

[Delhi High Court (India)]

Before R. C. Lahoti and Dalveer Bhandari, JJ

COMMISSIONER OF INCOME-TAX

versus

PRINTERS HOUSE

Income-tax Reference No. 307 of 1982, decided on 19th January, 1998.

Income-tax---

----Revision---Commissioner---Doctrine of merger ---Assessee importing two items of machinery---Deduction for scientific research allowed by I.T.O. in respect of one machine only---Deduction in respect of the other allowed by CIT (Appeals)---Deduction allowed by I.T.O. not subject of appeal--­Commissioner has power to revise assessment order in respect of machine for which deduction allowed by I.T.O.---Amendment of S. 263 w.e.f. 1-4-1968---Effect---Indian Income Tax Act, 1961, Ss.35 & 263.

The assessee imported two items of machinery from abroad and claimed deduction under section 35 of the Income Tax Act, 1961. The Income-tax Officer accepted the claim of the assessee in respect of machine No. (1) on the ground that the same was imported for scientific research but disallowed a similar claim in respect of machine No.(2). To the extent of the disallowance of its claim in respect of machine No.(2), the assessee carried the matter in appeal to the Commissioner (Appeals). While the assessee's appeal was pending before the Commissioner (Appeals), the Commissioner of Income-tax initiated proceedings under section 263 of the Income-tax Act for withdrawal of deduction under section 35 in respect of machine No. (1). By order, dated February 19, 1980, the Commissioner (Appeals) allowed the assessee's claim in respect of machine No.(2). On February 21, 1980, the Commissioner of Income-tax, passed an order under section 263 setting aside the assessment order and directing the Income-tax Officer to refer the assessee's claim under section 35 in respect of both the machines to the prescribed authority under section 35(3). However, on March 22, 1980, the Commissioner of Income-tax passed another order under section 154 of the Act, limiting his order, dated February 21, 1980, to machine No. (1) alone. On appeal to the Tribunal by the assessee, it contended that the order of the income-tax Officer having merged in the order of the Commissioner (Appeals), the Commissioner of Income-tax. did not have jurisdiction to pass an order under section 263 in respect of machine No.(1). The Tribunal allowed the appeal and set aside the order, dated February 21, 1980, passed by the Commissioner of Income-tax. On a reference at the instance of the Revenue:

Held, reversing the order of the Appellate Tribunal, that. the part of the order by which the Income-tax Officer had allowed the assessee's claim in respect of machine No.(1) was not the subject-matter of appeal before the Commissioner (Appeals) and, therefore, the exercise of power under section 263 by the Commissioner in respect of that order was not excluded, Parliament has amended section 263 itself with effect from June 1, 1988, whereby it has been declared that for the-purpose of section 263(1) where an order referred to therein and passed by the Assessing Officer has been the subject-matter of any appeal filed on or before or after June 1, 1988, the powers of the Commissioner under the subsection shall extend and shall be deemed always to have extended to such matter as had not been considered and decided in such appeal, The amendment, thus, clarifies the law and brings the statutory law in conformity with judicial opinion.

CIT v. Eurasia Publishing House (P.) Ltd. (1998) 232 ITR 381 (Delhi) fol.

CIT v. Paushak Ltd. (1997) 227 ITR 216 (Guj.) and Mirza Muzamdar Hussain v. Dodla Bhaskara Reddy AIR 1988 AP 13 ref.

R. D. Jolly and Ms. Prem Lata Bansal for the Commissioner.

Nemo for the Assessee.

2000 P T D 1281

[234 ITR 842]

[Delhi High Court (India)]

Before R. C. Lahoti and C. K. Mahajan, JJ

DIRECTOR OF INCOME-TAX (EXEMPTION)

versus

DHARM PRATISTHANAM

I.T.C. No.21 of 1997, decided on 20th July, 1998.

(a) Income-tax---

----Reference---Income---Law applicable---Effect of S.2(24)(ii)(a)--- Voluntary contributions whether not taxable notwithstanding the provisions of S.2(24)(ii)(a)---Question of law---Indian Income Tax Act, 1961, Ss.2 & 256.

Held, that the question whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that voluntary contributions are not to be taxed as income notwithstanding the provisions of section 2(24)(ii)(a) of the Income Tax .Act, 1961, was a question of law:

Held also, that though in the case at hand the issue was not pursued further by filing a reference relevant to the assessment year 1985-86, yet the right of the petitioner to move this Court for the next year of assessment i.e., 1986-87 was not taken away inasmuch as every year's assessment proceedings is an independent proceedings in the eye, of law and the rule of res judicata is not in terms applicable to tax assessment proceedings.

CIT v. Chawla (M.) (1989) 177 ITR 299 (Delhi) fol.

(b) Income-tax--­-

---Res judicata-Principle not applicable to assessment proceedings.

R.D. Jolly with Ms. Premlata Barisal for Petitioner.

Nemo for Respondent.

2000 P T D 1568

[234 I T R 58]

[Delhi High Court (India)]

Before R. C. Lahoti and Mukul Mudgal, JJ

COMMISSIONER OF INCOME-TAX

Versus

G. SAGAR SURI & SONS and others

I.T.C. Nos.220, 217 and 219 of 1991, 54 of 1992, 134 of 1993, 11 and 12 of 1994, 1, 4, 5, 14 and 27 of 1997, decided on 21st May, 1998.

Income-tax---

----Reference---Income from undisclosed sources---Amounts claimed to be gifts from non-residents---Tribunal not considering evidence---Tribunal whether justified in deleting additions---Question of law---Indian Income Tax Act, 1961, .S. 256(2).

The assessee belonging to the Suri group received lakhs of dollars from abroad, claiming them to be gifts received from one A. The gifts so received in different years were divided amongst different assessees. A letter in that regard from A was filed before the Assessing Officer and in some cases at the stage of appeal. The Assessing Officer was not satisfied about the genuineness of the gifts. He also formed an opinion that the gifts were not established to have been made by a particular donor to a particular donee. He having assigned reasons in detail for the findings so arrived at proceeded to discard the gifts and instead applied section 69A of the Income Tax Act, 19'61, and treated the amount of gifts as income from undisclosed sources. The view taken by the Assessing Officer had been reversed at one or other stage in the appeal. In all the cases, the Tribunal had accepted the gifts to be genuine and deleted the additions made by the Assessing Officer. On an application to direct reference:

Held, that the question whether the amounts were taxable in the hands of the assessee had to be referred.

Sanjeev Khanna with Ms. Premlata Bansal for Petitioners.

B. B. Ahuja for Respondents.

2000 P T D 1603

[234 I T R 113]

[Delhi High Court (India)]

Before R. C. Lahoti and Mukul Mudgal, JJ

RAJ JUMAR MANGLA

Versus

CHAIRMAN, CENTRAL BOARD OF DIRECT TAXES and others

Civil Writ Petition No. 2167 of 1998 and Civil Miscellaneous No. 3538 of 1998, decided on 15th May 1998.

Income-tax---

----Jurisdiction---Territorial jurisdiction of High Court---Meaning of cause of action---Orders of assessment and order rejecting application for rectification of mistakes issued by CIT of Haryana ---Order by CIT pursuant to authorisation by C.B.D.T.---Delhi High Court, has no jurisdiction to consider writ petitions against orders---Indian Income Tax Act, 1961---Constitution of India, Art. 226.

If a cause of action arises within the jurisdiction of a High Court, the writ issued by it can extend and run beyond its territorial jurisdiction. The cause of action is a bundle of facts, which would give the plaintiff a right to relief. Any and every fact, though relevant, would not necessarily be included in the bundle of essential facts constituting cause of action.

On a writ petition in the Delhi High Court against orders of assessment and - order rejecting - an application for rectification of mistakes passed by the Commissioner of Income-tax in Haryana:

Held, dismissing the petition, that so far as the impugned orders of the Income-tax authorities situated within the State of Haryana were concerned, no cause of action had arisen to the petitioner within the territorial jurisdiction of the High Court of Delhi. The orders had been issued by the Commissioner of Income-tax, Haryana, pursuant to the authorisation made by the Central Board of Direct Taxes. The Commissioner of Income-tax (Haryana) was again an authority situated beyond the territorial jurisdiction of the Delhi High Court. The petition did not lie within the territorial jurisdiction of the Delhi High Court. The petitioner was attempting to stretch the facts and/or the relief sought for by it' so .as to somehow bring the petition within the territorial jurisdiction of High Court of Delhi which could not be allowed.

Navin Jindal .v. Union of India through Secretary, Ministry of Home (1995) 60 DLm 516 (Delhi); State of Rajasthan v. Swaika Properties AIR 1985 SC 1289; U. P. Rashtriya Chini Mill Adhikari Parishad v. State of U. P. (1995) 4 SCC 738; AIR 1995 SC 2148 and Union of India v. Oswal Woollen Mills Ltd. (1985) 154 ITR 135; AIR 1984 SC 1264 ref.

Petitioner in person.

Sanjeev Khanna for Respondents

2000 P T D 1623

[234 I T R 170]

[Delhi High Court (India)]

Before R. C. Lahoti and Mukul Mudgal, JJ

JINDAL PHOTO FILMS LTD.

Versus

DEPUTY COMMISSIONER OF INCOME-TAX and another

C. W. P. Nos. 2901, 2902 and 3528 of 1997, decided on 28th May 1998.

Income-tax---

----Reassessment---Condition precedent---Reason to believe income has escaped assessment ---Assessee-company manufacturing photo films, an article placed under Sched. XI ---Manufacurers of photo films not entitled to deduction under S.80-1 because item fell under Sched. XI ---ITO reopening assessment and withdrawing deduction granted earlier---Between date of orders of assessment sought to be reopened and date of forming opinion by ITO nothing new happened---No change of law, no new material came on record and no information received---Mere fresh application of mind by same ITO to same set of facts ---Amounted to mere change of opinion---Notices for reassessment invalid---Indian Income Tax Act, 1961, Ss.80-1, 147, 148 .& Sched. XI.

Where the Income-tax Officer attempts to reopen an assessment because the opinion formed earlier by him was in his opinion incorrect, the reopening could not be done.

The power to reopen an assessment was conferred by the Legislature not with the intention to enable the Income-tax Officer to reopen the final decision made against the Revenue to respect of questions that directly arose for decision in earlier proceedings. If that were not the legal position it would result in placing an unrestricted power of review in the hands of the assessing authorities depending on their changing moods.

If an expenditure or deduction was wrongly allowed while computing the taxable income of the assessee, the same could not be brought to tax by reopening the assessment merely on account of the Assessing Officer subsequently forming an opinion that. earlier he had erred in allowing the expenditure or the deduction.

If a notice under section 148 of the Income Tax Act, 1961, has been issued without the jurisdictional foundation under section 147 being available to the Assessing Officer, the notice and the subsequent proceedings will be without jurisdiction, liable to be struck down in exercise of writ jurisdiction of the High Court. If "reason to believe" be available, the writ Court will not exercise its power of judicial review to go into the sufficiency or adequacy of the material.

The assessee-company was engaged in the business of manufacturing of photosensitive films. Prior to the assessment year 1991-92, the assessee had claimed investment allowance under section 32A of the Income Tax Act, 1961, on the machines installed for production of colour film rolls for the period relevant to the assessment year 1990-91. The claim of the petitioner was disallowed by the Assessing Officer on the ground that manufacture of colour film rolls was not entitled to investment allowance because such an article was included in the prohibited list mentioned in the Eleventh Schedule to the Income Tax Act, 1961. In the said list at Serial No. 10 the articles mentioned are: "Photographic apparatus and goods". The cinematographic films were also included in this list at Serial No. 9. The Government decided to withdraw cinematographic films from this Schedule (vide Finance Act, 1988) because these films were used for manufacturing educational and tourism documentaries. However, photographic apparatus and goods, which included photographic films were not excluded and remained in this list. Hence, the Assessing Officer disallowed the claim of the petitioner for investment allowance under section 32A of the Act for the assessment year 1990-91. The return for the assessment year 1991-92 was filed on December, 31, 1991, and in this return the petitioner did not claim any deduction under section 80-I of the Act. Similarly, for the assessment years 1992-93 and 1993-94 in the original return the petitioner had not claimed any deduction under section 80-I of the Act. The Commissioner of Income-tax (Appeals) while dealing with the appeal relevant to the assessment year 1990-91 in his order dated February 28, 1994, made an observation that after exclusion of the term "cinematographic films" from Entry No. 9 there was no justification for holding that the colour film rolls were included in the Eleventh Schedule to the Act. After the passing of the abovesaid order by the Commissioner of Income-tax (Appeals), the petitioner claimed deduction under section 80-I of the Act for the assessment years 1991-92, 1992-93 and 1993-94 and the same was allowed by the Income-tax Officer in respect of profits of its colour roll films unit. Thereafter, for all the assessment years the Assessing Officer issued notice under section 147/148 of the Act and reopened the assessments because the Assessing Officer had reason to believe that the income of the assessee had escaped assessment since the manufacture of photo films was an article placed under the Eleventh Schedule of the Act which was not entitled to deduction under section 80-I. On writ petition challenging the notices for reassessment:

Held, that it was clear from the reasons placed by the Assessing Officer on record as also from the statement made in the counter-affidavit that all that the Income-tax Officer had said was, that he was riot right tin allowing deduction under section 80-I; because he had allowed the deductions wrongly and, therefore, he was of the opinion that the income had escaped assessment. Though he, had used the phrase "reason to believe" in his order, admittedly; between the date of orders of assessment sought to be reopened and the date of forming of opinion by the Income-tax Officer nothing new had happened. There was no change of law. No new material had come on record. No information had been received. It was merely a fresh application of mind by the same Assessing Officer to "the same set of facts. While passing the original orders of assess4ient, the order, dated February 28, 1994 passed by the Commissioner of Income-tax (Appeals) was before the Assessing Officer. That order stood till today. What the Assessing Officer had said about the order .of the Commissioner of Income-tax (Appeals) while recording reasons under section 147 he could have said even in the original orders of assessment. Thus, it was. a case of mere change of opinion which did not provide jurisdiction to the Assessing Officer to initiate proceedings under section 147 of the Act. Therefore, the notices issued for reassessment for all the assessment years were not valid.

A.L.A. Firm v. CIT (1991) 189 ITR 285 (SC); Calcutta Discount Co. Ltd. v. ITO (1961) 41 ITR 191 (SC); CIT v. Bhanji Lavji (1971) 79 ITR 582 (SC); CIT v. Rao Thakur Narayati Singh (1965) 56 ITR 234 (SC); CWT v. Manilal C. Desai (1973) 91 ITR 135 (MP); Gopal Films v. ITO (1983) 139 ITR 566 (Kar.); Indian and Eastern Newspaper Society v. CIT (1979) 119 ITR 996 (SC); ITO v. Lakhmani Mewal Das (1976) 103 ITR 437 (SC); Kalyanji Mavji & Co. v. CIT (1976) 102 ITR 287 (SC); Phool Chand Bajrang Lal v. ITO (1993) 203 ITR 456 (SC); Satpal Automobile Co. v. ITO (1983) 141 ITR 450 (All.) and Siesta Steel Construction (Pvt.) Ltd. v. K. K. Shikare (1985) 154 ITR 547 (Bom.) ref.

G. C. Sharma, Anoop Sharma and R. K. Raghwan for Petitioner.

R. D. Jolly with Ms. Premlata Bansal for Respondents.

2000 P T D 1633

[234 I T R 854]

[Delhi High Court (India)]

Before R. C. Lahoti and J. K. Mehra, JJ

COMMISSIONER OF INCOME-TAX

Versus

Prof. P. G. A. NATH

I.T.C. No. 18 of 1995, decided on 20th August, 1997.

Income-tax---

----Reference---Income---Profession---Gift---Gifts received by astrologer--­Finding that gifts did not constitute professional receipts---Finding of fact--­No question of law arose--Indian Income Tax Act, 1961, S. 256(2).

The assessee was an astrologer, musician and palmist. During the assessment year 1989-90, he received an amount of Rs.1,22,062 from five persons from abroad, which according to the assessee was not for any professional services rendered, but out of personal regard and admiration they held for him as a spiritual guru. He pointed out that his well-wishers and friends had invited him abroad to visit them. He did so at their expense and out of respect and regard for him, they gave certain amounts in foreign currency, which he brought to India through banking channels and deposited in the bank. Since these gifts were not for any professional services, they should not be regarded as professional receipts and brought to tax. The Assessing Officer declined to accept the contention of the assessee. The finding of .the Assessing Officer was maintained in appeal by -the Commissioner of Income tax. The Tribunal found that the assessee had clearly stated that he went abroad only at the request of his well-wishers and friends and as a token of their appreciation for his personal qualities, they made certain gifts and those gifts were not for any professional services rendered. The assessee in the affidavit of the donors filed before the authorities below clearly brought out that fact, and there was nothing brought on record to show that the contents in the affidavit were false. The Revenue assumed that in foreign countries also the assessee rendered professional services but this was without any material and only a conjecture. In the absence of any evidence to show that these amounts were received for professional services rendered, these amounts could not be brought to tax. On an application to direct reference:

Held, that the tribunal had on appreciation of evidence chosen to believe the assessee and the affidavits of the donors filed by the assessee and concluded that the receipts were gifts and not revenue receipts of the assessee. It was purely a finding of fact. No-referable question of law arose from the order of the Tribunal.

CIT v. Balamuralikrishna (M.) (1988) 171 ITR 447 (Mad.); CIT c. Rajamanickam (S. A.) (1984) 149 ITR 85 (Mad.); CIT v. Sundravadanam (Dr.) (B.M.) (1984) 148 ITR 333 (Mad.); CIT v. Sunita Vachani (Mrs.) (1990) 184 ITR 121 (Delhi); Gauri Prasad Bagaria v. CIT (1961) 42 ITR 112 (SC); George Thomas (Dr. ) (K.) v. CIT (1985) 156 ITR 412 (SC); Krishna Menon (P.) v. CIT (1959) 35 ITR 48 (SC); Mahesh Anantrai Pattani v. CIT (1961) 41 ITR 481 (SC) and Parimisetti Seetharamamma v. CIT (1965) 57 ITR 532 (SC) ref.

R. D. Jolly and Premlata Bansal for Appellant.

Salil Aggarwal with Pradeep Srivastava for Respondent.

2000 P T D 1639

[234 I T R 220]

[Delhi High Court (India)]

Before Y. K. Sabharwal and C. K. Mahajan, JJ

RATTAN GUPTA

Versus

UNION OF INDIA and others

C. W. No. 1088 of 1996, decided on 28th May, 1998.

Income-tax---

----Reassesment---Writ---Condition precedent for reassessment---Reasonable belief that income had escaped assessment---Sufficiency of material to form belief cannot be considered in writ proceedings---Letter from Asstt. CIT (Investigation) that assessee was earning income in benami names--­Assessing Officer perusing appraisal report prepared after search operations-­Rational connection existed between information and belief that assessee's income had escaped assessment---Initiation of reassessment proceedings was valid---Indian Income Tax Act, 1961, Ss. 147 & 148.

Held, dismissing the writ petition, that the reasons for the initiation of reassessment proceedings were the receipt by the Assessing Officer of letter dated February 17, 1993, from the Assistant Commissioner of Income­tax, Investigation Circle 14(1), New Delhi, stating that the assessee was earning income in benami names and money totalling Rs.l5 crores approximately in the form of bank drafts purchased in smaller towns of the country by four Sikkim companies floated by the Dalmia group was received in the office of the assessee and further, in search and seizure operations conducted on March 15, 1990, certain cash and jewellery was found but it was not seized whereas books of account and other documents were seized. A perusal of the record showed that' before issue of the impugned notice, the Assessing Officer had obtained a copy of the appraisal report and had perused the same. The sufficiency of the material could not be gone into by the High Court in exercise of writ jurisdiction. The letter and the appraisal report constituted relevant material for the formation of belief that the assessee's income had escaped assessment. The notice for reassessment was valid:

Chhugamal Rajpal v. S. P. Chaliha (1971) 79 ITR 603 (SC); ITO v. Purushottam Das Bangur (1997) 224 IT'R 362 (SC) and ITO v. Selected Dalurband Coal Co. (Pvt.) Ltd. (1996) 217 ITR 597 (SC) ref.

O. S. Bajpai for Petitioner.

R. D. Jolly for Respondents.

2000 P T D 1748

[234 I T R 447]

[Delhi High Court (India)]

Before R. C. Lahoti and J. K. Mehra, JJ

TRIVENI ENGINEERING WORKS LTD.

Versus

COMMISSIONER OF INCOME-TAX

Income-tax References Nos. 19 and 222 of 1980, decided on 5th September, 1997.

Income-tax---

----Business expenditure---Reference---disallowance of expenditure--­Company---Remuneration to Director---Guarantee commission paid to Managing Director---Finding by Tribunal that payment was excessive and unreasonable in assessment year 1969-70 and that payment was reasonable in assessment year 1973-74---No challenge to findings---High Court would not interfere with findings on reference---Indian Income Tax Act, 1961, Ss.37, 40 & 256.

Expenses incurred "wholly and exclusively for the purposes of the business" are to be allowed in computing the income chargeable under the head "Profits and gains of business and profession" under section 37(1) of the Income Tax Act, 1961. Section 40 of the Act has been drafted as a proviso to the above said provision. In the case of an assessee which is a company, notwithstanding the provisions of section 37(1) any expenditure which results directly or indirectly in the provision of any remuneration or benefit or amenity to a director or to a person who has a substantial interest in the company or to a relative of the director or of such person, as the case may be, cannot be allowed, if in the opinion of the Income-tax Officer any such expenditure or allowance is excessive or unreasonable having regard to the legitimate business needs of the company and the benefit derived by or accruing to it therefrom.

The assessee was a public limited company engaged in the business of manufacture and sale of crystalsugar. It was amalgamated with T by an order of the High Court of Delhi with effect from February 1, 1970. In the assessment year 1969-70, the assessee had claimed a deduction of Rs.59,842 on account of guarantee commission paid by it to its managing director, S, for giving a personal guarantee on its behalf. The Income-tax Officer disallowed the claim for three reasons: firstly, that it was for the first time in the accounting year relevant to the assessment year 1969-70 that the board of directors passed a resolution allowing 2 per cent. commission on the limit of, the cash credit .to the directors for furnishing personal guarantee; secondly, the commission was allowed only to S although the other two directors in the company had also furnished personal guarantees; thirdly the company had ample realisiable assets wherefrom the bank could realise the loan advanced by it. The Appellate Assistant Commissioner affirmed the order of the Income-tax Officer. The Tribunal affirmed the findings of the Income-tax Officer, confirmed in the first appeal, and also held that there was no material to suggest that any services were rendered by S to the company so as to warrant the payment of commission. The Tribunal further held that $ did not run any risk and there was no detriment involved in furnishing the personal guarantee. For the assessment year 1973-74, the assessee had taken loans from two banks for its sugar unit on the personal guarantee of director, P. A sum of Rs.2,55,000 was claimed by the assessee as a deduction on account of guarantee commission paid to P. The claim was disallowed by the Income-tax Officer. The disallowance was maintained in appeal by the Appellate Assistant Commissioner. The Tribunal recorded a finding that the guarantee commission of Rs.2,55,000 paid to P was incurred wholly and exclusively for the purpose of business. On a reference:

Held, that, for the assessment year 1969-70, the findings of fact consistently recorded by all the authorities were that the transaction was tainted and the payment of guarantee commission was excessive or unreasonable. For the assessment year 1973-74, the finding of fact was to the contrary. The disallowance or allowance of the guarantee commission had been done on the facts found. For both the years, the findings recorded by the Tribunal were those of facts and hence the questions sought to be referred did not arise as questions of law from the orders of the Tribunal. In the two references the assessee had not challenged the findings of fact alleging perversity or non-consideration of material realiable on record. The High Court is not bound to answer the question if it is a question of fact. Both the references were refused to be answered.

By the Court: "We would like to clarify by way of abundant caution that we may not be taken to mean that condemnation of the practice of the banks asking personal guarantee in the case of public limited companies holding large assets can itself be a ground for disallowance of commission paid to directors. The Assessing Officer has to take an overall view of the facts of each case. "

CIT v. Anusuya Devi (Sint.) (1968) 68 ITR 750 (SC); CIT v. Associated Traders and Engineering Ltd. (1987) 63 CTR 325 (Delhi); CIT v. Indian Aluminium Cables Ltd. (No.l) (1990) 184 ITR 516 (Delhi); George Thomas (K.) (Dr.) v. CIT (1985) 156 ITR 412 (SC) and Sree Meenakshi Mills Ltd. v. CIT (1957) 31 ITR 28 (SC); AIR 1957 SC 49 ref.

Santosh K. Aggarwal for the Assessee.

R.D. Jolly with Ms. Premlata Barisal for the Commissioner.

2000 P T D 1767

[234 I T R 483]

[Delhi High Court (India)]

Before Y. K. Sabharwal and Lokeshwar Prasad, JJ

COMMISSIONER OF INCOME-TAX

versus

OSWAL ENTERPRISES (P.) LTD.

I.T.C. No. 54 of 1996, decided on 4th December, 1996.

Income-tax---

----Reference---Question of law---Assessment---Export business---Income from export business earned by a concern Or--Tribunal finding that O an independent entity and not a benami of assessee---O carrying on business activity in its own name---No evidence to show that income from export business carried on by O was income of assessee---Finding of Tribunal is a finding of fact---No question of law arose for reference---Indian Income Tax Act, 1961, S. 256(2).

Held, that. the Tribunal had recorded a finding of fact that concern O, was not a benami of the assessee and the business activity was carried on by O in its own name and that no evidence had been brought on record - to show that the income from export business carried on by O was the income of the assessee. The finding of the Tribunal had not been challenged as perverse and hence no question of law arose for reference.

R.D. Jolly with R.K. Chaufla for the Commissioner.

2000 P T D 1782

[234 I T R 501]

[Delhi High Court (India)]

Before R. C. Lahoti and C. K. Mahajan, JJ

SAG CONSTRUCTION ASSOCIATES

versus

UNION OF INDIA and others

C.W. No.2644 of 1991, decided on 28th July, 1998.

Income-tax---

----Refund---Interest---Deduction of tax at source---Interest payable on amount of tax deducted at source---Indian Income Tax Act, 1961, S.244(1A).

The Supreme Court of India held in Modi Industries Ltd. v. CIT (1995) 216 ITR 759, that the amount of advance tax paid by the assessee loses its character by virtue of section 199 of the Income Tax Act, 1961 as soon as the first assessment order is made and the advance tax is set off against the demand raised in the assessment order. If the assessment order is set aside, the adjusted amount of tax or the amount of tax refunded or refundable does not regain its character of advance tax once again.

Held accordingly, that with the passing of the order of assessment, dated February 22, 1983, without regard to the fact that the assessment order was set aside by the Assistant Commissioner of Income-tax, the amount of tax deducted at source lost its character and the same was deemed to have been paid in pursuance of the order of assessment. Hence, section 244(lA) would be clearly attracted.

Modi Industries Ltd. v. CIT (1995) 216 ITR 759 (SC) applied.

CIT v. Leader Engineering Works (1989) 178 ITR 529 (P&H) ref.

Dharam Vir Singh Gupta for Petitioner.

Sanjeev Khanna with Ms. Premlata Bansal for Respondents.

2000 P T D 1911

[235 I T R 287]

[Delhi High Court (India)]

Before R. C. Lahoti and C. K. Mahajan, JJ

COMMISSIONER OF INCOME-TAX

versus

P.S. JAIN & CO. LTD.

I. T. C. No.1 of 1998, decided on 11th September, 1998.

Income-tax ---

-----Reference -Reference---Question of law---Depreciation---Motor vehicles owned and used by tour operators and travel agents in business of running vehicles on hire for tourists---Whether "truck" is included in "motor lorry"---Whether there is no difference between lease and hire so far as motor vehicles (including trucks) are concerned- --Whether Tribunal justified in holding that depreciation at 50 percent allowable on trucks which have been given on lease by assessee and not run on hire by it---Question of law fit for reference---Indian Income Tax Act, 1961, S.256(2).

The assessee-company contended that truck is included in "motor lorry" and there is no difference between lease and hire so far as motor vehicles (including trucks) are concerned. The Revenue contended that Circular No.609, dated July 29, 1991 (see (1991) 191 ITR (St) 1), and Circular No.652, dated June 14, 1993 (see (1993) 202 ITR (St) 55), were relevant for the purpose of interpreting the relevant entries of Appendix I of the Income-tax Rules, 1962. The Tribunal held that depreciation at 50 percent. was allowable on trucks which had been given on lease by the assessee-company and not run on hire by it. The Tribunal rejected the application of the Revenue under section 256(1) of the Income Tax Act, 1961, for referring a question of law. On an application filed under section 256(2) in the High Court for directing the Tribunal to refer a question of law:

Held, that a question of law whether the Tribunal was correct in law holding that depreciation at 50 percent. was allowable on trucks which had been given on lease by the assessee and not run on hire by it, arose for reference.

R.D. Jolly with Ms. Premlata Bansal for Applicant.

2000 P T D 2014

[235 I T R 31]

[Delhi High Court (India)]

Before R. C. Lahoti and C. K. Mahajan, JJ

COMMISSIONER OF INCOME-TAX

Versus

R.D. RAMNATH & CO.

I.T.R. No. 192 of 1989, decided on 5th August, 1998.

(a) Income-tax---

----Income or capital---Profit on 'sale of material imported for business purposes is income---Indian Income Tax Act, 1961.

(b) Income-tax---

----Income---Business income---Cash compensatory support for exports duty drawback. and profit. on sale of import entitlements---Law applicable---Effect of amendment made by Finance Act, 1990---Cash compensatory support, duty drawback and profit on sale of import entitlements are assessable-- Indian Income Tax Act, 1961, S.28---Indian Finance Act, 1990.

The Finance Act, 1990, has inserted clause (iiib) in section 28 of the Act and sub-clause (vb) in section 2(24) of the Income Tax Act, 1961. These amendments have been given retrospective effect from April 1, 1967, the consequence whereof is that cash compensatory support received by the a9sessee for exports is to be treated as profits/gains of business and hence as income. Similarly, the Finance Act, 1990, has inserted clause (iiia) in section 28 and sub-clause (va) in section 2(24) of the Act, the consequence whereof is that profit on sale of import entitlements has to be treated as profits/gains of business liable to be included in the income of the assessee. The amendment has been given retrospective effect from April 1, 1962. The Finance Act, 1990, has inserted clause (iiic) of section 28 of the Income Tax Act, 1961, and sub-clause (vc) in section 2(24) of the Act. These amendments have been given retrospective effect from April 1, 1972, the effect whereof is that the amount of duty drawback is to be treated as profits/gains of business liable to be included in income:

Held, that the material on record showed that the goods imported were referable to the business activities of the assessee and hence profit on sale thereof would be liable to be taxed as income.

R.D. Jolly with Ms. Premlata Barisal for the Commissioner.

S.K. Aggarwal for the Assessee.

2000 P T D 2541

[236 I T R 931]

[Delhi High Court (India)]

Before R. C. Lahoti and C. K. Mahajan, JJ

AROON K. BASAK

Versus

UNION OF INDIA and others

C. W. P. No. 943 of 1996, decided on 16th September, 1998.

Income-tax---

----Refund--Deduction of tax at source---Assessment barred by time--­Assessee claiming refund of tax deducted at source after deducting from TDS the amount of tax legitimately payable by assessee---Justified---Indian Income Tax Act, 1961.

The assessee was appointed Director-General of the Associated Chamber of Commerce and Industry of India. He was paid an ex gratia amount of Rs.5,50,000 by his employer who deducted Rs.3,29,501 on account of income-tax at source. The assessee claimed that out of the above amount an amount of Rs.2.88 lakhs was due and payable to the assessee as the remaining amount related to tax which was legitimately payable by the assessee. The assessee claimed refund of the amount of Rs.2.88 lakhs as the assessment had become barred by limitation on March 31, 1994, and no demand on account of Income-tax had been created against him. On a writ petition, the Department contended that they were still prepared to make an assessment where after refund, if any, may be quantified:

Held, that inasmuch as the assessment had already become barred by time the amount claimed, namely, Rs.2.88 lakhs, was liable to be refunded to the assessee alongwith interest statutorily payable.

Kumkum Sen for Petitioner.

Ms. Geetanjali Bhushan for Respondent No. 1.

R. D. Jolly and Ms. Preinlata Barisal for Respondents Nos.2 to 4

2000 P T D 2595

[236 I T R 660]

[Delhi High Court (India)]

Before R. C. Lahoti and C. K. Mahajan, JJ

COMMISSIONER OF INCOME-TAX, versus

HANSALAYA PROPERTIES

I. T. C. No.80 of 1995, decided on 16th. November, 1998

(a) Income-tax---

----Reference---Capital gains---Business---Firm---Business income or capital gains---Firm constituted to construct multi-storeyed building---Sale of part of building---Subsequent dissolution of firm and formation of new firm---Sale of part of building by new firm---Profits whether assessable as business income or capital gains---Question of law---Indian Income Tax .Act, 1961, Ss. 28, 45 & 256(2).

If, the assessee, was a firm which came into existence on August 8, 1970 through a deed of partnership duly executed. The object of the partnership was to construct a multi-storeyed commercial building. The firm was dissolved on March 17, 1979, on completion of the project for which it was constituted. For the assessment years 1972-73 to 1977-78, it was held by the Income-tax Appellate Tribunal that the assessee was engaged in real estate business and, therefore, the land held by it was its stock-in-trade. Up to March 17, 1979, nearly. half of the building constructed by the assessee had. been sold. The income from the sale of portions of the building was­ being assessed as income from business and not as income by sale of capital assets. On March 19, 1979, there was a change in the constitution of the firm. The then existing firm was dissolved. Hotel HPL, one of the partners of the then firm, disassociated itself from the firm and the remaining partners constituted a new. firm. A deed of dissolution (of the old firm) and a deed of partnership (for the new firm) were executed on the same day. Various assets and liabilities of . the erstwhile firm were revalued for the purpose of distribution amongst the partners. The multi-storeyed building was valued at a price mutually agreed upon by the partners inter se. What was distributed to the partners was ploughed back as capital of the partners in the new firm at the same valuation at which it was distributed in the final accounts of the previous firm. Incidentally, till March 17, 1979, stock-in-trade was valued by the then firm as per book value; i.e., the actual cost of land plus the total amount spent on construction. The valuation agreed upon-between the partners by mutual consent was at variance with the figure of book value. For the period relevant to the assessment year 1982-83, certain showrooms in the building were sold. The Assessing Officer held that the showrooms sold constituted the stock-in-trade in the business of the assessee and for the purpose of computing the business profit on the sale of these showrooms, the written down value of these showrooms in the books of the old firm was liable to be taken into consideration for the purpose of determining the business income of the assessee. The Assessing Officer further opined that the valuation as recorded in the books at the time of dissolution on March 17,. 1979, was merely an adjustment entry. made only to settle the accounts with the retiring partners. The assessee went in appeal, before the Commissioner of Income-tax (Appeals) who held that the value shown in the books of account in the existing firm should be taken as the value and not the written down value of the assets shown in the old firm. The Department went in appeal before the Tribunal which held that the surplus on the sale of the showrooms was to be treated as capital gains and' not as business income. On an application to direct reference:

Held, (i) that the question whether the income from the sale of portions of the building at Rs.4,33,685 was assessable as capital gains and not as income from business was a question of law. '

(ii) That the question whether the Income-tax Appellate Tribunal was correct in holding that the valuation made on March 17, 1979, was the actual cost relevant for the purpose of calculating depreciation for the period relevant to the assessment years 1982-83 to 1986-87 was a question of law.

(iii) That the question whether the Income-tax Appellate Tribunal was correct in working out capital gains on the basis of the valuation made by the approved value on March 17, 1979, and taking the cost price at Rs.28, 17,565 instead of the actual cost of construction i.e., Rs.3,40,231 was a question of law.

A. L. A. Firm v. CIT (1991) 189 ITR 285 (SC); Bihar State Co-operative Bank Ltd. v. CIT (1960) 39 ITR 114 (SC); CIT v. Shree Ram Memorial Foundation (1986) 158 ITR 3 (Delhi); CIT v. Water and Power Development Consultancy Services (India) Ltd. (1987) 163 ITR 329 (Delhi); Kaloo Ram Govind Ram v. CIT (1965) 57 ITR 335 (SC); Raj Narain Agarwala v. CIT (1970) 75 ITR 1 (Delhi) and Saharanpur Electric Supply Co. Ltd. v. CIT (1992) 194GITR 294 (SC) ref.

(b) Income-tax---

----Reference---Capital gains---Computation of capital gains whether proper-­Question of law---Indian Income Tax Act, 1961, Ss.45, 48 & 256(2).

(c) Income-tax---

----Reference---Depreciation---Actual cost---Dissolution of firm and formation of new firm---Assets, of old firm taken over by new firm--­Valuation of assets by new firm whether could be taken as basis for granting depreciation---Question of law---Indian Income Tax Act, 1961, S.32.

Sanjiv Khanna with Ms. Prem Lata Barisal for Petitioner.

M. S. Syali with Satyen Sethi for Respondent.

2000 P T D 2755

[237 I T R 65]

[Delhi High Court (India)]

Before R. C. Lahoti and C. K. Mahajan, JJ

PREM CHAND BANSAL & SONS, Versus

INCOME-TAX OFFICER

Civil Miscellaneous Application No. 2599 of 1997 in I.T.C. No.39 of 1996, decided on 9th October, 1998.

Income-tax---

----Reference---Application to High Court to direct reference ---Limitation--­Condonation of delay in filing application---Section 5 of Limitation Act is applicable---Application futile because adverse decision of jurisdictional High Court---Subsequent reversal of High Court decision by Supreme Court---Further delay due to personal inability of counsel for applicant---Delay in application had to be condoned---Indian Income Act, 1961, 5.256-­Indian Limitation Act, 1963, Ss. 5 & 29.

Under section 29(2) of the Limitation Act, 1963, section 5 of the Limitation Act would apply to the periods of limitation prescribed by any special or local law unless such applicability is expressly excluded. The applicability of section 5 of the Limitation Act has not been excluded by section 256 of the Income-tax Act. Hence, section 5 of the Limitation Act applies to petitions under section 256(2) of the Income Tax Act, 1961. The decision shall have to be taken on the facts of each individual case whether the circumstances constitute a sufficient cause for condoning the delay within the meaning of section 5 of the Limitation Act.

Before the Income-tax Appellate Tribunal, the subject-matter of controversy, inter alia, was disallowance of Rs.2, 15, 453 claimed by the assessee under section 43-B of the Income Tax Act, 1961, on account of payment of sales tax made by the assessee within the time prescribed by the H.P. Sales Tax Act. The appeal having been decided adversely to the assessee, the assessee filed an application under section 256(1) of the Income Tax Act, 1961, seeking reference to the High Court of the question of law arising from the order of the Tribunal. The application was rejected on May 30, 1995, by the Tribunal forming an opinion that the answer to the question was covered by a decision of the Delhi High Court, which is the jurisdictional High Court in Escorts Ltd. v. Union of India (1991) 189 ITR 81. A copy of the order was communicated to the assessee on June 28, 1995. The assessee was advised not to pursue the matter further. Subsequently came the judgment of the Supreme Court in Allied Motors (P.) Ltd. v. CIT (1997) 224 ITR 677 wherein the decision of the Delhi High Court in Escorts Ltd's case (1991) 189 ITR 81 was reversed. The judgment of the Supreme Court was delivered on March 10, 1997. The assessee became aware of the decision in April, 1997, when the decision was reported in law reports. The assessee was advised to file the petition under section 256(2) before the High Court. However, G, counsel for the assessee, who was handling the case got busy in the parliamentary elections wherein the brother of counsel was himself a candidate. A period of about 25 days was lost on this account. On May 24, 1997, the petition was filed under section 256(2) of the Income Tax Act accompanied by an application under section 5 of the Limitation Act:

Held, that in the instant case so long as the decision of the Delhi High Court in Escorts Ltd's case (1991) 189 ITR 81 held the field, it would have served no useful purpose in pursuing the matter further. Shortly thereafter, the law was settled by an authoritative pronouncement of the 'Supreme Court. Promptly the matter was entrusted to counsel for moving the High Court by an appropriate application under section 256(2) of the Income-tax Act. A delay of about 25 days was attributable to personal inability of counsel for which the litigant could not be blamed. Factors like gross negligence, contumacy or misconduct could not be attributed either to the litigant or to counsel. The delay in filing the petition under section 256(2) had to be condoned.

Allied Motors (P) Ltd. v. CIT (1997) 224 ITR 677 (SC); Bhagwan Swarup v. Municipal Board, Ujhani AIR 1970 All. 652; Collector, Land Acquisition v. Mst. Katiji (1987) 167 ITR 471 (SC); CIT v. Taylor Instrument Co. (India) Ltd. (1992) 64 Taxman 6 (Delhi); Escorts Ltd. v. Union of India (1991) 189 ITR 81 (Delhi); Mata Din v. A. Narayanan AIR 1970 SC 1953; Mukri Gopalan v. Cheppilat Puthanpurayil Aboobacker AIR 1995 SC 2272; Rakesh Kumar Jain v. Devender Singh Mehta (1995) 57 DLT 135 (Delhi); Ravindra Jain v. Natraj Albums Industries (P.) Ltd. (1997) 1 AD (Delhi) 420 and State of Bihar v. Md. Ismail AIR 1966 Pat. 1 ref.

J. R. Goel for Applicant.

R. D. Jolly with Ms. Premlata Barisal for Respondent.

2000 P T D 2978

[235 I T R 99]

[Delhi High Court (India)]

Before R. C. Lahoti and C. K. Mahajan, JJ

BAGRI FOUNDATION

versus

CHIEF COMMISSIONER OF INCOME-TAX and others

C. W. No. 1849 of 1998, decided on 15th September, 1998

Income-tax---

----Refund---Costs of litigation---Delay in getting refund---Interest paid is not an adequate compensation---Costs awarded to petitioner---Indian Income Tax Act, 1961---Constitution of India, Art.226.

Interest is now a statutory obligation under the Income Tax Act, 1961. It compensates the person concerned for delay in refund but does not compensate him for the expenses incurred in coming to the Court. In various cases it comes to the notice of the Court that writ jurisdiction of the Court is required to be invoked solely because of the callousness on the part of the staff entrusted with the responsibility of dealing with files in which refunds are to be made:

Held, that the present one was a fit case where the petitioner must be allowed costs. [The respondents were directed to pay costs quantified at Rs.5,000 to the petitioner.]

K.C. Jain for Petitioner.

R.D. Jolly with Ms. Prem Lata Barisal for Respondents

2000 P T D 2980

[235 I T R 354]

[Delhi High Court (India)]

Before R. C. Lahoti and Mukul Mudgal, JJ

RAJASTHAN MERCANTILE CO. LTD.

versus

COMMISSIONER OF INCOME-TAX

I.T.C. No.72 of 1995, decided on 18th May, 1998.

(a) Income-tax---

----Reference---Advance tax---Amount surrendered by assessee under Amnesty Scheme---Rejection of offer and continuation of proceedings on the basis of return submitted under Amnesty Scheme whether justified--­Sections 215 & 216 whether applicable to assessment completed on remand-­Questions of law---Indian Income Tax Act, 1961, Ss. 215, 216 & 256(2).

(b) Income-tax---

----Reference---Disallowance of commission after considering evidence--­Question of fact---No question 6f law arose---Indian Income Tax Act, 1961, S.256(2).

Pursuant to the decision of the Government of India to allow import of cement, several State Corporations were permitted to import cement under open general licence and to sell the same to actual users. In pursuance of that scheme, the Punjab State Civil Supplies Corporation and the Delhi State Civil Supply Corporation were allowed to import cement from Romania and Korea, respectively, by six shipments in all. These two Corporations then appointed the assessee as handling agent and passed over the entire burden of handling the said imported cement to the assessee. The assessee established temporary offices in Madras to handle the import of cement. In August, 1983, a search was conducted in such temporary offices and also at the residential premises of the assessee's managing director in New Delhi. On the basis of the search, the Assessing Officer came to the conclusion that "on money", which was not accounted for in the regular books of account, was charged on the sale of cement. Additions were, therefore, made to the income of the assessee. The Commissioner of Income-tax (Appeals) set aside the assessment directing the Assessing Officer to reframe the assessment after making fresh enquiries regarding the various additions, particularly on account of "on money" and disallowance of commission. A fresh assessment was made determining the assessee's income at Rs.2,86,94,530. The various additions were repeated. In the fresh assessment proceedings, the assessee had filed a revised return showing an additional income of Rs.30,00,000. According to the assessee this return was filed under the Amnesty Scheme but this amount of Rs.30 lakhs was also separately added by the Assessing Officer. The Commissioner of Income-tax (Appeals) deleted certain additions and also held that a separate addition of Rs.30 lakhs could not be made. The Tribunal upheld some of the additions. It also held that separate addition of Rs.30 lakhs could not be made. It disallowed certain deductions claimed as commission payments. On an application to direct reference:

Held, (i) that the questions whether the rejection by the Department of the offer made by the assessee under the Amnesty Scheme was valid and correct and if the answer to the said question was in the affirmative then was it open to the Tribunal to continue the proceedings for assessment on the basis of the return submitted under the Amnesty Scheme; whether' it was not perverse for the Tribunal to hold that the sum of Rs.19,79,240 was the income of the assessee; in the further alternative was it not res judicata of the remand order of the Commissioner, dated September 26, 1987, and whether the authorities below had correctly invoked sections 215 and 216 to the fresh assessment, dated March 30. 1991, completed on remand, were questions of law which had to be referred.

(ii) that the finding that the deductions claimed as commission payments were not allowable was a finding of fact. No question of law arose from it.

A. Raghuvir, Senior Advocate with Ms. Lakshmi Iyengar for Petitioner.

R.D. Jolly with Ms. Premlata Barisal for Respondent.

2000 P T D 3524

[238 ITR 113]

[Delhi High Court (India)]

Before R. C. Lahoti and C. K. Mahajan, JJ

BHIKA RAM and others

versus

UNION OF INDIA and others

Writ Petition (Civil) No.3883 of 1993, decided on 22nd September, 1998.

(a) Income-tax---

----Income---Interest---Compulsory acquisition of land---Interest on delayed payment of compensation---Revenue receipt ---Assessee can spread over income for period for which payment is made---Indian Income Tax Act, 1961.

(b) Income-tax---

----Precedent---Decision of the Supreme Court---Later decision by a Bench of equal strength is binding.

In Bikram Singh v. Land Acquisition Collector (1997) 224 ITR 551, their Lordships of the Supreme Court have held that the amount of interest on delayed payment of compensation determined under the Land Acquisition Act was a revenue receipt eligible to income-tax under section 4 of the Income Tax Act, 1961. However, the claimant would be entitled to spread over the income for the period for which payment came to be made so as to compute the income for assessing tax for the relevant accounting year.

Bikram Singh's case (1997) 224 ITR 551 (SC), being a pronouncement later than Satinder Singh v. Umrao Singh, AIR 1961 SC 908, by a Bench of equal strength is binding on the High Court and income-tax authorities:

Held, that the petitioner was liable to be taxed on the interest on delayed payment of compensation for compulsory acquisition of land. However, the petitioner was at liberty to have the income on account of interest assessed by seeking spread over.

Bikram- Sing h v. Land Acquisition Collector (1997) 224 ITR 551 (SC) fol.

Satinder Singh v. Umrao Singh AIR 1961 SC 908 ref.

L.C. Chechi for Petitioners.

R.D. Jolly and Ms. Prem Lata Bansal for Respondents.

2000 P T D 3587

[238 I T R 676]

[Delhi high Court (India)]

Before R. C. Lahoti and C. K. Mahajan, JJ

COMMISSIONER OF INCOME-TAX

versus

POPULAR JEWELLERS

LT.C. No. 11 of 1996, decided on 2nd September, 1998.

(a) Income tax---

-----Reference –Powers of High Court –Powers to directs reference ---Indian income tax Act 1961. S.256.

(b) Income-tax---

----Reference---Penalty---Concealment of income---Penalty based on additions to income---Additions to income set aside in quantum proceedings-­No prayer for stay of penalty proceedings---Fact that reference was pending from quantum proceedings not brought to notice of Tribunal---Tribunal was justified in cancelling penalty---No question of law arose from its order--­Application for reference under S.256(2) could not be kept pending merely because it was in the interest of Revenue---Indian Income Tax Act, 1961, Ss.256 & 271.

Under section 256(1) of the Income Tax Act, 1961, jurisdiction to make a reference to the High Court arises to the Tribunal on arriving at these findings: (i) that there is a question of law arising, and (b) that the question of law arises out of the appellate order of the Tribunal. On the application being rejected under subsection (1) of section 256 of the Act, under subsection (2), the High Court may issue a mandamus to the Appellate Tribunal requiring it to state the case and to refer the question to the High Court on its being not satisfied with the correctness of the decision of the Tribunal on the abovesaid two aspects:

Held, dismissing the application for reference, that on the date on which the Tribunal0passed its appellate order deleting the penalty, there was available before the Tribunal its own order passed in the quantum proceedings deleting the addition in the income of the assessee. The Tribunal had no other option but to delete the penalty. The factum of pendency of reference in the quantum proceedings was not brought to the notice of the Tribunal. The appropriate course for the Revenue was to have requested the Tribunal to adjourn the hearing in the appeal in the penalty -proceedings sine die awaiting the decision of the High Court in the quantum proceedings. This was not done. The present application could not be entertained and kept pending in this Court merely because it was in the interest of the Revenue to do so.

CIT v. Moti Lal Sharma (1995) 215 ITR 458 (Delhi) ref.

R. D. Jolly with Ms. Premlata Barisal for the Commissioner. Salil Aggarwal for the Assessee.

2000 P T D 3595

[238 I T R 627]

[Delhi High Court (India)]

Before R. C. Lahoti and C.K. Mahajan, JJ, COMMISSIONER OF INCOME-TAX

Versus

DELHI AUTOMOBILES (P.) LTD.

I.T.C. No.209 of 1991, decided on 28th July, 1998.

Income-tax---

----Reference---Revision---Income---Construction of hotel---Tribunal whether-correct in holding that assessee was original promoter of hotel---Amounts received by assessee whether advances for assigning commercial spaces to' customers---Tribunal whether justified in cancelling order of revision--­Questions of law---Indian Income Tax Act, 1961, Ss.256 & 263.

Held, that the questions whether the Tribunal was correct in observing that the assessee was an original promoter of the hotel project and the -director of the assessee-company; whether the amounts received were mere advances in consideration of the accommodation agreed to be given to the customers and not as mere deposit and whether the Tribunal was justified in cancelling the revision order of the Commissioner of Income-tax under section 263 of the Income Tax Act, 1961, were questions of law.

CIT v. Bazpur Cooperative Sugar Factory Ltd. (1988) 172 ITR 321 (SC) ref.

Sanjiv Khanna for the Commissioner.

B.B. Ahuja for the Assessee.

2000 P T D 3702

[238 I T R 268]

[Delhi High Court (India)]

Before Devinder Gupta, Actg. C.J. and J.B. Goel, J

GEDORE TOOLS (PVT.) LTD.

Versus

COMMISSIONER OF INCOME-TAX

Income-tax Reference Nos.588, 589 and 590 of 1986, decided on 19th February, 1999.

(a) Income-tax---

----Income---Business income--Cash compensatory receipts from Government---Law applicable---Effect of insertion of cl. (iiib) in S. 28 and cl. (vb) in S.2(24)--Cash compensatory receipts are assessable as business income---Indian Income Tax Act, 1961, Ss.2(24)(vb) & 28(iiib).

The Finance Act, 1990, incorporated clause (iiib) to section 28 of the Income Tax Act, 1961, with effect from April 1, 1967, to the effect that cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of the Government shall be chargeable to income-tax under the head "profits and gains of business or profession". This amendment has been made retrospectively with effect from April 1, 1967. Sub-clause (vb) in clause (24) of section 2 of the Income Tax Act, 1961, was also incorporated by the Finance Act, 1990, with effect from April 1,s 1967, that income includes any sum chargeable to income-tax under clause .(iiib) of section 28. Hence cash compensatory support receipts received from the Government would be taxable receipts in the hands of the assessee and constitute profits and gains:

CIT v. Smarts (P.) Ltd. (1998) 233 ITR 243 (Delhi) fol.

(b) Income-tax---

----Income or capital--Drawback of duty received from Central Government-­Gains from sale of import entitlements---Revenue, receipts, Indian Income Tax Act, 1961.

The drawback of duty received from the Central Government and gains from sale of import entitlements are revenue receipts.

(c) Income-tax---

----Assessment---Appeal to CIT (Appeals)---Enhancement of assessment­ Powers of CIT (Appeals)---Notice has to be given before considering question of enhancement---Indian Income Tax Act, 1961, S-451(2).

The power for enhancement by the Commissioner of Income-tax is subject to the limitation as provided in subsection (2) of section 251 and such question could be considered only if notice was given in that regard.

CIT v. Rai Bahadur Hardutroy Motilal Chamaria (1967) 66 ITR 443 (SC) fol.

(d) Income-tax---

----Appeal to Appellate Tribunal---Powers of Tribunal---Power to allow additional grounds of appeal---Income Tax Act, 1961, S.254, The Tribunal has discretion to allow or not to allow new grounds to be raised. Even in a situation where the Tribunal is only required to consider the question of law arising from facts, which- are on record in the assessment proceedings, there is no reason why such a question should hot be allowed to be raised, when it is necessary to consider that question in odder to assess the liability to tax of an assessee correctly.

National Thermal Power Co. Ltd. v. CIT (1998) 249 ITR 383 (SC) fol.

The amount of commission paid in India though on export sales would not qualify for weighted deduction under any of the sub-clauses of section 35B(1)(b).

CIT v. International Exporters (1998) 233 ITR 23 (Delhi) fol.

(e) Income-tax--

----Export markets development allowance---Weighted deduction--­Commission paid in India---Expenditure on export promotion---Export guarantee insurance---Interest on post shipment export credit loans--­Difference in exchange rates, --- freight charges on export, consignment--Inland freight on export consignment and inspection fee on exports--­Not entitled to weighted deduction---Indian Income Tax Act, 1961, S.35B.

The expenditure under the heading "Export promotion" is not entitled to, weighted deduction under any of the sub-clause (b) of section 35B(1).

CIT v. International Exporters (1998) 233 ITR 23 (Delhi) fol.

The expenditure, on export guarantee insurance is not entitled to weighted deduction under section 3513(1).

CIT v. International Exporters (1998) 233 ITR 23 (Delhi) fol.

Interest on post-shipment export credit loan is not an expenditure entitled to weighted deduction under section 35B.

Gedore Tolls (India) (Pvt.) Ltd:-v. CIT (1998) 233 ITR 712 (Delhi) fol.

The Tribunal was correct in law in holding that the following are not entitled to weighted deduction under section 3513; (a) Difference in exchange rates Rs.1,90,744; (b) Ocean freight charges on export consignment Rs.7,22,669; (c) Forwarding charges on consignments Rs.1,19,758; (d) Instant freight on export consignments Rs.4,73,168; and (e) Inspection fee on exports Rs.29,381.

Gedore Tools (India) (Pvt.) Ltd. v. CIT (1998) 233, ITR 712 (Delhi) fol.

CIT v. Stepwell Industries Ltd. (1997) 228 ITR 171 (SC) ref.

Nemo for the Assessee.

R.D. Jolly with Mrs. Prem Lata Bansal for the Commissioner.

2000 P T D 581

1232 I T R 2901

[Gauhati High Court (India)]

Before V. D. Gyani, Actg. C. J. and D. Biswas, J

COMMISSIONER OF INCOME-TAX

versus

BACHRAJ DUGAR

Income-tax Reference No. 5 of 1997, decided on 6th May, 1998.

Income-tax---

--Expenditure on rural development programmes---Withdrawal of approval granted to association or institution---Can only be prospective and cannot be given retrospective effect---Indian Income Tax Act, 1961, S.35CCA.

The withdrawal of approval granted to an association or institution under section 35CCA of the Income Tax Act, 1961, can only be prospective and cannot be given retrospective effect.

Colonial Sugar Refining Co. Ltd. v. Irving (1905) AC 369 (PC); Garikapati Veeraya v. Subbiah Choudhry (N.) AIR 1957 SC 540 and Escort:: Ltd. v. Union of India (1993) 199 ITR 43 (SC) ref.

G. K. Joshi and U. Bhuyan for the Commissioner.

Nemo for the Assessee

2000 P T D 652

[232 I T R 846]

[Gauhati High Court (India)]

Before D. N. Chowdhury, J

THAKURSIDAS BANWARILAL

versus

COMMISSIONER OF INCOME TAX and others

Civil Rule No.547 of 1990, decided on 15th December, 1997

(a) Income-tax---

----Re-assessment---Notice---Failure to disclose material facts necessary for assessment---Recording of belief that there had been failure to disclose material facts necessary for assessment---Non-mention of cl. (a) of S.147 in notice will not render it invalid--Indian Income Tax Act, 1961, S.147.

(b) Income-tax---

----Re-assessment---Failure to disclose material facts necessary fol assessment---Condition precedent---Belief regarding such failure based on documents---Fact that documents were impounded illegally, is not relevant--­Indian Income Tax Act, 1961, S. 147.

Section 147(a) of the Income Tax Act, 1961, envisages two distinct conditions precedent to assume jurisdiction. The Assessing Officer must have reasons to believe that income has escaped assessment by reason of the omission or failure on the part of the assessee to make a return or disclose fully or truly all material facts necessary for his assessment for the relevant year. If the factual existence of the conditions precedent can be inferred from the materials on record, non-mentioning of the clause will not vitiate the notice.

The illegality or irregularity in impounding of documents cannot vitiate the material collected unless the genuineness or correctness of the same are in doubt. Such material can form the basis for a notice for reassessment.

The assessment of the petitioner for the assessment year 1982-83 was completed. Subsequently, a survey was conducted in the business premises of the assessee. Some documents were impounded. On an examination of the documents, the Income-tax Officer came to the conclusion that the return of income for the year 1982-83 did not reflect the true state of affairs of the income of the firm and accordingly issued notice on the firm to show cause as to why the assessment for the year 1982-83 should not be reopened under section 147 of the Act. The petitioner submitted his reply questioning the legality and validity of the notice. In the above communication the petitioner took objection also to the manner in which the survey was conducted and documents were impounded. The Deputy Commissioner was of the opinion that the proceeding under section 147 was rightly initiated. On a writ petition assailing the legality of the above order:

Held, dismissing-the writ petition, that the Assessing Officer had duly recorded his belief relating to the omission or failure on the part of the assessee to disclose fully and truly the material facts for the assessment for the ear 1982-83. The fact that clause (a) of section 147 had not been mentioned in the notice would not render it invalid.

(ii) that an illegal search will not invalidate the seizure of the articles. The document impounded showed that there was reasonable ground before the concerned officer for exercising power under section 147(a). The reassessment proceedings were valid.

Abdul Rab Abdul Salam v. ITO (1988) 174 ITR 424 (Gauhati); Biju Patnaik v. ITO (1976) 102 ITR 96 (Cal.); Calcutta Discount Co. Ltd. v. ITO (1961 41 ITR 191 (SC); Ganga Saran & Sons (P.) Ltd. v. ITO (1981) 130 ITR ~ (SC); ITO v. Lakhmani Mewal Das (1976) 103 ITR 437 (SC); Jameson and Magrudar Co. (Pvt.) Ltd. v. ITO (1987) 167 ITR 77 (Cal.); Madhya Pradesh Industries Ltd. v. ITO (1970) 77 ITR 268 (SC); Madhya Pradesh Industries Ltd. v. ITO (1965) 57 ITR 637 (SC); Morarjee Goculdas Spinning and Weaving Co. Ltd. v. Das (M.M.), IAC (1991) 189 ITR 406 (Bom.); Narayanappa (S.) v. CIT (1967) 63 ITR 219 (SC); Pooran Mal v. Director of Inspection (Investigation) I.T. (1974) 93 ITR 505 (SC); Partap Singh (Dr.) v. Director of Enforcement (1985) 155 ITR 166 (SC); Radha Kishan v. State of U.P. (1963) AIR 1963 SC 822. Sheo Nath Singh v. AAC of I.T, (1971) 82 ITR 147 (SC); State of Maharashtra v. Natwarlal Damodardas Soni AIR 1980 SC 593; (1980) 4 SCC 669; Union of India v. Rai Singh Deb Sigh Bist (1973) 88 ITR 200 (SC) and Union Carbide (India) Ltd. v. ITO (1973) 87 ITR 529 (Cal.) ref.

J.P. Bhattachargee and Dr. A. K. Saraf for Petitioner.

K. N. Choudhury and G. K. Joshi for Respondents.

2000 P T D 761

[232 I T R 5331

[Gauhati High Court (India)]

Before D. N. Choudhury, J

ANANT KUMAR SAHARIA

versus

COMMISSIONER OF INCOME-TAX and others

Civil Rules Nos. 2228 and 2227 of 1993, decided on 19th February, 1998.

Income-tax---

----Reassessment---Writ---Notice of reassessment---Condition precedent--­Material to justify belief that income has escaped assessment---High Court will not consider adequacy of material---Original assessments on the basis of returns submitted on behalf of the same person as trustee of sole beneficiary and father of minor---Notice of reassessment was valid---Indian Income Tax Act, 1961, S. 147---Constitution of India, Art. 226.

The power conferred under section 147 of the Income Tax Act, 1961, is very wide. But at the same time it cannot be stated to be a plenary power. The assumption of jurisdiction under section 147 of the Income Tax Act, therefore; must be on existence of materials before the authority. It will not depend on the mere whim or fancy of the Assessing Officer. The existence of the materials, therefore, must be real. Secondly, there must be nexus between the material and the belief of escapement. The exercise must contain a definite application of mind by the Assessing Officer. The belief is that of the Assessing Officer and the reliability or credibility attached to the material depends on the judgment of the Assessing Officer. The High Court in exercise of power under Article 226 of the Constitution of India cannot go the sufficiency or adequacy of the materials.

The father and the natural guardian of the minor (petitioner) submitted returns on behalf of the minor. The same person as the trustee of a trust where the said minor (petitioner) was the sole beneficiary, submitted returns on behalf of the trust. The beneficial interest of the petitioner who was the sole beneficiary in the trust was disclosed in the hands of the trust, whereas a separate return in respect of the petitioner was submitted showing the income and benefit whatsoever that accrued or arose to the petitioner, other than from the trust. Deduction under sections 80L, 80C, 80CCA and 80CCB was claimed to the maximum permissible limit in both the cases. Subsequently. notice under section 148 was issued. It was stated that it was incumbent on the part of the representative assessee to disclose and/or mention in the return the other income or benefit from other sources of the assessee. This non-disclosure had caused escapement of assessment and there had been claim of excessive deduction or relief in the return. The Assessing Officer issued notice to show cause as to why the assessment for the years 1985-86 to 1991-92 should not be reopened. On a writ petition to quash the notices:

Held, dismissing the writ petition, that in the instant case, the Assessing Officer on taking note of the. returns thought, it fit to reopen the assessment on the ground of alleged failure to disclose fully and truly all material facts necessary for assessment. The case of the petitioner was fairly considered and thereafter, the notices of reassessment had been issued. The notices were valid.

Dr. A. K. Saraf, S. Mitra and R. K. Agarwalla for Petitioner.

G. K. Joshi and U. Bhuyan for Respondent.

2000 P T D 1045

[233 I T R 416]

[Gauhati High Court (India)]

Before N. S. Singh, J

JAGNESWAR DEY AND BIBHASH RANJAN DEY

versus

INCOME-TAX OFFICER and another

Civil Rule No. 1014 of 1992, decided on 13th November, 1997.

Income-tax---

----Writ---Jurisdiction of High Court---Reassessment---Notice---Writ petition---Efficacious alternative remedy available---Writ petition not maintainable---Indian Income Tax Act, 1961, S. 148---Constitution of India, Art. 226.

Ordinarily, the High Court will not entertain a petition for a writ under Article 226, where the petitioner has an alternative remedy, which without being unduly onerous, provides an equally efficacious remedy.

Where the Income-tax Officer issued notice to the petitioner under section 148 of the Income Tax Act, 1961, for the relevant assessment year but the petitioner did not approach the appropriate and competent Authority for redressal under the related provisions of the Act and instead filed a writ petition on the ground that he had no other alternative efficacious remedy available to him:

Held, that there was an appropriate forum for appeal or revision from an order/notice passed by the concerned Income-tax Officer under section 148 of the Act as required and contemplated under Chapter XX of the Act. But the writ petitioner did not approach the competent Authority and, instead, the writ petitioner approached the High Court. Therefore, the writ petition was liable to be dismissed.

The writ petitioner was at liberty to approach the appropriate appellate authority under the related provisions of law.

Thansingh Nathmal v. Superintendent of Taxes (1964) 15 STC 468; AIR 1964 SC 1419 and Babubhai Muljibhai Patel v. Nandlal Khodidag Barot AIR 1974 SC 2105 ref.

A. F. G. Osmani, H. R. A. Choudhury and M. H. Rajbarbhuyan for Petitioner.

G. K. Joshi and U. Bhuyan for Respondents.

2000 P T D 1105

[233 I T R 518]

[Gauhati High Court (India)]

Before A. K. Patnaik and D. Biswas, JJ

S. GAJINDER SINGH

versus

COMMISSIONER OF INCOME-TAX

Civil Rule (M.) No. 2395 of 1998, decided on 9th June, 1,998.

Income-tax---

----Reference---Question of law---Depreciation---Assessee, owner of trucks, claiming depreciation at 40 percent on ground trucks used in transportation business---ITO allowing depreciation only at 30 percent.---CIT (Appeals) finding that assessee had earned income from running of trucks on hire from army and other private parties---Same reflected in profit and loss account of assessee---Tribunal holding that assessee unable to establish that trucks were hired out to other parties or used in business of transportation of goods on hire---In view of finding of CIT (Appeals), question of law arose for reference---Indian Income Tax Act, 1961, Ss.32 & 256(2).

For the assessment year 1987-88, the assessee claimed depreciation at the rate .f 40 per cent on the trucks owned by him and which had been used. in his transportation business in accordance with the circular of the CBDT as well as the Income-tax Rules. However, the Assessing Officer allowed only 30 per cent depreciation on the trucks. On appeal, the Commissioner of Income-tax (Appeals) accepted the claim of the assessee. On further appeal, the Tribunal held in favour of the Department in view of the fact that the assessee could not establish that the bucks were hired out to other parties or that they were used in his business of transportation of goods on hire. The assessee filed an application under section 256(1) of the Income Tax Act, 1961, for referring a question of law, which was rejected by the Tribunal. On an application filed under section 256(2):

Held, that the Commissioner of Income-tax (Appeals) had found that the assessee had earned a sum of Rs.35,33,591 from the Army for reuniting of trucks on hire and a sum of Rs.4,72,860 from other private parties out of the said business as had been reflected in the profit and loss account of the assessee and that the assessee was using the trucks in the business of running them on hire and, therefore, depreciation at the rate of 40 percent. had to be allowed. In view of the finding of the Commissioner (Appeals), the question, whether the trucks were public carrier vehicles and whether the assessee was entitled to 40 percent. depreciation on the trucks arose for reference.

R. K. Joshi with Mrs. U. Chakraborti for the Assessee.

Bhuyan for the Commissioner.

2000 P T D 1606

[234 I T R 130]

[Gauhati High Court (India)]

Before N. C. Jain, Actg. C.J. and P. G. Agarwal, J

COMMISSIONER OF INCOME-TAX

Versus

GEORGE WILLIAMSON (ASSAM) LTD.

Income-tax Reference No. 5 of 1996, decided on 11th August, 1998.

(a) Income-tax---

----Business expenditure---Company---Travel expenses of wives of Directors---Finding by Tribunal that expenditure had been incurred for business purposes---Finding not challenged---Expenditure on travel was deductible---Indian Income Tax Act, 1961, S. 37.

(b) Income-tax---

----Reference---Findings of fact---Facts found by Tribunal are final unless specifically challenged---Indian Income Tax Act, 1961, S. 256.

If the Tribunal does not consider the evidence covering all the matters and bases its findings upon some evidence ignoring other essential material that would amount to a misdirection in law and the findings would give rise to a question liable to be referred to the High Court. Reference of a proper question challenging those findings must first be -sought before those findings can be challenged before the High Court:

Held, that, in the instant case, the Tribunal on the basis of the materials available before them held that the travel expenses claimed by the assessee for the two wives of the Directors were business expenses. This finding had not been challenged. The expenditure was, therefore, deductible.'

CIT v. George Williamson (Assam). Ltd. (No. 2) (1997) 223 ITR 310 (Gauhati); CIT v T. S. Hajee Mossa & Co. (1985) 153 ITR 422 (Mad.); CIT v. Navsari Cotton and Silk Mills Ltd. (1982) 135 ITR 546 (Guj.); Hazarat Pir Mahomed Shah Saheb Roza Committee v. CIT (1967) 63 ITR 490 (SC); Hooghly Trust (Private) Ltd. v. CIT (1969) 73 ITR 685 (SC); India Cements Ltd. v. CIT (1966) 60 ITR 52 (SC) and Sassoon, J. David & Co. (Pvt.) Ltd. v. CIT (1979) 118 ITR 261 (SC) ref.

G. K. Joshi and U. Bhuyan for the Commissioner.

R. Gogoi, H. Roy, A. Dutta and S. Saikia for the Assessee

JUDGMENT

2000 P T D 1746

[234 I T R 433]

[Gauhati High Court (India)]

Before D. N. Baruah and S. B. Roy, JJ

COMMISSIONER OF INCOME-TAX

Versus

RAFIULLA TEA AND INDUSTRIES (P.) LTD

Income-tax Reference No. 20 of. 1995, decided on 6th September 1996.

Income-tax---

----Appeal to Appellate Tribunal---Powers of Tribunal---Assessment for 1980-81, completed at nil and no appeal against it---Appeal against assessment order for 1982-83 on the ground that Assessment Officer did not allow carry forward and set off of unabsorbed depreciation and loss-­Tribunal had no jurisdiction to reopen assessment order relating to assessment year 1980-81---Indian Income Tax Act, 1961.

The assessee was a private limited company.. The Assessing Officer did not allow carry forward and set off of unabsorbed depreciation and business loss for the assessment year 1982-83. An appeal was filed by the assessee before the Commissioner (Appeals) but was unsuccessful. Against the order of the Commissioner (Appeals), the assessee filed an appeal before the Tribunal. The Tribunal after considering the matter held that as the assessment for the assessment year 1980-81 had been determined at nil and it could not be held that the unabsorbed depreciation and business loss stood set off in that year, set aside the assessment and directed the Assessing Officer to decide the matter afresh. On a reference:

Held, that the Assessing Officer completed the assessment for the assessment year 1980-81 under section 144 of the Income Tax Act 1961, after considering the brought forward losses of Rs.3,00 137. As there was no appeal against the said order, the order became final and, therefore, the Tribunal had no jurisdiction to reopen it on appeal.

G.K. Joshi for the Commissioner.

Nemo for the Assessee.

2000 P T D 1887

[235 I T R 484]

[Gauhati High Court (India)]

Before D. Biswas, J

MAKUM TEA CO. (INDIA) LTD

versus

DEPUTY COMMISSIONER OF INCOME-TAX and another

Civil Rule No. 3015 of 1993, decided on 2nd September, 1998.

(a) Income-tax---

----Assessment---Powers of Assessing Officer---Power to make adjustments-­Power under S.143(1)(a).can be exercised only when loss carried forward, deduction, allowance or relief have been claimed which are prima facie inadmissible---Addition' of amounts as interest on deposits and interest on 'loans is not permissible ---Indian Income Tax Act, 1961, S.143.

It would appear from the provisions of clause (iii) of the proviso to section 143(1)(a) of the Income Tax Act, 1961, that the powers vested therein will come into operation only when any loss carried forward, deduction, allowance or relief has been claimed in the return, which on the basis of the information available in such return, accounts or-documents annexed to the return, are prima facie inadmissible.

The petitioner-company submitted its return for the assessment year 1992-93. It also furnished a detailed computation of taxable income for the year ended on. March 31, 1992. In the purported exercise of powers under section 143(1)(a), the Assessing Officer added certain income. The petitioner-company filed a petition for rectification of the mistake apparent on the face of record under the provisions of section 154. The Assessing Officer rectified certain other mistakes except the interest on deposit arid interest on loan. Accordingly; after making necessary computation, a sum of Rs.35,22,340 was determined as payable on account of income-tax inclusive of additional tax and interest doe for the assessment year 1992-93. The addition of various incomes to the total income in purported exercise of powers under section 143(1)(a) was challenged by the petitioner in a writ petition:

Held. (i) that the alternative remedy available under section 154 and section 264 of the Act could not be considered as efficacious remedies in the present circumstances. The remedy under Article 226 was, therefore, not barred.

(ii) That the Assessing Officer had made adjustments without giving any opportunity of hearing to the petitioner-company and the amounts added back to the total income and disallowances made could not be said to be within the purview of the provisions of section 143(1)(a). The order passed under section 143(1)(a) and the order passed' under section 154 were liable to be quashed.

(b) Income-tax---

Writ---Alternative remedy which is not effective---Writ will issue--­Constitution of India, Art.226.

Attorney-General of Trinidad and Tobago v. Gordon Grant & Co.. (1935) AC 532 (PC); Indian Rayon and Industries Ltd. v. Kanekar (J.R.), Asst. CIT (1993) 200 ITR 747 (Bon.); Khatau Junkar Ltd. v. Pathania (K.S.) (1992) 1,96 ITR 55 (Bon.); Neville v. London "Express" Newspaper Ltd. (1919) AC 368 (HL); Santosh Kumar v. Central Warehousing Corporation AIR 1986 SC 1164; (1986) 2 SCC 343; Secretary of State v. Mask & Co. AIR 1940 PC 105; Titaghur Paper Mills Co. Ltd. v. State of Orissa (1.983) 142 ITR 663 (SC); (1983) 53 STC 315 and Wolverhampton New Water Works Co. v. Hawkesford (1859) 6 CB (NS) 336 ref.

Dr. A.K. Saraf and K.K. Gupta for Petitioner.

G.K. Joshi and B.J. Talukdar for Respondents.

2000 P T D 1972

[235 I T R 170]

[Gauhati High Court (India)]

Before V.D. Gyani and D.N. Choudhury, JJ

COMMISSIONER OF INCOME-TAX

versus

J.N. SARMA and others

Income-tax Reference No.4 of 1996, decided on 30th September, 1997.

(a) Income-tax---

----Capital or revenue expenditure---Tea estate---Expenditure on replanting--­Finding by Tribunal that there was no evidence that replanting was done on virgin area---Expenditure was deductible---Indian Income Tax Act, 1961--­Indian Income-tax Rules, 1962, R.8(2).

(b) Income-tax---

----Reference---Finality of findings of fact---Powers of High Court---Power to reframe question---Power cannot be exercised for reopening question of fact or law closed by order of Tribunal---Indian Income Tax Act, 1961, S.256.

The Appellate Tribunal is the final fact-finding authority under the Income-tax Act and the Court has no jurisdiction to go behind the statements of facts made by the Tribunal in its appellate order. The Court may do so only if there is no evidence to support the findings or the Appellate Tribunal has misdirected itself in law in arriving at the findings of fact. But even there, the Court cannot disturb the findings of fact given by the Appellate Tribunal unless a challenge is directed specifically by a question framed in a reference against the validity of the impugned findings of fact on the ground that there is no evidence to support them or that they are the result of a misdirection in law.

It is open to the High Court to reframe a question. But this power to reframe a question can be exercised to clarify some obscurity in the question referred, or to pinpoint the real issue between the taxpayer and the Department or for similar other reasons; it cannot be exercised for reopening an enquiry on questions of fact or law which is closed by the order of the Tribunal.

Held, that, in the instant case, the Tribunal had found that there was no evidence that the replanting was done in a virgin area. This finding had not been challenged as being perverse and was final. The Tribunal was justified in allowing deduction of the expenditure incurred in replanting in the tea estate.

CIT v. Anusuya Devi (Sint.) (1968) 68 ITR 750 (SC); CIT v. Basanta Kumar Agarwalla (1983) 140 ITR 418 (Gauhati); CIT v. Mahavir Plantations Ltd. (1995) 213 ITR 485 (Ker.); Kilasho Devi Burman. (Smt.) v: CIT (1996) 219 ITR 214 (SC) and Patnaik & Co. Ltd. v. CIT (1986) 161 ITR 365 (SC) ref.

U. Bhuyan for the Commissioner.

R.P. Agarwalla and D.K. Misra for the Assessee.

JUDGMENT

V.D. GYANI, J.---It was in compliance with the direction of this Court under section 256(2) of the Income Tax Act, 1961, as made in Civil Rule No.25(M) of 1993, that the following questions based on statements of facts were drawn by the Department:

"Whether, in view of the wording of Rule 8(2) of the Income-tax Rules, 1962, the Tribunal was right in coming to the finding that the claim of the assessee was rightly allowed by the Commissioner of Income-tax (Appeals) on the facts of the case?"

Learned counsel appearing for the assessee, at the very outset submitted that notwithstanding the fact that this statement of case has been sought by the High Court and the above question referred for its opinion, the Court is not bound to answer the question. Before we deal with this contention, it would be pertinent to note the basic facts. The assessee had three tea gardens. In the assessment year 1985-86, the Assessing Officer held that the expenditure incurred on en bloc replantation was capital expenditure in nature. On appeal being preferred by the assessee, the Commissioner of Income-tax (Appeals) held that replantation expenditure was revenue expenditure and as such allowed the expenditure incurred on replantation. On further appeal by the Revenue, the' Tribunal held that the assessee's claim was correctly allowed by the Commissioner (Appeals) on the facts of the case. It was pointed out that the Assessing Officer had not recorded a finding to the effect that the replanting was done on virgin area of the tea garden and in the absence of necessary finding of facts the contention advanced by the Revenue was accepted. It was in pursuance to this Court's direction that the statement of case has been submitted.

We have heard learned standing counsel for the Revenue, Mr. Bhuyan, and learned counsel, Mr. Agarwalla for the assessee.

It is a cardinal rule that the High Court in reference proceedings does not and cannot be behind the facts found. It cannot look at the evidence that was not before the Tribunal when it reached the impugned findings. The jurisdiction of this Court in a reference under the taxation statute is purely advisory. The posed question of law whether it really arises out of the finding given by the Appellate Tribunal?

Adverting to the order passed by the Tribunal, the following findings are demonstrably clear---

"It is seen that the Assessing Officer himself has noted, amongst other things, that the replanting expenses is regarded as capital expenditure because the replantation is expenses of en bloc area as good as new cultivation.

There is no finding by the Income-tax Officer that the replanting was in virgin area of the tea garden. In the absence of necessary finding the contention of the Revenue cannot be accepted. "

This finding can by no means be said to be unreasonable much less perverse. The Income-tax Officer in his assessment order has concluded that:

"The replanting expenses is regarded as capital expenditure, 'because the replantation is expenses of en bloc area as good as new cultivation. This is added back as capital expenses."

There are no reasons assigned for this conclusion.

The Supreme Court in Patnaik & Co. Ltd. v. CIT (1986) 161 ITR 365, has held that the High Court was wrong in re-appreciating the evidence, the question referred was itself framed on the assumption that it had to be decided on the factual matrix as detected by the Tribunal. The Supreme Court held (headnote):

"It is now well-settled that the Appellate Tribunal is the final fact­ finding authority under the Income-tax Act and that the Court has no jurisdiction to go behind the statements of facts made by the Tribunal in its appellate order. The Court may do so only if there is no evidence to support the findings or the Appellate Tribunal has misdirected itself in law in arriving at the findings of fact. But even there, the Court cannot disturb the findings of fact given by the Appellate Tribunal unless a challenge is directed specifically by a question framed in a reference against the validity of the impugned findings of fact on the ground that there is no evidence to support them or they are the result of a misdirection in law."

What is a perverse finding? Strictly speaking we do not have to go into the question of perverse finding since no such direct challenge has been posed in the question as formulated.

Perverse. A perverse verdict may probably be defined as one that is not only against the weight of evidence but is altogether against the evidence. (see Stroud's Judicial Dictionary).

Perverse finding-A finding cannot be said to be perverse, if it is against the weight of evidence. It is perverse if it is altogether against evidence.

It was strenuously urged by learned counsel for the Revenue that the question as referred is not in its proper form and it is open to this Court to reframe the question. As a proposition of law, there can be no quarrel with the submission made by learned standing counsel, but this power to reframe a question can be exercised to clarify some obscurity in the question referred, or to pinpoint the real issue between the taxpayer and the Department or for similar other reasons: it cannot be exercised for reopening an enquiry on questions of fact or law which is closed by the order of the Tribunal. (See CIT v. Smt. Anusuya Devi (1968) 68 ITR 750 (SC)). The same judgment also holds that the High Court is not bound to advise the Tribunal on a question which did not arise-out of the order of the Tribunal merely because the High Court called upon the Tribunal to state a case on that question.

In the same vein, a judgment of this Court in CIT v. Basanta Kumar Agarwalla (1983) 140 ITR 418" has held -that (headnote): "The question must be a disputed or disputable question of law. The object of a reference is to get a decision from the High Court on a problematic or debatable question and not on an obvious and simple point of law, although somehow the determination is somewhere linked up with a provision of law. The meaning of the term 'question', in the context, means a subject or point of investigation, examination or debate, a problem, as a delicate or doubtful question. The Tribunal need not refer every 'point of law'. The Tribunal is obliged to refer only a question of law which calls for investigation, examination, debate or when it is a dubious problem. However, if a point of law decided by the Tribunal is positive, certain, definite and sure, there is no obligation on the part of the Tribunal to refer the matter; as the point cannot be termed as a question of law. When a decision is apparently correct and there is no scope for any debate or dispute or difference, it does not fall within the expression 'a question of law"'.

If the expenditure incurred for replacement of tea bushes that have died or become permanently useless in an arp4 the tea garden and if the area has not previously been abandoned, .the gala High Court in CIT v. Mahavir Plantations Ltd. (1995) 213 ITR 485 has held that the expenditure is allowable under Rule 8(2) of the Income-tax Rules, 1962, and the Tribunal was right in allowing deduction of the expenditure on replacement of tea bushes. No question of law arose from the order.

What is the scope and jurisdiction of the High Court to examine the findings of facts contrary to one given by the Tribunal and how far the High Court can interfere under section 256(1) if the findings or conclusion of the Tribunal are perverse. This is what the Supreme Court said in Kilasho Devi Burman (Smt.) v. CIT (1996) 219 ITR 214 (headnote):

"The High Court in a reference under the taxation statutes exercises advisory jurisdiction in regard to questions of law. It is only when it has before it a question that asks whether the Tribunal has, upon the evidence on record before -it, come to a conclusion which is perverse, that it may go into facts, for this is a question of law. A conclusion is perverse only if it is such that no person, duly instructed, could, upon the record before him, have reasonably come to it. "

For the foregoing reasons on the statements of case and the findings of facts as recorded by the Tribunal which can by no stretch of imagination be said to be unreasonable much less perverse, the question as referred does not arise, therefore, no question of our opinion thereon.

Reference answered accordingly.

M.B.A./4066/FC Reference answered.

2000 P T D 2034

[235 I T R 461]

[Gauhati High Court (India)]

Before N. C. Jain, Actg. C. J. and P. G. Agarwal, J

ROOPCHAND MANOJ KUMAR

Versus

COMMISSIONER OF INCOME-TAX

I. T. R. No. 12 of 1995, decided on 20th August, 1998.

Income-tax---

----Cash credits---Genuineness of cash credits---Income-tax Officer adding credit in names of two minor girls to income of assessee-firm---Creditors genuine persons and identity of creditors -proved---Creditworthiness of creditors proved as amount of loan was accumulation of income on account of customary gifts in Hindu society received by minor girls ---Assessee-firm belonged to maternal uncle of creditors---Cash credits genuine and amount cannot be added to income of assessee---Indian Income Tax Act, 1961, S.68.

In the course of the assessment proceedings for the assessment year 1987-88, 'the Income-tax Officer found two cash credit entries in the names of two minor girls of Rs.9,000 each in the books of the assessee-firm and called upon the assessee to produce the two creditors. The Income-tax Officer being dissatisfied with the statement of the guardian of the minors added the amounts to the income of the assessee. The Commissioner of Income-tax (Appeals) affirmed the order of the Income-tax Officer. The Tribunal affirmed the order of the Commissioner of Income-tax (Appeals). On a reference:

Held, that the two creditors were genuine persons and the identity of the creditors had been proved. In Hindu society generous gifts in cash and kind are given to young children on the occasion of Dipawali, Dussera, Raksha Bandhan, etc. As regards the creditworthiness of the creditors, the guardian of the minors had stated that the amount of loan was accumulation of income on account of customary gifts received by the two young ladies, who lost their father at an early age. Since the amount involved in the loan advanced to the assessee by the minors was only a small amount of Rs.9,000 each, it could not be said that the creditors would not have accumulated that much amount during the period in question. The gifts were received by the minors on various occasions each year and for 12/14 years. Therefore, it could not be said that the creditworthiness of the creditors had not been established. The assessee-firm belonged to the maternal uncle of the creditors and hence the investment of the amount by the assessee in its own firm and paying them interest was a genuine transaction. Therefore, the assessee had satisfactorily discharged the primary onus which lay on it to prove the nature and source of the credits. Therefore, the cash credits could not be added to the income of the assessee.

CIT v. Anusuya Devi (Smt.) (1968) 68 ITR 750 (SC); CIT v. Precision Finance (Pvt.) Ltd. (1994) 208 ITR 465 (Cal.); CIT v. United Commercial and Industrial Co. (P.) Ltd. (1991) 187 ITR 596 (Cal.) ref.

R.K. Joshi and Mrs. U. Chakrawarthy for the Assessee.

U. Bhuyan for the Commissioner.

JUDGMENT

P.G. AGARWAL, J.---Under section 256(2) of the Income Tax Act, 1961, as per direction of this Court, the Appellate 'tribunal has referred the following question to this Court:

"Whether, on the facts and circumstances of the case, the assessee had discharged its onus as required under section 68 of the Income Tax Act, 1961, in relation to the two cash credits of Rs.9,000 each from Smt. Probha Bothra and Kumari Sonita Bothra?"

The relevant facts are that in the course of assessment proceedings for the year 1987-88, the Income-tax Officer was not satisfied about the genuineness of the two entries of cash credit in the name of Smt. Probha Bothra and Kumari Sunita Bothra of Rs.9,000 each. The Income-tax Officer called upon the E6sessee to produce the creditors, whereupon one Kamal Chand Bothra, elder brother and legal guardian of the two minor girls, appeared and the statement under section 13 1' of the Act was recorded. The Income-tax' Officer, however, was not satisfied and was of the view that the above amounts are not genuine transactions and added the same to the income of the assessee.

The Commissioner of Income-tax (Appeals) was also of the opinion that though the identities of the creditors have been proved but the credit worthiness of the creditors and genuineness of the loans have been proved and the Income-tax Officer was justified in adding a sum of Rs.18,000. The assessee made another futile attempt before the Income-tax Appellate Tribunal. Aggrieved by the decisions, the assessee approached this Court and the above reference was directed to be made.

We have heard learned counsel for both the parties.

Mr. U. Bhuyan, learned counsel for the Revenue, has raised a preliminary objection to the effect that in the present reference no question of law is involved and, as such, this Court may decline to answer the question. The question before us is, whether the assessee could discharge his onus under section 68 of the Income-tax Act? The facts are definitely involved to answer the above question but that does not make it a pure question of fact. Relying on the decision of the apex Court in the case of CIT v. Smt. Anusuya Devi (1968) 68 ITR 750, we reject the preliminary objection.

This is a case of cash credit and the primary burden is, on the assessee. In the case of CIT v. United Commercial and Industrial Co. (P.) Ltd. (1991) 187 ITR 596 (Cal.), reliance on which has 'been placed by learned counsel for the Revenue, the Calcutta High Court has laid down the following three propositions.

The assessee must prove---

(i) identity of creditors, (ii) their creditworthiness, and

(iii) the genuineness of the transaction.

In the instant case, there is no dispute at the Bar that the two creditors, Smt. Probha Bothra and Kumari Sunita Bothra, are genuine persons. Even the Income-tax Officer was of the opinion that the identity of the creditors has been proved. As regards the creditworthiness of the creditors, it has been stated by the legal guardian that the amount of loan was accumulation on account of customary gifts received by these two young ladies, who lost their father at an early age. Although there is no direct material as regards the age of the two creditors, we find from the statement under section 131 of the Act that out of the two sisters, one was married in the year 1987 itself, which means, that she was of marriageable age. At the relevant time, the younger sister was reading in school. It is well-known that in our society, particularly in Hindu society, gifts in cash and kind are given to the young kids. Such gifts become generous on compassionate grounds. The gifts are generally given on the occasion of Dipawali, Dussera. Raksha Bandhan, etc., and considering the age and the amount involved, that is, a sum of Rs.9,000 only, it cannot be said that the creditors would not have accumulated that much amount during the above period. The Commissioner of Income-tax (Appeals) has observed that the creditors could have submitted a list of donors and the Tribunal, on the other hand, has stated that evidence, like affidavits from the relatives who paid the gifts, could have been produced. .In cases where the gift amount does not run into four or five figures, generally no record or list is maintained. Moreover, this is not a case of receipt of gifts on one occasion, like marriage, etc. Gifts were purportedly received on various occasions, each year and for 12/14 years. Thus, considering the facts and circumstances of the case, it cannot be said that the credit worthiness in respect of a sum of Rs.9,000 each by the two creditors has not been established.

As regards the genuineness of the transaction, it is submitted that the assessee-firm belongs to the own maternal uncle of the two creditors. Hence, if the assessee offered to invest their savings in their own firm and paying them interest at 18 percent., there was nothing to- disbelieve the transaction. There is no requirement of law that the amount should have been paid by way of cheque. Confirmation letters were duly produced before the Income-tax Officer.

Considering the facts and circumstances of the case, in our view, the assessee satisfactorily discharged the primary on us which lay on him to prove the nature and source of the credits. There cannot be any inference under the law that the confirmatory letters given by the assessee are bogus.? Learned counsel for the Revenue has relied on a decision of the Calcutta High Court in the case were of? CIT v. Precision Finance (Pvt.) Ltd.(1994)208 ITR 465.The facts of the case were altogether different as in that case the Assessing Officer had conducted enquiries through the inspector; but in the instant case, no enquires were made by the Revenue.

In view of the foregoing discussion, the reference is answered against the Revenue and in favour of the assessee.

M.B.A./4089/FC???????????????????????????????????????????????????????????????????????????????? Reference answered.

2000 P T D 2538

[236 I T R 978]

[Gauhati High Court (India)]

Before D. N. Chowdhury, J

GUPTA AGRO-FARM and others

versus

COMMISSIONER OF INCOME-TAX and others

Civil Rules Nos.464 and 465 of 1998, decided on 12th February, 1998.

Income-tax---

----Writ---Revision---Commissioner---Powers of Commissioner--­Commissioner setting aside assessment order of ITO with direction to recompute same---Assessing Officer completing fresh assessment ---CIT issuing notice to set aside assessment order on ground that Assessing Officer failed to direct himself to directions contained in CIT's earlier order---Notice issued to show-cause as to why power under S.263 should not be exercised--­Assessee could raise those points before CIT himself instead of filing writ petition---Writ petition not maintainable---Indian Income Tax Act, 1961; S.263---Constitution of India, Art. 226.

For the assessment years 1994-95 and 1995-96 assessment orders were passed by the Assessing Officer under section 143(3) of the Income Tax Act, 1961, against the petitioners. The Commissioner of Income-tax in exercise of his powers under section 263 of the Act set aside these assessment orders with a direction to recompute the same as per law after carrying out thorough investigation on the agricultural income as directed in the said order. The Assessing Officer thereafter passed two assessment orders for the two assessment years in question. The Commissioner of Income-tax thereafter issued notices in exercise of his power under section 263 of the Act calling upon the petitioners to show cause in writing as to why the assessment orders should not be set aside -on the ground that the Assessing Officer failed to direct himself to the directions contained in the earlier order of the Commissioner of Income-tax under section 263. On writ petitions challenging the notices of the Commissioner:

Held, that the order under section 263 is appealable under section 253(1)(c) of the Act before the Income-tax Appellate Tribunal which can thereafter be taken up by way of a reference under section 256. The Commissioner of Income-tax at this stage only issued notices under section 263 to the petitioners, to show cause before him. The petitioners instead of raising these points in the writ petitions could very well have taken up these points before the Commissioner of Income-tax who could pass necessary orders thereafter in accordance with law. The Commissioner in his notices only gave his tentative reason for his proposal to exercise the power under section 263. The facts enumerated were matters which could be verified and evaluated by the Commissioner of Income-tax involving the questions of fact as well. Therefore, the writ petitions were not maintainable.

CIT v. Gabriel India Ltd. (1993) 203 ITR 108 (Bom.) and Smt. Daljeet Kaur v. CIT (1990) 184 ITR 149 (Gauhati) ref.

R. Gogoi,. Dr. A. K. Saraf, R. K: Joshi, K. K. Gupta and R. K. Agrawalla for Petitioners.

U. Bhuyan for Respondents

JUDGMENT

This is an application under Article 226 of the Constitution of India arising out of an order, dated January 19, 1998, passed by the Commissioner of Income-tax, North Eastern Region, Shillong, proposing to take action under section 263 of the Income Tax Act, 1961.

For the assessment years 1994-95 and 1995-96 assessment orders were passed by the Assessing Officer under section 143(3) of the Act. The Commissioner of Income-tax by his earlier order, dated February 21, 1997, in exercise of his power under section 263 of the Act set aside the assessment orders for the assessment years 1994-95 and 1995-96 with a direction to re-compute the same as per law after carrying out thorough investigation on the agricultural income as directed in the said order. The Assessing Officer thereafter passed two assessment orders for the assessment years mentioned above and completed the assessment. The Commissioner of Income-tax thereafter issued the impugned notice proposing to exercise his power under section 263 of the Act to set aside the order on the ground that the Assessing Officer failed to direct himself to the directions contained in the earlier order. The above order is under challenge before this Court.

Mr. R. Gogoi, learned counsel appearing on behalf of the petitioner, submitted that the power under section 263 is not an arbitrary power and the same is to be exercised strictly in conformity with the statutory provisions. The power under section 263 is a power conferred on the revisional authority to suo motu revise an order only on fulfilment of the conditions precedent as enumerated in the section itself. The power, submitted Mr. Gogoi, cannot be exercised for the purpose of making a roving and fishing enquiry. In the instant case, according to learned counsel, the Commissioner, at the first instance set aside the order of the assessment and directed the Assessing Officer to make, assessment in terms of the law and in compliance therewith the Assessing Officer passed the assessment order. The Commissioner of Income-tax was only exercising a suo motu revisional power and that power cannot be equated with the appellate power.

Mr. U. Bhuyan, learned counsel for the Revenue, on the other hand, submitted that the impugned notice was issued by the respondents in exercise of power conferred by the Act itself and there is no excess of jurisdiction or failure of jurisdiction. Mr. Bhuyan also submitted that the impugned order only asked the petitioner to show-cause as to why the power under section 263 should not be exercised and the petitioner was advised to submit a written statement and to appear for hearing. It was for the petitioner to avail of that opportunity for passing necessary order.

During the course of the argument Mr. Gogoi referred to a decision of this Court Smt. Daljeet Kaur v. CIT (1990) 184 ITR 149 and CIT v. Gabriel India Ltd. (1993) 203 ITR 108 (Bom). In fact these were rather held as appeal and arose out of appellate authority and, therefore, those cases had no bearing at this stage.

Section 263 of the Act corresponds to subsections (1) and (2) of section 33 of the 1922 Income-tax Act, conferring jurisdiction on the Commissioner to call for and examine the record of any proceedings under the Act and pass such orders as the circumstances demand whenever there is any order prejudicial to the Revenue. The power conferred under section 263 though discretionary in nature, the authority is required to act with objectivity and responsibility. It is not a arbitrary power which can be exercised according to the whim or fancy of the officer concerned.- The power is quasi judicial in nature. The Commissioner while exercising the power under section 263 is required to act justly and fairly. The power is to be exercised objectively and dispassionately and thereafter decide the same in accordance with law. The power is to be exercised in the interests of justice limited not only to the assessee but also to the Revenue. The Legislature, therefore, provided on the administrative mechanism to the higher executive to revise the order in the situation enjoined under section 263 since no provision for appeal was given by the Act to the Department.

The order under section 263 is appealable under section 253(1)(c) of the Act thereafter before the Income-tax Appellate Tribunal which can thereafter be taken up by way of a reference under section 256. The Commissioner of Income-tax at This stage only issued notice under section 263 and for that matter the impugned notice is issued on the petitioner to show cause before him. The petitioner instead of raising these points in this writ petition could very well-take up those points before the Commissioner of Income-tax who could pass necessary order thereafter in accordance with law. The Commissioner in his order only gave his tentative reason for his proposal to exercise the power under section 263. The facts enumerated above are matters which can be verified and evaluated by the Commissioner of Income-tax involving the questions of fact as well. As such no injustice is caused by the impugned order.

Considering the facts and circumstances of the case, I am not inclined to exercise my power under Article 226 of the Constitution. Accordingly, the writ petition stands dismissed.

M.B.A./4181/FC Petition dismissed.

2000 P T D 2908

[234 I T R 603]

[Gauhati High Court (India]

Before N. C. Jain, Actg. C. J. and P. C. Phukan, J

COMMISSIONER OF INCOME TAX

versus

PURBANCHAL PRAIBHAN GOSTHI

Income-tax Reference No. 18 of 1992, decided on 22nd October, 1998

Income-tax---

----Appeal to Appellate Tribunal---Filing of memorandum of cross-objections by aggrieved party against order of Appellate Authority---Cross-objections need not be confined to points taken by opposite-party in main appeal--­No difference between an appeal and a cross-objection---Indian Income Tax Act, 1961, S 253(4)---Indian Income Tax (Appellate Tribunal) Rules, 1963, R.22.

A combined reading of section 253(4) of the Income Tax Act, 1961, and rule 22 of the Income-tax (Appellate Tribunal) Mules, 1963, makes it abundantly clear that any party aggrieved against the order of the appellate authority can file a memorandum of cross-objections against any part of the order of the Deputy Commissioner (Appeals). The cross-objections need not be confined to the points taken by the opposite-party in the main appeal. The words "against any part of the, order of the Deputy Commissioner" are wide enough to cover a situation where the Revenue has challenged the order of the Deputy Commissioner (Appeals) on the merits regarding the quantum of the tax liability, but the assessee in cross-objections can challenge the order of the Deputy Commissioner not only on the quantum of tax amount but on other points also. On a point of law there is no difference between but .an appeal and a cross-objection. The only difference if at all there is any is that an appeal can be preferred within 60 days from the date of receipt of the order whereas a cross-objection can be filed within a period of 30 days of the date service of the appeal by the opposite-party.

G. K. Joshi and U. Bhuyan for the Commissioner.

K. H. Choudhury for the Assessee.

2000 P T D 3612

[238 I T R 603]

[Gauhati High Court (India)]

Before Brijesh Kumar, C. J. and P. C. Phukan, J

COMMISSIONER OF INCOME-TAX

Versus

M.L. AGARWALLA

Civil Rule No. 14(M) of 1998, decided on 4th June, 1999.

(a) Income-tax--

----Reference---Not necessary where point settled by decision of Supreme Court or same High Court---Or where Court satisfied that Tribunal has decided question of law correctly---Indian Income Tax Act, .1961, S.256.

Every question of law need not be stated and referred for opinion of the High Court. In a case where the question of law stands settled by a decision of the Supreme Court, there would hardly be any occasion to direct the tribunal to state the case and refer the same to the High Court. Similarly, if the controversy stands settled by a decision of the same High Court, in that, event too there would be no occasion to refer the question which may come for consideration-thereafter, unless the Court feels that the view taken in the earlier decision of the same Court requires reconsideration. It would be quite correct on the part of the Tribunal or the High Court itself to follow the earlier decision of the High Court.

Similarly, where the Court feels that the Tribunal has taken the correct view, there would be no justification to ask the Tribunal to state the case and refer the matter for the opinion of the High Court. It would be necessary only where the High Court finds that the view taken by the Tribunal is not the correct view.

(b) Income-tax---

Investment allowance---Manufacture---Ultrasound equipment with air­conditioner and voltage stabiliser---Eligible for allowance---Resulting print is article which is manufactured---Indian Income Tax Act, 1961, S.32A.

For the assessment year 1989-90, the assessee claimed the investment allowance under section 32A of the Income Tax Act, 1961, in respect of ultrasound medical diagnostic electronic equipment, voltage stabiliser and airconditioner. The Assessing Officer on the ground disallowed this that no new article was manufactured thereby. On appeal, the appellate authority allowed the claim. This was confirmed by the Tribunal.' On an application to direct reference:

Held, dismissing the application, that the Deputy Commissioner of Income-tax(Appeals) had rightly come to the conclusion that ultimately the print which was the outcome of the whole process of the equipment would be covered by the term "manufacture of article". A special type of film or, material is to be fed which is blank, but after the processing it is obtained with the photographs/prints of the organs and the data related to such organs. It is not the same thing as fed into the machine as raw materials. The Deputy Commissioner of Income-tax (Appeals) took the correct view in holding that investment allowance was admissible under section 32A of the Income-tax Act to the assessee and this order had been rightly upheld by the Tribunal. The Tribunal had also committed no mistake in rejecting the application under section 256(1) of the Act.

CIT v. Air Survey Co. of India (P.) Ltd. (1998) -232 ITR 707 (Cal.); CIT v. Deepak Family Trust (No. 1) (1995) 211 ITR 575 (Guj.); CIT v. Godavari Corporation Ltd. (1993) 200 ITR 567 (SC); CIT v. Hans Raj Gupta & Co. (P.) Ltd. (1990) 183 ITR 72 (Delhi); CIT v. Mitra (Dr.) (L.C.) (1998) 234 ITR 805 (Pat.); CIT v. Prasad Film Laboratories (P.) Ltd. (1997) 225 ITR 348 (AP); CIT v. Pressure Piling Co. (India) (P.) Ltd. (1993) 204 ITR 412 (SC); CIT v. Rajasthan Spinning and Weaving Mills Ltd. (1993) 202 ITR 1012 (Raj.); CIT v. Srinivasa Setty (B.C.) (1981) 128 ITR 294 (SC); CIT v. Trinity Hospital (1997) 225 ITR 178 (Raj.) and CIT v. Upasana Hospital (L997) 225 ITR 845 (Ker.) ref.

G. K. Joshi and U. Bhuyan for Petitioner

R. Goenka and R.K. Agarwalla for Respondent.

2000 P T D 54

[231 1 T R 598]

[Gujarat High Court (India)]

Before Rajesh Balia and M. S. Shah, JJ

COMMISSIONER OF INCOME-TAX

versus

RAIPUR MANUFACTURING CO.

Income-tax Reference No.321 of 1983, decided on 10th October, 1995.

(a) Income-tax---

----Business expenditure---Royalty---For use of Trade Mark---Allowable as revenue expenditure---Indian Income Tax Act, 1961, S.37.

Royalty paid by the assessee-company for use of the trade mark "Tebilized" was revenue expenditure and allowable as deduction.

CIT v. Ashoka Mills Ltd.(1996) 218 ITR 526 (Guj.) fol.

(b) Income-tax---

----Business expenditure---Amounts not deductible---Company—­Reimbursement of medical expenses of Managing Director---To be taken into consideration for purpose of is allowance---Indian Income Tax Act, 1961, S. 40(c).

Sum paid to the Managing Director for reimbursement of medical expenses was to be included while computing the disallowance under section 40(c) of the income Tax Act, 961 Gujarat Steel Tubes Ltd. v. CIT (1994) 210 ITR 358 (Guj.) fol.

B. J. Shelat instructed by Messrs M. R. Bhatt, & Co. for the Commissioner.

J. P. Shah for the Assessee.

2000 P T D 148

[231 1 T R 779]

[Gujarat High Court (India)]

Before K. Sreedharan, C. J. and M. S. Shah, J

SARADBHAI M. LAKHANI

versus

INCOME-TAX OFFICER

Special Civil Applications Nos.3827 and 3829, of 1997, decided on 5th December, 1997.

(a) Income-tax---

----Reassessment--.Information that income has escaped assessment---Change of opinion of Assessing Officer is not a ground for reassessment---No reference to High Court decision in reasons recorded for reassessment--­Reference to High Court decision in the form of affidavit could not be taken into account---Assessee disclosing receipt of income---Assessment of such income---Reassessment based on change of opinion was not valid---Indian Income Tax Act, 1961, Ss. 147 & 148.

Before issuing notice under section 148 of the Income Tax Act, 1961,the officer should have reason to believe that income has escaped assessment. The reason to believe can never be the outcome of a change of opinion. The validity or otherwise of the reason should-.be gone into on the basis of the facts mentioned therein. It is not open to the authorities to justify the action on the basis of further reasons supplied in the form of affidavits.

Where the action of an executive authority is--without jurisdiction and is likely to subject one to lengthy proceedings and unnecessary harassments, the High Courts are to issue appropriate orders to prevent such consequences.

The assessees were partners of a firm B. The firm was dissolved on October 24, 1984, when a private limited company was incorporated specifically with the object of purchasing the business of the firm. Before the firm was dissolved, it had undertaken work of the Daman Ganga Project and completed the same on March 22, 1983. On November 5, 1984, the business of the firm was transferred to the private limited company except the right to receive pending claims in connection with the Daman Ganga Project. The arbitrator, who went into the claim passed an award for Rs.1,91,31,690 on November 6,1986, in favour of the firm. The partners applied to the Count for getting the amount directly. The payment was made on April 21, 1987, to the four partners of the erstwhile firm each getting Rs.47,82,922. The partners showed the receipt of the amount in their returns of income and claimed exemption as capital receipt. The Deputy Commissioner (Assessment), Special Range, where the firm was assessed, passed an order, making addition of Rs.1,91,31,690 and intimated the share of income to the respective Assessing Officers, where the partners were assessed, to be assessed in the hands of the partners. Consequently, an order under section 155 was passed on July 24, 1992, when the shares of award were assessed to tax after deduction of the firm's tax. The firm preferred an appeal before the Commissioner of Income-tax (Appeals),who confirmed the addition. Aggrieved by the order, the firm went in appeal to the Tribunal and the case was still pending. Meanwhile notice was issued to the partners under section 148 of the Act. On a writ petition to quash the notice:

Held, that the entire reasons recorded by the Income-tax Officer, to support his belief that income had escaped assessment did not make any reference to the decision in Banyan & Berry v. CIT (1996) 222 ITR 831. In the absence of mention of that case in the order, it was not open to the Officer to justify the order by reference to the said decision. The documents and assessment orders made it clear that the assessees had placed the entire facts before the Assessing Authority. The authority took note of all the income which accrued during the year 1988-89 and passed the orders of assessments. Since the entire facts relating to the income were made known to the Assessing Authority and no objective reason had been given for issuing a notice under section 148 the notices issued under section 148 were liable, to be quashed.

(b) Writ---

----Powers of High Court---High Court can issue writ when authorities act without jurisdiction---Constitution of India, Art.226.

Banyan & Berry v. CIT (1996)' 222 ITR 831 (Guj.); Calcutta Discount Co. Ltd. v. ITO (1961) 41 ITR 191 (SC) and CIT v. Ratanlal Lallubhai (1978) 112 ITR 985 (Guj.) ref.

J. P. Shah for Petitioner.

Manish R. Bhatt for Respondent No. 1.

2000 P T D 237

[238 I T R 689]

[Gujarat High Court (India)]

Before R. K. Abichandani and A. R. Dave, JJ

COMMISSIONER OF WEALTH TAX

versus

RAJIV I. MODI (MINOR)

Wealth Tax Reference No. II of 1982, decided on 21st August, 1998.

Wealth tax---

----Assets---Firm---Partner bequeathing his right, title and interest in firm and amounts outstanding to his credit to a. minor---Death of partner--­Subsequent agreement between guardian of minor and firm---Firm agreeing to pay- monthly sum to minor---Minor acquired assets consisting of right, title and interest and share of partner in firm on his death---Subsequent agreement between guardian of minor and firm was not relevant---Indian Wealth Tax Act, 1957.

The assessee was the legal heir under the will of one G, who was one of the partners in a firm and who passed away on October 10,1967, bequeathing the right, title and interest that he had in the said firm and the amount outstanding to his credit with the said firm, as also his share in the property of the firm to the assessee, who was the son of his niece and who was a minor. After the death of G, a fresh lease deed was executed on January 1,1968, in which it was recited that the father of the assessee, who was his natural guardian, had agreed that the minor assessee would not exercise his rights and instead would allow the goodwill and other assets representing the share of 15 percent. of G to remain in the firm, on the firm agreeing to paying certain periodical sum to the minor. In his return of wealth for the assessment year 1969-70, the assessee valued the goodwill at Rs.36,000 and Rs.1,884, contending that the amount should not be added in the net wealth of the assessee. The Wealth Tax Officer did not accept this contention on the ground that the assessee had inherited the value of goodwill as on October 10,1967, when G passed away. In the returns filed by the assessee for the years 1970-71 to 1973-74 also the assessee contended that the value of Rs.37,884 which was shown, should not be included in his wealth, but the same was not accepted. The Tribunal held that the assessee had no interest in the partnership firm except to receive Rs.2,500 per month under the agreement, dated January 1,1968. On a reference:

Held, that the assessee acquired the asset consisting of the right, title and interest and the share of the deceased G when it devolved on him on October 10,1967 which he was entitled to recover from the firm and the amount of Rs.2,500 per month referred to in the agreement, dated January 1,1968 which was executed after the asset had devolved on the assessee, could not be taken to be the value of that asset, as erroneously decided by the Tribunal. The assessee, who was a minor, could not have become a partner in the firm. He was never admitted to the benefits of the partnership firm. He, therefore, did not have any interest in the firm in the capacity of a partner or a minor admitted to the benefits of a partnership. He was only entitled to the share of G in the firm, which had devolved on him under the will and had become his property when the bequest opened on October 10, 967, which alone he was entitled to recover from the firm. Since the position of his rights already crystallised on October 10,1967, it was immaterial whether the partnership was at will. Since the assessee was not a partner in the firm nor was he admitted to the benefits of the partnership, the question of his interest in the firm being precarious did not arise. The Tribunal erred in law in directing the Wealth Tax Officer not to include in the wealth of the assessee any amount towards the share of the assessee in the partnership firm on account of the will of the deceased partner.

Mihir Joshi instructed by Manish R. Bhatt for the Commissioner.

J. P Shah for the Assessee.

2000 P T D 563

[232 I T R 270]

[Gujarat High Court (India)]

Before R. K. Abichandani and Kundan Singh, JJ

COMMISSIONER OF INCOME-TAX

versus

SAURASHTRA BOTTLING (PVT.) LTD

Income-tax Reference No.206 of 1985, decided on 13th February, 1998.

Income-tax---

----Depreciation---"Plant", meaning of ---Assessee carrying on business of soft drinks---Bottles and wooden shells (crates) purchased for bottling and distribution of products--Bottles and crates remain in ownership of assessee and without them impossible to carry on business of manufacturing soft drinks---Are tools and instruments to attain purposes of business of assessee---Bottles are not used up in business and hence not supplies or stock-in-trade---No rule that depreciation allowance permissible only in respect of plant which has permanent durability-.--Bottles and crates are plant and entitled to 100 percent. depreciation in view of fact that their cost is less than Rs. 750---Indian Income Tax Act, 1961, Ss. 32 & 43(3).

The provisions regarding depreciation allowance get attracted when a plant is used for the business of the assessee. The expression "plant" has not been extensively defined and section 43(3) of the Income Tax Act, 1961, provides only an inclusive definition, which has the effect of adding items mentioned there under to the meaning of the word "plant" as understood in its ordinary sense. The word "plant" as defined in the Oxford English Dictionary means "fixtures, implements, machinery and apparatus used in carrying on any industrial process". The word "apparatus" would mean the equipment needed for a particular purpose or function, and the word "equipment" would mean the necessary articles, etc., for a purpose. The word "plant" in its ordinary sense would, therefore, mean the equipment needed for a particular purpose or function. Such equipment can be any article, which may be necessary for a purpose. In the context of business, therefore, a plant would mean any equipment or article necessary for the purpose of that business. The articles or equipment which it may become doubtful to read into the plain meaning of the word "plant" are added to that meaning so that no doubt may arise in that regard.

During the period relevant to the assessment year 1978-79, the assessee-company which derived income from the business of bottling soft drinks, had purchased bottles and wooden shells (crates) for bottling and distribution of its products. The assessee claimed that these bottles and crates were "plant" within the meaning of section 43(3) of the Act, and since the cost of each individual item was below Rs.750, depreciation at 100 percent. should be allowed to the assessee-company. The Income-tax Officer allowed she claim of the assessee. The Commissioner of Income-tax, in exercise of his powers under section 263 of the Act, set aside the assessment order with a direction to the Income-tax Officer to reframe the assessment in which bottles and crates were not considered to be plant. The Tribunal held that the bottles and crates constituted plant and were entitled to 100 percent. depreciation as the cost of each bottle and crate was less than Rs.750. On a reference, the Revenue contended that the bottles and crates could not be said to be articles of-durable nature and hence could not be classified as plant.

The Revenue further contended that the bottles and crates should be treated as supplied or stock-in-trade:

Held, (i) that the bottles and crates were articles necessary for the purpose of being used as containers for liquids and, therefore, would be "plant" even in the ordinary sense of the word "plant". The nature of the business of the assessee of manufacturing soft drinks required beverages to be bottles so that they could be supplied to the purchasers.

(ii) That the bottles and crates remained in the ownership of the assessee and they were not intended to be sold when the soft drinks were supplied to the purchasers who were required to return them to the assessee. Having regard to the wide import of the word "business" when these bottles and shells (crates) were used for bottling soft drinks so that they could be supplied to the purchasers, they were obviously used as tools for the purpose of business of the assessee.

(iii) That the very idea underlying section 32 of the Act providing for depreciation allowance took note of the fact that machinery or plant would depreciate. it could not be said that depreciation allowance would be permissible only in respect of a plant which has permanent durability. In the case of a plant, it would wear out or depreciate over a period of time, depending upon various factors. Thus, the durability of a plant will vary having regard to the purpose for which it is used and the manner in which it is used. Therefore, no hard and fast rule can be laid down of a durability test in the context of a period of time. Therefore, the contention that bottles and shells (crates) should be treated as non-durable items and, therefore, not plant, could not be accepted.

(iv) That bottles and crates were used for the purposes of his business as a tool of the assessee's trade and were, therefore, plant and the assessee would be entitled to hundred percent. depreciation on them.

Scientific Engineering House (Pvt.) Ltd. v. CIT (1986) 157 ITR 86 (SC) applied.

CIT v. Elecon Engineering Co. Ltd. (1974) 96 ITR 672 (Guj.); CIT v. Taj Mahal Hotel (1971) 82 ITR 44 (SC) and CIT v. Sri Krishna Bottlers (Pvt.) Ltd. (1989) 175 ITR 154 (AP) fol.

CIT v. Margadarsi Chit Fund (P.) Ltd. (1997) 227 ITR 646 (AP); CIT v. Prem Nath Monga Bottlers (P.) Ltd. (1997) 226 ITR 864 (Delhi) and CIT v. Elecon Engineering Co. Ltd. (1;987) 166 ITR 66 (SC) ref.

Mihir Joshi and Manish R. Bhatt for the Commissioner.

S.N. Soparkar for the Assessee.

2000 P T D 938

[232 I T R 646]

[Gujarat High Court (India)]

Before R. K: Abichandani and A. R. Dave, JJ

COMMISSIONER OF INCOME-TAX

versus

ATUL PRODUCTS LTD

Income-tax Reference No. 235 of 1983, decided on 24th December, 1997

Income-tax---

----Rectification of mistakes---Depreciation---Special deduction for new industrial undertaking---Only patent and obvious mistakes can be rectified--­Section 154 is not applicable where issue is debatable---Question whether assessee was entitled to extra shift allowance was debatable---Question whether a new unit had been started was debatable---Extra shift allowance and special deduction under S.80J could not be withdrawn in rectification proceedings---Indian Income Tax Act, 1961, Ss.32, 80J & 154.

The original assessment for 1971-72 was made under section 143(3) of the Income Tax Act, 1961. Subsequently, the Income-tax Officer started rectification proceedings. According to the Income-tax Officer, on several items of machinery installed in the later half of the year, excess extra shift allowance was allowed as against the correct extra shift allowance admissible in proportion to the days for which the items of machinery were used. The Income-tax Officer considered this as a mistake apparent from the record, which he proposed to rectify. The Income-tax Officer also observed that the naphthalene intermediates expansion plant established in the year 1970 by the assessee was an expansion of the existing NI plant, which was established in 1965, and that as the net effect was a loss of Rs.10,09,816, deduction under section 80J was wrongly allowed in the assessment. The Income-tax Officer, therefore, proposed to withdraw the relief under section 80J granted in the original assessment. The Tribunal held that the matter was highly debatable on both the counts warranting no action under section 154 of the Act, On a reference:

Held, (i) that the material on record disclosed that the NI expansion plant of the assessee was started under a fresh licence for manufacturing a distinct marketable product "procion" which was not earlier manufactured and that a separate building and machinery were set up for the same for which yen investment of Rs.1.13 crores was made. If on the basis of such facts the original assessing authority took the view that a new industrial undertaking was set up within the meaning of section 80J, it could not be said that any error apparent on the face of the record was committed by the Assessing Officer so as to invoke the rectification power under section 154.

(ii) that in South India Viscose Ltd v. CIT (1997) 227 ITR 286 (SC), the Supreme Court has not held that if a company which is an assessee has several independent factories, all those separate units should be working together to enable the assessee to claim extra shift allowance. The expression "concern" or "factory" in the said decision has obvious' reference to an independent unit and not to all the independent- units of the assessee company. In the instant case, the Revenue was concerned with several independent industrial units of the assessee. The extra shift allowance was to be calculated on the basis of the number of days during which an independent factory as a whole had actually worked double shift or triple shift and the allowance was not required to be calculated on the basis of the number of days a particular item of machinery or plant had worked double shift or triple shift. Both the issues were highly debatable and it could not be said that the Income-tax Officer who had passed the order originally had committed any error apparent on the face of the record warranting rectification proceedings under section 154 of the Act.

South India Viscose Ltd. v. CIT (1997) 227 ITR 286 (SC) ref.

B.B. Nayak for the Commissioner

M.J. Shah for J. P. Shah for Respondent No. 1.

2000 P T D 1348

[239 ITR 36]

[Gujarat High Court (India)]

Before R. K. Abichandani and A. R. Dave, JJ

COMMISSIONER OF WEALTH TAX

versus

PRAMILABEN CHUNIBHAI

Wealth Tax Reference No. 41 of 1982, decided on 1st September 1998.

Wealth tax---

---- Appeal to Appellate Tribunal---Procedure---Procedures under Wealth Tax Act and under Income Tax Act are identical---Difference of opinion between judicial and Accountant Members---Question must be referred to President of Tribunal---Case must be decided according to opinion of majority of Members including those who originally heard it---Judicial and Accountant Members differing in their opinions but not stating it clearly and not referring question to President of Tribunal---Reference returned unanswered­--Indian Wealth Tax Act, 1457, S. 24---Indian Income Tax Act, 1961, S.255.

Under section 24(11) of the Wealth Tax Act, 1957, the provisions of subsections (1), (4) and (5) of section 255 of the Income Tax Act, 1961 have been incorporated by reference and it is provided that those provisions shall apply to the Appellate Tribunal in the discharge of its functions under the Wealth Tax Act; as they applied to it in the discharge of its functions under the Income Tax Act. Under section 255 of the Act, which lays down the procedure of the Appellate Tribunal, it is provided that if the members of the Bench have any difference of opinion on any point, the point is required to be decided according to the opinion of the majority and when the members are equally divided, they are required to state the point or the points on which they differ, and the case is required to be referred to the President of the Appellate Tribunal for hearing on such point or points by one or more of other Members of the Appellate Tribunal and such .points on which the members have differed, are to be decided according to the opinion of the majority of the Members of the Appellate Tribunal, who have heard the case including those who first heard it. Differing opinions of the members who are equally divided do not individually nor collectively, constitute a decision of the Tribunal unless the mandatory provision of subsection (4) of section 255 of the Act is followed:

Held, that, in the instant case, a perusal of the findings given by the Members of the Tribunal showed that though the Judicial Member has purported to concur with the order of the Accountant Member on all the material points on which the findings were given by him he has clearly differed from the findings of the Accountant Member. Since there was no proper decision of the Tribunal the question which had been referred could not be answered.

J. K. Iron and Steel Co. Ltd. v. CIT (1963) 49 ITR 304 (All.) ref.

Manish R. Bhatt for the Commissioner.

J. P. Shah for Respondent No. 1.

2000 P T D 1503

[239 I T R 448]

[Gujarat High Court (India)]

Before R. K. Abichandani and A. R. Dave, JJ

COMMISSIONER OF WEALTH TAX

versus

LALLUBHAI GORDHANDAS CHARITABLE TRUST

Wealth Tax Reference No.6 of 1983, decided on 23rd September, 1998.

Wealth tax---

---- Charitable trust---Exemption---Denial of exemption when aggregate of funds of trust invested in a concern, in which any person referred to in S.13(3) of Income-tax Act has a substantial interest exceeds five percent of capital of that concern---Meaning of expression "capital of that concern"--­Investment of funds in company---"Capital" would mean share capital--­Capital would not include assets or reserves of company---Indian Wealth Tax Act, 1957, Ss. 5 & 21A.

Under section 5(1)(i) of the Wealth Tax Act, 1957, it is provided that wealth tax shall not be payable by an assessee in respect of any property held by him under trust or other legal obligation for any public purpose of a charitable or religious nature in India. Section 21A of the said Act, inter alia, provided that notwithstanding anything contained in clause (i) of sub­section (1) of section 5, where any property is held under trust for any public purpose of a charitable or religious nature in India, and any part of such property or the income of the trust is used or any part of the income of the trust created on or after April 1, 1962, enures for the benefit of any person referred to in subsection (3) of section 13 of the Income-tax Act, wealth tax shall be leviable upon and recoverable from the trustee or manager in the like manner and to the same extent as if the property was held by an individual who is a citizen of India and resident in India for the purposes of the Act at the rates specified therein: Under the second proviso to section 21A, it has been laid down that in a case where the aggregate of the funds of the trust invested in a concern in which any person referred to in subsection (3) of section 13 of the Income-tax Act has a substantial interest as provided in Explanation 3 to that section, does not exceed five percent. of the capital of that concern, the exemption under clause (i) of subsection (1) of section 5 shall not be denied in relation to any property other than such investment, by reason only that the funds of the trust have been invested in a concern in which any person referred to in subsection (3) of section 13 of the Income-tax Act, has such substantial interest. The second proviso is similar to the provisions of section 13(4) of the Income-tax Act. The expression "capital of that concern" which occurs in the second proviso to section 21 A is intended to take within its sweep all the types of concerns in which the trust could invest its funds. The word "capital" will, therefore, take colour from the type of concern to which it is applied. When the concern is a company registered under the Companies Act, 1956, the word "capital" will have to be understood in the context of the provisions of that Act. As provided by section 13(4) of the Companies Act, in the case of a company having a share capital, the memorandum shall state the amount of share capital with which the company is to be registered and the division thereof into the shares of a fixed amount. The word "capital" is used in company law in various senses, but it is properly used to denote the share capital of a company. The nominal capital of a company sets the limit of capital available for issue and, therefore, the issued capital of a company cannot exceed that limit. The nominal capital is strictly speaking not capital at all, since it is only an authority by the shareholders to the directors to create new capital by the issue of shares. The issued capital is on the other hand a reality and not a mere authority to create new capital. The nominal capital must be stated in the memorandum of association and would be equal to nominal value of shares which the directors are authorised to issue. The alteration in the actual value of shares as contrasted with the nominal, does not affect the amount of issued capital and this would apply to the whole concept of share capital in whatever sense that term is used. The capital of a company would mean share capital in the context of the provisions of the second proviso to section 21A of the said Act and the meaning of the word "capital" cannot be made mercurial by attaching it to all the assets that the company may own, nor can it include the reserves of the company, which can at any subsequent time be distributed as dividend. The expression "capital employed" stands on a different footing in the context of the provisions of section 80J of the Income-tax Act read with rule 19A of the Rules framed there under and cannot be projected in the expression "capital of that concern" occurring in the second proviso to section 21A of the Act, the purpose underlying the provisions of section 80J being entirely different from the object sought to be e achieved by the provisions of the second proviso to section 21A of the said Act, and for that matter even the provisions of section 13(4) of the Income­-tax Act:

Held, that the Tribunal was in error in holding that the assessee was entitled to exemption under section 5(1)(i) of the Wealth Tax Act.

CIT v. Lallubhai Gordhandas Mehta Charitable Trust (1994) 207 ITR 104 (Guj.) fol.

Bond v. Barrow Haematite Steel Co. (1902) 1 Ch. 353; Canada Safeway Ltd. v. IRC (1973) 1 Ch. 374; Hoare & Co. Ltd. and Reduced: In re (1904) 2 Ch.208; Lohia Machines Ltd. v. Union of India (1985) 152 ITR 308 (SC); Lubbock v. British Bank of South America (1892) 2 Ch-198; Metal Box Co. of India Ltd. v. Their Workmen (1969) 73 ITR 53; 39 Comp. Cas. 410 and 35 FJR 181 (SC) and Municipal Council of Vizagapatam v. Tea Districts Labour Association (1932) 2 Comp. Cas. 213 (Mad.) ref.

Mihir Joshi with Manish R. Bhatt for the Commissioner.

J. P. Shah with Manish Shah for the Assessee.

2000 P T D 1941

[240 I T R 636]

[Gujarat High Court (India)]

Before R. Balia and A. R. Dave, JJ

COMMISSIONER OF WEALTH TAX

Versus

MOHINIBAI KANAIYALAL

W. T. R. No. 21 of 1983, decided on 15th December, 1998.

Wealth tax---

----Exemption---Interest of member or partner in industrial undertaking belonging to firm or association of persons---Meaning of "industrial undertaking"---Undertaking should be engaged in manufacture or processing of articles---Firm purchasing grey cloth and getting it converted to cloth through outside agencies and selling it---Firm was not an industrial undertaking---Partner of firm was not entitled to exemption---Indian Wealth Tax Act, 1957, S.5(1)(xxxii).

A plain reading of the- Explanation to section 5(1)(xxxii) of .the Wealth Tax Act, 1957, shows that in order that the assessee's share in the value of assets forming part of an industrial undertaking belonging to a firm can be exempt from inclusion in his taxable wealth, the pre-requirement is that the firm must be engaged in the business of (i) generation of electricity or any other form of power, or distribution of electricity or any other form of power, or (2) construction of ships, or (3) manufacture of goods, (4) or processing of goods or (5) in mining. Though the definition is of an industrial undertaking, no definition has been given of the words "manufacture" or "processing". According to the ordinary dictionary meaning, the term "manufacture" means a process which results in an alteration or change in the goods which are subjected to the process of manufacturing leading to the production of a commercially new article. The word "process" means anything done requiring continuous and regular action or succession of actions leading to the accomplishment of some result but one of the requirements is that the activity should involve some operation on some material for conversion into some other stuff. What is necessary in order to characterize an operation as processing is that the commodity must, as a result of the operation, experience some change. The words "engaged in the manufacture" in the said Explanation postulate the assessee's direct involvement in the manufacture. However, it may not be necessary that the assessee should be personally engaged ,in the manufacture. It is sufficient if he employs his own labourers. In cages where the assessee gets the goods manufactured by an outside agency, he cannot be said to manufacture the goods, merely because the assessee pays for the manufacture.

The assessee was a partner in a firm. The business activities of the firm were to purchase grey cloth, its conversion to cloth through outside agencies and sale of the finished products. The assessee in her wealth tax assessment proceedings claimed her share in the firm as exempt under section 5(1)(xxxii) on the ground that the firm was an industrial undertaking. Her claim was rejected by the Wealth Tax Officer but allowed by the Tribunal. On a reference:

Held, that the finding was that the firm had got grey cloth converted into cloth through outside agencies. It was not the case that the outside agency which was processing the grey cloth was working directly under the supervision or control of the firm, in respect of whose assets the assessee claimed exemption, nor was it the case that the processing was done by the labour employed by the firm for a purpose of its own, though not at the factory premises of the firm. Nor was it the case that the processing of the cloth by that outside agency was in any way connected with the carrying on of the business of the firm. No direct involvement of the firm with any processing act had been found to exist. In that view of the matter, the assessee could not be said to have interest in a firm which was engaged in the business of manufacture of goods or processing of goods and, therefore, she was not entitled to claim the benefit of exemption under section 5(1)(xxxii), in respect of her share in the value of its assets .

CIT v. Commercial Laws of India (Pvt.) Ltd. (1977) 107 ITR 822 (Mad.); CIT (Addl.) v. A. Mukherjee & Co. (P.) Ltd. (1978) 113 ITR 718 (Cal.); CWT v. Angadi Veeriah Chettiar (V. O.) (1987) 167 ITR 341 (Mad.); CWT v. Lakshmi (K.) (1983) 142 ITR 6$6 (Mad); CWT v. Mubarak Ali Khan (1980) 123 ITR- 101 (All.) and CWT v. Prenflatabai (Smt.) (1982) 137 ITR 329 (MP) ref. B. B. Naik for Manish R. Bhatt for the Commissioner.

2000 P T D 2119

[235 I T R 264]

[Gujarat High Court (India)]

Before R. K. Abichandani and Kundan Singh, JJ

AMBICA MILLS LTD.

versus

COMMISSIONER OF INCOME-TAX

Income-tax Reference No. 88 of 1983, decided on 3rd April, 1998.

(a) Income-tax---

----Business expenditure---Guarantee commission paid to Bank and ICICI for ensuring deferred payment of purchase consideration of machinery---Is revenue expenditure---Allowable---Indian Income Tax Act, 1961, S.37.

Guarantee commission paid by the assessee to the bank and the for guaranteeing deferred payment of consideration for machinery i from foreign buyers was allowable as revenue. expenditure.

CIT (Addl.) v. Akkamamba Textiles Ltd. (1997) 227 ITR 464 (SC) and CIT v. Sivakami Mills Ltd. (1997) 227 ITR 465 (SC) fol.

(b) Income-tax---

Business expenditure---Company---Disallowance---Telephone facility to Director---Disallowance of one-sixth of expenditure for personal use of director for purpose of S. 40A(5) read with S. 40(c)(i) by Appellate Tribunal---Justified---Indian Income Tax Act, 1961, Ss.40A(5) & 40(c)(i).

There is no warrant for holding that the entire telephone facility was intended only for the personal purpose of the Directors. The decision of the Appellate Tribunal that expenditure up to one-sixth of the telephone expenses was for personal purpose of Directors and was disallowable was justified.

(c) Income-tax---

----Business expenditure=--Company--Disallowance---Amenity or benefit to Director---Reimbursement of medical expenses incurred by Director is a benefit- to Director under S.40(c)(i) and so not an allowable expenditure--­Indian Income Tax Act, 1961, S.40(c)(i).

Reimbursement of medical expenses incurred by the Director is a benefit to -the Director within the meaning of section 40(c)(i) of the Income Tax Act, 1961, and is not an allowable expenditure.

Gujarat Steel Tubes Ltd. v. CIT (1994) 210 ITR 358 (Guj.) fol.

(d) Income-Tax---

----Business expenditure---Company---Insurance on lives of Directors against personal accidents---Policy taken for insuring against liability of company--­Not a voluntary act of Director---Reimbursement of premium not a benefit to Director---Is allowable expenditure---Indian Income Tax Act, 1961, S.37.

If a company had, by taking out a policy of insuring the directors against personal accidents sought in fact to insure itself in respect of the liability that may arise towards the directors as a result of accident, then that situation would be different from a director himself taking out a personal accident insurance under -which he would be obliged to pay the premiums himself and not the company. In the present case, the entire expenses of the insurance premium paid on the insurance policy in respect of managing directors taken by the company was allowable as expenditure of the company. The decision to take the policy was taken by the company. There was nothing on record to show that the Director himself wanted to take the

CIT v. Lala Shri Dhar (1972) 84 ITR 192 (Delhi) applied.

(e) Income-tax---

----Capital or revenue expenditure---Foreign tour expenses---Travel of Directors and employees to setup new projects in Malaysia and Indonesia--­New projects not part of existing units---Is capital expenditure.

The expenditure on foreign tour of the employees and directors was not an allowable revenue expenditure as the purpose of the visit was to set up new projects in collaboration with the Indonesian Government and was, therefore, capital expenditure.

McGaw-Ravindra Laboratories (India)-Ltd. v. CIT (1994) 210 ITR 1002 (Guj.) and Shahibag Entrepreneurs (P.) Ltd. v. CIT (1994) 210 ITR 998 (Guj.) fol.

(f) Income-tax---

----Development rebate---Additions to machinery in textile and machinery division ---Textile machinery covered by Item 32 of Fifth 'Sched. ---Machinery in machinery division included as Item4 of Fifth Sched.---Hence machinery in both divisions entitled to higher development rebate of 25 % for assessment year 1974-75---Indian Income Tax Act, 1961, S.33(1)(b)(B)(i)(b). & Sched. V.

Additional machines installed in the textile division were entitled to higher rate of development rebate of 25 percent. as they would be covered by Item 32 of the List in the Fifth Schedule to the. Income-tax Act. The machines installed in the machinery division were also entitled, to higher development rebate of 25 per cent, as they were covered by Item 4 of the Fifth Schedule read with section 33(1)(b)(B)(i)(b) of the Income-tax Act.

(g) Income-tax---

----Capital or, revenue expenditure---Legal expenses for resisting claim of higher compensation for land acquired---Is capital expenditure---Not allowable under S.37---Indian Income Tax Act, l961, S.37.

Legal expenses to resist the claim for the higher compensation for the land acquired by the company before the High Court were not allowable as revenue expenditure as it was not an expenditure incurred in the course of maintaining the capital asset such as defending its title. The legal expenditure incurred had a direct bearing on the ultimate fixation of the compensation which would be the cost of acquisition of land for the company and was, therefore, an expenditure for acquisition of a capital asset.

(h) Income-tax---

----Assessment---Draft assessment order---Draft of proposed assessment order under S.144B---ITO revising draft order and giving another opportunity to assessee---Preparation of draft order does not create vested right---No prejudice caused to assessee by revised draft order as opportunity given to object to additions---No procedural, illegality in sending revised draft order---- Indian Income Tax Act, 1961, Ss.143(3) & 144B.

Section 144B of the Income Tax Act, 1961, is a procedural provision under which the Income-tax Officer forwards a draft order to the assessee. At that time such draft order is only a draft of the proposed order of assessment in which the Income-tax Officer proposes to make variations in the income or loss returned, which is prejudicial to the assessee and the amount of variation exceeds the amount fixed by the Board. At that stage of the assessment proceedings taken under section 143(3) of the Act, nothing is final. Therefore, if the Income-tax Officer detects some error or omission in the proposed order and revises it at that earlier point of time forwarding the revised draft order to the assessee, it cannot be said that he has made two independent proposed orders. The proposed order as revised remains the draft order only. The proceedings do not in any way get vitiated especially when he followed again the procedure of sending it to the assessee to enable him to -object against the revised proposed order. There is no prejudice whatsoever caused .to. the assessee nor is any vested right of the assessee adversely effected thereby: Until the assessment is completed by the Income tax Officer under section 143(3) of the Act, he remains free to exercise his powers to complete the assessment by sending a revised draft order.

(i) Income-Tax---

----Capital or revenue expenditure---Fluctuation, in foreign exchange--­Increases or decreases cost of acquisition of asset under S.43A(1) --- Loss to be added to actual cost of asset as defined in S.43(1)---Loss is capital in nature---Not allowable as revenue - expenditure---Indian Income Tax Act, 1961, Ss. 43(1) & 43A.

Loss of Rs.11,55,170 due to fluctuation in foreign exchange was to be' added to the actual cost of the asset defined. in section 43(1) of the Act and was, therefore, a capital expenditure.

CIT v. Windsor Foods Ltd. (1999) 235 ITR 249 (Guj.) fol.

Ambica Mills Ltd. v. CIT (1998) 231 ITR 583 (Guj.); CIT (Addl.) v: Akkamba Textiles Ltd. (1979) 117 ITR 294 (AP); CIT v. Mafatlal Gangabhai & Co. (Pvt.) Ltd. (1996) 219 ITR 644 (SC); CIT v. Vallabh Glass Works Ltd. (1982) 137 ITR 389 (Guj.) and Sudhir Sateen v. ITO (1981) 128 ITR 445 (Delhi) ref.

Ms. Hansa B. Punani for the Assessee.

Pranav Desai with Manish R. Bhatt for the Commissioner

2000 P T D 2230

[235 I T R 433]

[Gujarat High Court (India)]

Before R.K. Abichandani and Kundan Singh, JJ

COMMISSIONER OF INCOME-TAX

versus

RANOLI INVESTMENT (P.) LTD. and others

Income-tax References Nos. l05 with 147, 192, 193 and 195 of 1990, 110, 115, 161, 173, 185, 187, 217,'219, 220, 227, 234, 245 of 1991, 14, 27, 51, 60, 61, 83, 283, 285, 378, 392 of 1992, 270, 284, 285 of 1995, 62, 66, 68 and 69 of 1996, decided on 31st March, 1998.

Income-tax---

----Advance tax---Interest payable by assessee---Meaning of expression "tax deductible" in definition "assessed tax" in S.215(1)---Payer not deducting tax under S. 194-A at the time of accrual of interest but deducting and paying such tax after financial year ---ITO levying interest under S.215(1) after reducing actual "tax deducted" at source under S.194-A---Not justified--­"Tax deductible" on interest income should be reduced for levying interest under S.215(1)---Indian Income Tax Act, 1961, Ss.191, 194-A, 201(1-A), 209-A & 215.

The words "assessed tax" occurring in subsection (1) of section 215 of the Income Tax Act, 1961, dealing with interest payable by the assessee are to be read in the light of the special meaning given to them under subsection (5) of section 215 and accordingly, "assessed tax" would mean not the full amount of the assessed tax determined on the basis of the regular assessment, but the amount reduced therefrom to the extent of tax deductible in accordance with the provisions of sections 192 to 194, 194-A, 194-C, 194-D and 195 so far as it related to income subject to advance tax.

The words "reduced by the amount of tax deductible" which appear in subsection (5) of section 215 also occur in clause (iii) of section 209(1)(a) dealing with computation of advance tax. The amount of tax deductible in accordance with section 194-A would obviously mean the tax as was required to be deducted in respect of the interest income at the, time of credit to the account of the payee or payment whichever is earlier.

The words "at the time of credit of such income to the account of the payee" in section 194-A would take within their sweep, the interest debited to "interest account" or any other nominal account when the debit is for a specific amount calculated with reference to the deductor's liability to a particular creditor in accordance with the terms and conditions of the loan. The time of deduction would be when the interest is credited. The liability of the deductor would arise for failure to make deduction at the tithe of credit notwithstanding that it came to be made later on at the time of actual payment. Deduction made at such belated stage of payment, would not be "tax deducted at source" properly so-called and such subsequent deduction even when deposited with the Government, cannot be treated as tax deducted at source.

On a combined reading of sections 190, 191, 194-A, 198, 199, 200, 202, 203 and 205, it emerges that as soon as the tax is actually deducted at source by the person responsible to make payment, the liability of the assessee to pay that tax gets discharged and it is for the person who has deducted the tax at source to deposit the same with the Government. If the tax is not so deducted, it remains payable by the assessee directly under section 191 of the Act.

The payment of tax and interest stave been separately dealt with in law. 'The liability to pay the tax which ought to have been deducted at source that related back to the assessee under section 191 at the time when the tax was not deducted which giving credit, ultimately came to be discharged when the amount deposited was given credit ' the regular assessment. The liability to pay interest, however, got fastened air the payer from the date when it credited the amount in the. "interest payable account" and it continued till the tax came to be actually paid, in view of the provisions of section 201(1-A) of the Act. The question is whether the assessee who became liable to pay the tax as it was not deducted at source, also became liable to pay interest under section 215 ref the Act. The assessee cannot foresee that the tax deductible under a statutory duty imposed upon the payer will not be so deducted. The liability to pay interest in respect of such deductible amount is, therefore; clearly excluded to that extent by defining the words "assessed tax", so as not to include the tax that was deductible at source under the specified provisions including section 194-A. The statute has taken care of the liability to pay the tax by specifically providing it section 191 that the assessee would be liable to pay the tax deductible at source directly if it is not so deducted. This ensures that the payer will compensate the Revenue in respect of loss of interest on the amount of tax which he was required to deduct at the time of credit, but he-did not until it is paid.

The liability of the person who has failed to deduct the tax at source that had arisen under section 201(1-A) continues and he is required to pay interest right from the date on which the tax was deductible till the date on which such tax is actually paid. These provisions would also suggest drat there is no reason to distort the meaning of the expression "deductible in accordance a the provisions of sections 192 to 194, 194-A, 194-C, 194-D and 195 se far as such tax relates to income subject to advance tax and so far as it is not due to variations in the rates of tax", appearing in subsection (5) of section 215, by attributing the meaning that only the amount of tax actually deducted was intended by this expression.

The assessee filed the estimate of advance tax after deducting from the tax payable an current Income the amount of estimated tax deductible a source on interest receivable by it. For the assessment year 1982-83, the return of income was filed the assessee on July 31. 1982. The accounting period shown separately for the source of income was September 30, 1981 The assessee’s source of income was, inter alia, interest income. In respect of the interest income, tax was required to be deducted at source by the payer at the time of. giving of credit or making the payment, whichever was earlier. As provided by section 194-A of the Act. The tax was deducted by the. payer, however, on July 16. 1982, i.e., after the financial year and much after the interest income accrued to the assessee. In the group cases of the assessee, tax was not deductible as the payer company, at the end of their previous year, instead of giving credit of interest to the assessee's account, gave credit to "interest payable" account. On the other hand, the assessee-company debited the interest receivable by it not in the account of the payers, but to the "interest receivable account". The assessee offered this estimated interest for assessment. After a lapse of several months, in some cases after two years, the payer company gave credit to the 'account of the payee and deducted the tax at that point of time. In the assessment, the assessee was given credit of the amount which was deducted by the payer from the assessee's interest income, but it was treated as assessee's deposit, for which credit was given. The Assessing Officer on March 22, 1985, inter alia, ordered interest under section 215 to be charged without giving any credit for the said amount, though credit was given for tax purpose. Similar orders were passed for all years in the reference. The Commissioner of Income-tax (Appeals), rejected the assessee's appeal against the charge of interest under section 215 of the Act. The Tribunal, relying upon the decision of the Madras High Court in CIT v. Madras Fertilisers Ltd. (1984) 149 ITR 703, held that the expression "assessed tax" had a specific meaning as provided by section 215(5) of the Income-tax Act and as per that meaning, the "assessed tax" would mean, tax determined on the basis of regular assessment as reduced by the amount of tax deductible under the various provisions mentioned therein and that the word "deductible" should not be confused for the meaning of the term "deducted". On a reference:

Held, that the Tribunal was right in holding that the tax deductible at source should be reduced from the tax determined on the basis of regular assessment and thereafter, the liability to pay interest should be calculated under section 215 of the Income Tax Act, 1961.

CIT v. Madras Fertilisers Ltd. (1984) 149 ITR 703 (Mad.) fol.

CIT v. Borhat Tea Co. Ltd. (1992) 193 ITR 134 (Cal.) not fol.

Mihir Thakore with Manish R. Bhatt for the Commissioner.

D.A. Mehta, R.K. Pates, M.K. Pates and B.D. Karia for the Assessee.

2000 P T D 2289

[236 I T R 832]

[Gujarat High Court (India)]

Before R. K. Abichandani and Kundan Singh, JJ

PRAFUL CHUNILAL PATEL and another

versus

M. J. MAKWANA/ASSISTANT COMMISSIONER OF INCOME-TAX

Special Civil Applications Nos. 4201 and 4203 of 1996, decided on 19th February, 1998.

(a) Income-tax--

----Reassessment---Complete disclosure of all relevant facts by assessee--­.Income escaping assessment---Subsequent discovery of mistake in assessment---Reassessment within four years permissible---Conversion of capital asset into stock-in-trade and transfer by partners to firm in assessment year 1991-92---Assessment of assessee for assessment year 1991-92 completed on 31-1-1994---Reassessment notice for assessment year 1991-92 in 1996 proposing to tax capital gains justified--" Reason to believe", meaning of---Indian Income Tax Act, 1961, Ss.45, 147 & 148.

The power to make assessment or reassessment within four years of the end of the relevant assessment year would be attracted even in cases where there has been a complete disclosure of all relevant facts upon which a correct assessment might have been based in the first instance, and whether it is an error of fact or law that has been discovered or found out justifying the belief required to initiate the proceedings. The word "escaped assessment", 'where the return is filed, cover the case of discovery of a mistake in the assessment caused by either an erroneous construction of the transaction' or due to its non-consideration, or caused by a mistake of law applicable to such transfer or transaction even where there has been a complete disclosure of all relevant facts upon which a correct assessment could have been based.

In cases where the Assessing Officer had overlooked something at the first assessment, there can be no question of any change of opinion, when the income which was chargeable to tax is actually taxed as it ought to have been under the law, but was not, due to an error committed at the first assessment.

The word "reason" in the phrase "reason to believe" would mean cause or justification. If the Assessing Officer has a cause or justification to think or suppose that income had escaped assessment, he can be said to have a reason to believe that such income had escaped assessment. The words "reasons to believe" cannot mean that the Assessing Officer should have finally ascertained the facts by legal evidence. Unless the ground or the material on which his belief is based, is found to be so irrational as not to be worthy of being called a reason by any honest than, his conclusion that it constitutes a sufficient reason, cannot be overridden. If the Assessing Officer honestly comes to a conclusion that a mistake has been made, it matters nothing so far as his jurisdiction to initiate the proceedings under section 147 is concerned, that he may have come to an erroneous conclusion whether on law or on facts. The Court will not in. exercise of its extraordinary jurisdiction under the Constitution, examine the sufficiency of the reason which led the Assessing Officer to believe that the income had escaped assessment:

Held accordingly, that the Assessing Officer while snaking the assessment for the assessment year 1993-94, found that the assessee and his three brothers had decided to form a partnership firm with two other partners; that the assessee and his other co-owners had a bungalow and that the said property was converted by the said assessee and other co-owners on August 15, 1990, from a capital asset to stock-in-trade. The fair market value of the bungalow was valued at Rs.56,00,000 by tie registered valuer and the converted property was sold on September 19, 1990 to the firm. It was found that the capital, account of the assessee which was credited by Rs.14 lakhs after the said transfer on September 19, 1990, by which the stock-in-trade was sold to the firm, remained to be taxed as capital gains in the case of the assessee in the assessment year 1393-92. The assessment of the assessee for the assessment year 1991-92 was completed on January 31, 1994, 'but the capital gain arising from the transfer of his share in the immovable property to the partnership firm was not subjected to tax although the assessee had informed the- Income-tax Officer by his letter, dated December 29, 1993, about the conversion of the capital asset being his share in the immovable property into stock-its-trade and its consequential effect, in view of the query raised by the Assessing Officer. The Assessing Officer, therefore, clearly had a .reason to believe that the income chargeable to tax in the form of capital gains in respect of the transfer that took place on September 19, 1490, had escaped assessment in the relevant assessment year 1991-92. The initiation of the proceedings under section 147 by notice, dated March 29, 1996, could not, therefore, be assailed on the ground that it was without jurisdiction.

Birla VXL Ltd. v. CIT (Asst.) (1996) 217 ITR I (Guj.); Chimanram Mottilal v. CIT (1943) 11 ITR 44 (Bom.); Garden Silk Mills Ltd. v. CIT (Deputy) (Assessment) No. l) (1996) 222 ITR 27 (Guj.); Garden Silk Mills Ltd, v. CIT (Deputy) (No.2) (1996) 222 ITR 68 (Guj.); Hum Boldt Wedag India Ltd. v. CIT (Asst.) (1999) 236 ITR 846 (Cal.) (Appex.); Kaira District Cooperative Milk Producers Union Ltd. v. CIT(Asst.) (1996) 220 ITR 194 (Guj.); Madan Mohan Lal v. CIT (1935) 3 ITR 438 (Lah.) and VXL India Ltd. v. CIT (Asst.) (1995) 215 ITR 295 (Guj.) ref.

(b) Words and phrases---

------ Reason to believe" ---Meaning.

S. N. Divatia for Petitioners.

Mihir Joshi and Manish R. Bhat for Respondent.

2000 P T D 2356

[236 I T R 574]

[Gujarat High Court (India)]

Before R. K. Abichandani and Kundan Singh, JJ

COMMISSIONER OF INCOME-TAX

versus

MANGALDAS BECHARDAS FAMILY TRUST

I.T.Rs. Nos.408 and 412 of 1983, decided on 4th May, 1998.

Income-tax---

----Representative assessee---Assessment---Trustee---Trust deed authorising trustee to do business as a proprietor or partner---Trustee becoming partner in a firm in a representative capacity---Assessment could not be made on protective basis. on trustee in his individual capacity---Share received by trustee was assessable in the hands of trust---Indian Income Tax Act, 1961.

The assessee was a discretionary trust. The trust was a partner in the firm of J. Admittedly, under the trust deed, the trust could join as partner in a partnership firm. The trustees were authorised specifically to carry on business as proprietor or as a partner in a firm. The Income-tax Officer rejected the claim of the assessee that the partner who had joined the firm, had joined it in a representative capacity for the trust and not in his individual capacity. The Commissioner of Income-tax (Appeals) disagreed with the Income-tax Officer and held that the share of the income from the firm of was assessable in the hands of the assessee-trust for both the assessment years 1976-77 and 1977-78. The view of the Commissioner of Income-tax (Appeals) was upheld by the Tribunal. On a reference:

Held, that the trustee can join a partnership firm in a representative capacity. It is also an admitted fact that in the partnership deed, it was clearly mentioned that the partner had joined as partner in his representative capacity for and on behalf of the trust. It was also an admitted fact that the trust deed did authorise trustees to do business either' as proprietors or as partners. In this background, there was no case for making any assessment on protective basis against the trustee in his individual capacity. The Tribunal was right in law in cancelling the assessment made on a protective basis.

B. B. Naik for Manish R. Bhatt for the Commissioner.

Manish Shah for J. P. Shah for the Assessee.

2000 P T D 2516

[236 I T R 1001]

[Gujarat High Court (India)]

Before R. K. Abichandani and Kundan Singh, JJ

COMMISSIONER OF INCOME-TAX

Versus

VITHALBHAI P. PATEL

Income-tax Reference No.343 of 1983, decided on 16th April, 1998.

Income-tax---

----Capital gain---Assessee selling lands coming to his share on partition and filing return showing capital gains on such sale ---ITO finding that assessee had sold 105 plots and working out capital gains and adding same to total income of assessee---Sale ab initio null and void as per order of Collector in view of S.4 of Gujarat Vacant Lands in Urban Areas (Prohibition of Alienation) Act, 1972---Order of Collector not challenged---No transaction of sale in eye of law---Sale not liable to tax on capital gains---Indian Income Tax Act, 1961; S.45.

In respect of the previous year relevant to the assessment year 1974-75, the assessee filed a return on October 31, 1974, and a revised return on January 28, 1977, and claimed that he had sold lands coming to his share on partition and included the capital gains on such sale in his return. The Income-tax Officer found that during the year under consideration, the assessee had sold 105 plots out of Survey No.23 and working out the long term capital gain at Rs.32,533 added the same in the total income of the assessee. The Appellate Assistant Commissioner held that as per the order, dated March 27, 1975, of the Collector of Surat the said sale was null and void, in view of the provision of section 4 of the Gujarat Vacant Lands in Urban Area (Prohibition of Alienation) Act, 1972, which prohibited alienation of land in any "vacant area' after the commencement of the Act, by way of sale, gift, exchange, etc., and that when the sale was void, there was no transfer and hence, no capital gains arose out of any transfer. The Tribunal affirmed the order of the Appellate Assistant Commissioner. On a reference:

Held, that the sale was null and void under the provisions of section 4 of the Gujarat Vacant Lands in Urban Areas (Prohibition of Alienation) Act, 1972. The transaction in question was void ab initio and it was so declared by the Collector by his order, dated March 29,1975. The order of the Collector declaring that the sale transaction was null and void, was not challenged. Thus, as there was no sale transaction in the eye of law, there could be no capital gain arising out of a null and void transfer of such land. Therefore, the Tribunal was right in coming to the conclusion that no capital gain had accrued to the assessee.

Mihir Joshi, B. B. Nayak with Manish R. Bhatt for the Commissioner.

Manish J. Shah for the Assessee.

JUDGMENT

R. K. ABICHANDANI, J.---The Income-tax Appellate Tribunal, Ahmedabad, has referred the following question for the opinion of this Court under section 256(1) of the Income Tax Act, 1961:

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that no capital gains had accrued to the assessee merely by reason of the fact that the Collector of Surat had- declared the sale to be void?"

The relevant assessment year is 1974-75. The return of income was filed by the assessee on October 31, 1974, and a revised return on January 28, 1977, in respect of the relevant previous year. The assessee claimed that he owned 29 guntas of land of survey No.23,, which were partitioned on January 5, 1972. He, therefore, filed a return in respect of the capital gain on sale of land coming to his share. The Income-tax Officer found that during the year under consideration, the assessee had sold 105 plots out of survey No.23 and working out the long-term capital gain at Rs.32,533 added the same in the total income of the assessee. The Appellate Assistant Commissioner held that, as per the order dated March 27, 19975, of the Collector of Surat the said sale was null and void, in view of the provisions of section 4 of the Gujarat Vacant Lands in Urban Areas (Prohibition of Alienation) Act, 1972, which prohibited alienation of land in any "vacant area" after the commencement of the Act, by way of sale, gift, exchange, etc. It. was held that when the sale was void, there was no transfer and hence, no capital gains arose out of any transfer. The Tribunal taking note of the fact that the sale of land in question was null and void, which fact was not disputed, held that since there was no sale of land in question in the eye of law, there could be no capital gain arising out of a transfer. The order of the Appellate Assistant Commissioner deleting the addition was, therefore, upheld.

Admittedly, the purported sale was null and void under the provisions of section 4 of the Gujarat Vacant Land in Urban Areas (Prohibition of Alienation) Act, 1972. Under section 4 of that Act, it was provided that no person who owned any vacant land, shall on or after the appointed day, alienate such land by way of sale, gift, exchange, mortgage other than simple mortgage, lease or otherwise or effect a partition or create a trust of such land and any alienation made or partition effected or trust created in contravention of the said provision, shall be null and void. Therefore, the transaction in question was void ab initio and it was so declared by an order of the Collector made on March 29, 1975. Admittedly, the order of the Collector declaring that the sale transaction was null and void, was not challenged. Thus, since in the facts of this case as there was no sale transaction in the eye of law, there could be no capital gain arising out of a null and void transfer of such land. In this view of the matter, the Tribunal was right in coming to the conclusion that no capital gain had accrued to the assessee. The question is accordingly answered in the affirmative against the Revenue. The reference stands disposed of with no order as to costs.

M.B.A./4185/FC Order accordingly.

2000 P T D 2546

[236 I T R 128]

[Gujarat High Court (India)]

Before R. K. Abichandani and A. R. Dave, JJ

COMMISSIONER OF INCOME-TAX

versus

RAMPURSHOTTAM AGRAWAL

I.T.A. No.38 of 1995, decided on 17th December, 1997.

Income-tax---

----Reference---Assessment order set aside by CIT on revision on the ground that Assessing Officer had failed to consider whether a particular amount belonged to assessee---Fresh assessment order adding amount to income of assessee---Commissioner (Appeals) deleting addition---Revenue not challenging order of CIT (Appeals) ---Assessee appealing against order of CIT under 5.263---Tribunal setting aside order of CIT---Tribunal could not be directed to refer to High Court question whether order of revision made by CIT was valid since Revenue had not challenged order of CIT (Appeals) deleting addition made by ITO---Indian Income Tax Act, 1961, S.256.

In search and seizure operations against the assessee cash was seized. The assessee stated that out of that cash Rs.1,75,000 was given to him by his brother. This statement was accepted by the Assessing Officer and assessment was made. The Commissioner of Income-tax set aside the assessment order under section 263 of the Income Tax Act, 1961. The de novo assessment order was made by the Income-tax Officer against the assessee, adding the amount of Rs.1,75,000 as income but, in the appeal filed by the assessee against that order, the Commissioner (Appeals), by his order dated December 28, 1990, came to the conclusion that the source of cash of Rs.1,75,000 had been satisfactorily explained by the assessee and, therefore, it could not be treated as unexplained income. The appellate authority, therefore, deleted the addition of Rs.1,75,000 from the income of the assessee. This order of the Commissioner of Income-tax (Appeals) had not been challenged in appeal. The assessee appealed against the order of the Commissioner of Income-tax passed under section 263 before the Tribunal and the Tribunal by its order, dated February 14, 1994, set aside the order of the Commissioner made under section 263. On an application to direct reference under section 256(2):

Held, dismissing the application, that any exercise that may be undertaken for deciding the question as to whether the Commissioner had jurisdiction under section 263 of the Income Tax Act, 1961, or riot would be an exercise in futility and purely an academic exercise, since the Revenue had not challenged the order of the Commissioner of Income-tax (Appeals) deleting the addition of Rs.1,75,000 made by the Income-tax Officer.

Manish R. Bhatt for the Commissioner.

R. K. Patel for the Assessee.

2000 P T D 2941

[234 I T R 772]

[Gujarat high Court (India)]

Before R. K. Abichandani and A. R. Dave, JJ

COMMISSIONER OF INCOME-TAX

versus

SANCHAY ANGANA TRUST and others

Income-tax Applications Nos. 150 with 159, 160 and 184 of 1998, decided on 11th September, 1998.

(a) Income-tax---

----Reference---Question decided by Tribunal following decisions of Supreme Court and High Court---No question of law arises---Indian Income Tax Act, 1961, S. 256(2).

(b) Income-tax---

----Reference---Representative assessee---Trustee---Discretionary trust--­Tribunal correct in holding that assessment could not be made on trust as well as beneficiaries---Tribunal correct in directing Assessing Officer to compute income received on behalf of beneficiary assessee at appropriate rates as envisaged in S.164---No question of law arose for reference---Indian Income Tax Act, 1961, Ss. 164 & 256.

Held, dismissing the application for directing reference, that the Tribunal while considering the appeals of the Revenue, took note of the fact that in all the impugned assessments, the beneficiary assessee had been taxed on maximum rate for the shares of income where the principal trust had also been taxed for the same income. The Tribunal noted that the Supreme Court in the case of Joyotendrashinhji v. Tribpathi (S. I.) (1993) 201 ITR 611, held that the Revenue had an option in the case of a discretionary trust either to make an assessment upon the trustees or to make an assessment upon the beneficiaries and that both the trustees and the beneficiary cannot be simultaneously taxed in respect of the same income. Following the ratio of the said decision, the impugned assessments were set aside. In CIT v. Maharaja Daljitsinhji Trust (1993) 204 ITR 135 (Guj.) and CIT v. Deepak Family Trust (No.l) (1995) 211 ITR 575 (Guj.), the Gujarat High Court held that the mere fact that the beneficiaries or the trustees, being representative assessee, are more than one, cannot lead to the conclusion that they constitute an association of persons. The trustees of a discretionary trust have to be assessed in the status of "individual". Following the said two decisions the Tribunal gave a direction to the Assessing Officer to compute the income received on behalf of the beneficiary assessee at the appropriate rates as envisaged in section 164 of the Income Tax Act, 1961. It was clear that the Tribunal had rendered its decision following the decision of the Supreme Court in Jyontendrasinhji (1993) 201 ITR 611 and the two decisions of the Gujarat High Court, mentioned above and, therefore, no question of law requiring any opinion of the High Court arose from the orders of the Tribunal.

CIT v. Maharaja Kaljitishinhji Trust (1993) 204 ITR 135 (Guj.); CIT v. Deepak Family Trust (No. 1) (1995) 211 ITR 575 (Guj.); Jyotendrasinhji v. Tripathi (S. 1.) (1993) 201 ITR 611 (SC) and McDowell & Co. Ltd. v. CTO (1985) 154 ITR 148; (1995) 59 ITR 277 (SC) ref.

B.B. Nayak instructed by Manish R. Bhatt for Petitioner.

2000 P T D 3014

[235 I T R 635]

[Gujarat High Court (India)]

Before. R. K. Abichandani and Kundan Singh, JJ

COMMISSIONER OF INCOME-TAX

versus

KIRANBHAI H. SHELAT and another

Income-tax References No.54 with Income-tax References Nos. 272 of 1993, 121, 132 of 1996, 15, 19 and 49 of 1997, decided on 27th April, 1998.

(a) Income-tax---

----Salary---Meaning of "salary "---Deductions from salary ---LIC---Incentive bonus received by Development Officers of LIC---Portion of incentive bonus actually spent by Development Officers does not constitute salary--­Deduction allowable up to a maximum limit of 30 per cent. of incentive bonus---Deduction different from standard deduction---Indian Income Tax Act, 1961, Ss.15, 16 & 17---[CIT v. Sheo Raj Bhatia (1999) 235 ITR 523 (Raj.) (Appx.); CIT v. Govind Chandra Pani (1995) 235 ITR 523 (Orissa); Choudary (K.A.) v. CIT (1990) 235 ITR 523 (AP) and CIT v. M.D. Patii (1998) 235 ITR 523 (Kar.) dissented from].

(b) Income-tax

..Concept of income.

The concept of income must be distinguished from mere receipts or gross revenue. The tax is upon income and not on gross receipts. Calculating the income which can be assessed to tax by making subtractions of the non­ income part of the receipt is not a matter of legislative grace but the right of citizens. The definition of "income" in section 2(24) of the Income Tax Act. 1961, though inclusive, includes also the receipts which would be income in their normal sense and it is not a mere catalogue of receipts which otherwise would not be income. Under the head "Salaries", to be chargeable income, it should not only be income, but it should also be income of the nature indicated in section 15 read with section 17, which defines "salary". Under section 17(1)(iv), salary would include "any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages" Any special allowance or benefit other than perquisite which are treated as income by virtue-of section 2(24) have not been separately mentioned to the definition of "salary" and can be classified as salary only if they are covered by the expression "profits in lieu of or in addition to salary or wages". The use of the word "profit" in the expression "profits in lieu of or in addition to salary or wages", itself involves a deduction of expenses properly incurred in realising the proceeds out of which the profit arises. Section 2(24) of the Act speaks of benefits and allowances granted to the assessee to meet the expenses for the performance of duty and not the expenses incurred to the performance of duty. To the extent that such amount granted to the assessee for meeting his expenses wholly necessarily and exclusively for the purpose of his duties are not actually spent by him, that portion of such income included in section 2(24) will result in profits to the assessee in addition to his salary or wages. Certain types of expenses falling within this artificial definition of income which are incurred out of the amount so granted are specifically exempted from being included in the total income by virtue of section 10(14). The type of such "incurred" allowances or benefits granted to the assessee if not exempted under section 10(14) would not thereby automatically become his salary. The receipt has to fall under the head "Salaries" in order to become chargeable to tax. The deductions contemplated under section 16 of the Act are to be made while computing the income chargeable under the head "Salaries" and these statutory deductions are quite distinct from the removal of expenses incurred for the purpose from the receipts for working out the profits to lieu of or to addition to salary under clause (iv) of section 17(1).

The Life Insurance Corporation of India is a statutory body. It grants incentive bonus to its Development Officers. The incentive bonus has two components. It is to be paid only when extra business is procured for the Life Insurance Corporation. The Life Insurance Corporation admitted in its letter to the Central Board of Direct Taxes that the incentive bonus is granted to an employee with a view to meet the expenses that might have to be incurred by him as Development Officer for the discharge of his duty. Therefore, when the expenses are actually incurred by the Development Officer, from that component which may fall under section 2(24) and be treated as income, in cases where such income does not fall in the exemption category under section 10(14), it is the profit element alone which remains with the assessee that can be treated as salary, being profit in addition to salary or wages. The Life Insurance Corporation had proposed to certify 30 per cent. of the incentive bonus earned as necessary expenses that would have to be incurred. Therefore; in all cases governed by section 10(14) as it stood prior to April 1,1989, when the requirement of Government notification (later changed to "as may be prescribed") was superimposed, all the expenses designated for the purpose and actually incurred stood exempted and could not be included in the total income of such assessee. Since only 30 per cent of the incentive bonus earned was intended to meet such expenses, no higher amount could be claimed by such assessees as expenditure incurred out of the special allowance given for that purpose. That exemption applied only to the extent the expenses were actually incurred for the purpose for which they were granted. If any amount was not so expended out of -the amount up to 30 per cent incentive bonus earned, and as a result, it ended as profit to, the assessee-Development Officer, that would be "profits in addition to his salary" under section 17(1)(iv) and, therefore, will fall in the head of income under the head "Salaries". Even in cases, falling after April 1, 1989, when section 10(14) came to be amended and the exemption was confined only to notified allowances (later amended with effect from April 1, 1989, as prescribed allowances), wherein the income covered by section 2(24) in the nature of 30 per cent of the incentive bonus earned is riot exempted by the provisions of section 10(14.), such allowances as are income within the meaning of section 2(24), cannot be straightaway treated as salary. It will have to be ascertained whether the expenditure intended to be met was actually incurred and if so incurred whether any part of such special allowance still remained with the employee so as to be described as profit in addition to his normal salary and wages. The exercise will have to be confined only to 30 per cent of the incentive bonus earned which alone was intended by the Life Insurance Corporation as a special allowance granted to the Development Officers to meet the expenses for the discharge of their duties of office and would, therefore, be a special allowance specifically granted to meet the expenses for the discharge of duty. If out of such 30 per cent the incentive bonus earned, any amount is not actually expended for the purpose intended, then there would be no question of reimbursing any sum which is not reimbursable and that part will be profit and gain to the assessee and will be treated as salary under section 17(1)(iv) of the Act. Even if the' expenses component of the incentive bonus is not to be treated as a special allowance specifically granted to the assesses within the meaning of section 2(24), the receipt of the entire incentive bonus will have to be examined as something given in addition to the salary or wages of the Development Officer, especially when it is specifically kept out of the "annual remuneration" of Development Officers as defined in the Rules regulating the terms and conditions of their service. Even in such a case, it will have to fall in one of the categories named in section 17(l) for being put under the head income from "Salaries". There again the closest it goes is to 'profits in lieu of salary or in addition to salary". Therefore, the assessees' profit in that case also will have to be worked out which cannot be done unless the expenditure which is necessary and was properly incurred for the purpose of earning the income, is deducted therefrom. This deduction cannot be denied to the assessee employee on the ground that the statutory deductions are already provided in section 16.

CIT v. Sheo Raj Bhatia (1999) 235 ITR 523 (Raj.) (Appx.): CIT v. Govind Chandra Pani (1995) 235 ITR 523 (Orissa); Choudary (K.A.) v. CIT (1990) 235 ITR 523 (AP) and CIT v. M.D. Patil (1998) 235 ITR 523 (Kar.) dissented from.

Badridas Daga v. CIT (1958) 34 ITR 10 (SC); CIT v. Bachubhai Nagindas Shah (1976) 104.ITR 551 (Guj.); CIT v. Bijay Kishore Kapoor (1993) 202-ITR 129 (Orissa); CIT v. Chinnaiah (B.) (1995) 214 ITR 368 (AP); CIT v. Kothari (SC) (1971) 82 ITR 794 (SC); CIT v. Rajendran (E.A.) (1999) 235 ITR 523 (Mad.); CIT v. Shah (M.C.) (1991) 189 ITR 180 (Bom.); Elel Hotels and Investments Ltd. v. Union of India (1989) 178 ITR 140 (SC); Father Epharam v. CIT (1989) 176 ITR 78 (Ker.); Gestemer Duplicators (Pvt.) Ltd. v. CIT (1979) 117 ITR 1 (SC); Kartikeya V. Sarabhai v. CIT (1985) 156 ITR 509 (SC); Mehboob Productions (Pvt.) Ltd, v: CIT (1977) 106 ITR 758 (Bom.); Pook v. Owen (1969) a74 ITR 147; (1969) 45 TC 571 (HL); Poona Electric Supply Co. Ltd. v. CIT (1965) 57 ITR 521 (SC); Ricketts v. Colquhoun (1925) 10 TC 118 (HL); Taylor v. Provan (1974) 1 All ER 1201 (HL) and Wicks v. Firth (Inspector of Taxes) (1982) 2 All ER 9 (CA) ref.

P.G. Desai and Mihir Joshi with M.R. Bhatt for the Commissioner.

S.N. Divetia for the Assessee (in I.T.Rs. Nos.54, 272 of 1993 and 132 of 1996).

Mukesh M. Patel for the Assessee (in I. T.Rs: Nos. 121 of 1996, 15 and 19 of 1997).

S.N. Soparkar for the Assessee (in I.T.R. No.49 of 1997).

2000 P T D 3071

[237 I T R 336]

[Gujarat High Court (India)]

Before C. K. Thakkar and M. C. Patel, JJ

COMMISSIONER OF INCOME-TAX

versus

I.G. BELLINE

T.R. No. l of 1984, decided on 17th June. 1998

(a) Income-tax--

----Income---Income deemed to accrue or arise in India---Income for services rendered in India---Law applicable---Effect of Explanation added to S.9(1)(ii) with effect from 1-4-1979---Explanation does. not have retrospective effect---Not applicable for assessment year 1977-78---Indian Income Tax Act, 1961, S.9.

An Explanation was added to section 9(1)(ii) of the Income Tax Act, 1961 with effect from April 1, 1979. It declares that income of the nature referred to in that clause payable for service rendered in India should be regarded as income earned in India. The Explanation cannot be said to be merely declaratory and it cannot apply to a period anterior to April 1, 1979. Before the insertion of the Explanation by the Finance Act, 1983, the words "earned in India" in section 9(1)(ii) must mean "arising or accruing in India". If the income does not accrue in Indian clause (ii) would not apply even though such income might have been derived from services rendered in India.

CIT v. S.R. Patron (1992) 193 ITR 49 (Guj.) fol.

Held, also that the Tribunal was right in law in not treating the housing and motor car expenses of the assessee as perquisites.

CIT v. S. G. Pgnatale (1980) 124 ITR 391 (Guj.) fol.

Alessandro Constantini v. CIT (1997) 226 ITR 883 (Guj) ref.

(b) Income-tax--

----Salary---Perquisites---Housing and motor car expenses cannot be treated as perquisites---Indian Income Tax Act, 1961.

Mihir Joshi and Manish R. Bhatt for the Commissioner, Manish J. Shah and J.P. Shah for the Assessee.

2000 P T D 3076

[237 I T R 668]

[Gujarat High Court (India)]

Before R. Balia and A. R. Dave, JJ

GARDEN SILK MILLS (PVT.) LTD.

versus

DEPUTY COMMISSIONER OF INCOME-TAX

Special Civil. Applications Nos. 3257, 3258, and 3259 of 1991, decided on 24th November, 1998.

Income-tax---

----Reassessment---Condition precedent---Reason to believe that income has escaped assessment---Reason must be based on material---Change of opinion will not justify reassessment ---Assessee allowed adjustment in valuation of his closing stock---Subsequent reassessment proceedings on ground that adjustment was erroneous---Reassessment proceedings were not valid--­Indian Income Tax Act, 1961, Ss. 147 & 148.

However, wide the scope of taking action under section 148 of the Income Tax Act, 1961, it does not confer jurisdiction on change of opinion on the interpretation of a particular provision earlier adopted by the assessing authority. For coming to the conclusion that there has been excessive loss or depreciation allowance or that there has been under assessment or assessment at a lower rate or for applying other provisions of Explanation 2 to section 147, it must be on material and it should have nexus for holding such opinion contrary to what has been expressed earlier. Even after the amendment of section 147 mere change of opinion does not confer jurisdiction on the Income-tax Officer to initiate proceedings for reassessment merely by resorting to Explanation 1 to section 147:

Held, that, in the instant case, the reason in terms disclosed that on an earlier occasion the assessee had claimed the amount of customs duty forming part of the closing stock value, by way of a deduction in the computation of set taxable income on the ratio in the case of Lakhanpal National Ltd. v. ITO (1986) 162 ITR 240 (Guj.). It was allowed by the Income-tax Officer. Without there being any material before the Assessing Officer on the basis of which he could hold belief about the correctness of the decision rendered in Lakhanpal's case (1986) 162 ITR 240 (Guj.) which was the decision of the jurisdictional High Court and binding on him otherwise, the Assessing Officer could not have reason to believe that the income had escaped assessment due to application of Lakhanpal's case (1986) 162 ITR 240 (Guj.) by the original Assessing Officer. For the like allowance claimed by the assessee for the assessment year 1992-93 after the issuance of the notices in question in this case, the Assessing Officer had allowed the very same claim notwithstanding the issuance of notice under section 148 in spite of a like claim: The notice for initiating reassessment proceedings for the assessment year 1986-87 was not valid.

Birla VXL Ltd. v. CIT (Asstt.) (1996) 217 ITR 1 (Guj.); CIT v. British Paints India Ltd. (1991) 188 ITR 44 (SC); CIT v. Cadila Chemicals (Pvt.) Ltd. (1998) 230 ITR 885 (Guj.); Garden Silk Mills Ltd. v. Deputy CIT (Assessment) (No. 1) (1996) 222 ITR 27 (Guj.); Garden Silk Mills Ltd. v. Deputy CIT (No.2) (1996) 222 ITR 68 (Guj.); Lakhanpal National Ltd. v. ITO (1986) 162 ITR 240 (Guj.); Praful Chunilal Patel .v. Makwana (M.J.) (Asstt. CIT) (1999) 236 ITR 832 (Guj.) and VXL India Ltd. v. CIT (Asstt.) (1995) 215 ITR 295 (Guj.) ref.

J. F. Shah for Applicant.

B. B. Naik for R. P. Bhatt for Respondent No. 1.

2000 P T D 3099

[237 ITR 415]

[Gujarat High Court (India)]

Before R.K. Abichandani arid Kundan Singh, JJ

COMMISSIONER OF INCOME-TAX

versus

ARVIND MILLS LTD.

Income-tax Reference No.317 of 1983, decided on 17th April, 1998.

(a) Income-tax---

----Business expenditure---Entertainment expenditure---Expenditure in the nature of entertainment expenditure incurred within India on provision of hospitality whether by way-of provision of food or beverages or in any other manner---Not allowable deduction---Expenditure incurred on food or beverages provided by assessee to employees in office, factory or place of work---Allowable deduction---Expenditure incurred on refreshments, etc.--­Tribunal holding that expenditure not to be disallowed under S.37(2b)--­Amount required to 'be allowed as expenditure on providing food, etc., to its employees to be separately worked out---Rest of amount included in the definition of entertainment expenditure to be disallowed---Indian Income Tax Act, 1961, S.37(2A), Expln.2.

Income- Tax---

----Capital or revenue expenditure---Trade mark---Payments made for use of trade mark---Revenue expenditure---Indian Income Tax Act, 1961, S.37.

In the relevant previous year relating to the assessment year 1977-78, the assessee claimed deduction of Rs.9,675 as expenditure incurred on refreshments etc. The Income-tax Officer disallowed the claim for deduction. On appeal, the Commissioner of Income-tax (Appeals) allowed the claim for deduction. On further appeal, the Tribunal affirmed the order of the Commissioner of Income-tax (Appeals). On a reference:

Held, that in view of Explanation 2 inserted in section 37(2A) of the Income Tax Act, 1961, with effect from April 1, 1976, an enlarged meaning is given to the words "entertainment expenditure" for the purposes of the Act, with effect from April 1, 1976. Therefore, no allowance could be made in respect of expenditure in the nature of entertainment expenditure incurred within India by an assessee at the relevant time on provision of hospitality of every kind by the assessee to any person, whether by way of provision of food, or beverages or in any other manner whatsoever. However, expenditure incurred on food or beverages provided by the assessee to its employees in the office, factory or other place of their work, was excluded and, therefore, it could be allowed. In this view of the matter, the amount which was required to be allowed in so far as the expenditure on providing food, etc., to its employees was concerned, would have to be separately worked out from the total -amount of deduction Rs.9,675 and the rest of the amount which was included in the definition of entertainment expenditure by way of Explanation 2 would have to be disallowed. Therefore, the Tribunal was not right in holding that the expenditure incurred by the assessee for entertainment should not be disallowed under section 37(2B) of the Act without considering the impact of Explanation 2 and the ratio of the decision of the Supreme Court in CIT v. Patel Brothers & Co. Ltd. (1995) 215 ITR 165.

CIT v. Patel Brothers & Co. Ltd. (1995) 215 ITR 165 (SC) and Saraspur Mills Ltd. v. CIT (1997) 226 ITR 533 (Guj.) fol.

The assessee claimed deduction in respect for use of the trade mark "Tebilized". claim for deduction. On appeal-, the Commissioner of held that on reading the agreement, the trade mark was owned by M and that it had rendered services to the assessee in this connection and deleted the disallowance. The Tribunal affirmed the order of the Commissioner, of Income-tax (Appeals). On a reference:

Held, that the Tribunal was right in law in holding that the assessee was entitled to deduction in respect of the service fees paid for the trade mark.

. CIT v. Ashoka Mills Ltd. (1996) 218 ITR 526 (Guj.),fol.

B.B. Nayak with Manish R. Bhatt for the Commissioner

Manish J. Shah for the Assessee.

2000 P T D 3103

[237 I T R 561]

[Gujarat High Court (India)]

Before C.K. Thakker and M. C. Patel, JJ

ASHABEN ROHITBIIAI and others

versus

COMMISSIONER OF INCOME-TAX

Income-tax References Nos.372 of 1983, 86 of 1985, 90 of 1986 and 101 of 1988; decided on 29th June, 1998.

(a) Income-tax---

----Capital gains---Special deduction---Special deduction under S.80T is admissible with reference to capital gains after setting off capital losses--­Indian Income Tax Act, 1961, S.80T.

The deduction under section 80T of the Income Tax Act, 1961, is admissible with reference to the capital gain only after setting off the capital loss.

H.H. Sir Varma v. CIT (1994) 205 ITR 433 (SC) Fol.

Income- Tax---

----Total income---Inclusion in total income---Salary paid to spouse by concern in which individual has substantial interest---Exception---Income attributable to application of technical or professional knowledge and experience of spouse---Requirement of technical or professional knowledge and experience must relate to post occupied by spouse---Finding that spouse had such professional knowledge and experience---Income of spouse was not includible in total income of individual---Indian Income Tax Act, 1961, S.64(1)(ii), proviso.

Clause (ii) of subsection (1) of section 64 contemplates that in computing the total income of any individual, there shall be included all such income as arises directly or indirectly to the spouse of such individual. Clause (ii) refers to payment made by way of salary, commission, fees or any other form of remuneration to the spouse of such individual in which such individual has substantial interest. But the proviso engrafts an exception and provides that clause (ii) will not apply in relation to any income arising to the spouse where the spouse possesses technical or professional qualifications and the income is solely attributable to the application of his or her technical or professional knowledge and experience. The, proviso contemplates two conditions: (i) the spouse must possess technical or professional qualification; and (ii) income derived by him or her must be attributable to the application of such technical or professional knowledge and experience. The requirement of technical or professional qualification is not general in terms. It must relate to the post which he or she occupied and, secondly, the salary or fees must be attributable to the application of his or her technical or professional knowledge. If these two conditions are fulfilled, the income must be considered to be of that person and should be assessed accordingly. If the job is of a technical nature requiring a degree or diploma, the holding of such degree or diploma would be essential. The nature of professional qualifications, however, varies from profession to profession. Likewise, the nature of technical qualifications also differs depending on the nature of the job. It is not each and every qualification, academic or otherwise, which can bring the spouse within the scope of the proviso so as to enable him or her to take the income out of the clubbing provision. If the spouse possesses technical or professional qualifications necessary to undertake the particular technical job or carry on the profession to which the income is attributed, that will meet the requirement of the first part of the proviso. But even if the first part of the proviso is complied with, it must further be shown that the payment made to the spouse is attributable to the application of such technical or professional knowledge and experience falling under the latter.

Held, that, in the instant case, the assessee held a Master's degree (M.A.) and before she started working as managing director in the company in question, she had experience as managing director and had received substantial sums as remuneration. Considering the nature of her duties and work, the Company Law Board had permitted an increase in her salary: It was not the case of the Revenue that any degree or diploma was required for the post of managing director either under the Companies Act or under any other law. There was no finding against the assessee that the income was not solely attributable to the application of her technical or professional knowledge and experience. Her income was not includible Zn that of her husband. Hence, the protective assessment of the assessee should be made into substantive assessment.

Batta Kalyani v. CIT (1985) 154 ITR 59 (AP); CIT v. Rajagopal (D) (1985) 154 ITR 375 (Kar.); CIT v. Sorabji Dorabji (1987) 168 ITR 598 (Ker.) and CIT v. Madhubala Shrenik Kumar (1990) 181 ITR 180 (MP) fol.

CIT v. Gautam Sarabhai (1981) 129 ITR 133 (Guj.) and Mokashi (J.M.) (Dr.) v. CIT (1994) 207 ITR 252 (Bon.) ref.

Manish J. Shah for the Assessees.

Mihir Joshi with Manish R. Bhatt for the Commissioner

2000 P T D 3147

[237 I T R 834]

[Gujarat High Court (India)]

Before R. K. Abichandani and A.R. Dave, JJ

SUHRID GEIGY LTD.

versus

COMMISSIONER OF SUR TAX

Surtax Reference No.5 of 1981, decided on 10th September, 1998.

Income-tax---

----Company--Surtax--Rectification of mistakes---Computation of capital--­Meaning of "mistake apparent from the record" ---Point covered by decision of High Court rendered prior to or subsequent to order of rectification--­Point ceases to be debatable--Omission to deduct proposed dividend from general. reserve---Mistake which could be rectified in view of Explanation to R.1 of Second Sched. to Surtax Act, 1964---Fact that a lesser amount was deducted in rectification order would not invalidate order of rectification--­Indian Companies (Profits.) Surtax Act, 1964, S.13 & Sched. II.

The Second Schedule to the Companies (Profits) Surtax Act, 1964, provides for rules for computing the capital of a company for purposes of surtax. Reserves are includible in capital. However, as per the Explanation to rule 1, any amount standing to the credit of any account in the books of a company as on the first day of the previous year relevant to the assessment dear which is of the nature of any item including the one under the heading "Current liabilities and provisions" in the column relating to "liabilities", "in the form of balance-sheet" given in Part I of Schedule VI to the Companies Act, 1956, is not to be regarded as a reserve for the purpose of computation of the capital of a company under the provisions of the said Second Schedule. Proposed dividends is an item identified by the Explanation to rule 1 of the Second Schedule which cannot be regarded as reserve for the purposes of computation of the capital of a company under rule 1 of the Second Schedule.

Section 13-of the Companies (Profits) Surtax Act, 1964, provides for rectification of mistake apparent from the record. A point which is debatable cannot be termed a mistake. But when the point is covered by a decision of the Supreme Court or concerned High Court, either rendered prior to or subsequent to the order proposed to be rectified, then the point ceases to be a debatable point and it also ceases to be a point requiring elaborate arguments or detailed investigation/inquiry. The subsequent decisions of the jurisdictional High Court do not enact the law but declare the law as it always was. The omission in making the deduction of proposed dividend from the general reserve as on the first day of the previous year in respect of the assessment years 1970-71 and 1972-73 is a glaring mistake in view of the Explanation to rule 1 of the Second Schedule. When the decision in Karamchand Premchand's case (I.T.R. No.4 of 1973) was rendered by the jurisdictional High Court, it was only a declaration of the law as it already existed:

Held, (i) that the Tribunal was right in holding that the Surtax Officer was well within his jurisdiction in passing the rectification orders, but failed to note that he committed an irregularity in exercise of his jurisdiction by taking a wrong figure of deduction of the proposed dividend from the general reserve as it stood on April 1, 1969, being the first day of the previous year 1969-70 relevant to the assessment year 1970-71, that is, Rs.16,38,000 instead of Rs.29,25,000 and by deducting a wrong figure of Rs.40,04,000 instead of Rs.39,00,000 as the proposed dividend from the general reserve as it stood on April 1, 1971, being the first day of the previous year of 1971-72 relevant to the assessment year 1972-73;

(ii) that the Tribunal was right in upholding the validity of the rectification orders on the grounds raised before it and it was not open to the assessee now to challenge the error in the rectification order, for the accounting year 1969-70 relevant to the assessment year 1970-71, of lesser deduction of.Rs.16,38.000 as against the deduction of Rs:29,25,000 which had in fact resulted in undue benefit to the assessee nor could the assessee challenge the validity of the rectification order in respect of the assessment year 1972-73 on the ground that the actual proposed dividend was Rs.39,00,000 and not Rs.40,04,000 which was required to be deducted, since no such challenge was raised by the assessee before the Tribunal.

Balaram (T.S.) ITO v. Volkart Bros. (1971) 82 ITR 50 (SC) ; CIT v. Century Spinning and Manufacturing Co. Ltd. (1953) 24 ITR 499 (SC):

(1953) 23 Comp. Cas. 462 (SC); CIT v. Mysore Electrical Industries Ltd. (1971) 80 ITR 566 (SC); (1971) 41 Comp. Cas. 617; Karamchand Premchand (P.) Ltd. v. CIT (1993) 200 ITR 268 (SC); Kesoram Industries and Cotton Mills Ltd. v. CWT (1966) 59 ITR 767 (SC); Kil Kotagiri Tea and Coffee Estates Co. Ltd. v. ITAT (1988) 174 ITR 579 (Ker.); Kuppuraj (M.K.) v, ITO (1995) 211 ITR 853 (Mad.); Mysore Cements Ltd. v. Deputy Commissioner of Commercial Taxes (1994) 93 STC 464 (Kar.); Narayana Row (S. A. L.), CIT v. Model Mills Nagpur Ltd. (1967) 64 ITR 67 (SC); Padmavati Jaykrishna v. CWT (1976) 105 ITR 115 (Guj.); Parshurarn Pottery Works Co. Ltd. v. Trivedi (D.R.), WTO (1975) 100 ITR 651 (Guj.); Seshavataram (B. V. K.) v. CIT (1994) 210 ITR 633 (AP) and Vazir Sultan Tobacco Co. Ltd. v. CIT (1981) 132 ITR.559 (SC) ref.

D.K. Mehta for K.C. Patel for the Assessee.

B.B. Naik for Manish R. Bhatt for the Commissioner.

2000 P T D 3168

[236 I T R 921]

[Gujarat High Court (India)]

Before R. K. Abichandani and Kundan Singh, JJ

COMMISSIONER OF INCOME-TAX

versus

AMBICA MILLS LTD.

Income-tax Reference No. 199 of 1983, decided on 13th April, 1988.

(a) Income-tax---

----Business expenditure---Disallowance---Company---Provision of amenity or benefit to Director---Reimbursement of medical expenses and telephone expenses of Managing Director---Are benefits or perquisites within the meaning of S.40(c)(i)---Is to be disallowed---Indian Income Tax Act, 1961, Ss.40(c)(i) & 40-A(5).

In its return of income for the assessment year 1972-73, the assessee-company claimed deduction of the expenditure incurred for providing medical expenses, telephone -expenses and personal accident insurance premiums to three managing directors of the company. The Income-tax Officer disallowed these expenses and added them to the income of the assessee under section 40-A(5) of the Income Tax Act, 1961. On appeal, the Commissioner of Income-tax (Appeals) deleted all these three items in respect of which the assessee incurred expenditure, from the computation of the disallowance. On further appeal, the Tribunal held that the reimbursement of medical expenses, telephone expenses, etc., did not amount to "perquisite" within the meaning of section 40-A(5) of the Act and .confirmed the order of the Commissioner of Income-tax (Appeals). On a reference;

Held, that the reimbursement of medical expenses and telephone expenses to the managing directors would be benefit within the meaning of section 40(c)(i) of the Act and, therefore. the expenditure incurred by the assessee had to be disallowed under section 40(c) read with section 40-A(5) of the Act.

Gujarat Steel Tubes Ltd. v. CIT (1994) 210 ITR 358 (Guj.) and Ambica Mills Ltd. v. CIT (1998) 231 ITR 583 (Guj.) fol.

(b) Income-tax---

----Business expenditure---Disallowance---Company---Expenditure incurred by assessee on payment of insurance premia in respect of policies taken out for Managing Directors---If premia are reimbursed to Director it would amount to benefit to Director ---Premia paid directly by assessee---Premia paid do not amount to benefit or perquisite---Not to be disallowed---Indian Income Tax Act, 1961, Ss.40(c) & 40-A(5).

Question whether premium paid for the policy taken out for the managing director would constitute benefit to the director within the meaning of section 40(c), would depend. upon the nature of the policy, who had taken it out and whose obligation it was to pay- the premium. If the intention of the company by taking out such policies for insuring directors against personal accident was in fact to insure itself in respect of the liability that may arise towards the director as a result of an accident, then that situation would be different from a director himself taking out a personal accident insurance policy under which he would be obligated to pay the premium and not the company. If such premiums are reimbursed to the director, which is an obligation of the director himself to pay and not that of the company, qua the insurance company, then that would amount to a benefit to the director within the meaning of section 40(c) of the said Act. In the present case, it was not shown that the director himself wanted to take out the policy or that it was his own obligation to pay the premium and no such contention was canvassed before the lower authority. The amount of premium was Rs.1,182 for each of the two managing directors and Rs.1,191 for third managing director. The premiums were paid directly by the company which had taken out the policies in respect of the three directors. Therefore, the Tribunal was right in holding that the personal accident insurance premium was not meant to be a benefit or perquisite to the directors and, therefore, should not be disallowed.

Ambica Mill4 Ltd. v. CIT (1999) 235 ITR 264 (Guj.) and CIT v, Cama Motors (Pvt.) Ltd. (1998) 234 ITR 699 (Guj.) fol.

(c) Income-tax---

----Business expenditure---Expenditure incurred for getting feasibility report for putting up new steel plant---Project not materialising---Is capital expenditure.

The assessee had claimed deduction of a sum of Rs.1,40,000. as business expenditure on the ground that it was incurred in getting a feasibility report for putting up a mini steel plant. The project did not materialise. The Income-tax Officer held that the expenditure was not made wholly and exclusively for the purpose of business and disallowed it. The Commissioner of Income-tax (Appeals) found that one of the units of the assessee manufactured steel tubes, and., on that basis held that the expenditure incurred in respect of the project of a mini steel plant, was an expenditure incurred for the purpose of business and granted relief to the assessee. The Tribunal affirmed the order of the Commissioner of Income-tax (Appeals). On a reference:

Held, that the expenditure was incurred by the assessee for getting a feasibility report for setting up a new mini steel plant which project did not materialise. The mini steel plant which the assessee wanted to put up was quite different from its existing business of manufacturing steel tubes. The expenditure incurred for getting the feasibility report was, therefore, capital expenditure.

CIT v. S. L. M. Maneklal Industries Ltd. (1977) 107 ITR 133 (Guj.) and CIT v. Shri Digvijay Cement Co. Ltd. (1986) 159 ITR 253 (Guj.) fol.

(d) Income-tax---

----Depreciation---Development rebate---Assessee constructing RCC roads--?Roads are to be treated as building---Only depreciation allowable on roads and not development rebate---Indian Income Tax Act, 1961, Ss.32 & 33.

The assessee claimed depreciation and development rebate on RCC roads constructed by it. The Income-tax Officer disallowed the claim. The Commissioner of Income-tax (Appeals) confirmed the disallowance. The Tribunal, however, allowed depreciation and development rebate on RCC roads. On a reference:

Held, that depreciation on buildings, machinery, plant or furniture owned by the assessee and used for the purposes of business or profession is a permissible deduction under section 32 of the Act. Development rebate under section 33 could be claimed in respect of a new ship or a new aircraft, new machinery or plant, other than office appliances or road transport vehicles, owned by the assessee and wholly used for the purposes of the business carried on by him. Therefore, there is no mention of buildings in section 33 under which development rebate is claimed. Therefore, if roads are to be treated as buildings, no development rebate can be claimed by the assessee and only depreciation can be claimed under section 32 of the Act. Therefore, the Tribunal was right in holding that depreciation should be allowed to the assessee in respect of the RCC roads constructed by it but was wrong in holding that development rebate should be allowed in respect of the roads.

Kaira District Cooperative Milk Producers' Union Ltd. v. CIT (1986) 162 ITR 496 (Guj.) and CIT v. Gwalior Rayon Silk Manufacturing Co. Ltd. (1992) 196 ITR 149 (SC) fol.

(e) Income-tax--

----Priority industry---Deduction in respect of profits and gains in case of certain companies--New unit installed in machinery division---Tribunal holding that CIT (Appeals) justified in allowing deduction in light of Tribunal's earlier order---Earlier order of Tribunal involved question relating to development rebate under S.33 and not deduction under S.80-1 --- Tribunal not right in holding that machinery installed was entitled to relief under S.80-I---Indian Income Tax Act, 1961, Ss.33, 80-B(7), 80-: & Sched. VI.

The assessee claimed deduction of Rs.13,211 under section 80-I of the Income Tax Act, 1961, in respect of profits from a new unit. The Income-tax Officer disallowed the claim for deduction. The Commissioner of Income-tax (Appeals) following the Tribunal's order allowed the claim for deduction. The Tribunal held that the Commissioner of Income-tax (Appeals) was justified in allowing deduction in the light of the Tribunal's earlier order. On a reference:

Held, that the earlier order of the Tribunal involved the question relating to development rebate under section 33 of the Act and not deduction under section 80-I. The Tribunal did not notice that the question in its earlier order did not relate to deduction under section 80-I. The Tribunal proceeded erroneously that the claim related to development rebate under section 33. Therefore, the Tribunal was not right in holding, on the basis of its earlier order, that the new unit installed in the machinery section was entitled to relief under section 80-I of the Act. However, it would be open to Tribunal to consider the claim in the light of the then existing provisions of section 80-I read with Schedule VI of the Act.

P. G. Desai with Manish R. Bhatt for the Commissioner.

Ms. Hansa B. Punani for the Assessee.

2000 P T D 3179

[237 I T R 280]

[Gujarat High Court (India)]

Before R. K. Abichandani and Kundan Singh, JJ

JYOTI ELECTRIC MOTORS LTD.

versus

COMMISSIONER OF INCOME-TAX

Income-tax Reference No.281 of 1983, decided on 17th April, 1998.

Income-tax---

----Revision---Powers of Commissioner---Order prejudicial to interests of revenue---Capital or revenue expenditure ---Assessee engaged in business of manufacturing and selling electric motors ---Assessee entering into agreement with licensor for supply of technical know-how in the form of drawings, designs, technical documents, etc.---One set of initial drawings and technical documentation to be supplied to assessee free of charge---Duration of agreement was for a period of 10 years---After expiry of agreement it was to continue in force until terminated by one year's notice ---Assessee acquired during benefit under agreement---Royalty paid to licensor was capital expenditure ---ITO holding royalty paid was revenue expenditure--­Commissioner holding assessment order erroneous and prejudicial to interest of Revenue and remanding matter to ITO for decision afresh ---Justified--­Indian Income Tax Act, 1961 , S.263.

The assessee, which was engaged in the business of manufacturing and selling electric motors, entered into an agreement with the licensor for supply of technical know-how in the form of drawings, designs, technical document., etc., on payment of royalty amounting to Rs.3,25,927 to the licensor. 7the assessee claimed deduction of the amount of royalty paid to the licensor a-Is revenue expenditure. The Income-tax Officer allowed the claim for deduction. The Commissioner of Income-tax found that the duration of the agreement was for a period of ten years which stood extended until terminate by either party, that the advantage derived by the assessee under the agreement was of an enduring nature, which would endure even after the licence agreement was over and hence the payment of royalty was capital expenditure. The Commissioner of Income-tax, therefore, held that the order of the Income-tax officer was erroneous and prejudicial to the interests of the Revenue end he issued notice to the assessee under section 263 of the Income Tax Act, 1961. After hearing the assessee, the Commissioner of Income-tax set aside the assessment order and remanded the matter to the Income-tax Officer for decision afresh. The Tribunal affirmed the order of the Commissioner of Income-tax. On a reference:

Held, that under Article 4 of the licensing agreement for the supply of additional design and manufacturing drawings and other information, necessary to disclose any modification and improvements made in the products, the licensor was to be paid by the assessee licensee one half per cent., royalty in addition to the royalty mentioned in Article 8 of the agreement. As provided by Article 4-A, one set of initial drawings and technical documentation was to be supplied to the licensee free of charge. The duration of the agreement as provided under Article 2 was from September 1, 1972, up to March 10, 1982, and even after the expiry of the agreement, it was to continue in force until terminated by giving one year's notice in writing. The assessee had, therefore, acquired a benefit of enduring nature under the agreement. The Commissioner of Income-tax had lawfully exercised his powers under section 263 of the Act and had taken a decision after giving the assessee an opportunity of being heard in the matter, as envisaged) by that provision. The Tribunal was, therefore, right in holding that the Commissioner was justified in passing the order under section 263 of the Act setting aside the assessment order and directing the Income-tax Officer to take a fresh decision

Jonas Woodhed & Sons (Ind.) Ltd. v. CIT (1997) 224 ITR 342 (SC) fol.

CIT v. Jyoti Ltd. (1979) 118 ITR 499 (Guj.) ref.

14: M. Talati for the Assessee.

B. B. Nayak with Mainsh R. Bhatt for the Commissioner.

2000 P T D 3223

[237 I T R 358]

[Gujarat high Court (India)]

Before R.K. Abichandani and Kundan Singh, JJ

COMMISSIONER OF INCOME-TAX

Versus

SHREYAS CHINUBHAI

Income Tax Reference No.318 of 1983, decided on 18th April, -1998.

Income-tax---

----Income---Business income---Capital gains---Adventure in the nature of trade ---Assessee partner in firm and contributing land as his share of capital in firm---Land treated as stock-in-trade and became asset of firm---Amount received by assessee on retirement from firm---Not assessable to tax under S.28(iv)---Not assessable as business income from adventure in the nature of trades--Does not involve transfer of capital asset resulting in accrual or receipt of income chargeable to tax as capital gain---Indian Income Tax Act, 1961, Ss.28 (iv) & 45.

On December 1, 1971, the assessee was admitted to the benefits of a partnership which was constituted under the deed, dated December 4, 1971. The business of the firm was to purchase and sell immovable properties, to construct buildings on lands purchased and to sell the same. On December 23, 1974, a fresh partnership deed was drawn up by which five new partners were taken in the firm. On February 14, 1975, a deed of retirement was executed whereby the five new partners who were inducted under the partnership deed, dated December 23, 1974, took over the business of the firm as a going concern and the other partners went out of the firm. The stock-in-trade was determined and after adjusting the opening value thereof, the balance was credited to the accounts of the outgoing partners as a result of which the assessee got his share of Rs.1,25,092. The Income-tax Officer held that the amount of Rs.1,25,092 was an income from adventure in the nature of trade and that the induction of new partners was merely a device to transfer their assets to the new partners, that the said amount credited to the assessee's account was liable to tax as business income from an adventure in the nature of trade or in the alternative, it was taxable under section 28(iv) of the Income Tax Act, 1961. The Commissioner of Income­-tax (Appeals), however, accepted the assessee's case and held that the amount could not be taxed as. business income from an adventure in the nature of trade, nor could it be taxed under section 28(iv) of the Act. In the appeal filed by the Revenue before the Tribunal, it was held that the provisions of section 28(iv) of the Act were not applicable to the case of the assessee and that the said amount was not exigible to capital gains tax. The Tribunal also held that the amount was not taxable as business income from an adventure in the nature of trade. On a reference:

Held, that when at the time of retirement the only thing which the partner got was the share in the partnership firm, which he received in terms of money, the amount so received could under no circumstances be said to be a benefit received by the assessee from business under section 28(iv) of the Act.

CIT v. Alchemic (Pvt.) Ltd. (1981) 130 ITR 168 (Guj.) and CIT v Chetanaben B. Sheth (1993) 203 ITR 24 (Guj.) fol.

(ii) That when a partner retires from a firm and receives an amount in respect of his share in the partnership, there is no transfer of interest of the assessee in the goodwill of the firm and no part of the amount so received by him would be assessable to capital gains tax under section 45 of the Act. Therefore, the Tribunal was right in holding that the amount of Rs.1,25,092 was not liable to tax on capital gains.

CIT v. Anant Narhar Nimkar (HUF) (1997) 224 ITR 221 (Guj.) and CIT v. Mohanbhai Pamabhai (1973) 91 ITR 393 (Guj.) fol.

(iii) That the assessee had contributed the land in the partnership firm by treating it as stock-in-trade and thereafter, it had become the asset of the firm. The assessee was given the amount in question as his share in the firm, which he was entitled to get on his retirement and which at that point of time was directly relatable to the land which he had contributed as stock-in-trade at the time of his entry into the firm. The Tribunal was, therefore, right in holding that the said amount was not liable to tax as income from an adventure in the nature of trade.

B. B. Nayak with Manish R. Bhatt for the Commissioner.

J. P. Shah with Manish Shah for the Assessee.

2000 P T D 3516

[238 I T R 324]

[Gujarat High Court (India)]

Before J. N. Bhatt and A. R. Dave, JJ

Shree SURAT, PANJRAPOLE

Versus

COMMISSIONER OF INCOME-TAX

Special Civil Application No. 11101 of 1998, decided on 17th March, 1999.

Income-tax---

----Donations---Charitable trust---Trust established and in existence for 200 years carrying on activities of protection and care of disabled and suffering cattle---Refusal by Commissioner to renew certificate on ground trust carrying on dairy business and not maintaining separate books of account--­Direction to Commissioner to consider application sympathetically---Indian Income Tax Act, 1961, S.80G.

The petitioner was a public charitable trust, in existence since 1796. It ran various activities for the preservation, protection and promotion of infirm, invalid and rejected cattle. In view of the rise and increase in the volume of activities of the petitioner-trust, it had been inviting donations from the members of the public from time to time. The petitioner had, therefore, applied for recognition under section 80G of the Income Tax Act, 1961, in 1989, which was granted by the Commissioner of Income-tax and renewed from time to time. However, in 1998, a show-cause notice was issued to the trust stating that the trust was running a dairy business on a large scale and no separate books of account were maintained and, therefore, the claim for exemption could not be granted. In its reply the petitioner had stated that out of the total number of cattle with it for the years 1994-95 to 1997-98, milk giving cattle came to hardly 2 to 3 per cent only and that since the petitioner-trust was unable to meet the expenditure incurred for the purpose of the objects, it had to dispose of milk obtained by it from the milk giving cattle. However, renewal of the certificate under section 80G was refused. The trust filed a writ petition and during the proceedings, in the Court, the trust undertook to prepare and submit accounts:

Held, that in view of the historical and long track record far upliftment and amelioration of weak, infirm, aged cattle since 1796 and considering the submissions advanced before the Court, the respondent authority should be directed to re-examine and reconsider the request of the petitioner-trust for certificate of recognition under section 80G(5) of the Act, sympathetically, as the petitioner-trust was predominantly engaged in utmost welfare of infirm, old, aged, and rejected cattle since more than two centuries.

[Order of Commissioner set aside. Matter remanded.]

K.H. Kaji for Petitioner.

B.B. Naik with Manish R. Bhatt for Respondent.

2000 P T D 3529

[238 I T R 91]

[Gujarat High Court (India)]

Before R. Balia and A.R. Dave, JJ

COMMISSIONER OF INCOME-TAX

versus

VIDYAGAURI NATVERLAL and others

Income-tax Reference No. 140 of 1983, decided on 6th November, 1998.

Income-tax--

----Penalty---Concealment of income---Meaning of concealment---Mere disclosure of receipts as cash credits in Part III of return---Not sufficient to prove that there had been no concealment of income---Indian Income Tax Act, 1961, S.271(1)(c).

The word "concealment" inherently carries with it the element of mens rea. Therefore, the mere fact that some figure or some particulars have been disclosed, even if taken out the case from the purview of non­disclosure, cannot by itself take out the case from the purview of furnishing inaccurate particulars. In any case, disclosure which has been made in any part of the return which is incorrect or false to the knowledge of the assessee would not mean that there has been no concealment of particulars of income or furnishing of inaccurate particulars for purposes of levy of penalty. The process of inquiry into the correctness, truthfulness, or accuracy of the particulars furnished by the assessee cannot be closed at the threshold by looking at the return. That would negative and render otiose the very provisions of the statute. As per the rule of evidence there is a distinction between a set of facts "not proved" and facts disproved and facts proved. Benefit of the principle that mere non-satisfactory nature of the explanation furnished cannot amount to proof of falsity of the explanation furnished can apply in case the fact-finding -authority reaches a stage where it can only conclude that the fact alleged is "not proved" which would mean that except rejection of the explanation furnished by the assessee, there is no material to sustain the plea of concealment. But, on the other hand, if the state of affairs reveals a stage where one can positively reach a conclusion that the fact alleged is proved or disproved, the principle that mere rejection of the explanation cannot result in levy of penalty will have no application: To, reach this stage also, inquiry will have to be undertaken of the disclosure made in the return of in the statement annexed to the return. In the first case, it would .be a positive case of no concealment, in the second stage, it would be a positive case of concealment and in the third case, the benefit of doubt will go in favour of the assessee. The inquiry cannot be closed on the abstract principle that mere rejection of explanation does not result into levy of penalty:

Held, that, in the facts and circumstances of the case, solely on the ground that the assessee had disclosed receipts in Part III .of the return filed by him a conclusion could not be reached that the assessee was not guilty to concealing particulars of his income or furnishing inaccurate particulars of income.

CIT v. Abdulgafur Ahmed Wagmar (1993) 199 ITR 827 (Guj.); CIT v. Namlabhai Bhanabhai (1987) 163 ITR 189 (Guj.); CIT v. Suleman Abdul Sattar (1983) 139 ITR 8 (Guj.); CIT v. Vilasben Hasmukhlal Shah (Smt.) (1991) 192 ITR 214 (Guj.) and Kantilal Manilal v. CIT (1981) 130 ITR 411 (Guj.) ref.

Mihir Joshi and Manish R. Bhatt for the Commissioner

JUDGMENT

R. BALIA, J---As required by this Court on an application' having been made by the Commissioner of Income-tax, Ahmedabad, under section 256(2) of the Income tax Act, 1961, a statement of case has been submitted by the Income-tax Appellate Tribunal, Ahmedabad, and the following questions of law have been referred for decision of this Court:

"(1) Whether the disclosure in Part III of the return of income is sufficient disclosure for the purpose of the Income Tax Act, 1961, for the assessee to discharge this burden?

(2) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in deleting the penalty imposed by the Inspecting Assistant Commissioner under section 271(1)(c) of the Income Tax Act, 1961?

(3) Whether the finding of the Appellate Tribunal that the assessee did not conceal the particulars of his income or furnished inaccurate particulars of such income, is correct in law and sustainable from any material on record?

(4) Whether in view of the statement of the assessee recorded earlier claiming the amount disclosed in Part III of the return as representing Matka collections and subsequently claiming the same to be being borrowings from shroffs, the Income-tax Appellate Tribunal was justified in law in upholding the penalty imposed under section 271(l)(c) of the Act?"

The original assessee is dead during the pendency of this reference and the legal representatives are brought on record and they have chosen not to appear in spite of notice having been served on them.

As we will presently see, questions Nos. 1, 2 and 3 really form part of the same question and, in our opinion, question No.4 does not arise out of the Tribunal's order. We shall be considering the decision on the question as we propose to reframe to bring out the real controversy arising out of the Tribunal's order.

For the assessment year 1972-73, in the return filed by the assessee in Part III of the return, he disclosed cash credit in his books of account to the extent of Rs.1,35,000 as monies borrowed from three different persons. During the course of assessment proceedings, explanation about the nature and source of such cash credits were not found to be satisfactory by the Revenue and the same were considered to be income of the assessee for the previous year. As the returned income of the assessee was less than 80 per cent of the assessed income, a presumption arose against the assessee that he has concealed the particulars of his income or has furnished inaccurate particulars for the purpose of its applicability of section 271 of the Act as it stood then proceedings for imposing penalty for concealment of particulars of income or for furnishing inaccurate particulars were initiated against the assessee.

After taking into consideration the materials which were before the Assessing Officer including the fact that when the assessee was found in possession of Rs.1,35,000 by the concerned' authority, in the search proceedings during the previous year in question, the same was explained to be income of receipts of the assessee from Matka business, the authority came to the conclusion that the explanation in response to the notice under section 271(1)(c) in the penalty proceedings is not acceptable to rebut the presumption arising against the assessee and levied the penalty. The assessing authority in the course of assessment proceedings held that the explanation offered by the assessee was an afterthought and not a genuine one and the Inspecting Assistant Commissioner who was the authority having jurisdiction to impose penalty in penalty proceedings came to the positive finding that the facts as stated by the assessee in Part III are false. He also came to the conclusion that the Income-tax Officer had shown conclusively that the assessee did not in fact borrow the amount from three persons as disclosed in Part III of the return. In the face of this finding about falsehood of the statement made in the return, penalty for concealment was levied. On appeal before the Tribunal, it disposed of the appeal on the sole reasoning that the amount of Rs.1,35,000 having been admittedly disclosed by the assessee in Part III of the return of income, it cannot be said that the assessee concealed the particulars of his income or furnished inaccurate particulars of such income. Seolely on that ground, it was held that merely because the explanation offered by the assessee under section 68 has been rejected and cash credit has been added as income from undisclosed sources for the assessment year in question, that alone is not sufficient to levy penalty. This later conclusion is not based on application of mind to material before the Tribunal, but on the basis that disclosure in Part III of the return makes it a case of disclosure of particulars and accurate particulars within the meaning of section 271(1)(c). Thus, the Tribunal decided the question only on that ground that disclosure of receipts in Part III of the return takes the case out of the purview of concealment of particulars as of income did not think it fit to consider the material on record and to apply his mind to the question whether the assessee can be said to have disclosed particulars of his income accurately or is not guilty of disclosing inaccurate particulars. The only question, therefore, which arises out of the Tribunal's order is:

"Whether, in the facts and circumstances of the case, solely on the ground that the assessee has disclosed receipts in Part III of the return filed by him, a conclusion can be reached that the assessee is not guilty of concealing particulars of his income or for furnishing inaccurate particulars?"

To us, it appears obvious that such a wide proposition as has been propounded by the Tribunal cannot be accepted as a matter of law. The word "concealment" inherently carries with it the element of mens rea. Therefore, the mere fact that some figure or some particulars have been disclosed by itself, even if takes out the case from the purview of non-disclosure, it cannot be itself take out the case from the purview of furnishing inaccurate particulars. In any case, disclosure which has been made in any part of the return which is incorrect of false to the knowledge of the assessee and if that fact is established, such disclosure cannot take it out from the purview of the act of concealment of particulars of income or act of furnishing inaccurate particulars for the purpose of levy of penalty. Considering all these facts, whether the particulars furnished are true and correct or whether the particulars furnished by the assessee are inaccurate and whether the particulars furnished by the assessee are inaccurate or incorrect to his knowledge, all are questions which require an inquiry into the facts and consideration of the material on record before arriving at any conclusion whether the penalty is to be imposed or not, depending on the finding reached as a result of that inquiry. The process of inquiry into the correctness, truthfulness or accuracy of the particulars furnished by the assessee cannot be closed at the threshold by looking at the return. That would negative and render otiose the very provisions- of the statute.

In the context of section 68, if one were to examine the position of law, it is to be seen that section 68 comes into operation only when some amount is found credited in the books of an assessee maintained for any previous year that is to say-in every case, of examination of source of cash credit commences only on disclosure of receipt from. one or other party in the books of assessee. Yet, the law envisages enquiry into these particulars and also envisages, if on such inquiry, the explanation and information furnished by the assessee is not found satisfactory, the same is deemed to be income of that year so much as to the question of assessment of income for the previous year in which disclosure about cash credit finds place. .

Coming to penalty proceedings, at the outset, we may say that it is not the case of even the assessee that in no case, where such disclosed cash credit amount is treated as income and assessed as income of that year, it cannot be subjected to penalty proceedings. Accepting the principle on which the Tribunal has acted would render the penalty proceedings for concealment in such case even if it is established from the evidence that entries made in the books of account were bogus to the knowledge of the assessee, no penalty proceedings under section 271(1)(c) can be sustainable because as soon as entries in the books of account have been disclosed to the Revenue showing, the cash credit `entered with particulars thereof, there cannot be any concealment of particulars of income or furnishing of inaccurate particulars thereof. The expression of the principle that mere rejection of the explanation is not sufficient to sustain penalty is not backed up by necessary enquiry. It may be noticed that as per rule of evidence, there is distinction between set of facts "not proved" -and facts disproved and facts proved. Benefit of the principle that mere non-satisfactory nature of explanation furnished cannot amount to proof of falsity of explanation furnished can apply in case the fact ­finding authority reaches to a stage where it can only conclude that the fact alleged is "not proved" which would result that except rejection of the explanation furnished by the assessee, there is no material to sustain the plea of concealment. But, on the other hand, if the state of affairs reveals a stage where one can positively reach a conclusion that the fact alleged is proved or disproved, the principle that mere rejection of explanation cannot result in levy of penalty will have no application. To reach this stage also, inquiry will have to be undertaken of the disclosure made in the return or in the statement annexed to the return and to arrive at a finding whether the particulars disclosed are truthful, or false or not proved to be satisfactory. The principle to which the Tribunal has referred would apply in the last case. In the first case, it would be a positive case of no concealment, in the second stage, it would be a- positive case of concealment and in the third case, benefit of doubt will go in favour of the assessee. But in either case, inquiry must proceed from the stage the alleged disclosure has taken place and not stop at that stage and close the inquiry at the threshold on the abstract principle that mere rejection of explanation does not result into levy of penalty. The Tribunal has obviously erred in stopping at that stage and not considering the material before it on the basis of which the authority levying penalty has come to a positive finding as noticed by us.

As an illustrative case, can it be said even if it is found positively that money was not borrowed at all or not borrowed from the persons whose name has been disclosed that the particulars disclosed by the assessee showing that the disputed amount has been borrowed by him or particulars furnished by him are accurate? Can it be said in a case where it is positively found that the assessee has not borrowed the same which he claims to have borrowed, mere disclosure of fact that money is received fulfils the condition of accurate disclosure of the income so as to take out the case from the purview of Explanation to section 271(1)(c). In our opinion, the answer must be in plain negative, else, the very purpose and object shall be defeated and the provisions will be rendered otiose because in no case, it will be a case of non-disclosure. The Tribunal appears to have ignored that even where there is some disclosure penalty may still be imposed if disclosures in the return are inaccurate. In our opinion, the principle appears to be plain from the reading of the statute itself. Still, if any authority is needed, reference may be made to decisions of various High Courts:

(1) Kantilal Manilal v: CIT (1981) 130 ITR 411 (Guj.); (2) CIT v. Suleman Abdul Sattar (1983) 139 ITR 8 (Guj.); (3) CIT v. Namlabhai Bhanabhai (1987) 163 ITR 189 (Guj-); (4) CIT v. Vilasben Hasmukhlal Shah (Smt.) (1991) 192 ITR 214 (Guj.); and (5) CIT v. Abdulgafur Ahmed Wagmar (1993) 199 ITR 827 (Guj.).

Except the first case, all other cases relate to disclosure of particulars of income under Part IV of the return by the assessee concerned. Like argument that the assessee having disclosed income particulars of receipt of claims to be exempt the fact that his claim for exemption was not accepted cannot result in levy of penalty by holding that mere disclosure in Part IV of the return would not absolve the assessee from scrutiny of facts whether the disclosure made by him is true or false. Whereas, in the first referred case, when the assessing authority found that there has been manipulation of accounts and the assessee's explanation was found to be wholly untrue, levy of- penalty was held to be valid and the contention that mere rejection of the explanation for the purpose of adding that sum in the returned income cannot result in levy of penalty, was rejected in the facts and circumstances of that case. This is to emphasis that inquiry into the question about disclosure or accuracy of disclosure cannot be stopped while looking at the disclosure or accuracy of disclosure made in the return. In fact, this is the starting point of inquiry whether such disclosures are truthful or accurate.

We are, therefore, of the opinion that the question as reframed by us should be answered in the negative that is---in favour of the Revenue and against the assessee. There shall be no order as to costs.

M.B.A/72/FC Reference answered.

2000 P T D 3577

[238 I T R 127]

[Gujarat High Court (India)]

Before R. Balia and A.R. Dave, JJ

BHAGWANDAS J. PATEL

versus

DEPUTY COMMISSIONER OF INCOME-TAX

Special Civil Application No. 10675 of 1998, decided on 28th December, 1998.

Income-tax---

----Recovery of tax---Company---Director---Recovery of tax due from private company from its director---Liability is primarily that off' company---Director can be proceeded against only if Revenue establishes that tax could not be recovered from company---Indian Income Tax Act, 1961, S.179.

A bare perusal of section 179 of the Income Tax Act, 1961, shows that before recovery in respect of dues from the private company can be initiated against the directors, to make them jointly and severally liable for such dues, it is necessary for the Revenue to establish that such recovery cannot be made against the company and then end then alone it can reach the directors who were responsible for the conduct of business during the' previous year in relation to which liability exists:

Held, that, in the instant case, neither in the order passed under section 179 nor in the affidavit filed by the Revenue was any assertion made that in spite of making efforts against the company, it was not possible to recover the amount from the company by reaching its assets. On the other hand, there was clear indication that section 179 was being put to use by the Revenue Authorities to resolve the dispute between the erstwhile directors and the present incumbent about the terms of the agreement between them. The Income-tax Act has not assigned arty such role to its authority to act as an arbiter of disputes between parties which does not concern it. Section 179 had been invoked without laying the necessary foundation for the same. The order, therefore, suffered from an error apparent on the face of it and was ultra vires section 179.

S.N. Soparkar for Petitioner.

Mihir Joshi with Manish R. Bhatt for Respondent.

JUDGMENT

R. BALIA, J.---Rule; Service of rule is waived by learned counsel for the respondent. At the request of learned counsel for the parties the matter is finally heard today.

The petitioner challenges order (Annexure-A), dated October 29, 1998, purported to have been made under section 179 of the Income Tax Act, 1961.

As per the order, a demand of Rs.9,82,050 was outstanding against a company named Samir Theatre (Pvt.) Ltd., for the assessment years 1986--87 and 1987-88. The present petitioner was a director of the said private company during the previous year relevant to the aforesaid assessment year. The order directing recovery from the present petitioner as director of the said company during the relevant previous year proceeds on the premises, "since the recovery of the demand from the company was found difficult". In response to show-cause notice the petitioner has stated that demand has been created after handing over all the assets and liabilities to the new director as per the agreement made between Shri Bhagwandas and Bholabhai v. Patel, presently the director. It further proceeds that as the director-petitioner has failed to show that non-recovery of income-tax is not attributable to any gross neglect, misfeasance or breach of duty on his part relating to conducting the affairs of the company and, therefore, the reply to the show-cause notice is not treated as satisfactory.

The order is challenged, inter alia, on the ground that the order does not disclose the necessary precondition for invoking section 179 for directing the recovery of amounts due from a private company from its erstwhile director inasmuch as section 179 requires that in a case where any tax due from a private company cannot be recovered then only a person who was a director of the private company at any time during the relevant previous year can be held jointly and severally liable for the payment of such tax. The order itself does not say that the amount cannot be recovered from the assets of the company. It has been specifically stated in the petition that the ­petitioner had pointed out to the respondent that the company owns assets of substantial value and in particular a commercial complex on Ashram Road, Ahmedabad, the value of which itself runs into crores of rupees which is sufficient to discharge the company's liabilities towards tax amount due for the relevant previous year. In reply to the notice; an. affidavit has been submitted disclosing that because of agreement between the petitioner and the successor-management, the liability for the period up to February 24, 1986, was required to be discharged by the previous directors hence the recovery is directed towards the previous directors. As to the plea of the petitioner that there is dispute between the parties to the agreement about discharging that part of the liability, the affidavit states that the, petitioner's allegation to the contrary is not tenable. In sum and substance, by perusing the affidavit-in ­reply, it is apparent that the respondents instead of making any effort to recover the amount of tax due from the said private company from the properties belonging to the company, about which there does not appear to be any dispute, the Revenue Authorities are seeking to recover the amount from the petitioner in pursuance of the agreement between the outgoing management and the incoming management. In other words, the Revenue Authorities are assisting one party to enforce the terms of the agreement against another notwithstanding the existing dispute between them. To say the least, that cannot be the role of the Revenue Authorities in implementing the Income-tax Act while invoking provisions of recovery: Primarily the liability is to be discharged by the company which itself is a juristic person and enforcement has to be against the assets of the company which has perpetual existence; notwithstanding change in the management. Section 179 only provides an alternate mode of recovery in certain contingency.

Section 179 reads as under:

"Notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), where any tax due from a private company in respect of any income of any previous year or from any other company in respect of any income of any previous year during which such other company was a private company cannot be recovered, then, every person who was a director of the private company at any time during the relevant previous year shall be jointly and severally liable for the payment of such tax unless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company."

A bare perusal of the provision shows that before recovery in respect of dues from the private company can be initiated against the director, to make them jointly and severally liable for such dues, it is necessary for the Revenue to establish that such recovery cannot be made against the company and then and then alone it can reach the directors who were responsible for the conduct of business during the previous year in relation to which liability exists.

Neither in the order nor in the affidavit any such assertion has been made that in spite of making efforts against the company, it is not possible to recover the amount from the company by reaching its assets. On the other hand, there is clear indication that section 179 is being put to use by the Revenue Authorities to resolve the dispute between the erstwhile directors and the present incumbent about the terms of the agreement between them. The Income-tax Act has not assigned any such role to its authority to act as an arbiter of inter se dispute between the parties which does not concern it. We are, therefore, satisfied that the provisions of section 179 have been invoked without laying the necessary foundation for the same. The order, therefore, suffers from the error apparent on the face of it and is ultra vires section 179.

Accordingly, this petition succeeds. The impugned order (Annexure-A) under section 179 of the Income-tax Act is quashed. Rule is made absolute. There shall be no order as to costs.

M.B.A./78/FC Petition accepted.

2000 P T D 3639

[238 I T R 197]

[Gujarat High Court (India)]

Before J. N. Bhatt and A. R. Dave, JJ

COMMISSIONER OF INCOME-TAX

versus

AHMEDABAD EAGLE ENGG. (PVT.) LTD.

Income-tax Reference No.200 of 1984, decided on 10th February, 1999.

Income-tax---

----Income---Revenue receipt---Sales tax collected but not paid---Is trading receipt liable to tax as revenue receipt.

The amount of tax recovered by the dealer or the seller when it forms an integral paft of the commercial transaction of the sale, is nothing but a trading receipt. It is the nature and the quality of the receipt and not the head under which it is taken or entered in the account of the assessee that would be determinative and decisive.

The assessee had collected net sales tax of Rs.3,79,070 out of which an amount of Rs.1,38,557 was paid to the Sales Tax Department being the amount of sales tax. The remaining amount of Rs.2,40,513 was brought to income-tax by the Income-tax Officer. However, the Appellate Assistant Commissioner held that the amount was not taxable which was confirmed by the Tribunal. On a reference:

Held, that the net sales tax collection of Rs.2,40,513 (Rs.3,79,070) minus payment Rs.1,38,557) was liable to be taxed as revenue receipt in the hands of the assessee for the assessment year in question.

Chowringhee Sales Bureau (Pvt.) Ltd. v. CIT (1973) 87 ITR 542; (1973) 31 STC 254 (SC); Motilal Ambaidas v.- CIT (1977) 108 ITR 136 (Guj.); Punjab Distilling Industries Ltd. v. CIT (1959) 35 ITR 519 (SC) and Sinclair Murray & Co. (P.) Ltd. v. CIT (1974) 97 ITR 615 and (1975) 35 STC 142 (SC) fol.

B.B. Naik with Manish R. Bhatt for the Commissioner.

JUDGMENT

J.N. BHATT, J.---By this reference application,, at the instance of the Revenue-applicant, the Tribunal has referred the following two questions for our opinion:

"(I) Whether, the net sales tax collections of Rs.2,40,513 are not taxable in the hands of the assessee, on the facts and in the circumstances of the case? '

(2) Whether, on the facts and in the circumstances of the case, the net sales tax collection of Rs:2,40,513 (collection Rs.3,79,070 payment Rs.1,38,557) is not liable to be taxed as revenue receipt in the bands of the assessee for the assessment year in question?"

The respondent assessee was dealing in the business of-manufacture and sale of steel. furniture and other allied items. The assessee was, therefore, required to recover sales tax on behalf of the State and Central Government. The amount collected' by way of sales tax in all came to Rs.3,79,070. The assessee in maintaining the accounts ignored the total collections as income and payment. as ' expenditure. Upon. assessment, the concerned Income-tax Officer took the. view that ;the total collection of amount of sales tax by the assessee-forms part and parcel of sale transaction and, therefore, it is trading or revenue receipt.

Upon an appeal at the instance of the assessee, the Appellate Assistant Commissioner held. that the net sales .tax collection could not be assessed in the hands of the assessee. The Tribunal also in appeal 'against the view of the Appellate Assistant Commissioner took the same view and the -appeal came to be dismissed. Therefore, at the instance of the Department,' the aforesaid two questions have been referred for our opinion under section 256(1) of the Income Tax Act, 1961:

We have heard learned counsel appearing for the Revenue, whereas, none appeared for and on behalf of the respondent-assessee despite service, for reasons not known to us.

After having heard learned counsel for the Revenue and taking into consideration the entire factual scenario and the relevant proposition of law together with the case law, in our opinion, the view taken by the Appellate Assistant Commissioner and confirmed by the Tribunal is not legal and sustainable for the reasons we articulate hereinafter. ??

The following facts have remained unimpeachable.

The assessee had collected net sales tax Rs.3,79,070 out of which an amount of Rs.1,38,557 was paid to the Department being the amount of sales tax, whereas, the regaining amount of ks.2,40,513 was retained by the assessee,, as worked out by the Income-tax Officer being the difference between the sales tax collected and the payment made during the years. The amount of Rs.1,38,557 which was deposited with the Government was allowed. to be deducted whereas the remaining amount of Rs.2,40,513 was disallowed. Thus, the said amount was brought to tax being an integral part of a commercial transaction and also forming sales price or consideration.

However, the Appellate Assistant Commissioner reversed the view of the Income-tax Officer which also came to be confirmed by the Tribunal.

It was contended on behalf of the Revenue that the assessee was rightly taxed by the Income-tax Officer on the amount of net sales tax collection of Rs.2,40,513 which remained in the hands of the assessee and wrongly reversed by the appellate authorities. In that, it was further submitted that since the net sales tax collection was Rs.3,79,070 and only an amount of Rs.1,38.557 was deposited with the Government, the remaining amount of Rs.2,40,513 is liable to income-tax being revenue receipt and, as such, received by the assessee. We find full substance in this contention, in the light of the facts of the case and the relevant proposition of law. .

The apex Court in Chowringhee Sales Bureau (Pvt.) Ltd. v. CIT 1973) 87 ITR 542, upon almost identical and similar factual aspects held that the amount of sales tax realised by the assessee is liable to tax and is required to be included in the total business receipts of the assessee. However, it was further held that the assessee can claim deduction as and when the assessee pays or deposits the amount with the Government. In fact, the proposition, laid down is crystal clear in Chowringhee Sales Bureau (Pvt.). Ltd. v: CIT (1973) 87 ITR 542 (SC) that the collection of tax "in the hands of the assessee is a business receipt and forming part of the profit and is liable to tax. In that case, a private limited company-assessee, had realised from the purchasers, sales tax and had not paid the said amount either to the actual owner of the goods auctioned by the assessee in capacity as an auctioneer and also not deposited with the Government. Therefore, the amount of sales tax recovered and' realised by the assessee did not go to the State Exchequer nor was it refunded to the original owners who participated in the auction. Therefore, it was held that the assessee in its character as an auctioneer, the amount received by him towards sales tax should be held forming part of its trading or business receipt. However, it was clearly further observed that the assessee would be entitled to claim deduction of the said amount as and when it pays to the State Government or is paid to the original owner. The view propounded by the apex Court, clearly supports the view which we are inclined to take in this reference.

In Punjab Distilling Industries Ltd. v. CIT (1959) 35 ITR 519 (SC), it was also 'held by the apex Court that certain amount received by the assessee and giving the nomenclature of security deposits and also trading it and entering in a separate ledger termed "empty bottles return security deposit account" it was found and held that the amount which came to be named as security deposit was actually a part of the consideration for sale and,-therefore, the part of the price of what was sold. Nor does it make any difference that the price of the bottles was entered in the general trading account while the so-called deposit was entered in a separate ledger termed "empty bottles return deposit account", for, what was a consideration for the sale cannot cease to be so by being written up in the books in a particular manner. Therefore, it is very clear that it is not the head under which it is taken or entered in the accounts, but the nature and quality of the receipt is decisive and determinative. Our view is also, thus, very much reinforced by the ratio propounded in Punjab Distilling Industries Ltd. v. CIT (1959) 135 ITR 519 (SC).

In short, we are of the clear opinion that wherever a sale attracts an amount of tax, may be, in any name, but when it affects the price which the seller who is liable to pay the tax, is nothing but a commercial transaction and forming integral part of the consideration for sale. Not only that, it also does not cease to be a price which the buyer has to pay even if the price is expressed separately from the tax amount, for example, X plus purchase tax, or X plus sales tax. Seller when offers goods for sale, it is for him to quote a price includes the tax and if he desires to pass it on the buyer and when the buyer agrees to the price quoted or offered, it is a part of consideration for sale and, therefore, it entails the part of total receipt of business.

During the course of submission, it was stated at the Bar that no specific provision has been made in the relevant legislations which would indicate that when the dealer or the seller collects any amount of tax, the said amount cannot form part of consideration for the. item sold;

Even in case of Sinclair Murray & Co. (P.) Ltd. v. CIT (1974) 97 ITR 615 (SC), the apex Court has taken the same view. This Court in a Division Bench decision in Motilal Ambaidas v. CIT (1977) I08 ITR 136 (Guj.) has followed the principles laid down in the aforesaid decisions of the apex Court. Even in a case of refund of sales tax being the excess amount of the tax liability and which was recovered by the seller, was held to be the part and parcel of sale transaction and liable to sales tax. It was a case of refund of sales tax by the Department to the assessee and it was not shown as a receipt. This Court in clear terms held that it is receipt of business or income of the assessee. When the assessee collecting sales tax and paying to the Government and on being refunded, part of which is taxable in the hands of the assessee in whose knowledge it came to be received by way of refund. Of course, in that case, mercantile system of accounts was adopted by the assessee. Therefore, this Court has clearly propounded a proposition relying on the earlier decisions that whenever any sales takes place, whether the price quoted to the purchaser includes sales tax or whether sales tax is separately collected, the sales tax forms part of the consideration for the sale and, therefore, it forms part of turnover of the seller. The amount of sales tax payable in respect of sales effected by a particular assessee forms part of commercial transaction and trading receipts and has to be shown on the credit side as income. When assessee pays sales tax to the authorities, he can, obviously, claim deduction for the sales tax paid. In a case where he is to refund the sales tax to the original purchaser who purchased the goods from him, then the amount so refunded by the Department to the assessee would be taken on the expenditure side. Therefore, the, clear proposition from the aforesaid decision is that the amount of tax recovered by the dealer or the seller when it forms an integral part of the commercial transaction of the sale, it is nothing but a trading receipt. It is the nature and the quality of the receipt and not head under which it is taken or entered in the account of assessee would be determinative and decisive.

In view of the aforesaid clear proposition of law supporting the view, which we are taking in this reference and in the light of the facts of the present case, the questions referred to us are required to be answered in the negative. Accordingly, we answer questions Nos. 1 and 2 in the negative, that is to say, in favour of the Revenue and against the assessee. The reference, therefore, shall stand disposed of with no order as to costs.

M.B.A/86/FC????????????????????????????????????????????????????????????? `?????????????????????? Order accordingly

2000 P T D 3659

[238 I T R 918]

[Gujarat High Court (India)]

Before R. Balia and A.R. Dave, JJ

MEGHDOOT LAMINART (PVT.) LTD.

Versus

RAJIV SINHA

Special Civil Application No. 1686 of 1999, decided on 15th April, 1999.

(a) Income-tax---

----Remission of liability---Takes place when dispute as to liability ultimately settled---Refund of excise duty received by assessee---Appeals against refund orders pending in Supreme Court---No remission of liability in year of receipt of refund as there was no final order---Indian Income. Tax Act, 1961, S.41 (1).

The Assessing Officer issued notices on February 1, 1999, for re­opening the assessments for the assessment years 1988-89, 1989-90, 1990-91 and 1991-92 on the ground that receipt of excise duty -refunds during the aforesaid assessment years was not shown as income on accrual/receipt basis in the relevant assessment year. Admittedly, the allowance of excise duty paid as trading liability as deduction in earlier assessment years, the receipt of refund amount during the assessment year in question and pendency of an appeal against the order resulting in refund with plea of the assessee about its non-adjustment, were all disclosed in the return. On a writ petition:

Held, allowing the petitioner, (i) that receipt of refund during the relevant assessment year at that stage when appeals against the refund orders were pending did not result in cessation of the liability so as to make the receipt of amount within the purview of the term "the assessee has obtained a benefit as a result of remission or cessation of trading liability" in section 4101) of the Income Tax Act, 1961.

CIT v. Sugauli Sugar Works (P.) Ltd. (1999) 236 ITR 518 (SC) and CIT v.-Bharat Iron and Steel Industries (1993) 199 ITR 67 (Guj) fol.

(b) Income-tax---

----Reassessment---Limitation---Failure to disclose material facts---Receipt of excise duty refund and pendency of appeal therefrom disclosed in return--­That receipt not shown as income---Not failure to disclose material fact--­Extended period of limitation not available---Indian Income Tax Act, 1961, S.147.

(ii) That the reason disclosed in the note recorded by the Assessing Officer before assuming jurisdiction stated that receipt of excise duty refunds during the aforesaid assessment years were not shown by the assessee as income on accrual or receipt basis. It was not the case 'that the receipt of excise duty was not disclosed during the relevant proceedings of the assessment years in question. The primary facts were disclosed. Therefore, even if there was room for the Assessing Officer to hold a belief bona fide that the actual receipt was liable to be taxed in the assessment year relevant to the previous year in which refund had actually been received, there was no escape from the conclusion that initiation of action under section 147 on February 1, 1999, in respect of the assessment years 1988-89 to 1991-92 did not fall within the province of a case where such escapement could be held to be by reason of failure on the part of the assessee to disclose truly and fully all material facts necessary for the assessment, nor could such belief be entertained by the Assessing Officer in the reasons recorded by him for the purpose of initiating action under section 147. The notices were liable to be quashed.

Calcutta Discount Co. Ltd. v. ITO, (1961) 41 ITR 191 (SC) and CIT v. Rashmi Trading Co. (1976) 103 ITR 312 (Guj.) ref.

D.A. -Mehta for R.K. Patel, M.K. Patil and B.D. Karia for Petitioner.

P.G. Desai for Manish R. Bhatt for Respondent No. 1.

2000 P T D 3669

[238 I T R 221]

[Gujarat High Court (India)]

Before R. Balia and A.R. Dave, JJ

BARODA SPINNING AND WEAVING MILLS CO. LTD.

Versus

COMMISSIONER OF INCOME-TAX

Income-tax References Nos.251 and 252 of 1984, decided on 6th April, 1999.

Income-tax---

----Loss---Carry forward of loss ---Assessee-company in liquidation--­Discontinuance of business---Accrual of interest income---Interest income assessed as income from other sources---Unabsorbed depreciation of earlier years was liable to be set off against income from other sources.

The assessee-company was in liquidation. During the winding up proceedings, it had income by way of interest accruals. As the company had discontinued its business it was liable to be assessed under the head "Income from other sources". The company also had unabsorbed depreciation of the earlier years carried for the purpose of being set off against profits and gains of the subsequent years. The Income-tax Officer disallowed the claim of the assessee on the ground that the assessee had no profits or gains chargeable under the head "Income from business" but had taxable income from other sources. The Tribunal held that the assessee was not entitled to set off of depreciation against income from other sources because it had ceased to carry on business. On a reference:

Held, that, the Tribunal was not right in holding that the set off of unabsorbed depreciation carried forward from earlier years could not be allowed against the income from other sources unless, the assessee had income falling under section 28 of the Income Tax Act, 1961.

CIT v. Jaipuria China Clay Mines (P.) Ltd. (1966) 59 ITR 555 (SC); Rajapalayam Mills Ltd. v. CIT (1978) 115 ITR 777 (SC) and CIT v. Virmani Industries (Private) Limited (1995) 216 ITR 607 (SC) fol.

Official Liquidator for the Assessee.

Manish R. Bhatt for the Commissioner.

2000 P T D 3672

[238 I T R 148]

[Gujarat High Court (India)]

Before R. K. Abichandani and A.R. Dave, JJ

COMMISSIONER OF INCOME-TAX

Versus

FATESINHJI GINNING, PRESSING AND MANUFACTURING CO. LTD.

Income-tax Applications Nos. 120 to 124 of 1997, decided. on 22nd January, 1998.

Income-tax--

----Reference---Industrial company ---Concessional rate of tax---Cotton ginning and processing of cotton---Decision of High, Court that company which was ginning and processing cotton was an industrial company--­Question whether such a company was an industrial company could not be referred---Indian Income Tax Act, 1961, S.256.

Held, dismissing the application to direct reference that a similar question had arisen earlier in the case of the same assessee. The High Court in CIT v. Lakhtar Cotton Press Co. (Pvt.) Ltd. (1983) 142 ITR 503 (Guj.) had held that where loose cotton in bulk quantity with lighter density was, as a result of pressing, converted into cotton bales and to that extent it underwent, a change, the assessee-company fell within the definition of an Industrial company because it processed cotton into cotton bales and was entitled to the concessional rate of tax as provided under the law. In view of this settled legal position, the question whether the Appellate Tribunal was right in law and on the facts in directing the Assessing Officer to treat the assessee-company as an industrial company when the assessee was. engaged in the business of ginning and processing of cotton could not be referred.

CIT v. Lakhtar Cotton Press Co. (Pvt.) Ltd. (1983) 142 ITR 503 (Guj.) ref.

Manish R. Bhatt for Applicant.

2000 P T D 628

[233 I T R 955]

[Haryana High Court (India)]

Before Ashok Bhan and Iqbal Singh, JJ

COMMISSIONER OF INCOME-TAX

versus

JANTA COOPERATIVE SUGAR MILLS LTD.

Income-tax Case No.93 of 1994 decided on 20th May, 1997.

Income-tax ---

----Reference---Question of law ---Assessee engaged in manufacturing different kinds of sugar---Different method adopted for valuing each variety of closing stock of sugar---Return filed disclosing loss---Assessment completed after making addition on account of under valuation of closing stock of sugar ---C.I.T. (Appeals) upholding addition only to a certain extent---Tribunal deleting addition on ground that assessee followed regular and accepted method of valuation of closing stock over a number of years--­ Tribunal not giving cogent reasons for accepting method of valuation--­ Question of law arises for reference---Indian Income Tax Act, 1961. S.256(2).

The assessee, a sugar mill, manufactured three types of sugar (i) crystal sugar, (ii) raw brown sugar and (iii) sugar in process, and for each variety of sugar different method was adopted for valuing the same on the last day of the accounting year. In its return filed for the relevant assessment year the assessee declared a loss of Rs.91,77,270. The assessment was completed by the Inspecting Assistant Commissioner of Income-tax on a net loss of Rs.50,73,792 after making an addition of Rs.14,91,430 on account of under valuation of closing stock of sugar. On appeal, the Commissioner of Income-tax (Appeals) upheld the addition to the extent of Rs.12,31,658. The Commissioner of Income-tax (Appeals) further held that the assessee was entitled to the benefit of carry forward of losses of the earlier years. On further appeals, the Tribunal deleted the addition of Rs.12,31,658 on the ground that the assessee had followed a regular and accepted method of valuation of closing stock over a number of years. The Tribunal rejected the application of the Revenue under section 256(1) of the Income Tax Act, 1961, for referring a question of law. On an application filed under section 256(2) to the High Court for directing the Tribunal to refer a question of law, the Revenue contended that an arbitrary method had been adopted by the Tribunal in valuing the two types of sugar, i.e., raw brown sugar and sugar in process:

Held, that the Tribunal had not given any cogent reasons for accepting the method of valuation in regard to the closing stock of the assessee and it based its findings only on the practice in this regard followed by the assessee during the earlier years. Therefore, the question of law, whether the Tribunal , was right in law in deleting the addition of Rs.12,31,658 made by the Assessing Officer and upheld by the Commissioner (Appeals) on account of valuation of closing stock, arose for reference.

B.S. Gupta, Senior Advocate with Sanjay Bansal for the Commissioner.

M.L. Sharma for the Assessee.

2000 P T D 634

[232 I T R 546]

[Haryana High Court (India)]

Before B. Rai, J

UNION OF INDIA and another

versus

AMRIT LAL SOOD and others

Regular Second Appeal No.2766 of 1979, decided on 21st March, 1997

Income-tax--

----Recovery of tax---Abatement of proceedings---Attachment of properties of individual for recovery of arrears of tax due by H.U.F.---Suit by individual that properties belonged to him as sole owner---Suit decreed in favour of individual---Appeal against decision---Father of individual impleaded by individual as defendant alongwith union of India and T.R.O.--­No relief claimed against individual's father---Death of father of individual during pendency of suit---Proceedings would not abate---Father of individual was not a necessary or proper party---Dismissal of appeal was not valid--­Indian Civil Procedure Code, 1908, O. XXII, R. 4.

When Order 22, rule 4, of the Civil Procedure Code, 1908, does not provide for the abatement of appeals against co-respondents. of a deceased respondent, there can be no question of abatement of the appeal against them. The only question is whether the appeal can proceed against them. The provisions of Order 1, rule 9, Civil Procedure Code, also show that if the Court can deal with the matter in controversy as regards the rights and interests of the appellant and the respondents other than the deceased respondent, it has to proceed with the appeal and decide it. It is only when it is not possible for the Court to deal with such matters, that it will have to refuse to proceed further with the appeal, therefore, dismiss it.

The question whether a Court can deal with such matters or not, will depend upon the facts of each case and, therefore, no exhaustive statement can be made about the circumstances when this is possible or is not possible. However, ordinarily the considerations which weigh with the Court in deciding upon this question are whether the appeal between the appellants and the respondents other than the deceased can be said to be properly constituted or can be said to have all the- necessary parties for the decision of the controversy before the Court. The test to determine this has been described in diverse forms. Courts will not proceed with an appeal (a) when the success of the appeal may lead to the Court's coming to a decision which will be in conflict with the decision between the appellant and the deceased respondent and, therefore, which would lead to the Court's passing a decree which will be contradictory to the decree which had become final with respect to the same subject-matter between the appellant and the deceased respondent; (b) when the appellant could not have brought the action for the necessary relief against those respondents alone who are still before the Court; and (c) when the decree against the surviving respondents if the appeal succeeds, will be ineffective, i.e., it could not be successfully executed.

There was a firm named Bhagwan Dass Sud & Sons. B claimed that the firm was a firm of a Hindu undivided family. He further claimed that he had been filing income-tax returns of this concern up to the assessment year 1955-56. Huge arrears of income-tax fell due against the Hindu undivided family firm. The income-tax authorities sought to recover the arrears of income-tax as land revenue. Recovery proceedings were initiated by the Tax Recovery Officer of the Income-tax Department. The property in dispute was attached. A, one of the sons of B, claimed to be the sole owner of the property. He filed objections before the Tax Recovery Officer pleading that the suit property was not liable to be attached and sold for recovery of arrears of income-tax due from the Hindu undivided family firm. The objection petition was dismissed. A filed a civil suit seeking three declarations: that he was the sole owner of the suit property; that the suit property was not liable to attachment and sale for the recovery of arrears of income-tax; and that the order, dated March 21, 1969, passed by the Tax Recovery Officer was illegal, null and void and not binding on him. A impleaded the Union of India and the Tax Recovery Officer as defendants Nos. 1 and 2 and his father B as defendant No.3 but did not claim any relief against B. B did not put in appearance and contest the suit. The suit was decreed in A's favour. Meanwhile B died in January, 1976. The Union of India and the Tax Recovery Officer filed an appeal on January 18, 1978, impleading A as respondent No. 1 and B as respondent No. 2 though he had died during the pendency of the suit. The First Additional District Judge, Hoshiarpur, dismissed the appeal. On second appeal:

Held, that the decree having been passed only against defendants Nos. 1 and 2, B had no interest in the lis, there being no decree against him, as he was proceeded against ex parte in the trial Court. Even if he were alive, he was not expected to file any appeal. Therefore, his impleadment as respondent No.3 in the appeal was nothing but surplus age. The appellants could bring action against A alone for the necessary relief. In the event of success of the appeal, the decree against A could be an effective decree against him. These aspects were neither considered at the time of deciding the application under Order XXII. rule 4 of the Civil Procedure Code, nor at the time of decision of the appeal by the Appellate Court which let it to reach a wrong conclusion. The appeal deserved to be allowed and the case should be remanded to the First Appellate Court for decision on the merits.

State of Punjab v. Nathu Ram AIR 1962 SC 89 ref.

B.S. Gupta, Senior Advocate with Sanjay Bansal for Appellants.

K. Bakshi for Respondent.

2000 P T D 746

[232 I T R 559]

[Haryana High Court (India)]

Before Ashok Bhan and N. K. Agrawal, JJ

COMMISSIONER OF INCOME-TAX

versus

DEEPAK INDUSTRIES

Income-tax References Nos. 19 and 20 of 1986, decided on 11th August, 1997.

Income-tax---

----Depreciation---Registered firm---Unabsorbed depreciation of firm allocated to partners and not wholly set off; in their individual assessments--­Allowable in the hands of registered firm in subsequent year---Indian Income Tax Act, 1961, S. 32.

The unabsorbed depreciation of a registered firm for the preceding assessment years allocated to its partners, not wholly set off in their respective assessments, should be brought back for computation of the total income for the subsequent years as if the balance after set off, were the firm's unabsorbed depreciation.

Garden Silk Weaving Factory v. CIT (1991) 189 ITR 512 (SC) and CIT v. Singh Transport Co. (1993) 200 ITR 574 (SC) fol.

CIT v. J. Patel & Co. (1984) 149 ITR 682 (Delhi) ref.

B. S. Gupta, Senior Advocate with Sanjay Barisal for the Commissioner.

Nemo for the Assessee.

2000 P T D 826

[233 I T R 27]

[Haryana High Court (India)]

Before Ashok Bhan and N. K. Agrawal, JJ

PAWAN KUMAR

versus

INCOME-TAX OFFICER

C.W.P. No. 11686 of 1997, decided on 21st August, 1997.

Income-tax---

----Recovery of tax---Stay of recovery proceedings---Application for stay--­I.T.O. must give assessee opportunity to be heard and pass a speaking order---Indian Income Tax Act, 1961, S. 220(6)---Constitution of India, Art.226.

The Income-tax Officer is required to afford an opportunity of hearing to the assessee and pass a speaking order while deciding the application filed by the assessee under section 220(6) of the Income Tax Act, 1961.

Aggarwal Rice and General Mills v. CI.T (Appeals) (1993) x,04 ITR 480 (P & H) and Kuku Rice Mills v. Assessing Authority-cum-Income-Tax Authority (1992) 196 ITR 326 (P&H) ref.

K.L. Goyal for Petitioner.

B.S. Gupta, Senior Advocate with Sanjay Bansal for Respondent

2000 P T D 2057

[235 I T R 679]

[Haryana High Court (India)]

Before G. C. Garg and N. K. Agrawal, JJ

B. M. PARMAR, DEVELOPMENT OFFICER, LIFE INSURANCE

CORPORATION OF INDIA

versus

COMMISSIONER OF INCOME-TAX

Income Tax References Nos. 105 and 106 of 1986, decided on 27th October, 1998.

(a) Interpretation of statutes---

---- Statute to be interpreted strictly---Provision to be construed keeping in view purpose and object for which it is enacted.

In the matter of tax the statute has to be interpreted strictly. A provision has to be construed keeping in view the purpose and object for which it is enacted. The concept of commercial principles or business practice would not be relevant unless it is found to be inevitable.

(b) Income-tax---

----Salary---Incentive bonus---Life Insurance Corporation of India--­Development Officers---Are whole time employees employed for promoting and developing life insurance business---Receive incentive bonus for same work for which paid salary---Incentive bonus is for showing better results--­In incentive bonus scheme framed by LTC, profit earned by LTC not distributable as incentive bonus among Development Officers---Incentive bonus "not distributed profits" in addition to salary---Incentive bonus amounts to commission---Incentive bonus not paid for meeting expenses wholly, necessarily and exclusively incurred by Development Officers in performance of their duties---No element or component of reimbursement of expenses involved in grant of incentive bonus---Exclusion of incentive bonus from annual remuneration only for purpose of calculation of amount of incentive bonus--- Incentive bonus is assessable under head "salary" and not under head "profits and gains of business of profession"---Deduction under S.16(i) is admissible and no separate deduction on account of expenditure permissible---Indian Income Tax Act, 1961, Ss. 2(24)(iiia), 10(14), 14, 15, 16 & 17.

Development Officers of the Life Insurance Corporation of India are whole time employees of the Life Insurance Corporation of India. They are employed for promoting and developing life insurance business. Their primary concern and functions are to secure more business for the Life Insurance Corporation of India. It cannot, therefore, be said that while working in the field they are doing work in a different capacity. Whatever income is received by the Development Officers from the Life Insurance Corporation of India, is by way of salary and is to be assessed under the same head. There is nothing on record to show that under the scheme of incentive bonus framed by the Life: Insurance Corporation of India in 1978, they were required to perform a duty different from the one for which they were appointed. In this light, the extra income earned by the Development Officer cannot be said to be assessable under the head "Profits and gains of business or profession".

Sub-clause (iv) of clause (1) of section 17 of the Income Tax Act, 1961, makes it clear that the amount of commission received by an employee from his employer will be treated as part of salary. Similarly, under section 17(3) the profits in lieu of or in addition to any salary or wages are also made part of the salary.

The amount of incentive bonus cannot be said to have been paid as part of profits by the Life Insurance Corporation of India to the Development Officers. Therefore, it cannot be held that the incentive bonus in the hands of the Development Officers was "distributed profits" in addition to salary. The word "profits" would essentially mean profits of the employer. If the remuneration is paid by the employer by sharing the profits, that would be treated to be profits in addition to salary in the hands of the employees.

Incentive bonus is calculated on the basis of the total premium collected by a Development Officer against the number of policies procured. It is paid. on the basis of the volume of business and is, therefore, in the nature of commission. Therefore, amount of incentive bonus received by the assessee was not in the nature of profits distributed or paid in addition to salary but was in the nature of commission. paid to him for doing extra business for the employer.

A conjoint reading of section 2(24)(iiia) and section 10(14) would make it clear that any special allowance or benefit granted to an employee has been made assessable as his income. At the same time, exemption has been allowed in respect of such special allowance or benefit to the extent to which the employee has actually incurred expenses wholly, necessarily and exclusively for the performance of his duties.

In the case of a Development Officer the incentive bonus is not a special allowance payable to him for meeting expenses wholly necessarily and exclusively incurred by him in the performance of his duties. The Development Officers have been made eligible to receive incentive bonus on the number of policies procured by them and the total amount of premium collected during a year. It is also relatable to the territory in which they are required to function for the promotion of insurance business. Thus, there is nothing to show from the scheme framed by the Life Insurance Corporation of India in 1978 that incentive bonus was paid to the Development Officers as any special allowance or benefit granted to them to meet certain expenses.

Section 10(14) has been amended with effect from April 1, 1989, and only such special allowance or benefit has been made eligible for exemption as is notified by the Central Government. It would be, thus, apparent that after the amendment effective from April 1, 1989, no exemption in respect of actual expenses incurred by the employee receiving a special allowance or benefit would be available unless it, has been notified by the Central Government.

Deductions have been separately specified in section 16 for the purposes of computing the income under the head "Salaries". Deduction was allowed, prior to the amendment effective from April 1, 1975, under five specific heads, (i) expenditure on the purchase of books; (ii) expenditure in entertaining people connected with the employer's business; (iii) expenditure on conveyance used by the employee for the purpose of his employment; (iv} expenditure actually incurred by the employee which, by the conditions of his service, he was required to spend out of his remuneration wholly, necessarily and exclusively in the performance of his duties, and (v) amount of tax on professions, trades, callings or employment levied under any State or provincial Act. It would, thus, be obvious that, prior to the amendment effective from April 1, 1975, deductions were allowed from salary under specific heads. Thus, the statute took sufficient care about the need for deduction in respect of a salaried employee. In this light, a second deduction is not permissible.

After the amendment effective from April 1, 1975, standard deduction at ,a fixed rate/amount is allowed under clause (i) of section 16. Two other deductions, one in respect of entertainment allowance and the other on account of payment of tax on employment, are also allowed under clauses (ii) and (iii) of section 16. Though in clause (i) of section 16, no specific item has been mentioned for which standard deduction is allowed, it would be necessary to look to the provisions which existed prior to the amendment and which became effective from the assessment year 1975-76. In this light a second deduction cannot be said to be permissible with the aid of section 10(14) of the Act.

In a taxing statute it cannot be assumed that the concept of business expediency may be taken into consideration while allowing deductions to arrive at the net profit. If it was a case of profits and gains of business or profession, the concept of net profit would emerge. However, in the case of income by way of salary, deduction shall be allowed only as specified in section 16 of the Act.

There is also no element or component of reimbursement expenses in the grant of incentive bonus. The incentive bonus scheme of 1978 is totally silent in this regard. The exclusion of incentive bonus from annual remuneration was done only for the purpose of calculation of the amount of incentive bonus. The amount of incentive bonus depended on the total expenditure incurred on. a Development Officer during a year and the amount of premium collected by him during that year. It is, thus, manifest that in the entire incentive bonus scheme there is no mention of any component of any expenditure in the amount of incentive bonus nor is incentive bonus to be calculated on the basis of expenditure.

The assessee has not shown that he was not paid any travelling allowance while going to the field in connection with the insurance business.

He cannot claim a second reimbursement from the amount of incentive bonus. He being an employee of the Life Insurance Corporation of India, is entitled to the allowance and benefits in respect of his duties as admissible to other employees.

Therefore, incentive bonus is assessable under the head "salaries" and not under the head "profits and gains of business or profession". Therefore, deduction under section 16(i) of the Act is admissible under the head "salaries" and no separate deduction on account of expenditure is permissible.

CIT v. Durga Kumar Nanda (1995) 211 ITR 639 (Orissa) and CIT v. Pramod Kumar Jain,(1995) 216 ITR 598 (Raj.) distinguished.

Badridas Daga v. CIT (1958) 34 ITR 10 (SC); Bhargava (K.P.) v. CIT (1954) 26 ITR 489 (All.); Choudary (K. A.) v. CIT (1990) 183 ITR 29 (AP); CIT v. Anil Singh (1995) 215 ITR 224 (Orissa); CIT v. Baniyan (A. A.) (1992) 197 ITR 717 (Bom.); CIT v. Chinnaiah (B.) (1995) 214 ITR 368 (AP); CIT v. Govind Chandra Pani (1995) 213 ITR 783 (Orissa); CIT v. Kiranbhai H. Shelat (1999) 235 ITR 635 (Guj.); CIT v. Patil (M. D.) (1998) 229 ITR 71 (Kar.); CIT v. Rameshwar Lal Pahwa (Dr.) (1980) 123 ITR 681 (Delhi); CIT v. Shah (M.C.) (1991) 189 ITR 180 (Bom.); CIT v. Shiv Raj Bhatia (1997) 227 ITR 7 (Raj.); Gestetner Duplicators (Pvt.) Ltd. v. CIT (1979) 117 ITR 1 (SC); Poona Electric Supply C o. Ltd. v. CIT (1965) 57 ITR 521 (SC) and Sultan Brothers (Pvt.) Ltd. v. CIT (1964) 51 ITR 353 (SC) ref.

A. K. Mittal and Tarlochan Singh for the Assessee.

R. P. Sawhney, Senior Advocate with Rajesh Bindal for the Commissioner.

2000 P T D 2488

[236 I T R 468]

[Haryana High Court (India)]

Before Ashok Bhan and N. K. Agrawal, JJ

ESCORTS EMPLOYEES ANCILLARIES

versus

COMMISSIONER OF INCOME-TAX

I.T.C. No.31 of 1996, decided on 11th September, 1997.

Income-tax---

----Reference---Business expenditure---Expenditure on know-how--­Deduction under S.35AB whether available in respect of payments made prior to 1-4-1986---Question of law---Indian Income Tax Act, 1961, Ss.35AB & 256.

Held, that the question whether the Income-tax Appellate Tribunal was correct in law in the facts and circumstances of the case in holding that deduction under S.35AB of the Income Tax Act, 1961, could not be allowed in respect of payments made prior to April 1, 198e and thereby denying deduction of Rs.1,26,944 being 1/6th of Rs.7,61,666 had to be referred.

G. C. Sharma, Senior Advocate with A. K. Mittal for Petitioner.

R. P. Sawhney, Senior Advocate with S. K. Sharma for Respondent. .

2000 P T D 3526

[238 I T R 97]

[Haryana High Court (India)]

Before Jawahar Lal Gupta and N.K. Agrawal, JJ

Smt. LAXMI MITTAL

versus

COMMISSIONER OF INCOME-TAX

C.W.P. No. 12754 of 1998, decided on 22nd March, 1999.

Income-tax---

----Voluntary disclosure of income---Disclosures to be made before 31-12-1997---Assessee making disclosure on 27-12-1997---Payment to be made alongwith declaration or within 90 days of declaration ---Assessee making payment on 30-3-1998---Delay due to circumstances beyond her control---Since last date for making disclosure was 31-12-1997 last date for payment of tax would expire on 30-3-1998---Commissioner not justified in rejecting declaration of assessee as "non est"---Voluntary disclosure of Income Scheme, 1997---Indian Finance Act, 1997, S.67.

The assessee in spite of having declared her income on December 27, 1997, was unable to pay tax alongwith interest within 90 days of declaration, i.e., March 27, 1998, due to circumstances beyond her control. The payment was made on March 30, 1998, after a delay of three days. The Commissioner of Income-tax held the declaration under the scheme "non est". On a writ petition:

Held, allowing the petition, that since the declaration could have been made on or before December 31, 1997, the consequent last date for payment of tax would expire on March 31, 1998. The provisions of a taxing statute are to be construed liberally and in favour of the assessee. In case tax was not deposited alongwith the declaration, interest at the rate of 2 per cent for every month or "part of a month" could be charged. Therefore, the order passed by the Commissioner of Income-tax was liable to be set aside.

Sanjay Kaushal for Petitioner.

R. P. Sawhney, Senior Advocate with Rajesh Bindal for Respondent.

2000 P T D 3545

[238 I T R 124]

[Harayana High Court (India)]

Before Jawahar Lal Gupta and N. K. Agrawal JJ

VIVEK GUPTA

versus

CENTRAL BOARD OF DIRECT TAXES and others

C.W.P. No.18009 of 1997 and C. M. No.4673 of 1999, decided on 9th March, 1999.

Income-tax-

----Reassessment---Notice---Writ---Reason to believe that income escaped assessment---Source of money deposited not explained---Assessing authority justified in initiating action under 5.148---Indian Income Tax Act, 1961, Ss.147 & 148. '

The Income-tax Officer issued notices under section 148 of the Income Tax Act, 1961, dated March 20, 1997, to the assessee as he had reason to believe that income to the extent of Rs.69,538 and Rs.14,000 for the assessment years 1994-95 and 1995-96 had escaped assessment. It was not disputed that the amounts were deposited by the petitioner. According to the assessee's counsel, the deposits had been made on behalf of one D. On a writ petition:

Held, dismissing the petition, that there was nothing to show that the authority did not have any reason to believe that income chargeable to tax had escaped assessment. The petitioner has not shown by any evidence on record as to what was the source of the money deposited by him. Therefore, the issue of notice under section 147 was valid.

Asoke Kumar Sen v. ITO J1981) 132 ITR 707 (Delhi); ITO v. Lakhmani Mewal Das (1976) 103 ITR 437 (SC); R.S. Chiranji Lal & Sons v. CIT (1959) 36 ITR 407 (Punj.) and Sheo Nath Singh v. AAC of I.T. (1971) 82 ITR 147 (SC) ref.

A.K. Mittal for Petitioner.

R. P, Sawhney, Senior Advocate and Rajesh Bindal for Respondents

2000 P T D 3643

[238 I T R 206]

[Haryana High Court (India)]

Before Ashok Bhan and N. K. Agrawal, JJ

COMMISSIONER OF INCOME-TAX

Versus

HANSA AGENCIES (PRIVATE) LIMITED

Income-tax Reference No. 135 of 1996, decided on 29th September, 1997.

Income-tax---

----Assessment---Draft assessment order---Limitation--Draft assessment order alongwith objections submitted on 6-1.2-1983, directions received on 11-5-1984, and assessment made on 26-5-1984---Assessment was not barred by limitation---Income Tax Act, 1961, S. 144B.

A return was filed for the assessment year 1981-82, declaring income of Rs.15,96,650. A revised return was filed showing income of Rs.11,50,866. The Income-tax Officer proposed variation in the income of the assessee exceeding Rs.1,00,000 and, therefore, he followed the procedure laid down in section 144B of the Income Tax Act, 1961. A draft of the assessment order was forwarded by the Income-tax Officer to the assessee on November 22, 1983. The objections were filed by the assessee on December 2, 1993. A copy of the draft assessment order along with the copy of the objections were sent to the Inspecting Assistant Commissioner on December 6, 1983. The directions were received from the Inspecting Assistant Commissioner on May 11, 1984. Assessment was made on. May 26; 1984. On the question whether - the assessment was barred by limitation:

Held, that subsection (7) of section 144B was not attracted and the procedure, laid down in that section, was rightly followed as the Income-tax Officer, having concurrent jurisdiction with the Inspecting Assistant Commissioner under section 125A of the Act, proposed to make variation in the income of the assessee exceeding Rs.1,00,000. The assessment was not barred by limitation.

CIT v. Gheru Lal Bal Chand (1998) 233 ITR 82 (P&H) fol.

B.S. Gupta Senior Advocate with Sanjay Bansal for the Assessee.

2000 P T D 50

[231 I T R 569]

[Himachal Pradesh High Court (India)]

Before M. Srinivasan, C J and A. L. Vaidya, J

DAYAL SONS

versus

COMMISSIONER OF INCOME-TAX

Income-tax Reference No.6 of 1988, decided on 14th May, 1997.

(a) Income-tax---

----Income from undisclosed sources---Additions made on the basis of facts--­Justified---Indian Income Tax Act, 1961. The Tribunal has to find that there is a question of law which requires to be referred to the High Court under section 256 of the Income Tax Act, 1961. It is only if the Tribunal is satisfied that a question of law does arise, that it can make a reference to the High Court and not otherwise. It cannot simply act on the desire of the parties, concerned, nor can it say that it will be a safer course to make a reference rather than refuse to make the reference.

(b) Income-tax---

----Reference---Reference can be made only if there is a question of law requiring reference---Indian Income Tax Act, 1961, S.256.As per the cash book of the assessee on March 31, 1978, the opening cash balance was Rs.2,41,088 and the outgoings were Rs.2,08,586 The cash in hand should have been Rs.32,501 but the assessee had chown cash in hand at Rs.12,409. The assets had been, thus, reduced by Rs.20,093. As the assessee had failed to explain the discrepancy, it admitted the same and the Income-tax Officer made the addition. That order was upheld by the Appellate Assistant. Commissioner. However, before the Tribunal the assessee contended that there was an entry of Rs.43,000 on the receipts side against sales account. Those sales were partly for cash and partly credit sales. If credit sales were excluded, it was contended that there would be no difference and it was further contended that there was a contra entry of Rs.16,421 on the credit side of the cash book. The Tribunal found that no record had been produced in support of the said contra entry. It confirmed the addition. There was a credit entry of Rs.16,421. The Income-tax Officer noticed that even though the cash had gone out to this extent from the cash book in the account of no corresponding debit entry had beers made. That had the effect of reducing the debit balance by Rs.16,421. If the account was properly posted, the debit balance would increase by this figure and, thus, the value of the assets would increase: The assessee's contention in that behalf was that this was covered by cash in hand at Rs.20,093 added against the first ground but that contention was rejected by the Tribunal on the ground that the cash had gone out of the book but it was not reflected in the corresponding account. On a reference:

Held, that on the facts, the Tribunal was justified in sustaining the addition of Rs.20,093 which in fact was a cash shortage and also in sustaining the addition of Rs.16,420.52.

(c) Income-tax---

----Reference---Procedure---Practice of counsel on record not appearing before High Court deprecated---Indian Income Tax Act, 1961, S.256.

The profession of an Advocate is very noble profession and he is entrusted with a duty to be performed in the Court. He is not only an agent of the client in one sense but also an officer of the Court. He has got three­fold duties one towards his client; another towards the Court and the third towards the opposing counsel. It is highly improper or the part counsel record to he away from the Court.

Nemo for the Assessee.

Inder Singh, A.-G. with M. M. Khanna for the Commissioner.

2000 P T D 451

[232 I T R 58]

[Himachal Pradesh High Court, (India)]

Before M. Srinivasan, C.J. and A. L. Vaidya, J

HIMACHAL PRADESH FINANCIAL CORPORATION LTD.

versus

COMMISSIONER OF INCOME-TAX

Income-tax Reference No. l of 1989, decided on 27th May, 1997."

(a) Income-tax---

----Financial Corporation---Deduction in respect of special reserve--­Deduction under S.36(l)(viii) must be allowed before making deductions under Chapter VI-A and also before taking into account deduction allowable under S.36(1)(viii)---Indian Income Tax Act, 1961.

(b) Income-tax---

----Business expenditure---Amounts representing discount on bonds and debentures---Deductible---Indian Income Tax Act, 1961, S.37. (c) Income-tax--- ----Income---Accrual of income---Interest---Mercantile system' of accounting---interest on "sticky loans" --Suits filed for recovery of amount with interest---Order of remand by Tribunal to make additions of interest which had actually accrued---Order-of Tribunal valid.

Held, that the deduction under section 36(1)(viii) of the Income Tax Act, 1961, should be allowed at the prescribed percentage of the total income computed before making deduction under Chapter VI-A and also before taking into account the deduction allowable under section 36(1)(viii) itself.

CIT v. Himachal Pradesh Financial Corporation (1998) 232 ITR 138 (HP) fol.

It is not necessary for the assessee to make out a case of actual expenditure before claiming allowable deduction under the provisions of section 37 of the Act. The amounts representing discounts on bonds was deductible.

M.P. Financial Corporation v. CIT (1987) 165 ITR 765 (MP) fol.

It was admitted that the accounts were being maintained on mercantile basis by the assessee. Hence, it was not necessary for the Department to consider whether the interest had been actually received by the assessee during the year in question or not. It could be decided on the basis of accrued interest. It was stated that several suits were pending and during the pendency of the suits the assessee would not be in a position to ascertain the interest which might be ultimately allowed by the Court. The Tribunal had remanded the matter to the assessing Authority for fresh decision on the quantum regarding addition to be made in each year. The order passed by the Tribunal was valid.

CIT v. Indian Jute Mills Association (1982) 134 ITR 68 (Cal.); CIT v. Madras Industrial Investment Corporation Ltd. (1980) 124 ITR 454 (Mad.); CIT v. T. N. K. Govindarajulu Chetty (1987) 165 ITR 231; India Cements Ltd. v. CIT (1966) 60 ITR 52; Indian Molasses Co. (Pvt.) Ltd. v. CIT (1959) 37 ITR 66; Jones v. Carmarthen Corporation (1841) 10 LJ Exch. 401; Nash (Inspector of Taxes) v. Tamplin and Sons Brewery Brighton Ltd. .(1951) 2 All ER 869; R. v. Marsham (1892) 1 QB 371 (CA); Westminster Bank Ltd. v. Riches (1947) 15 ITR (Suppl.) 29 and Usher's Wiltshire Brewery Limited v. Bruce (1915) AC 433 ref.

Kuldip Singh for the Assessee.

Inder Singh and M.M. Khanna for the Commissioner.

2000 P T D 1042

[233 I T R 413]

[Himachal Pradesh High Court (India)]

Before M. Srinivasan, C.J. and A.L. Vaidya, J

AJAY MEDICAL AGENCY

versus

COMMISSIONER OF INCOME-TAX

C. W. P. Nos. 533 and 534 of 1988, decided on 3rd June, 1997.

Income-tax---

Penalty---Concealment of income---Waiver of penalty---Condition precedent---Full and true disclosure of particulars before detection by assessing officer---Indian Income Tax Act, 1961, S.273A---Constitution of India, Art.226.

It is a condition precedent for invoking section 273A of the Income Tax Act, 1961, that the assessee should furnish full and true disclosure of particulars before detection by the Income-tax Officer. Such furnishing of full and true disclosure of particulars should be made voluntarily and inn good faith by the assessee. If that condition is satisfied, the section goes on to say that he should also cooperate in any enquiry relating to the assessment of his income and should either pay or make satisfactory arrangements for the payment of any tax or interest payable in consequence of an order passed under the Act in respect of the relevant assessment years:

Held, dismissing the writ-petition; that it was evident that in the instant case, disclosure of full and true particulars had been made only after the detection of the defective returns by the Income-tax Officer. Consequently, the assessee was not entitled to the benefit of clause (b) of section 273(1) of the Act.

K. D. Sood and Dushyant Dadwal for Petitioners.

Inder Singh for Respondent.

2000 P T D 1072

[233 I T R 450]

[Himachal Pradesh High Court (India)

Before M. Srinivasan, C. J. and A. L. Vaidva, J

HIMACHAL PRADESH FINANCIAL CORPORATION

versus

COMMISSIONER OF INCOME-TAX

Income-tax Reference No. 2 of 1990, decided on 24th July, 1997

(a) Income-tax---

----Appeal to Appellate Tribunal---Rectification of mistakes---Powers of Tribunal---Power of Tribunal to rectify mistakes in its order---Tribunal passing order without considering decision of Supreme Court---Is mistake which can be rectified---Indian Income Tax Act, 1961, S. 254.

(b) Income-tax---

----Appeal to Appellate Tribunal---Reference---Rectification of mistakes--­Application for reference pending before Tribunal---Tribunal can rectify mistake in its order---Indian Income Tax Act, 1961, Ss.254 & 256.

(c) Income-tax--

----Income---Accrual of income---Interest---Interest on sticky loans assessable on basis of accrual---Indian Income Tax Act, 1961.

When the Supreme Court has decided a matter on a question of law, it is the law of the land and it has to be followed by all the Tribunals and the Courts in this country, vide Article 141 of the Constitution of India. Hence, if the Tribunal had decided a matter overlooking the judgment of the Supreme Court on a question of law, it is certainly a mistake apparent from the record. Such a mistake can be rectified under section 254(2) of the Income Tax Act, 1961. The Tribunal can exercise such a power when the matter was sought to be referred to the High Court in the reference

Held, that interest charged on sticky loans an credited to interest suspense account was taxable under the Income-tax Act and the same should be included in the income of the assessee.

State Bank of Travanore v. CIT (1986) 158 ITR 102 (SC) and Kerala Financial Corporation v. CIT (1994) 210 ITR 129 (SC) fol.

CIT v. Dhadi Sahu (1976) 105 ITR 56 (Orissa) and CIT v. Jagabandhu Roul (1984) 145 ITR 153 (Orissa) ref.

Kuldip Singh for the Assessee.

Indar Singh for the Commissioner.

2000 P T D (Trib.) 1

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Mujibullah Siddiqui, Chairman, Mansoor Ahmed, Accountant

Member and Rasheed Ahmed Sheikh, Judicial Member

W.T. As. Nos.350/IB to 352/IB of 1997-98, decided on 16th May, 1998.

(a) Wealth Tax Act (XV of 1963)---

----S.2(16)---Net wealth ---expression belonging"---Connotation--­"Belonging" includes the concept of "ownership”

(b) Wealth Tax Act (XV of 1963)---

----S.2(16)---"Net wealth"---Possession of property---Inclusion of such property in net wealth --Mere possession or joint possession unaccompanied Day right to be in possession err ownership of property was mot enough to bring such property within the definition of "Net wealth"

(c) Wealth Tax Act (XV of 1963)---

---Ss.2(m) & 2(16)---Registration Act (XVI of 1908). S.49---Net wealth-­Assessment years 1994-95 to 1996-97 --Plot was allotted and transferred by the Development Authority through the Federal government Employees Housing Foundation to the assessee---Value of the plot was declared equivalent to the price: paid by the assessee---Assessing Officer adopted market value of the plot after considering the prices of the plots fetched by other allottees who sold their plots in open market ---Assessee contended that plot was allotted on the basis of an agreement dated 27-2-1994 for construction of a house thereon and according to the agreement, the right of ownership and user in and over the plot still vested in the Capital Development Authority and thus, the assessee could neither be said to hold the plot in his name nor he had any title or right in it as no sale-deed was executed by the Authority in favour of the assessee, Assessing Officer, thus, had erroneously found that right of ownership or the plot was total and complete whereas finding was in direct conflict with the agreement executed between the assessee and the Authority---Validity---Provisions of Registration Act. 1908 required that the sale of immovable property must be through registered document Section 49, Registration Act, 1908 stipulated that unless such document was registered the right. title or interest of the sell to the property was not extinguished nor that of purchaser created--­Requirement of law had to be fulfilled to lend legality to such transfer --­Assessee, therefore, was not the legal owner of the plot in question as the title therein was not transferred to the assessee and the same could not be included in "net wealth" of the assessee---Assessee being an individual and all the movable and immovable properties held by him were included in the assets for the purpose of wealth tax, therefore, money invested for acquiring the plot was to be included in "net wealth' and not the value of plot which did not belong to the assessee---Assessing Officer was directed by the Tribunal not to include the market value of plot in the "net wealth" of the assessee but to include only the amount of investment made by him for acquiring the plot.

Budhan Singh v Nabi Bakhsh and another AIR (sic) (S.C. India) -1880; Marudakkal v Arumugha AIR 1958 Mad. 225; Law Terms and Phrases, p.435: Webster's New 20th Century Dictionary 2nd Edn; 1997 PTD (Trib.) 337; Black's Law Dictionary, Fifth Edn.. p.141; Webster's Dictionary; Aiyar's Law Lexicon of British India, 1940 Edn., p:128: PLD 1957 Dacca 448; Abdullah Bhai v. Ahmed Din PLD 1964 SC 106; C.I.T. v. ,Mir Nawab Barkat Ali Khan (H.C.) 1994 Tax LR 90; RB Judamall Kuthalia v. C.I.T. (S.C.) (1971) 82 ITR 570; C.I.T. v. Ashland corporation (H. C.) (1982) 133 IM 55; Kalarani v. C I.T. (H.C.) (1981) 130 ITR 321 (PHC) and C.I.T. Wealth Tax Delhi-I v. Smt. Promilla Bali (1983) 141 ITR 942 ref.

Raja Muhammad Amir Ahmed Khan v. Municipal Board of Sitapur and another AIR 1965 SC 1923; (1975) 99 ITR 370: (1978) 112 ITR 969 and PLD 1957 Dacca 374 distinguished.

Bachu Bai F.E Dinshaw v.C.I.T.1967 PTD 170; B.D) Avari v CIT 1989 PTD 670; C.I.T. v. Hans Raj Gupta (1982) 137 ITR 195- CIT. v. Zorostrian Building Society Limited(1976) 102 ITR 195; C.I.T. v Sultan Brothers (Pvt.) Limited (1983) 142 ITR 249; C.LT. v. Gangu Properties Limited (1970) 77 ITR 637; (Late) Nawab Sir Mir Osman Ali Khan v C .W. T. (1986) 162 ITR 888 and 1996 PTD (Trib.) 905 ref.

Sikandar Hayat Khan for Appellant.

Waqar Ahmed, D.R. for Respondent.

Date of hearing: 16th May, 1998.

2000 P T D (Trib.) 19

[Income-tax Appellate Tribunal Pakistan]

Before Syed Masood ul Hassan Shah, Judicial Member and Mansoor Ahmed, Accountant Member

I.T.As. Nos. 1141/IB to 1149/IB of 1998-99, decided on 24th July, 1999.

Income Tax Ordinance (XXXI of 1979)---

----Ss.13(1)(aa), 59-D, 55, 56, 61, 62 & 63---Wealth Tax Act (XV of 1963), Ss.3-A, 16(2)(4) & 17--Addition---Tax Amnesty Scheme---Government departmental investigation/inquiry---Assessee , filed declaration of a commercial plot under S.3-A, Wealth Tax Act, 1963---Department refused to accept the declaration on the ground that proceedings in the case of assessee had already beets unearthed by Economic Enquiry Wing, F.I.A. and the department had also issued notices under Ss.56, 61 & 62 of the Income Tax Ordinance, 1979 and under Ss. 17 & 16(2), (4) of the Wealth Tax Act, 1963---Assessing Officer completed assessment under S.63-, Income Tax Ordinance, 1979 and made addition under S.13(1)(aa) of the Income Tax Ordinance, 1979---Letter of Investigation from Assistant Director; F.I.A. Headquarters, Islamabad had been addressed to the Director Estate Management, C.D.A., Islamabad giving information that the assessee had purchased the said plot---Service of notices on proper person was not proved---Questions regarding letter, as to when the said letter was received and in what manner it was received and why it had been kept pending for a long --time with the department, were not properly answered by' the department---Entries in the order sheet of the Assessing Officer were manipulated---First Appellate Authority set aside the assessment for de novo decision with the direction to the Assessing Officer to serve notices on proper person and give full opportunity to assessee to plead his case--­Validity---Enquiry/investigation letter was not directly related to the asset of the assessee but it was against someone else---Such information could not be regarded as "positive and definite information" to be available with the department in respect of purchase of said plot or about the undisclosed asset/income of the assessee---Proceedings and record did not show as to how the letter in question came on file or brought on file/record---No notices under S.16(2) of the Wealth Tax Act, 1963 and under S.61 of the Income Tax Ordinance, 1979 could be issued straightaway directly without first issuance of notices under Ss.55 & 56 of the Income Tax Ordinance, 1979 and under S.17 of the Wealth Tax Act, 1963 respectively---Notices under Ss.56 & 55 of the Ordinance and under S.17 of the Act had not been served upon the assessee and the entries on the order sheet regarding issuance of such notices did not appear to be in good order and seemed to be manipulated-case was not that of setting aside of assessment for de novo proceedings but was that of cancellation of assessment orders and annulment of assessment--­Assessee had rightly availed the amnesty under S.3-A of the Wealth Tax Act, 1963 and under S.59-D of the Income Tax Ordinance, 1979---Benefit of irregular proceedings would go to the assessee---By applying rule of "audi alterem partem" the assessee was to be benefited as a whole keeping in view the situation emerging in favour of the assessee --- Assessment order and order of the First Appellate Authority was cancelled and assessment was annulled by the Income-tax Appellate Tribunal in circumstances.

Law Lexicon; C.W.T. v. Kundan Lal Behari Lal 1975 ITR 581; 1991 PTD (Trio.) 26; Kundan Lal Behari Lal v. C.W.T. U.P. 1975 ITR 359; 1999 PTD 1358 and 1994 SCMR 223 ref.

Mian Muhammad Azim and Anwar ul Haq for Appellant. Imran Raza Kazmi, D. R. for Respondent.

Date of hearing: 15th June, 1999.

2000 P T D (Trib.) 268

[Income-tax Appellate Tribunal Pakistan]

Before Syed Masood ul Hassan Shah, Judicial Member and Mansoor Ahmad, Accountant Member

M. A. (R) Nos. 15(IB) and 16(113) of 1999-2000 in W.T.As. Nos.38(IB) and 39(113) of 1993-94, decided on 2nd October, 1999.

(a) Wealth Tax Act (XV of 1963)---

----Ss. 24 & 35---Income Tax Appellate Tribunal Rules, 1981, Preamble--­Appeal and application filed under Wealth Tax Act; 1963 would be regulated by the Income Tax Appellate Tribunal Rules, 1981.

(b) Wealth Tax Act (XV of 1963)---

----S.35---Rectification of mistake---Application for rectification of mistake-­Limitation---Time limit under S.35, Wealth Tax Act, 1963 was prescribed for the first rectification application against the order of Tribunal and if first application stood decided by an order on merits then second such application on the same grounds or issues for rectifying -the original order of the Tribunal, would no lie.

(c) Wealth Tax Ac (XV of 1963)---

----S.35---Income tax Appellate Tribunal Rules, 1981, R.20---Rectification of mistake ---Second application for rectification of mistake ---Assessee filed second application for rectification of original order of Appellate Tribunal on the same grounds on which the first application was filed, which was dismissed ex parte or merits on the ground that Tribunal had not found any apparent mistake in he order.--Validity---Appellate Tribunal could not go into any further scrutiny or reappraisal of the Tribunal's order for digging out any mistake Apparent there from---Such exercise by the Tribunal would amount to sitting over the judgment of the Tribunal again and would tantamount to uncalled for re-adjudication of the matter by the Tribunal when the same had already been adjudicated---Second application for rectification was dismissed.

1993 TD 206 and (1986) 55 Tax 32 (Trib.) 276 ref.

1975 PTD 52; 1986 PTD 100; (1986) 158 ITR 420; (1979) 119 ITR 142; 1986 D 100; 1980 PTD (Trib.) 74; (1982) 138 ITR 238 and (1965) 55 ITR (Sh. N ) 24 distinguished.

Dr. Ilyas Zafar and Ghulam Abbas Chatha for Applicant.

Muhammad Suleman, A.C.I.T. for Respondent.

Date of hearing: 7th August, 1999.

2000 P T D (Trib.) 277

[Income-tax Appellate Tribunal Pakistan]

Before Khawaja Farooq Saeed, Judicial Member and Mahmood Ahmad Malik, Accountant Member

I.T.As. Nos. 1289/LB to 1291/LB of 1998, decided on 15th, January, 1999.

Income Tax Ordinance (XXXI of 1979)---

---Ss.66-A, 80-D, 50(7-E), 59(1) & 54---Powers of Inspecting Additional Commissioner to revise, Deputy Commissioner's order---Minimum tax on income of certain persons---Deduction at source---Assessment under Self­ Assessment Scheme---Cancellation of assessment---Minimum tax, payable under S.80-D, deducted under S.50(7-E) of Income Tax Ordinance, 1979 was shown by the assessee in the balance sheet and credit of such amount of tax was also claimed which was allowed by the Assessing Officer while completing assessment under S.59(I), Income Tax Ordinance, 1979--­Inspecting Additional Commissioner cancelled the assessment on the ground that claim of minimum tax was inadmissible as such assessment order was erroneous and acceptance of claim caused prejudice to the interest of revenue---Contention of the assessee was that assessment being merely erroneous, could be no ground for cancellation of assessment unless same was prejudicial to the interest of revenue, while the tax paid under S.80-D, Income Tax Ordinance, 1979 was much more than the amount the Department wanted to calculate by addition of tax-deducted at source in the income---Department contended that deduction of tax under S.50(7-E), Income Tax Ordinance, 1979 was erroneously allowed and the same had caused damage to the interest of revenue---Validity---By allowing an inadmissible expenditure an error had been committed which had not caused any prejudice to the interest of revenue---If addition of such inadmissible expense was made in the total income, the tax payable thereon remained below the amount of tax-paid under S.80-D, Income Tax Ordinance, 1979, which was mandatory payment for finalization of an assessment under S.59(() of .the Income Tax Ordinance, 1979---No prejudice having been caused to the interest of revenue,. order of the Inspecting Additional Commissioner was declared to be without legal justification which was cancelled.

PLD 1992 SC 549 = 1992 PTD 932 rel.

Mujahid Arshi for Appellant.

Noor ul Amin Hotyana, D.R. for Respondent..

Date of hearing: 12th January, 1999.

2000 P T D (Trib.) 291

[Income-tax Appellate Tribunal Pakistan]

Before Shahid Jamal, Accountant Member and Tahseen Ahmed Bhatti, Judicial

Member

I.T.A. No.739/KB of 1998-99, decided on 29th June, 1999.

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss. 22 & 32---Income from business---Trading account ---Addition--Assessee debited expenses on account of part of manufacturing work done by others and instead of showing expenditure under a separate head, had debited the expenses under cost of sales Assessing Officer, in spite of being satisfied that sales and purchases were verifiable and G.P. had shown improvement, made addition of these expenses paid to others against manufacturing work---Validity---Addition after acceptance of trading account was unjustified---Appellate Tribunal taking into account declaration of higher G.P. rate from preceding year, deleted the addition accordingly.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss. 22 & 32---Income from business---Manufacturing account ---Wastage--­Addition---Assessing Officer made addition on account of presumed wastage, although none was declared by the assessed, on the ground that assessee was a manufacturer and manufacturing necessarily involved wastage ---Validity--­Appellate Tribunal deleted the addition made on the basis of presumption taking into account Tribunal's order for the previous years.

(c) Income Tax Ordinance (XXXI of 1979)---

----Ss.22 & 32---Income from business---Profit and loss account---Staff welfare account---Nominal expenditure without details ---Addition--­Validity---Nominal expenses in a business of huge volume should have been allowed unless it was shown that such expenditure was not incidental to business---Addition was deleted by the Tribunal.

(d) Income Tax Ordinance (XXXI of 1979)---

----Ss.80-C, 143-B, 50(5-A) & 22(C)---Import---Tax deduction at source--­Price compensation---Assessed was compensated by its principals on account of sale of imported goods on lesser price to compete in the market on which tax had been deducted under S.50(5-A) of the Income Tax Ordinance, 1979---Remittance received as price compensation in respect of imported goods was treated as a separate income by way of extra benefit under S.22(c) of the Income Tax Ordinance, 1979 by the Assessing Officer and was confirmed by First Appellate Authority---Validity---Reduction in sale price caused loss of profit to the assessee who was compensated by the principals, who wanted to make it sure that his products stayed in the market for a long time---Admittedly compensation or discount was received in respect of the same goods---Discount was generally given with the invoice, but there was no bar to such discount being allowed subsequently as same was reduction in sale price which may be done at the time of delivery or even subsequently if the products had not fetched the expected. sale price---Immaterial under presumptive tax regime as to when the imported goods were sold or at what price, as tax collected at the import stage was full and final discharge in respect of those imported goods--Price compensation/ discount received by assessed in respect of imported goods which had suffered tax, was not liable to be included in income of the assessee but was covered under S.80-C of the Income Tax Ordinance, 1979.

1997 PTD (Trib.) 1143 rel.

Jane-e-Alam, I.T.P. and Jawad Zakaria for Applicant.

Muhammad Umer Farooq, D.R. for Respondent.

Date of hearing: 29th April, 1999.

2000 P T D (Trib.) 299

[Income-tax Appellate Tribunal Pakistan]

Before S.M. Sibtain, Accountant Member and Jawaid Masood Tahir Bhatti, Judicial Member

I.T.A. No.7036/KB of 1992-93, decided on 24th July, 1999.

Income Tax Ordinance (XXXI of 1979)---

----S.79---Customs Act (IV of 1969), S.25(4)(5)---Income from transactions with non-residents---Export---Trading account---Addition---Assessing Officer made addition in trading account on account of difference in declared selling rate and the rate adopted by the Custom Authorities for assessment of export duty which was confirmed by First Appellate Authority ---Assessee contended that remittances received were verifiable and valuation was done under S.25, Customs Act, 1969 on a hypothetical basis and not on actual price---.Validity---Criteria for application of S.25, Customs Act, 1969 was that the seller and the buyer could be "deemed to be associated in business with one another" and so was the criteria under S.79, Income Tax Ordinance, 1979 for determining the amount of profits which would have accrued to the resident but, by reasons of making or imposing conditions between them in their financial transactions which differed from those which would be made between independent persons; had not so accrued---No appeal was filed against valuation by the Custom Authorities---Impugned order was confirmed and appeal was dismissed by the Tribunal.

Arshad Siraj for Appellant.

Shaheen Aziz Niazi, D. R. for Respondent.

Date of hearing: 24th February, 1999.

1. P T D (Trib.) 329

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Mujibullah Siddiqui, Chairman and Muhammad Daud Khan, Accountant Member

I.T.A. No.593/KB of 1999-2000, decided on 30th October, 1999.

Income Tax Ordinance (XXXI of 1979)---

----Ss.65, 13(i)(aa) & 59(1)---Additional assessment--Addition---Change of opinion---Assessment was finalized under Self-Assessment Scheme--­Assessing Officer re-opened the case subsequently on the basis of information gathered from the accounts/computation chart attached with the return and made additions---Validity--When return was accepted under Self­ Assessment Scheme there would be a presumption in law that Assessing Officer had ensured that same qualified for being processed under Self ­Assessment Scheme and for that purpose material. on record had been examined---Re-examination of same material should amount to change of opinion---Assessment order was held to be without jurisdiction---Proceedings of re-opening of assessment were quashed and original assessment order was restored by the Appellate Tribunal.

1990 PTD (Trib.) 539 rel.

A.S. Jafry for Appellant.

Zaki Ahmad, D.R. for Respondent.

Date of hearing: 30th October, 1999

2000 P T D (Trib.) 332

[Income-tax Appellate Tribunal Pakistan]

Before Khawaja Farooq Saeed, Judicial Member and Nazeer Ahmad Saleemi, Accountant Member

I.T.A. No.2532/LB of 1998, decided on 30th April, 1999.

Income Tax Ordinance (XXXI of 1979)---

----S.66-A---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's Order---Scope---Assessment order was revised by Inspecting Additional Commissioner which merged, with the order of Inspecting Additional Commissioner---Successor of Inspecting Additional Commissioner found that there were more errors in the assessment order and directed for cancellation of the assessment---Validity---Order of the Assessing Officer was modified and re-assessment was made by Inspecting Additional Commissioner exercising jurisdiction under 5.66-A, Income Tax Ordinance, 1979.---Order of successor Inspecting Additional Commissioner being illegal and beyond jurisdiction, order of his predecessor was restored by the Tribunal.

Asif Aziz Banth for Appellant.

Mrs. Talat Altaf, D.R. for Respondent'.

Date of hearing: 30th April, 1999.

2000 P T D (Trib.) 339

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Mujibullah Siddiqui, Chairman and Muhammad Daud Khan, Accountant Member

W.T.As. Nos.558/KB and 559/KB of 1998, decided on 19th October, 1999.

Wealth Tax Act (XV of 1963)---

----Ss.7, 2(5)(ii), Expln. (iii) & 25(5)---Valuation of assets---Association of persons---Immovable property held by assessee for the purpose of business of construction and sale---Land/plot---Cost of construction---Work in progress-- -Booking receipts of constructed premises---Inclusion of value of work in progress in net wealth and deduction-of booking receipts from net wealth as debt owned to the extent of construction and- work in progress---Fact that title of plot was not yet transferred in favour of assessee was discovered during the proceedings before Tribunal---Appellate Tribunal set aside the assessment order for de novo consideration in circumstances, as -full facts were not brought on record---Appellate Tribunal, however, laid down guiding principle for valuation of plot, constructions- of cost, work in progress and treatment of booking receipts accordingly.

W.T.A. No.350/IB of 1997-98 rel.

Zaki Ahmad, D.R. for Appellant.

Ahadullah for Respondent.

Date of hearing: 19th October, 1999.

2000 P T D (Trib.) 376

[Income-tax Appellate Tribunal Pakistan]

Before Khawaja Farooq Saeed, Judicial Member and Shariq Mahmood, Accountant

Member

W.T.As. Nos.205/LB to 207/LB of 1982-83, 300/LB of 1986-87, 205/LB-II (DB) of 1987-88, 356/LB and 357/LB of 1989-90, decided on 13th February.1998.

Wealth Tax Act (XV of 1963)---

----Ss.5(1)(i), 2(e)(ii), 3 & Second Sched., Cl. 22---Exemption---Leased property---Charitable purpose---Property held by assessee, was leased out for a long term ---Assessee claimed exemption from charge of wealth tax on the ground that property was for charitable purpose---Assessing Officer rejected the claim and finalized the assessment---First Appellate Authority found that assets, of the assessee were exempt under S.5, Wealth Tax Act, 1963 and were not chargeable to wealth tax---Department contended that assets held by assessee were covered under S.2(e)(i) of the Wealth Tax Act, 1963 and exemption granted by the First Appellate Authority under S.5(1)(i) of Wealth Tax Act, 1963 was unjustified---Contention of the assessee was that assets of assessee (chamber of commerce) were not covered under; S.3 of Wealth Tax Act, 1963 as the same was to yield before other provisions granting exemption, hence applicability of S.2(e)(ii) of Wealth Tax Act, 1963 was irrelevant---Validity---Charge under Wealth Tax Act, 1963 was charge on assets and the same was to be exempted if it was held for charitable purposes and not if its income could be allocated to charitable purposes---Appellate Tribunal found that property/assets were held for the purpose of charitable nature but having been rented out on long term basis was not held for public purpose of charitable nature---Order of the First Appellate Authority was cancelled while that of Assessing Officer was restored by Appellate Tribunal.

B.P. Biscuit Factory v. W.T.O. (1982) 45 Tax 7; C.W.T. v. Hyderabad Race Club (1978) 115 ITR 453; AIR 1954 Hyd. 9; AIR 1955 Andh. 257; AIR 1933 Mad. 489; AIR 1965 Mad. 53; PLD 1956 Lah. 45; PLD 1969 Dhaka 681; PLD 1966 Dhaka 266; 1989 PTD 909; 1971 SCMR 128; 1980 CLC 558; PLD 1988 SC 370; PLD 1989 Lah. 337; Maxwell on the Interpretation of Statutes, 12th Edn. p.256; Hamdard Dawakhana v. CIT PLD 1980 SC 84; Rehman Corporation v. I.T.O. 1985 PTD 787; 1997 PTD (Trib.) 1034; CIT v. Narayangang Chamber of Commerce and Industry 1968 PTD 513; CIT v. Andhra Chamber of Commerce and Industry 1965 PTD 481; CIT v. Federation of Indian Chember of Commerce and Industry (1981), 130 ITR 186 (SC Ind.); Department v. Lahore Flying Club 1986 PTD (Trib.) 441; CIT v. Narayan Chamber of Commerce and Industry 1968 PTD 513; Managing Shebaits of Bhukailash v. W.T.O. (1977) 106 ITR 904; State v. Syed Mir Ahmed Shah PLD 1970 Quetta 49; CIT v. Andhra Chamber of Commerce and Industry 1965 PTD 481; CIT v. Narayanganj Chamber of Commerce and Industry 1968 PTD 513; CIT v. Coching Chamber of Commerce and Industry (1973) 87 ITR 83; CIT v. Karachi Chamber of Commerce (1939) 7 ITR 575; CIT v. Federation of Indian Chamber of Commerce and Industry (19811 130 ITR 186 (SC India); CIT v. Andhra Chamber of Commerce v . South Indian Chamber of Commerce and other, (1981) 130 ITR 184 (SC India); Indian Chamber of Commerce v. CIT (1975) 101 ITR 796: CIT v. Surat Silk Cloth (1981) 121 ITR 1; (1971) 81 ITR 230; (1971) 80 ITR 646; Ahmadabad Rana Cast Association v. CIT (1974) 82 ITR 704; ,CWT v. HEH The Nizam's Trust (1973) 89 ITR 80; Managing Shebaits of Phukailash Estates v. WTO (1977) 106 ITR 904; Trustees of KBHM Bhiwandiwalle v. CWT (1977) 106 ITR 709; CIT v. Andhra Chamber of Commerce (1965) 55 ITR 722; 1996 SCMR 1470; CIT v. Abdul Satter Mossa Sailt (1971) 81 ITR 80; Delhi Stock Exchange Limited v. CIT (1997) 225 ITR 235; Berryman v. Whitman College. 222 U.S. 334; 32 S.Ct. 147; 56 L.ED. 424; In re; Walker 200 111, 566, 66 N.E 144, Southern Pac. R.Co. v. State, 34 N.M. 479; 284 Pac. 117; Young Men's Christian Association v. Douglas County 60 Neb. 642, 83 N.W. 924,52 L.R.A. 123; 54 Kan. 542,38- Pac. 796; Bank of Commerce v. Tennessee 161,U.S. 134, 145, 16 S. Ct. 456, 40 L.Ed. 645; Writ Petition No.13113 of 1996; H.E.H. Nizam's Religious Endowmen Trust v. CIT (1966) 50 ITR 582; In re: Lokamanya Tilak etc. Fund 1942 ITR 26, 33; Karen Kayemeth le Jisroel Ltd. v. I.R. 17 T.C. 27; 58 (H.L.); Charusila Dassi, In re: 1946 ITR 362, 370, 376; In re: Trustees of the Tribune 1939 ITR 415; 421 (P.C.); National Anti-Vivisection Society v. I.R. 1948 ITR Suppl. I, 7, 28, 29.(H.L.); Animal Defence and Anti Vivisection Society v. I.R. 32 T.C. 55; In re: Grove-Grady (1929) 1 Ch.557, 582, varied sub nom. A.G. v. Plowden 1931 W.N. 89 (H.L.); Willian Trustees v. I.R. 1948 ITR Suppl. 41; 50 (H.L.) Trustees of Gordhanadas, Etc. Trust v. CIT (1952) 21 ITR 231 and Oppenheim v. Tobacco Securities Trust Co. Ltd. 1951 AC 297 (H.L.); CIT v. Radhaswami Salsang Sabha (1954) 25 ITR 472; 500-1 ref.

Shafqat Mehmood, L.A. for Appellant.

Sirajuddin Khalid for Respondent.

Date of hearing: 9th October, 1997.

2000 P T D (Trib.) 457

[Income-tax Appellate Tribunal Pakistan]

Before Khawaja Farooq Saeed, Judicial Member and Muhammad Sharif

Chaudhary, Accountant Member

I.T.As. Nos.3812/LB and 3813/LB of 1998, decided on 28th September, 1999.

Income Tax Ordinance (XXXI of 1979)---

----Ss.16(2)(a)(iii) & 15(d)---Salary income---Income from profession --­Agreement/contract---Assessee was a doctor and employee of a hospital--- Assessee, according to agreement, was also entitled to see/check outdoor patients of the hospital anal try receive 50% share from such fee in addition to salary---Fee received by the assessee/doctor in addition to salary was included in salary income under S.16(2)(a)(iii) of Income. Tax Ordinance, 1979 on the ground that assessee was an employee of hospital and all his receipts were salary for all intents and purposes ---Validity--­Agreement/contract gave right to assessee/doctor to check the private patients and did not bind him for the same---Word "entitled" gave the assessee/doctor option which he may or may not exercise---Collection of fee by hospital made the hospital an "agent" of assessee/ doctor and assessee had upper hand in the matter---Relationship, therefore, was that of employer and agent and not of employer and servant---Hospital was agent of the doctor, therefore, fee received by the assessee was an earning income from profession and was not considered as salary in circumstances.

Simmons v. Heath Laudary Co. (1910) 1 KB 343, 549; L. Jeewanlal v. CIT (1953) 24 ITR 217, 223 (All); K.P. Bhargava v. CIT (1954) 26 ITR 489, 495-6 (All.); Ram Prashad v. CIT (1972) 86 ITR 122 (SC); Dharangadhra Chemical Works Ltd. v. State of Saurashsra (1957) SCR 152, 160 = AIR 1957 SC 264, 268; Piyare Lal Adishwar Lal v. CIT (1960) 40 ITR 17, 24(SC); Lakshminaravan Ram Gopal & Sors Ltd. v. Government of Hyderabad (1954) 25 ITR 449 (SC); Inderchand Hari Ram v. CIT (1952) 22 ITR 108 (.All.); CIT v. Kundan Lal Lal Chand (1961) 41 ITR 245, 255 (All.); L. Jeewanlal v. CIT (1953) 24 ITR 217, 224 (All.); Shivnandan Sharma v. Punjab National Bank Ltd. (1955) 1 SCR 1427 = AIR 1955 SC 404 and CIT v. Manmohan Das (1966) 59 ITR 699 ref.

NTR 1990 (Trib.) 302 distinguished.

Sh. Muhammad Hanif, D.R. for Appellant.

Zia Ullah Kiyani for Respondent.

Date of hearing: 28th September, 1999.

2000 P T D (Trib.) 466

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Mujibullah Siddiqui, Chairman and Muhammad Daud Khan, Accountant Member

I.T.As. Nos.1891/KB and 1892/KB of 1998-99, decided on 27th October, 1999.

Income Tax Ordinance (XXXI of 1979)---

----Ss.5, 52, Expln., 50(4) & 86---Assessment Years 1997-98 and 1998-99--­Additional tax---Levy of---Jurisdiction of Income-tax Authorities---Liability of persons failing to deduct or pay tax---Additional tax for failure to deduct and pay tax ---Assessee in default---Jurisdiction to impose additional tax--­Assessing Officer levied additional tax under S.86, Income Tax Ordinance, 1979 for non-deduction of tax from the commission paid for re-insurance ceded by various insurance companies ---Assessee challenged jurisdiction of Assessing Officer on the ground that additional tax under S.86, Income Tax Ordinance, 1979 could be levied only by the Assessing Officer who had jurisdiction to pass an order under S.52, Income Tax Ordinance, 1979--­Order under Ss.52 & 86 of Income Tax Ordinance, 1979 could be made by Assessing Officer having jurisdiction in respect of the recipient---Order under S.86 of Income Tax Ordinance, 1979 having been made by the Assessing Officer having jurisdiction over the payer and not the recipient, orders were without jurisdiction---Department contended that after adding Expln. Jo S.52, Income Tax Ordinance, 1979 by Finance Act, 1999, the Legislature had clarified that Assessing Officer. having jurisdiction under S.5, Income Tax Ordinance, 1979 over the case of assessee in default could initiate action ---Assessee contended that Expln. added to S.52, Income Tax Ordinance, 1979 by Finance Act, 1999 was not retrospective in effect as it had not been so stated in Finance Act, 1999---Explanation added to S.52 of the Ordinance was part of main section and therefore, it should be treated as substantive in nature because main S.52 contains substantive provision--­Explanation being substantive in nature shall have prospective effect as shall apply to Assessment Year 1999-2000 and onward and shall not be applicable to Assessment Years 1997-98 and 1998-99---Validity---Contention of assessee was repelled by the Appellate Tribunal observing that a statute may contain both substantive and procedural provisions---Although original and main provisions contained in S.52 of Income Tax Ordinance, 1979 were substantive in nature but Expln. contained a provision which was procedural in nature and showed that it related to the forum which could initiate and adjudicate the issue relating to default on the part of payer, rendering him as assessee in default and making him liable for levy of additional tax--­Explanation added to S.52, Income Tax Ordinance, 1979 being declaratory and procedural in nature was retrospective in effect.

1997 PTD (Trib.) 1771 not relevant.

Tapal Energy and another v. Federation of Pakistan 1999 PTD 4037 and Muhammad Younas v. Chairman, Municipal Committee, Sahiwal PLD 1984 Lah. 345 looses their efficacy.

1997 PTD (Trib.) 318; 1989 PTD (Trib.) 917; Dreamland Cinema, Multan v. CIT PLD 1977 Lah. 292; AIR 1931 All. 725; AIR 1928 Lah. 627; AIR 1932 All. 30; AIR 1965 Mad. 149; Bindra's Interpretation of Statutes, 7th Edn., p.876; Abdul Mannan v. Haji Karam Ellahi PLD 1971 Quetta 1; Dehli Cloth and General Mills Co, v. I.T.C., Delhi AIR 1927 PC 242; PLD 1959 (W.P.) Lah. 883; Rehman Corporation v. Income-tax Officer 1985 PTD 787; Adrian Afzal v. Capt. Sher Afzal PLD 1969 SC 187; PLD 1965 SC 681; PLD 1962 SC 259; Arshad Akram & Co. v. Divisional Superintendent, Pakistan Railway PLD 1982 Lah. 109 and Mst. Muhammadi Bibi v. Kashi Upadhya and others AIR 1926 All. 725 ref.

Muhammad Farid for Appellant.

Zaki Ahmed, D.R. for Respondent.

Date of hearing: 23rd October, 1999.

2000 P T D (Trib.) 474

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Mujibullah Siddiqui, Chairman, Muhammad Daud Khan and

S. M. Sibtain, Accountant Members

I.T.A. No.2070/KB of 1998-99, decided on 20th September, 1999.

(a) Income Tax Ordinance (XXXI of 1979)----

----Ss. 23(1)(v), 22, 38, 12(19) & Third Sched.---C.B.R. Circular No.20 of 1988, dated 8-10-1988, para. 2---C.B.R. Circular No. 6 of 1994, dated 10-7-1994, para. 2---Lease rental income---Income from other sources--­Gross receipts---Profit and gains---Depreciation allowance---Deduction of--­Depreciation allowance under S.23(1)(v), Income Tax Ordinance, 1979 should be deducted from profit and gains and not from gross receipts---While computing income under S.22, income Tax Ordinance, 1979 all allowances under S.23(1) of Income Tax Ordinance, 1979 had to be allowed first and depreciation from the residue, if any, or otherwise same should be carried forward to next year and same would be deemed to be allowance for that year and so on without any time limit---Other losses of business (besides unabsorbed depreciation) should be carried forward only for specified number of years.---[1999 PTD (Trib.) 1346 overruled].

1999 PTD (Trib.) 1346 overruled.

I.T.As. Nos. 1934 and 1935/KB of 1997-98, decided on 23-9-1998 ref

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss.34 & 35---Set-off of losses---Carrying forward of business losses--­Lease business---Unadjusted depreciation allowance---Set-off---Depreciation allowance was adjustable against income from lease rentals and not against gross amount of such rentals---Unabsorbed depreciation allowance was to be carried forward and treated as a part of allowance for next year and then adjusted against "income" from lease rentals of that year and so on--­Question of set off of unadjusted depreciation allowance of any year against gross rentals of next year, therefore, did not arise as that was not ordained by any provision of Income Tax Ordinance, 1979.=--[1999 PTD (Trib.) 1346 overruled].

1999 PTD (Trib.) 1346 overruled.

I.T.As. Nos. 1934 and 1935/KB of 1997-98.

(c) Income Tax Ordinance (XXXI of 1979)---

----Ss. 12(19), 22, 23 & 30---C.B.R. Circular No. 20 of 1988, dated 8-10-1988---Leasing company---Lease rental income---Front-end fee, commitment charges on lease rentals and arrangement fee received with lease rent---Treatment---Income from business and profession---Income from other sources---Front-end fee, surcharge on lease rentals and arrangement fee had to be treated as lease rentals in presence of clear provision of S.12(19) of Income Tax Ordinance, 1979 which related to assessee's business and had to be assessed under S.22., Income Tax Ordinance, 1979 alongwith assessee's lease receipts income---No separate source of such receipts existed which could justify assessment of these receipts under S.30, Income Tax Ordinance.. 1979---Said receipts had, thus, to be taxed under S.22, Income Tax Ordinance, 1979 and expenses including depreciation had to be allowed as per provisions of S.23, Income Tax Ordinance, 1979.

1998 PTD (Trib.) 1962; I.T.As. Nos.-1347/KB of 1997-98; 1149/KB of 1996-97 and 519/KB to 521/KB of 1998-99 ref.

Zaki Ahmed, D. R., Tariq Masood, D.C.I.T. and Muhammad Farid, Advocate for Appellant.

Farrukh V. Junaidi, F.C.A. for Respondent.

Date of hearing: 14th September, 1999.

2000 P T D (Trib.) 505

[Income-tax Appellate Tribunal Pakistan]

Before Tahseen Ahmed Bhatti, Judicial Member

I.T.A. No.55/KB of 1999-2000, decided on 28th October, 1999.

Income Tax Ordinance (XXXI of 1979)---

----Ss.108(b)(ii), 139 & 55---Income Tax Rules, 1982, 8.197---Penalty--­Date of filing statement under S.139, Income Tax Ordinance, 1979---Penalty was imposed at Rs.2,000 + Rs.200 per day by the .Assessing Officer for default in filing of statement under S.139, Income Tax Ordinance, 1979, as prescribed under R.197, Income Tax Rules, 1982, on 1st September, 1998; despite issue of proper notice---Penalty was reduced only to payment of Rs.2,000 by the First Appellate Authority on the ground that statement under S.139, Income Tax Ordinance, 1979 in respect of salaried employees could be filed on or before the last date of filing of return under S.55, Income Tax Ordinance, 1979, and initially penalty order had to be restricted to Rs.2,000 only while separate order had to be passed imposing penalty at Rs.200 per day for subsequent default---Validity---Statement under S.139, Income Tax Ordinance, 1979, had to be submitted in prescribed manner as provided under R.197, Income Tax Rules, 1982; as applicable in the relevant year---Penalty for any default in submission of said statement had to be levied as provided under S.108(b)(ii), Income Tax Ordinance, 1979---Said provision of runs found to have been overlooked by the First Appellate Authority while adjudicating the issue and had adopted the interpretation which was neither according to the provision of law nor in consonance with the Rules--­Order of the First Appellate Authority was vacated and the matter was remanded for fresh adjudication according to the relevant law and Rules.

Muhammad Umer Farooq, D.R. for Appellant.

Abdul Tahir Ansari, A. R. for Respondent

Date of hearing: 28th October, 1999.

2000 P T D (Trib.) 507

[Income-tax Appellate Tribunal Pakistan]

Before Abdur Rehman Afridi, Accountant Member and Fazal ur Rehman Khan, Judicial Member.

I.T.As. Nos. 17(PB), 18(PB), 140(PB) and 141.(PB) of 1998-99, decided on 21st April, 1999.

(a) Income Tax Ordinance (XXXI of 1979)---

----First Sched., Part I, paras. D & E, Part IV, para. B(2) & Part V, para. A---Banking Company---Public Company ---Status---Determination--­Banking company was not treated as public company by the Assessing Officer on the ground that in the First Sched. of the Income Tax Ordinance, 1979, Banking Company had been assigned the status distinct and independent from other companies and Legislature imposed a greater tax burden on Banking business as compared to the other business concerns--­Validity---No reason existed to imply that a Banking Company was not a public company---Concept that a Banking Company could also be a public; company was reinforced by para. A of Part V of First Sched of Income Tax Ordinance, 1979, which lays down rates of income-tax payable by various categories of Companies ---Para. A of Part V of First Sched., of Income Taxi Ordinance, 1979, provided that a Banking Company could be a private company as well as public company---Legislature intended that business income of a Banking Company should be assessed at a higher rate as compared to business income of other such companies ---Concessional rates were laid down for public companies but' at the same time Banking Companies, which would otherwise be public companies, were excluded from this concession---For purposes of levy of income-tax in respect of business income other than dividends, enhanced tax rates were prescribed in respect of Banking Companies ---Assessee, though a Banking Company, was also at the same time a public company although it was not entitled to the concessional rates in respect of income from business operations in the same, way as other public companies were.

(b) Income Tax Ordinance (XXXI of 1979)--

----First Sched., Part V, paras. A & D---Rate of income-tax for companies--­Dividend income---Dividend income of a Banking Company was taxed by the Assessing Officer at the rate specified in para. A(1)(a) of Part V of First Sched., of the Income Tax Ordinance, 1979, rather than reduced rates specified in para. D of the said Part for dividend income on the ground that Banking Companies were not specifically mentioned in para. D of Part V of the First Sched. of Income Tax Ordinance, 1979---Validity---Banking ­Company being a public company dividend income if any, has to be assessed @ 5 % as laid down in para. D of Part V of the First Sched. of the Income Tax Ordinance, 1979---Contention that Banking 'Company had not been mentioned specifically in para. D, Part V, First Sched. of the Ordinance was repelled by the Tribunal for the reason that no such specification was. required.

(1963) 49 ITR 289; (1968) 70 ITR 366; 1997 PTD 49; 1960 PTD 574; 1990 PTD 974; 1996 PTD 276; 1997 PTD (Trib.) 175 and I.T.A. No.9961 of 1991-92 ref.

(c) Income Tax Ordinance (XXXI of 1979)---

----Ss.2(20)(31) & 50(6 A), First Sched., Part V, para. D & Second Sched., Part 1, c1.80(ii)---Companies Ordinance (XLVII of 1984), Ss.2(21), 89 & 249---National Investment Trust Deed, cls. 1(f)(g)(i), 12 & 13(a)---Banking Company---Dividend income---While charging tax on income of Banking Company, Assessing Officer found that profit distributed by the National Investment Trust could not be treated dividend as unit holders were neither shareholders of National Investment Trust nor had voting right and tax was charged was 62% according to para. A(1) of Part V of .First Sched. of the Income Tax Ordinance, 1979--Validity---National Investment Trust was a company and income derived there from by unit holders constituted dividend income---Consequently, dividend income derived from National Investment Trust was to be charged to tax at the concessional rate of 5 % according to para. D of Part V of First Sched. of Income Tax Ordinance, 1979.

(1963) ITP 280; (1971) 82 ITP 44; PLD 1994 Lah. 207; CIT v. Pakistan Insurance Corporations and others (1997) 75 SC Pak; CIT, Peshawar Zone, Peshawar v. Siemens A.G. 1991 PTD 488 = PLD 1991 SC 368; Osborn's Concise Law Dictionary by John Burke 6th Edn., p.123; Black's Law Dictionary; Stroud's Judicial Dictionary; Halsbury's Laws of England, 4th Edn., Vol. VII; Oxford English Dictionary; PLD 1991 SC 368 = 1991 PTD 488 and 1989 SCC 740 ref.

(d) Income Tax Ordinance (XXXI of 1979)---

----Ss.2(20) & 12(11)---Dividend income---Assessing Officer taxed the dividend income in full as per profit and loss account---Contention of assessee was that dividend income included notional dividend income which was not taxable as same did not meet the requirements of S.12(11), Income Tax Ordinance, 1979---Validity---Such being a legal issue, Assessing Officer was directed by Appellate Tribunal to look into the matter and decide the same in view of the factual and legal position of the case.

Mirza Anwar Baig for Appellant (in I.T.As. Nos.17 and 18 of 1998-99).

Sultan Wazir Khan, D. R. for Respondent (in I. T. As. Nos.17 and 18 of 1998-99).

Sultan Wazir Khan, D.R. for Appellant (in I.T.As. Nos.140 and 141 of 1998-99).

Mirza Anwar Baig for Respondent (in I.T.As. Nos.140 arid 141 of 1998-99).

Date of hearing: 2nd March, 1999.

2000 P T D (Trib.) 869

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Mujibullah Siddiqui, Chairman and Inam Ellahi Sheikh, Accountant Member

I.T.As. Nos.1414/LB to 1416/LB of 1999, decided on 26th November, 1999.

Income Tax Ordinance (XXXI of 1979)---

----Ss.56 & 65---Notice for furnishing return of total income---Additional assessment---Assessing Officer issued notices under S.56 of Income Tax Ordinance, 1979 for the past three years and finalized the assessments--­Validity---Notice under S.56 of Income Tax Ordinance, 1979 could be issued for the current year only and for proceedings the past years could be initiated by issuing of notice to assessee under S.65 of the Ordinance only--­Assessment orders in pursuance of invalid notices were declared to be void and proceedings conducted were without jurisdiction.

1998 PTD 2969 irrelevant.

(1998) 77 Tax 91 rel.

Sirajuddin Khalid for Appellant.

Abdul Rauf, D. R. for Respondent.

2000 P T D (Trib.) 874

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Mujibullah Siddiqui, Chairman and Muhammad Mehboob

Alam, Accountant Member

I.T.As. Nos.66/KB to 70/KB of 1999-2000, decided on 12th November 1999.

(a) Income-tax---

----Manufacturing---Definition of word "manufacturing" contained in Sales Tax Act, 1990 could not be adopted for purpose of Income Tax Ordinance, 1979.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss.66-A, 62 & 80-C---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Tax on income of certain contractors and importers---"Manufacturing"---Assessee was a tea company---Business of assessee consisted of import of dust and tea leaves, mixing, blending, colouring, processing, flavouring and packing thereof by making the same marketable under various names and then selling the same---Assessment was finalized under S.62 of the Income Tax Ordinance, 1979---Inspecting Additional Commissioner cancelled the assessment and charged tax under S.80-C of the Income Tax Ordinance, 1979 being importer on the ground that activities of assessee were not covered by the definition of "manufacturing" and production but were regarded as processing ---Validity-­Assessee was an industrial undertaking and the tea leaves and dust were imported for its consumption---Finding of Inspecting Additional Commissioner that import purchase should be assessed under S.80-C of the Income Tax Ordinance, 1979 being erroneous his order under S.66-A, Income Tax Ordinance, 1979 was cancelled while that of Assessing Officer was restored by the Appellate Tribunal.

(c) Income Tax Ordinance (XXXI of 1979)---

----Ss.66-A & 80-C---Second Sched., Part I, cl.118-E---C.B.R. Circular No.4(17)/TP/I-91, dated 15-7-1995---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Tax on income of certain contractors and importers ---Exemption---Manufacturing---Assessee was a tea company importing dust and tea leaves ---Assessee was mixing, blending and packing the tea and then selling the same in market---Assessing Officer assigned the assessee status of a manufacturer and allowed exemption under clause 118-E'of Part I of Second Sched. of Income Tax Ordinance, 1979---Inspecting Additional Commissioner cancelled the assessment and charged the tax under S.80-C of Income Tax Ordinance, 1979 as an importer on the ground that assessee was neither industrial undertaking nor engaged in the process of production and manufacturing as he was dealing in import and then sale of tea by mixing, blending and packing the same, thus, activities of the assessee were not covered by definition of "manufacturing and production"---Validity---Meaning of the word "manufacture" had been expanding with the passage of time and had now expanded to the extent that mixing, blending, colouring and flavouring of tea amounted to "manufacture" because not only that required a sophisticated process but an art and skill which was not very common ---Assessee was an industrial undertaking and was engaged in the manufacture of finished tea out of imported raw leaves and dust after subjecting same to a manufacturing process---Exemption allowed by the Assessing Officer was not interfered with but was declared to be in consonance with the view expressed by the Central Board of Revenue in Circular No.4 of 1995, dated 15-7-1995--­Orders of Inspecting Additional Commissioner under S.66-A were quashed and original orders of Assessing Officer were restored by the Appellate Tribunal.

1998 PTD 3835; 1995 PTD 813; Nilgiri Ceylon Teas Supplying Co. v. State of Bombay (1959) 10 STC 500 (Bom.); Chowgule & Co. (Pvt.) Ltd. v. Union of India (1981) 47 STC 24 (SC); Assistant Collector of Central Excise and Land Custom v. Orient Straw Board and Paper Mills Limited PLD 1991 SC1992; Central Insurance Company v. C.B.R. 1993 PTD 766 = 1993 SCMR 1232; 1993 PTD (Trib.) 939; G. A. Renderian Limited v. CIT (1984) 145 ITR 387 (Cal.); Chriestian Mica Industries Ltd. v. State of Bihar (1961) 12 STC 150 (SC); Chowgule & Co. (Pvt.) Ltd. v. Union of India (1981) 47 STC 124(SC); Badrinarayan v. State of Madhya Pradesh (1988) 70 STC 12; Tarai Development Corporation v. CIT (1979) 120 ITR 342 (All.); CIT v. 1.B. Kharwar & Sons (1987) 163 ITR 394 (Guj.); Brooke Bond India Limited v. Union of India (1984) Tax LR 2595 (Cal.); East India Cotton Manufacturing Company (Private) Limited v. Assessing Authority-cum-Excise and Taxation Officer (1972) 30 STC 489 (P&H); Empire Industrial Limited v. Union of India (1986) 162 ITR 846; CIT v. Union Carbide India Limited (1987) 165 ITR 550 (Cal.); Collector of Central Excise v. Eastend Paper Industries Limited (1990) 186 ITR 105 (SC); Deputy Commissioner of Sales Tax v. Pio Food Packers (1980) 46 STC 63; CIT v. N.V. Budharaja & Co.204 ITR 412 and 1985 PTD 94 ref.

The Black's Law Dictionary; The Stroud's Judicial Dictionary; The Legal Theasarus by William C. Bertin and The New Shorter Oxford English Dictionary, 1993 Edn. rel.

(d) Income-tax---

----Central Board of Revenue---Interpretation by---Judgment in the case of General Insurance Company v. C.B.R. reported as 1993 PTD 766 regarding interpretation of law/clarification by the Central Board of Revenue explained.

(e) Income Tax Ordinance (XXXI of 1979)---

----Ss.8 & 66-A---All Officers to follow the orders of-the Central Board of Revenue---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Inspecting Additional Commissioner while revising Deputy Commissioner's order ignored the clarification issued by the Central Board of Revenue on the ground that these were not binding according to the judgment pronounced by the Supreme Court of Pakistan in respect of interpretation by C.B.R.---Validity---Inspecting Additional Commissioner was not one of the Judicial Authorities as mentioned in the judgment of Supreme Court reported as 1993 PTD 766---In order to maintain discipline the subordinate Administrative Officer should not make such observations in respect of Central Board of Revenue---Inspecting Additional Commissioner was basically an administrative officer, and therefore, barring very exceptional circumstances, the instructions, directions and clarifications issued by the Central Board of Revenue should not be lightly ignored by the Inspecting Additional Commissioners or Commissioners.

(f) Words and phrases--

----"Manufacturing"---Meaning of word "manufacturing" elaborately discussed.

The Black's Law Dictionary; The Stroud's Judicial Dictionary; The Legal Theasarus by William C. Bertin and The New Shorter Oxford English Dictionary, 1993 Edn. rel.

Qumaruddin Manji, C.A. for Appellant.

Zaki Ahmed, D.R. for Respondent.

Date of hearing: 3rd November, 1999.

2000 P T D (Trib.) 1163

[Income-tax Appellate Tribunal Pakistan]

Before Syed Nadeem Saqlain, Judicial Member and Inam Ellahi Sheikh, Accountant Member

I.T.As. Nos.2367/LB to 2370/LB of 1999, decided on 10th June, 1999.

Income Tax Ordinance (XXXI of 1979)--

----S.66-A---Income Tax Rules, 1982, R.3(2)(c)---Director of a Company--­Perquisites---Working whole-time for one company ---Assessee was a Director of a company and was also running his private business ---Assessee declared his salary income as well as income from other private businesses and claimed exemption on perquisites under R.3(2)(c) of the Income Tax Rules, 1982 which was allowed by the Assessing Officer---Inspecting Additional Commissioner cancelled the assessment on the ground that assessee could not be termed as whole-time employee of a company as he was engaged in other businesses apart from drawing salary as a "Director" of a company and, therefore, was not entitled to exemption ---Assessee contended that if a person was working whole-time for one company, his engagement in private businesses after working hours would not exclude him from the purview of R.3(2)(c) of the Income tax Rules, 1982 because by running his own private business he could not be considered to be working for any other company---Validity---No restriction upon a person to engage himself in a private business was imposed while working for a company--­Rule 3(2)(c), Income Tax Rules, 1982 also refers to a person who is working whole-time for one company---Working whole-time for one company gains importance only when person is working for more than one company because R.3(2)(c) was enacted only to discourage misuse of" provisions of law pertaining to claiming of exemption on perquisites---Assessee was only working for one company and his engagement in private business did not give any benefit with regard to claiming of exemption on account of his perquisites ---Assessee was declared as a whole-time director/employee in one company and, therefore,, was entitled to exemption to allowances under R.3(2)(c) of the Income Tax Rules, 1982 in circumstances---Order under S.66-A of the Income Tax Ordinance, 1979 was vacated and that of the Assessing Officer restored by the Appellate Tribunal.

Commissioner of Income-tax v. S. Mazhar Hussain 1988 PTD 563 PLD 1988 Kar. 438 and 1998 PTD (Trib.) 3195 distinguished.

Ch. Manzoor Ahmad for Appellant.

Khalid Aziz Banth, D.R. for Respondent.

2000 P T D (Trib.) 1169

[Income-tax Appellate Tribunal Pakistan]

Before Mansoor Ahmed, Accountant Member and Karamat Hussain Niazi, Judicial

Member

W. T. A. No. 160/IB of 1999-2000, decided on 25th October, 1999.

(a) Wealth Tax Rules, 1963---

----R.8(2)(c)(i)---Valuation of share---Rule 8(2)(c)(i) having no reference to market value was ultra vires the Wealth Tax Act, 1963.

1998 PTD 3900 explained.

(b) Wealth Tax Rules, 1963---

----R.8(2)(c)(i)---Valuation of share of unlisted company---Assessing Officer valued the share on the basis of break-up value---Assessee contended that R.8(2)(c)(i), to the extent of adopting higher value of the two i.e. face value and break-up value, was ultra vires the Wealth Tax Act, 1963 and lower of the two values was to be adopted as in the case of listed companies---First Appellate Authority, agreeing with the contention of the assessee, directed the Assessing Officer to accept the face value of the share as declared--­Validity---Contention that face value had to be considered as market value was not accepted and break-up value was equated with the market value--­Face value as a measure of valuation had disappeared with the declaration of R.8(2)(c)(i) as ultra vies, therefore, break-up value had to be adopted for the valuation of share of unlisted companies---Assessing Officer, thus, was justified to adopt break-up value for valuation of share---Order of the First Appellate Authority was vacated and that of the Assessing Officer restored by the Appellate Tribunal.

1998 PTD 3900 rel./explained.

Nadir Mumtaz Warraich, D. R. for Appellant.

Habib Fakhruddin, F.C.A. for Respondent.

Date of hearing: 18th October, 1999.

2000 P T D (Trib.) 1172

[Income-tax Appellate Tribunal Pakistan]

Before Khawaja Farooq Saeed, Judicial Member and Nazeer Ahmed Saleemi, Accountant Member

I.T.As. Nos.2920/LB to 2925/LB of 1998, 2650/LB to 2655/LB of 1998, decided on 7th May, 1999.

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss.2(17), 80-B & & First Sched. Part I, Para.A---Cooperative Society--­Interest income--- Assessee was a Cooperative Housing Society---Department found that interest income of the assessee did not fall within the ambit of S.80-B of the Income Tax Ordinance 1979---Validity---Provision of S.80-B of the Income Tax Ordinance, 1979 had come in super session to other provisions and assessee being a juridical person was covered under the provision of S.80-B of the Income Tax Ordinance,. 1979---Department was directed by Appellate Tribunal to charge the tax on interest under S.80-B of the Income Tax Ordinance, 1979 and not beyond that.

1998 PTD 2017 rel.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.2(17) & Second Sched., Part I, cl.103---Cooperative, Housing Society-­-Income of Cooperative Societies---Membership fee---Nature of receipts--­Taxability---Business of Cooperative Society was to sell plots to its members only---Membership fee received from members was capital receipts which could not be taxed as purpose of the Society was not distribution of the profit in any manner.

I.T.A. No.5453/LB of 1991 rel.

(1977) 35 Tax 165 ref.

(c) Income Tax Ordinance (XXXI of 1979)---

----S. 2(17)---Cooperative Housing Society ---Receipts---Expenditure--­Allowance/deduction---Actual basis---Percentage base---Doctrine of mutuality---Nexus of expenses to income---Expenditures incurred by Cooperative Society were to be allowed against its receipt on actual basis--­Receipts and expenditure were essentials of a Cooperative Society for running its affairs---Receipts and expenditures were mutually exclusive and doctrine of mutuality was fully applicable---Whether a Society was to be allowed a percentage of expenditure against claim had already been disapproved by the Income Tax Appellate Tribunal---Sources of receipts in a Cooperative Society in one year may not be the same for the subsequent year---If Cooperative Society had some income on account of sale of plots for one year and some expenses were allowed, it could not be said that in subsequent years on receiving penalty from members the same would be disentitled to claim of such expenses---Societies were entitled to expenditure even against those receipts wherein apparently, no physical involvement of the concerned Authorities was visible---Appellate Tribunal set aside order as to disallowance of expenses for de novo consideration.

Messrs Engineering Cooperative Housing Society Limited's case I.T.As. Nos. 2444 to 2450/LB of 1998 rel.

Atta Hussain Khan Ltd. v. C.I.T. 1969 PTD 679 ref.

(d) Income Tax Ordinance (XXXI of 1979)---

----S.2(17)---Cooperative Society---Membership fee---Late fee---Transfer fee---Taxability---Membership fee would not be taxable income of the Society while late fee would be fully charged to income-tax ---Transfer fee would also be a taxable amount as the same was a regular source of income of the Cooperative Society according to transfer of one plot to another--­Claim of exemption of transfer fee being capital receipt was rejected by Appellate Tribunal.

(e) Income Tax Ordinance (XXXI of 1979)---

----S.2(17)---Cooperative Society---Income received through horticulture--­ Agricultural income---Exemption---Income from sale of nursery items (horticulture) by the assessee/Society was covered under agricultural income­ -Addition made in income of the assessee/Society-by the Assessing Officer in respect of sale of horticulture was deleted by Appellate Tribunal.

Talat Altaf, D. R. and Shafqat Mahmood Chohan, L.A. for Appellant (in I.T.As. Nos.2920/LB to 2925/LB of 1998).

S.A. Khan for Respondent (in I.T.As. Nos.2650/LB to 2655/LB of 1998).

S.A. Khan for Appellant (in I.T.As. Nos.2650/LB to 2655/LB of 1998).

Talat Altaf, D. R. and Shafqat Mahmood Chohan, L.A. (in I.T.As. Nos.2650/LB to 2655/LB of 1998).

Date of hearing: 5th May, 1999.

2000 P T D (Trib.) 1181

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Mujibullah Siddiqui, Chairman and Muhammad Mehboob

Alam, Accountant Member

I.T.As. Nos. 195/KB to 199/KB of 1999-2000, decided on 10th December, 1999.

Income Tax Ordinance (XXXI of 1979)---------

----First Sched,. Part I, para. A, proviso (f)---Credit of super-tax to partners of firm ---Assessees were partners in a registered firm---Total income in the hands of assessees were determined by the Assessing Officer on the basis of assessment finalized in the case of firm---While computing tax liability of each partner under proviso (f) of para. A of Part I of First Sched of the Income Tax Ordinance, 1979, full credit of share of super-tax was not allowed by the Assessing Officer and as a result refund was not determined in the hands of individuals out of the share of super-tax paid by the firm--­Validity---Firm and partners were different entities/persons for the purpose of income-tax---Super-tax paid by firm was not refundable in the hands o1 partners---Directions of First Appellate Authority to refund such amount was vacated and order of Assessing Officer was restored by Appellate Tribunal, 1985 PTD 401 and 1992 PTD 1632 rel.

I.T.As.Nos.388 to 390/KB of 1987-88; I.T.As. Nos.391 to 393/KB; I.T.A. No. 1129/KB of 1988-89; I.T.As. Nos.383 and 384/KB of 1989-90 and I. T. A. No.302 of 1997 per iucuriam.

Ali Akbar Depar, D.R. for Appellants.

Minoo Bamjee, F.C.A. and Anthony Santamaria, I,T.P. for Respondents.

Date of hearing: 10th December, 1999.

2000 P T D (Trib.) 1299

[Income-tax Appellate Tribunal Pakistan]

Before S. M. Sibtain, Accountant Member and

Jawaid Masood Tahir Bhatti, Judicial Member

I LT. As. Nos.27/KB to 31/KB of 1995-96, 1352/KB, 1353/KB, 1512/KB,1513/K13 of 1994-95, 2439/KB, 2196/KB of 1996-97 487/KB of 1997-98 and 592/KB of 1998-99, decided on 1st October, 1999.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.65, 17, 32(1) & 62---Additional assessment---Definite information--­Income from interest on securities---Method of accounting ---Assessee maintained accounts on Mercantile System and income from interest on securities were recorded in the books of accounts on accrual basis--­Assessment was finalized under S.62 of the Income Tax Ordinance, 1979 and declared actual receipts on the basis of previous history were accepted--­Assessment was re-opened on the ground that income had been under assessed to the extent of difference between the figures of income from interest on securities recorded in the books on accrual basis and the amounts taxed under S.62 was on the declared actual receipt basis and it was considered as "definite information" for re-opening the case ---Assessee contended that notice under S.65 of the Income Tax Ordinance, 1979 could not be issued on the basis of same facts available at the time of the assessment as the assessee had disclosed income both on receipt and accrual basis, in its Return---Department stated that notice under S.65 could be issued on the basis of existence of a binding judgment which constituted "definite information" if the Assessing Officer had failed to take into consideration such judgments of superior Courts at the time of framing assessment---Validity---proceedings initiated under S.65 of the Income Tax Ordinance, 1979 were declared ab initio void in law in circumstances by the Appellate Tribunal after considering the judgments of superior Courts as referred and impugned orders were cancelled---Appeals were allowed accordingly.

1994 PTD (Trib.) 1051; 1990 PTD 873; 1995 PTD 761; 1993. PTD 766 and 1.A.C. v. Pakistan Herald Limited 1997 SCMR 1256 ref.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.27(2)(a), 2(12) & 80-D---Capital gains---Capital assets---Turnover tax-­Government securities---Sale of ---Profit/gains---Chargeability of tax---First Appellate Authority found that profit/gains on sale of Government securities were chargeable under S.17 of the Income Tax Ordinance, 1979 as capital gain and department objected such treatment---Validity---Stocks and shares were capital assets as defined in S.2(12) of the Income Tax Ordinance, 1979 and gain on such trading could not be excluded under S.27(2)(a) of the Income Tax Ordinance, 1979 for incidence of tax on such gain on capital assets and it did not constitute "turnover" under S.80-D of the Income Tax Ordinance, 1979---Order of First Appellate Authority was confirmed by Appellate Tribunal.

I.T.A. No. 1635/KB of 1997-98, 1887 to 1890/KB of 1998-99 and 2220 and 2221 /KB of 1994-95 rel.

(c) Income Tax Ordinance (XXXI of 1979)---

----S.23(1)(vii)---Deduction---Borrowed capital---Interest on---Allowable expenditure---Interest incurred on borrowed capital invested in Prize Bonds, sold by the assessee on commission which was offered as taxable income, was an allowable expenditure.

I.T.A. No. 1297/KB of 1991-92 rel.

(d) Income Tax Ordinance (XXXI of 1979)---

----S.23(1)(x)---C.B.R Circular of 1993---Banking Companies Ordinance (LVII of 1962), S.41---Deductions---Bad debts ---Assessee's claim of bad debts on the basis of letter of Pakistan Banking Council was disallowed by the Assessing Officer on the ground that approval of such bad debts by the State Bank of Pakistan did not exist---First Appellate Authority found that letter approved the Bank's final audited accounts only and it could not be construed as certified approval of bad debts issued by State Bank of Pakistan as required under the Central Board of Revenue Circular of 1993--­Disallowance was confirmed by the Appellate Tribunal.

1976 PTD 237 ref.

(e) Income Tax Ordinance (XXXI of 1979)---

----S.14---Second Sched., Part I, cl. (128)---Export processing Zones Authority Ordinance, 1980---Exemption---Assessee was a Bank having its branch in Export Processing Zone and income of such branch was not exempted from tax by the Assessing Officer---Validity---Appellate Tribunal set aside the order with the direction to allow exemption claimed on such income.

I.T.As. Nos. 19/KB; 172; 176/KB of 1988-89; 1656/HQ of 1989-90; 1273/HQ of 1990-91 and 1297/KB of 1991-92 rel.

(f) Income-tax---

----WAPDA Bond---Income from---Tax liability ---Assessee was a Bank and derived income from WAPDA Bonds which was taxed by the department--­Validity---Order was set aside by the Appellate Tribunal with the directions to decide the issue afresh after seeking clarification from Central Board of Revenue.

I.T.As. Nos. 19/KB; 172; 176/KB of 1988-89; 1656/HQ of 1989-90; 1273/HQ of 1990-91 and 1297/KB of 1991-92 rel.

(g) Income Tax Ordinance (XXXI of 1979)---

----Ss.27(1) & 17---Public Debt Act (XVIII of 1944), S.28---Bearer National Fund Bonds Rules, 1985, R.2-A---SRO 807(1)/91, dated 21-8-1991---S.R.O. 986(1)/92---Bearer National Fund Bonds---Capital gain---Interest on securities---Roll over of Bearer National Fund Bonds---Assessment years 1992-93 and 1994-95---Income from Bearer National Fund Bonds arising on the amount of difference .between the discounted price and redeemable value of bonds was charged under S.17 of the Income Tax Ordinance, 1979 as interest on securities on sale of capital assets (B.N.F.B.)---Validity---No interest, profit and gains was accrued on Bearer National Fund Bonds at all under any provision of law for the assessment years 1992-93 and 1993-94 because the assessee was entitled to claim par value only on the date of maturity and not on any date prior to it and secondly that whatever accrued on the date of redemption/maturity was neither interest on securities chargeable under S.17 of the Income Tax Ordinance, 1979 nor profits and gains chargeable under S.22 of the Income Tax Ordinance, 1979---Stock of B.N.F. Bs. held till March 1993 by the assessee was its capital assets within meaning of subsection (12) of S.2 of Income Tax Ordinance, 1979 and chargeable to tax as capital gain under S.27 of the Income Tax Ordinance, 1979 at the rate prescribed under the law--First Appellate Authority was not justified in holding, that on account of roll over of the par value of Bonds, the redemption of the B.N.F.Bs. did not occur on the date of maturity--­Redemption of B.N.F.Bs. on discounted price had taken place on the date of maturity and a book reinvestment of such par value in SNFPs on revised terms had taken place which amounted to "transfer" as envisaged under S.27(1) of the Income Tax Ordinance, 1979---Order of First Appellate Authority was set aside by the Appellate Tribunal with the direction to charge the gain on B.N.F.Bs. under S.27 of the Income Tax Ordinance, 1979.

1994 PTD (Trib.) 1051 ref.

(h) Income Tax Ordinance (XXXI of 1979)---

----S. 27(1)---"Transfer"---Meaning---Transfer includes , redemption.

New Shorter Oxford English Dictionary, p.3367 and Black's Law Dictionary, Sixth Edn., St. Paul Minn., West Publishing Co., 1990 ref.

(i) Income Tax Ordinance (XXXI of 1979)--

----Ss.86 & 50---Charge of additional tax for failure to deduct and pay tax--­Assessee was a Bank---Assessing Officer levied additional tax under S.86 of the Income Tax Ordinance, 1979 for non-deduction of tax under S.50 of the Income Tax Ordinance, 1979 on import value of goods at the time of clearance---Validity---First Appellate Authority found that amounts under consideration related to Custom and other duties and income-tax which were collected by Customs Authorities and deposited with the assessee (Bank) as a treasury---Customs Authorities and not the Bank who was required under the law to deduct tax under S.50 of the Income Tax Ordinance, 1979 on import value of goods at the time of clearance ---Assessee's role in the whole affair was that of the Government Treasury, and thus, it could not be said to, be an assessee in default which was a pre-condition for levy of additional tax under S.86 of the Income Tax Ordinance, 1979---Finding of First Appellate Authority was confirmed by the Appellate Tribunal and appeal of the Department was dismissed.

Words and phrases---

----"Transfer"---Meaning.

Khaliqur Rehman, C.A. for Appellant (in I.T. As. Nos.27/KB to 29/KB of 1995-96).

Fahimul Haque, D.R., Tariq Masood, D.R., Ayaz Elahi, D.R. and Javed Farooqi for Respondent (in I.T.As. Nos.27/KB to 29/KB of 1995-96).

Fahimul Haque, D.R., Tariq Masood, D.R., Ayaz Elahi, D. R. and Javed Farooqi for Appellant (in I.T.As. Nos.1352/KB and 13531KB of 1994-95).

Khaliqur Rehman, C.A. for Respondent (in I.T.As. Nos. 1352/KB and, 1353/KB of 1994-95).

Khaliqur Rehman, C.A. for Appellant (in I.T.As. Nos. 1512/KB, 1513/KB of 1994-95, 30/KB, 31/KB of 1995-96, 2439/KB of 1996-97, 487/KB of 1997-98 and 592/KB of 1998-99).-

Fahimul Haque, D.R., Tariq Masood, D.R., . Ayaz,. Elahi, D. R. and Javed Farooqi for Respondent (in I.T.As. Nos.. 1512/KB, 1513/KB of 1994-95, 30/KB, 31/KB of 1995-96, 2439/KB of 1996-97, 487/KB of 1997-98 and 592/KB of 1998-99).

Fahimul Haque, D.R., Tariq Masood, D.R., Ayaz Elahi, D.R. and Javed Farooqi for Appellant (in I.T.A. No-2196/KB of 1996-97).

Khaliqur Rehman, C.A. for Respondent (in I.T.A. No.2196/KB of 1996-97).

Date of hearing: 21st August, 1999.

2000 P T D (Trib.) 1328

[Income-tax Appellate Tribunal Pakistan]

Before S.M. Sibtain, Accountant Member and Jawaid Masood Tahir Bhatti, Judicial Member

I.T.A. No.966/KB of 1998-99, decided on 28th July, 1999.

Income Tax Ordinance (XXXI of 1979)--

----S.25(b) & (c)---Deemed income---Amounts subsequently recovered in respect of deductions---Assessee, a public limited company obtained loan from the financial institutions ---Assessee who committed default in making the payment issued/transferred its fully paid-up shares to discharge its liabilities under certain limitations to the financial institution with buy-back­ agreements---Assessee claimed that liability of accrued financial charges was paid by it through issuance of its paid-up ordinary shares to the financial institution---Assessing Officer, however, treated liabilities converted into fully paid-up ordinary shares as "deemed income" under S.25(c) of the Income Tax Ordinance, 1979 on account of non-payment of the liabilities of financial institution on the ground of collusive arrangement between the parties---First Appellate Authority confirmed the order of the Assessing Officer---Validity---Conversion of accrued/financial charges into fully paid­ up ordinary shares of the assessee was not collateral because the accrued/financial charges stood paid with the issuance of shares- to the financial institutions---Neither the buy-back-agreement allowed any concession in terms of the value of the shares to the assessee nor assessee was bound to buy-back the shares---Issuance of paid-up ordinary shares of the assessee to financial institution was not established to be collusive arrangement between the parties---Liabilities having been discharged and paid in the shape of paid-up ordinary shares addition made to the assessee's account unsustainable both in law and facts---Addition was ordered to be deleted by the Appellate Tribunal.

CIT v. Bhojraj Harichand (1946) 14 ITR 277 (Lah.); McDowell & Co. Ltd. v. Commercial Tax Officer (1985) 154 ITR 148 (SC Ind.); Attar Singh Gurmukh Singh v. ITO (1991) 191 ITR 667 (SC Ind.); CIT v. D.P. More (1971) 82 ITR 540 (SC Ind.); S.P. Jaiswal v. CIT (1997) 224 ITR 619 (SC Ind.); Overseas Containers (Finance) Ltd. v. Stocker (1991) 188 ITR 383 (CA); Ensign Tankers (Leasing) Ltd. v. Stokes (1994) 209 ITR 231 (HL); Elahi Cotton Mills Ltd. and others v. Federation of Pakistan 1997 PTD 1555; Pindi Kashmir Transport Co. Ltd. v. CIT (1954) 26 ITR 595 (Lah. HC); Gazdar Kajora Coal Mines Ltd. v. CIT (1972) 85 ITR 599 (SC Ind.); M.U. Sinai v. Union of India (1975) 98 ITR 209 (SC Ind.); M.U. Sinai `v. Union of India (1975) 93 ITR 209 (SC Ind.); Sitalpur Sugar Works v. State of Bihar (1963) 49 ITR 160 (SC Ind.), Famous Cine Laboratories and Studios v. CIT (1980) 121 ITR 648 (Bom.); CIT v. Dalmia Dadri Cement Ltd. (1980) 125 ITR 510 (Delhi); Central Insurance Company and others v. CBR 1993 PTD 766 = 1993 SCMR 1232; Farooq Enterprises v. CIT 1996 PTD 1110; CIT v. Farookh Chemical Industries 1992 SCMR 523 = 1992 PTD 523; Volume LXX of Corpus Juris Secundum, Vol. LXX, p.70; P. Ramanatha Aiyar's Law Lexicon, 1997 Edn., p.1397; Words and Phrases Legally Defined under General Editorship of I.B. Saunders, Vo1.4, Paton v. Inland Revenue. Commissioners (1938) AC 341; Black's Law Dictionary, 6th Edn., p.1109; Burton's Legal Thesaurus, Deluxe Edn., Vol.4 and Stroud's Judicial Dictionary, Vol.4, pp.1838-1839 ref.

Seth Kishori Lal Babulal v. CIT, U.P, (1963) 49 ITR 502 (All.) rel.

I. N. Pasha for Appellant.

Ms. Shahida Taj, D.R. for Respondent.

Date of hearing: 29th May, 1999.

2000 P T D (Trib.) 1396

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Mujibullah Siddiqui, Chairman and Muhammad Mahboob

Alam, Accountant Member

I.T.A No.2241/KB of 1998-99, decided on 20th December, 1999.

(a) Agreement for Avoidance of Double Taxation between United States of America and Pakistan---

----Art. II(1)(1),. II para. (ii) & III(1)---Income Tax Ordinance (XXXI of 1979), S.27---C.B.R. Letter No.2(3)IT-II/77, dated 20-11-1982---Capital gains---Industrial or commercial profit ---Exemption---Assessee was a non­resident company engaged in communication business and allied activities in Pakistan ---Assessee, had over a 'period of five years injected equity capital/share in Pakistan which were subsequently sold resulting in the surplus ---Assessee claimed exemption from taxation in Pakistan under Art. III of the Convention on the ground that profit earned on sale of shares was included in the term "industrial or commercial profit" used in Art. II(1)(1) of the Convention/Tax Treaty---Assessing Officer taxed the surplus/profit as capital gain on the ground that term "industrial or commercial profit" had not been defined in the Tax Treaty, and therefore. by virtue of Art. II(2) of the Tax Treaty, the profit on the sale of such share was taxable in the head "capital gains" under the domestic laws---Validity---Profit earned by assessee from' sale of capital assets had given rise to capital gain different and distinguishable from "Industrial and Commercial Profit" covered by Art. II of the Convention---Law which was prevalent during the assessment year to which the issue pertained would be applicable to the assessee's case and in the absence of express provision in the Treaty or Convention regarding exemption or taxability of any item of-income, the provisions of domestic law would apply---Claim of exemption rejected by the Assessing Officer was confirmed by Appellate Tribunal.

Raleigh Investment Company Ltd: v. C.I.T. 1983 PTD 126; Californian Copper Syndicate v. Harris 5 TC 159; (1966) 59 ITR 547 (SC): Forget v. Baxter (1900) AC .467; 1998 PTD (Trib.) 291; I.T.A. No.389/KB of 1997-98; CIT v. Khadija Begum 1965 PTD 540; Maxwell on Interpretation of Statutes; (1956) 59 ITR 547 (SC); Commissioner of Income-tax v. Express Newspapers Limited (1960) 40 ITR 38; CIT v. West Cost Chemicals and Industries Ltd. (1962) 46 ITR 135; Doughty v. Commissioner of Taxes 1927 AC 327; Commissioner of Taxation (W.A.) Newman-(1921) 29 CLR 484; Killick Nixon & Co. v. CIT (1963) 49 ITR 224,; (1960) 38 ITR 241; (1964) 53 ITR 250; (1967) 66 ITR 714; 1999 SCMR 593; Muhammad Rafique .v. Sultan Bakhsh PLD 1991 Kay 320: PLD 1963 Kar. 280 and Abdul Razzak's case 1995 CLC 1453 ref.

(b) Agreement for Avoidance of Double Taxation---

---- Ascertainment of intention---Courts, in case of domestic/local laws were required to ascertain and discern the intention of Legislature, while in case of International Agreements the intention of contracting parties was to be ascertained from the contents of International Agreement or the Regulations prescribed by the contracting parties to interpret and carry out the provision of the International Treaties.

(c) Interpretation of statutes---

----Definitions---"Means" and "includes "---Connotation of---Whenever any term was defined starting with the word 'means' it was a conclusive definition which was exhaustive and nothing else could be added to same--­When a term is defined starting with the word 'includes' it is inclusive definition which is not exhaustive but other things of similar nature, class or category could be included therein.

(d) Agreement for Avoidance of Double Taxation between United States of America and Pakistan---

---- Agreement explained and clarified.

Iqbal Naeem Pasha and Saqib Masood, F.C.A. for Appellant.

Mumtaz Ahmed Shaikh, C.I.T. and Riaz-ud-Din, D.C.I.T. for Respondent.

Date of hearing: 25th September1999.

2000 P T D (Trib.) 1438

[Income-tax Appellate Tribunal Pakistan]

Before Shahid Jamal, Accountant Member and Syed Kabirul Hasan, Judicial Member

I.T.A. No.2170/KB of 1998-99, decided on 18th December, 1999.

Income Tax Ordinance (XXXI of 1979)---

----S.66-A(l)(aa)---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order ---Assessee was confronted under S.66-A of the Income Tax Ordinance, 1979 with a figure invested by him shown in the ledger account---Assessment was completed and issue was finally decided by the Appellate Tribunal---Notice under S.66-A was again issued on the basis of same material but with different figures and Assessing Officer was directed to reframe the assessment after investigating the source of investment over and above the amount sub judice before the Appellate Tribunal---Validity---Figures with which assessee was confronted in fresh notice were different---Different figures, extracted from the same ledger account, by the Assessing Officer or Inspecting Additional Commissioner, would not constitute a "new point" on which Inspecting Additional Commissioner-could have exercised jurisdiction under. S.66-A, Income Tax Ordinance, 1979---If Assessing. Officer or. Revising Officer had failed to properly examine the ledger accounts and extract the correct figures from those accounts, it was their own fault and not of the assessee for which a fresh notice or fresh jurisdiction could be assumed time and again--­inspecting Additional Commissioner, thus, misdirected himself and had gone far beyond his jurisdiction-, --Assessment completed in pursuance to the direction of Inspecting Additional Commissioner was declared to be illegal by Appellate Tribunal.

1992 PTD (Trib) 1187 ref.

A. S. Jafari for Appellant

Muhammad Saeed, D.R. for Respondent.

Date of hearing: 18th December, 1999.

2000 P T D (Trib.) 1443

[Income-tax Appellate Tribunal Pakistan]

Before Jawaid Masood Tahir Bhatti, Judicial Member

I.T.A. No.251/KB of 1999-2000, decided on 21st December 1999.

Income Tax Ordinance (XXXI of 1979)---

----Ss. 59(1) & 65---Self-Assessment---Additional assessment ---Assessee filed return under Self-Assessment Scheme declaring net profit rate 9.32 % and assessment was finalized by applying 15% G.P. rate by the Department--­Case was reopened on the basis of an amount deposited in the Bank in respect of sale which was not accounted for by the assessee---Assessee explained that commission received from such sale was equal against expenses incurred on such sale and, therefore, income horn such sale was not declared ---Explanation of assessee was not accepted by the Assessing Officer and addition was made---First Appellate Authority instead of accepting the assessee's version that the case should be accepted under Self-Assessment Scheme, reduced the net profit rate to 5 % as against 9.32 % declared by assessee and 15% G.P. rate applied by the Department---Validity---First Appellate Authority had given sufficient cause for reducing the net profit rate to 5 % and, therefore, no interference was called for in the impugned order--­Departmental appeal was dismissed in circumstances.

Shaukat Soomro, D.R. for Appellant.

Abdul Tahir, I. T. P. for Respondent.

Date of hearing: 16th December, 1999.

2000 P T D (Trib.) 1444

[Income-tax Appellate Tribunal Pakistan]

Before Rashid Ahmed Sheikh, Judicial Member

I.T.A. No.4535/LB of 1999, decided on 7th February, 2000.

(a) Income Tax Ordinance (XXXI of 1979)---

----S. 59(1)---Self-Assessment Scheme---Question of fact and law---Plea that return should be accepted under Broad Based Self-Assessment Scheme can be taken at any stage of appeal because it is a mixed question of law and fact.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.59(1)---Self-Assessment Scheme---Notice for selling apart case outside the ambit of Self-Assessment Scheme---Limitation---To set apart Return outside the ambit of Self-Assessment Scheme, Assessing Officer has to inform the assessee by 30th June of relevant assessment year.

(c) Income Tax Ordinance (XXXI of 1979)---

----Ss. 59(1) & 63----C.B. R. Circular No. 16 of 1996, dated 3-9-1996---Self­ Assessment Scheme---Notice for short documents---Setting apart of Return outside the ambit of Self-Assessment Scheme---Return was filed under Self­ Assessment Scheme---Short documents notice was issued by the Assessing Officer as the relevant columns of the Return were not filled---Complete details were available from the computation chart annexed with the Return, as were required in the notice---Assessment was finalized ex parte under S.63 of the Income Tax Ordinance, 1979---Validity---Assessing Officer had issued the short documents notice owing to misconception of facts and had erroneously excluded the assessee's Return of income from the ambit of the' Self-Assessment Scheme although same fully qualified to be accepted under S.59(1) of the Income Tax Ordinance, 1979---Assessing Officer was directed to accept the returned income of the assessee under S.59(1) of the Income Tax Ordinance, 1979 by the Appellate tribunal in circumstances.

Muhammad Shahid Abbas for Appellant.

Shahid Bashir, D.R. for Respondent.

Date of hearing: 27th January, 2000

2000 P T D (Trib.) 1447

[Income-tax Appellate Tribunal Pakistan]

Before Mahmood Ahmad Malik, Accountant Member and Muhammad Tauqir

Afzal Malik, Judicial Member

I.T.A. No.3673/LB of 1999, decided on 13th October, 1999.

Income Tax Ordinance (XXXI of 1979)---

----Ss. 59(1) & 66-A---C.B.R. Circular No.5 of 1997, dated 12-7-1997, para. 3(II)(a)---C.B.R. Circular No.11 of 1997, dated 9-9-1997---Self­Assessment Scheme---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Assessment year 1997-98---New assessee---Condition of filing wealth statement---Assessment completed under S.59(1) of the Income Tax Ordinance, 1979 was cancelled by Inspecting Additional Commissioner under S.66-A of the Income Tax Ordinance, 1979 on the ground that no wealth statement was filed alongwith the income-tax return which was obligatory upon the new assessee in terms of para. 3(II) of C.B.R. Circular No.5 of 1997, dated 12-7-1997---Assessee contended that condition of filing statements, accounts, details and documents had been waived through C.B.R. Circular No. ll of 1997, dated 9-9-1997, therefore; assessee was not required to file wealth statement to be legible to avail the Self-Assessment Scheme---Department pleaded that this concession was only for old taxpayers---Validity---Condition of filing statements, accounts, details and documents alongwith the returns was waived off by the Central Board of Revenue through Circular No. II of 1997, dated 9-9-1997---Contention of Department that benefits of the concession were meant for the old tax-payers only and the new taxpayers were outside the pale of this concession did not find support from any provision in the Circular---Term "statements" used in C. B. R. Circular No. l l of 1997 would include the "wealth statements"---Concession given by said circular to the assessee not to file various statements, accounts, details and documents would, therefore, extend to the new tax-payers also---Return filed by the assessee was rightly accepted under S.59(l) of the Income Tax Ordinance, 1979 and there was no justification with the Inspecting Additional Commissioner to invoke the provisions of S.66-A of the Income Tax Ordinance, 1979.

Muhammad Shahid Abbas for Appellant.

Muhammad Asif, D.R. for Respondent, Date of hearing: 8th October, 1999.

2000 P T D (Trib.) 1649

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Mujibullah Siddiqui, Chairman and S. M. Sibtain, Accountant Member

I.T.A. No.7592/KB of 1992-93, decided on 25th January, 2000.

(a) Income-tax---

----Mens rea---Explanation of mens rea and its application on tax laws.

(b) Income Tax Ordinance (XXXI of 1979)---

----Chaps. IX (Ss.85 to 95) & XI (Ss.108 to 116)---Recovery of tax--­Penalty---Nature of liability---Rule of mens rea---Applicability---Authority of imposing penalty by Assessing Officer, Appellate Additional Commissioner or the Appellate Tribunal is adjudicatory in nature and proceedings are quasi-civil---Proceedings and provisions providing for imposition of additional tax and penalties under Chaps. IX & XI of the Income Tax Ordinance, 1979 fell within the purview of civil liability to which the concept of mens rea could not be extended.

(c) Income Tax Ordinance (XXXI of 1979)---

----Ss. 111, 116 & 13(1)(d)(e)---Penalty---Concealment of income---Rule of mens rea---Application---Addition made under S. 13(1)(d) & (e) on account of investment in assets and suppressed personal expenses respectively by the Assessing Officer, which was confirmed by the First Appellate Authority--­Penalty proceedings were initiated after the additions were upheld in appeal and penalty was imposed under S.111, Income Tax Ordinance, 1979, equal to the amount of tax on the ground that concealment of income/furnishing of inaccurate particulars of income stood fully established against the assessee--­Assessee contended that there was no wilful default or deliberate concealment of income on his part and penalty proceedings ought to have been finalized immediately after the assessment was completed, without waiting for disposal of appeal and, therefore, penalty could not be warranted---First Appellate Authority accepted the contention of the assessee that mens rea was not established and annulled the order imposing penalty---Validity---Provisions pertaining to imposition of penalty under Chap. XI of the Ordinance and levy of additional tax under Chap. IX of the Ordinance were civil in nature while prosecutions and punishments provided in Chap. XII were criminal in nature---Liability created under S. 111 of the Income Tax Ordinance, 1979 was a civil liability which was mainly aimed at retrieving the loss caused to the State on account of concealment of income or furnishing of inaccurate particulars of income and to discourage the evasion of taxes---Rules of mens rea was attracted in cases of prosecutions and punishments provided in Chap. XII which were purely criminal proceedings---Rule of mens rea was not attracted to the levy of additional taxes and penalties being civil liabilities---Requirements of addition under S.13(1) and penalty under S.111(1) were the satisfaction of Officer making addition/imposing penalty, therefore, the delinquency itself or in other words the additions under S.13(1)(aa) to (e) itself was sufficient for imposition of penalty under S.111 which was in the nature of civil liability---If any prosecution for commission of criminal offence was launched under S.119 of the Income Tax Ordinance, 1979, the rule of establishing mens rea had to come into play---Section 111 of the Income Tax Ordinance, 1979 provides that if the Assessing Officer was satisfied that a person had either in the course of any assessment proceedings under - the Income Tax Ordinance, 1979 or any earlier proceedings relating to an assessment in respect of same income year, had concealed his income or had furnished inaccurate particulars of such income as defined in S.111 (2) of the Income Tax Ordinance, 1979, it would be sufficient for imposition of penalty under S.111(l) of the Income Tax Ordinance, 1979 subject to provisions contained in S.111 (2A) of the Income Tax Ordinance, 1979---Assessing Officer was justified to impose penalty under S.111 of the Income Tax Ordinance, 1979 in circumstances---Order of First Appellate Authority was vacated and. penalty imposed by Assessing Officer was restored by Appellate Tribunal.

Additional Commissioner of Income-tax v. Narayandas Ramkishan (1976) 34 Tax 189 (Ind.); Hindustan Steel Limited v. State of Orissa (1972) 83 ITR 26; Commissioner of Income-tax v. Anwar Ali (1970) 76 ITR 696; Sweet v. Parsley (1969) 1 All ER 347; Ferrior v. Wilson 4 CLR 785-794, Harikishan v. State (1980) 17 AAC 43; Craies on Statute Law, 7th Edn., p.536; Wharton's Law Laxicon; Maxwell on Interpretation of Statutes', 12th Edn., p.123; The State v. S.P. Bhadani AIR 1959 Pat. 9; Crawford's Statutory Construction, 1940 Edn. ; King v. Erson 17 CLR 506; CIT, Kerala v. Gujarat Travancore Agency (1976) 103 ITR 149; P.V. Devassy v. Commissioner of Income-tax (1972) 84 ITR 502; Dawn & Co. v. Commissioner of Income-tax (1973) 87 ITR 71; Corpus Juris Secundum, Vol. 85, p.580, para. 1023; Sivagami Natha Moopanar & Sons v. Income­tax Officer, Circle II, Madurai (1955) 28 ITR 601; Helvering v. Mitchell 303 US 390: 88 L Ed 917; Spies v. United States 317 US 492: 87 L Ed 418; P. Ummali Umma v. Inspecting Assistant Commissioner of Income-tax (1967) 64 ITR 669, 676; Thomas Dana v. State of Punjab AIR 1959 SC 375; Assistant Collector of Customs, Bombay v. L.R. Melvani AIR 1970 SC 962; Hira H. Advani v. State of Maharashtra'AIR 1971 SC 44; Commissioner of Income-tax v. Bhikaji Dadadhai & Co. (1961) 42 ITR 123 (SC); 25 ST 211; Commissioner of Income-tax v. Anwar Ali (1970) 76 ITR 696 (SC); S.Sannana Chetty &. Sons v. Third Income-tax Officer (1970) 76 ITR 177; C.I.T. v Gokuldas Harivallabhdas (1956) 34 ITR 98; Thomasdana v. State of Punjab AIR 1959 SC 375; Additional Commissioner of Income-tax v. Dargapendarinath Tuljayya & Co. (1977) 107 ITR 850; (1975) 100 ITR 18; 1963 AC 160 (PC); (1964) 34 Com. Cas. 435 (SC); (1976) 103 ITR 149; Ummali Urmna v. Inspecting Assistant CIT (1967) 64 ITR 669; C.I.T. v. Maduri Rajeswar (1977) 107 ITR 823; CIT v. Gangaram Chapolia (1976) 103 ITR 613; Additional. CIT v. Narayandas Ramkishan (1975) 100 ITR 18; Sint. Kamlawati v. CIT, Patyala (1978) 111 ITR 249; (1989) 177 ITR 455; CIT v. Kalyandas (1992) 193 ITR 713; CIT v. I.M. Patel (1992) 196 ITR 297 and Director of Enforcement v. MCTM Corporation (Pvt.) Limited AIR 1996 SC 1100 ref.

Syed Riazuddin, D.R. for Appellant.

S. A. Samad Khan for Respondent

Date of hearing: 21st August, 1999.

2000 P T D (Trib.) 1796

[Income-Tax Appellate Tribunal Pakistan]

Before Inam Ellahi Sheikh, Accountant Member and Khalid Waheed Ahmad, Judicial Member

I. T. As. No. 1490/LB to 1494/LB of 1999, decided on 14th December, 1999.

Income Tax Ordinance (XXXI of 1979)---

----Ss. 52 & 50---Liability of person failing to deduct or pay tax---Deduction at source ---Assessee in default ---Assessee had not deducted tax from commission paid to agents---Assessing Officer treated the assessee as 'assessee in default'---Assessee explained that payments in question were partly received in shape of trade. discount and. partly as commission in the rough ratio of, 70 % and 30 % which were accepted by the First Appellate Authority who directed the Assessing Officer to treat 70% of the payments Subject to withholding tax-Validity--Collection of tax or assessment of income-tax was basically. the function of Revenue Authorities and not that of a person who was making the payment ---Assessee had been burdened with heavy responsibility which involved extra cost since the assessee. had to engage staff to deduct tax and to make payments to the treasury and also to subsequently follow the legal proceedings and for these services he had no reward to claim---Assessing Officer. should be extremely careful in completing all the formalities before treating the assessee as an "assessee in default "---Assessing Officer had not probed the matter in depth to examine the plea of the assessee with regard to distinction between commission and trade discount---Assessing Officer could have at least referred to the copies of the accounts available on the' assessment record to verify plea of the assessee---Appellate Tribunal declined interference with the order of First Appellate Authority in circumstances.

Javaid Iqbal Rana, D.R. for Appellant.

Irfan Ilyas, A.C.A. for Respondent.

Date of hearing: 14th December, 1999.

2000 P T D (Trib.) 1804

[Income-tax Appellate Tribunal Pakistan]

Before Karamat Hussain Niazi, Judicial Member mad Muhammad Daud Tahir, Accountant Member

Ss. 37(IB), 314(IB) and 315(IB) of 1998-99, decided on 4th June,1999

(a) Wealth Tax Act (XV of 1963)---

----Ss. 2(5)(16). 2(e)(m), 3 & 17B---Powers of Inspecting Assistant Commissioner to revise Wealth Tax Officer's order---Land under litigation--­Inclusion of such land in net wealth---Land declared by assessee in his wealth statement was not assessed in wealth tax assessment by Assessing Officer, Inspecting Assistant Commissioner concluded that assessment made was erroneous as well as prejudicial to the interest of Revenue and„ therefore, included the value of such land in the net wealth of the assessee---Assessee contended that he was the owner of land but he was not in possession the same being under litigation and the occupants had claimed their title by way of adverse possession for over 12 years, therefore, unless the title was cleared by the Court and its possession was duly delivered to the assessee, the land in question could not be assessed in the hands of assessee--­Validity---Assessee was the owner of land in question duly declared by the' Supreme Court of Pakistan which formed his asset as defined by the Wealth Tax Act, 1963---Law did not distinguish the assets which were in possession of the assessee and which were not in possession---Tendency of litigation in respect of said land did not exclude same from the ownership of the assessee---Requirement of law was that the asset must belong to the assessee as on the valuation date---Assessment made was not only erroneous but was prejudicial to the interest of Revenue also---Assessment was rightly modified by the Inspecting Assistant Commissioner in circumstances:

Black's Law Dictionary, 5th Edn. and Webster's Law Dictionary ref.

(b) Wealth Tax Act (XV of 1963)---

----S. 7(2) (aa) (i)---Wealth Tax Rules, 1963, R.8(3)---Value of assets how to be determined ---Assessee purchased agricultural land and got approved a housing scheme on the said land by Cantonment Board---Said Agricultural land remained no longer available for use of agricultural purpose after the development. of Housing Scheme---One piece of land from said scheme was not in possession of the assessee and was under litigation---Value of such piece of land was determined under R.8(3) of the Wealth Tax Rules, 1963 and was included in the net wealth of the assessee---Assessee pleaded that he purchased agricultural land including the land in question, therefore, it was agricultural land for all practical purposes, and it should have been assessed under S.7(2) (aa) (i) of the Wealth Tax Act, 1963 and not under R.8(3) of the Wealth Tax Rules, 1963---Assessee further contended that assessment in-­respect of land in question, being under litigation, ought to be suspended till the final decision of the Court---Validity---In and around the land in question a housing colony had been. developed and people had raised constructions over there---Occupants of the land in question were also using same for residential and business purposes---Nature of land had been totally changed and it was no more capable of being used for purposes sub-survient to agriculture---Such land, therefore, could not be assessed under S.7(2) (aa) (i) of the Wealth Tax Act, 1963---Land was rightly valued on the basis of market value under R.8(3) of the Wealth Tax Rules, 1963---Assessments could not be suspended as that would become time-barred, there being no bar against assessment during pendency of litigation.

Black's Law Dictionary 5th Edn. Punjab Tenancy Act, 1877 and Law Reforms Regulation, 1972 ref.

Habib Fakhruddin; F.C.A. for Appellant (in W.T.A. N0.37(IB) of 1998-99).

Muhammad Ali Shah, D.R. for Respondent (in W.T.A. No.37(IB) of 1998-99).

Muhammad Ali Shah, D.R. for Appellant (in W.T. As. Nos.314(IB) and 315(IB) of 1998-99).

Habib Fakhruddin, F.C.A. for Respondent (in W.T. As. Nos.314(IB) and 315(IB) of 1998-99).

Date of hearing: 1st May, 1999.

2000 P T D (Trib.) 1811

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Tauqir Afzal Malik, Judicial Member and Nazeer Ahmad

Saleemi, Accountant Member

I.T.A. No.2968/LB of 1999, decided on 16th February, 2000:

Income Tax Ordinance (XXXI of 1979)---

----Ss. 66-A & 62---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order ---Assessee was a partner of an "Association of Persons "---Assessment completed under S.62, Income Tax Ordinance, 1979 was cancelled by Inspecting Additional Commissioner under S.66-A, Income Tax Ordinance, 197.9 on the grounds that declared rental income was lower than the value declared- on wealth tax side; that rent deed, property tax receipts and accounts of association of persons was not -submitted; that decrease in capital, increase in share investment was not proved and information from Bank regarding imports made by the "Association of Persons" was riot obtained by Assessing Officer and rent was not verified from the tenants ---Assessee contended that objections raised were of administrative nature, therefore, there was no reason to cancel the assessment finalized under S.62, Income Tax Ordinance, 1979 after probing the case in depths; that property income proposed to be assessed was also lower than the one already assessed that an objection regarding accounts of Association of Persons, investment, import of an Association of Persons could be raised in case of assessment of "Association of Persons" and not in case of partner and that revising Authority had not pointed out any loss of revenue ---Validity--­Objections raised by the revising Authority had been successfully refuted by the assessee---Objections , raised by the Authority were of administrative nature and directly related to the quality of assessment order passed by the Assessing Officer---Revising Authority having failed to point out any prejudice to the interest of Revenue, the impugned action was unjustified which was set at naught---Order of the Inspecting Additional Commissioner was vacated and original assessment order framed under S.62 of the Income Tax Ordinance, 1979 was restored, by the Appellate Tribunal.

1997 PTD (Trib.) 902 and 1999 PTD (Trib.) 700 rel.

Sohail Mutee Babri, ITP and Nadeem Saeed, ITP for Appellant.

Shahid Zaheer, DR for Respondent.

Date of hearing: 11th February, 2000.

2000 P T D (Trib.) 1815

[Income-tax Appellate Tribunal Pakistan]

Before Karamat Hussain Niazi, Judicial Member and Muhammad Daud Tahir, Accountant Member

I.T. As. Nos.899/IB to 905/IB of 1998-99, decided on 29th December, 1999.

(a) Workers Welfare Fund Ordinance (XXXVI of 1971)---

----Ss. 2(f)(vi) & 4(4)---Income Tax Ordinance (XXXI of 1979), Preamble--­Industrial undertaking owned by Government Corporation--Workers Welfare Fund---Levy of ---Assessee a public limited company---Assessing Officer levied Workers' Welfare Fund after completion of assessment--­ Assessee contended that company was owned by. a Corporation which- was wholly owned by the Government, therefore, under S.2(t)(vi) of the Workers' Welfare Fund Ordinance, 1971; it was excluded from the purview of industrial undertaking and was, therefore, not liable to Workers' Welfare Fund under S.4 of the Workers' Welfare Fund Ordinance, 1971---Validity­ Word "owned" means the exclusive ownership or complete title to a thing exclusive of all others---Contention that the word "owned" was used in relation to having the majority of shares and, thus, having an administrative control over that concern, was not plausible as in such a case the Legislature should have not used the word "owned" but "partly owned"---Word "owned" therefore, was used to denote the exclusive ownership or complete title to the exclusion of all others ---Assessee Company was not wholly owned by a Corporation in circumstances and, therefore, same was not exempt from the levy of Workers' Welfare .Fund under the provisions of Income Tax Ordinance, 1979.

Black's Law Dictionary, p. 996 ref.

(b) Workers' Welfare Fund Ordinance (XXXVI of 1971)---

----S. 4(4)---Income Tax Ordinance (XXXI of 1979), Preamble---Levy of Workers' Welfare Fund---Limitation---Expression "as soon thereafter as may be" used in S.4(4) of Workers' Welfare Fund Ordinance, 1971--­Connotation---Assessee was a public limited company---Assessing Officer levied/charged Workers' Welfare Fund after lapes of more than 90 days from the date of assessment ---Assessee contended that orders levying workers welfare fund were made after the lapse of 90 days, therefore, the levy was illegal, being barred by time---Validity---Orders for levy of Workers' Welfare Fund were to be passed within 90 days after making the assessment orders---Levy of Workers' Welfare Fund having been made after the expiry of 90 days from the date of assessment same was time-barred and, thus, not sustainable in law.

1987 PTD (Trib.) 580; 1990 PTD (Trib.) 1014 and, 1997 PTD (Trib.) 3 rel.

Naeem Akhtar Sheikh, F.C.A. for Appellant.

Maqsood Khan, D.R. for Respondent.

Date of hearing: 23rd December, 1999.

2000 P T D (Trib.) 1821

[Income-tax Appellate Tribunal Pakistan]

Before Khalid Waheed Ahmed, Judicial Member and Muhammad Sharif Ch., Accountant Member

I.T.A. No.430/LB of 1999, decided on 31st May, 1999.

Income Tax Ordinance (XXXI of 1979)---

----Ss.66-A, 62 & 156---Powers of Inspecting Additional Commissioner to revise Deputy 'Commissioner's order ---Assessee was an "Association of Persons" which derived income from running a Hospital---Assessment was finalized under S.62, Income Tax Ordinance, 1979 accepting the declared receipts from "Departmental patients" and loss was assessed---Revising Authority cancelled the assessment on the ground that declared receipts were less than the actual receipts from the "Departmental patients" as per certificate submitted by the assessee---Assessee contended that difference in the total amount as per certificates and assessed was a calculation-mistake which was curable under S.156, Income Tax Ordinance, 1979 and in the presence of provisions of rectification, there was no justification to apply the provisions of S.66-A, Income Tax Ordinance, 1979 and further that there was no loss of revenue, if the amount found as "difference" in the total receipts was added to the final figure of loss assessed and, therefore, proceedings under S.66-A, Income Tax Ordinance, 1979 could not be initiated merely on the expectations of loss of revenue--Validity--­Assessment order was cancelled on finding out the discrepancy in the amount declared of account of receipts from various departments and in the total of certificates submitted by the assessee--Receipts from various companies declared by the assessee had been accepted being verifiable---Difference in the total of receipts declared by the assessee and adopted by the Assessing Officer was due to contributory negligence on the part of the Assessing Officer---Total receipts from companies were accepted by the Assessing Officer being verifiable, therefore, the action under S.66-A, Income Tax Ordinance, 1979 on the basis of difference in the total of amounts shown on the certificates did not appear to be justified---Revising Authority should have modified the assessment order instead of cancelling the whole assessment---Order of the. Revisionary Authority was modified by Appellate Tribunal with the direction that the assessment framed by the Assessing Officer be modified to adopt the total receipts as per certificate instead of declared/assessed receipts by the Assessing Officer.

1983 PTD 246 and 1992 SCMR 1898 rel.

Mian Ashiq Hussain, A.R. for Appellant.

Farooq Tahir, D.R. for Respondent.

Date of hearing: 1st May, 1999.

2000 P T D (Trib.) 1826

[Income-tax Appellate Tribunal Pakistan]

Before Karamat Hussain Niazi, Judicial Member and Muhammad Daud Tahir, Accountant Member

W.T.As. Nos. 132/113 to 136/IB of 1997-98, decided on 24th June, 1999.

Wealth Tax Act (XV of 1963)---

----Ss. 2(5)(ii) & 2(e)(ii)----Assets---Assessee was a private limited company, running a business of Flour Mills which was leased out---Wealth tax was charged on the Flour Mills, being !eased out, to the hands of assessee on the ground that mill was an asset in term of S.2(5)(ii) of the Wealth Tax Act, 1963 and was held for the purpose of letting out ---Assessee contended that i1 has only leased out the machinery and plant of the mill and the leased income-was being assessed under S.30 of the Income Tax Ordinance., 1979 and not under S.19 of the Income Tax Ordinance, 1979 and that leasing of the flour mill was a leasing out of the movable property alongwith the immovable property (building/land) and hence, it was outside the purview of S.2(5)(ii) of the Wealth Tax Act, 1963 and was, thus, not assessable assets under the Wealth Tax Act, 1963 that original purpose of the company was to itself run a flour mill and it had been doing it but after that due to abnormal circumstances the company had to lease out the flour mill, therefore, the property could not be assessed under the Wealth Tax Act, 1963 as it had not been held for the business of letting and that assessee, at any time, might occupy, the mill for purposes of its own business ---Assessee also objected that "paid-up capital" was a liability of the company as it was payable to its Directors, which was a debt owed and was deductible from the wealth of the assessee-company---Validity--- Machinery and the plant of the flour mill embedded in the earth or attached to it was so embedded for the permanent beneficial enjoyment of that to which it was attached, and was installed in the building for the purposes of flour mill, was an immovable property terms 'of S.2(5).(ii) of the Wealth Tax Act, 1963---Article and Memorandum of the assessee, clearly showed that one of the objects was to lease out or let out the flour mill, therefore, it was being held for the purpose of business 'of letting out---Thus, same was an asset in terms of S.2(5)(ii) of the Wealth Tax Act, 1963 and was chargeable to Wealth Tax Act, 1963---In case of winding up of a company its Directors/shareholders were entitled to receive their sum, which they had contributed towards the Capital, by sale of the assets- owned by the company---If there was no such asset or the assets were of lesser value the Directors could not enforce payment---"Paid-up capital", therefore, was not a debt and, thus, it was not allowable under the Wealth Tax Act, 1963--­Appeal of the assessee was dismissed by Appellate Tribunal in circumstances.

1981 PTD 217 rel.

Black's Law Dictionary, 8th Edn. ref.

Javed A. Qureshi for Appellant.

Muhammad Ali Shah, D.R. for Respondent.

Date of hearing: 10th June, 1999.

2000 P T D (Trib.) 2133

[Income-tax Appellate Tribunal Pakistan]

Before Mansoor Ahmad, Accountant Member, Khawaja Farooq Saeed and Syed

Masoodul Hassan, Judicial Members

W.T. As. Nos.411/LBW 412/LB, 624/LB of 1999, 404/LB of 1997-98, 622/LB, 623/LB, 921/LB, 920/LB, 1281/LB, 1282/LB of 1998, 912/LB, 913/LB, 248/LB, 249/LB and 585/LB of 1998-99, decided on 31st December, 1999.

(a) Interpretation of statutes---

----Exemption clause---Interpretation of---Exemption given by statutes could not be stretched so as to enlarge its scope but that requires strict application against the person who claims exemption---Person or property claiming exemption must come clearly within the language apparently granting the exemption.

I.T.A. No.256/KB of 1997-98; PLD 1988 SC 370 and 161 SC 134, 145 S.Ct. 456, 40 L Ed. 645 rel.

(b) Wealth Tax Act (XV of 1963)---

----Second Sched., cl. 12(2)---"Shop"---Exemption---Requirements.

The following are the requirements for exmption:

(a) It is to be for one shop.

(b) The shop must be owned and occupied by the assessee himself; and

(c) The purpose should be conducting own business therein.

(c) Wealth Tax Act (XV of 1963)---

----Second Sched., cl.12(2)---"Shop"---Definition---Shop is a place where goods are offered for sale---Place that comprises various rooms or various sections are not to be considered as a 'shop'.

Law Dictionary of Words and Phrases Judicially Defined by Dr. A.R. Biswas, p.604 distinguished.

The Concise Oxford Dictionary, 9th Edn., p.1281 ref.

Webster's New Dictionary, Second College Edn., p.1316 rel.

(d) Wealth tax---

---- Professional activities---Business activities---" Professional activities" -are covered under "business activities "---Any kind of commercial activity tele­scoped to professional ought to be understood as a "business".

(e) Wealth Tax Act (XV of 1963)---

----Second Sched., c1.12(2)---C.B.R. Circular No. 14(4)/Income-tax/W. Tax, dated 21-8-1979---Exemption---Shop---Claim of exemption of workshop, Shadi hall, hospital, school, property owned and occupied for professional requirements etc. by considering same to be a shop in its wider meanings--­Rejection .of such claim by department on the ground that word 'shop' as used in exemption c1.12(2) of Second Sched. of the Wealth Tax Act, 1963 should not be given wider meaning and, being exemption clause, the principle of strict interpretation should be adopted---Validity---' Shop' to be a part of establishment and an establishment includes a clinic, a hospital, a marriage hall, manufacturing shop, a factory where a mechanic peruses his trade, but none of them was covered by the word 'shop' as used in Wealth Tax Act, 1963---Word 'shop' means a place where goods or merchandise were kept for sale to consumers usually in small quantities on retail, and/or wholesale basis---Word used in cl.12(2) of Second Sched of the Wealth Tax Act, 1963 being 'one shop', if any of the activities claimed for exemption was done by the assessee. in two or more shops, he shall be entitled to the exemption of one only and Motor mechanic workshop, a factory, a departmental store; a doctor's clinic, a hospital, a marriage hall, cinema hall. a school or such other educational institutions were not a 'shop' within the meanings of c1.12(2) of the Second Sched. of the Wealth Tax Act, 1963.

Webster's New Dictionary, Second College Edn., p.1316; Heyden's case (1584) 3 Co. Rep. 70; Estates Ltd. v. Asher (1949) 2 KB 481 and PLD 1968 SC 154 rel.

1999 PTD (Trib.) 2283 and Law Dictionary of Words and Phrases Judicially Defined by Dr. A.R. Diswas, p.604 distinguished. .

I.T.A. No.256/KB of .1997-98; PLD 1988 SC 370;. (1997) 4 SC 203; PLD 1982 Lah. 318; AIR 1923 Lah. 209; Christopher Barker & Sons v. Commissioners of Inland Revenue (1919) 222 King's Bench Division; (1969) 74 ITR 94; Commissioner of Income-tax, Tamil Nadu-IV v. Dr.V.K. Ramachandran (1981) 128 ITR 727; (1981) 129 ITR 295; (1975) 32 Tax 273; 1988 PTD (Trib.) 6; 161 SC 134, 145 S.Ct. 45'6, 40 L.Ed. 645; Construction of Statutes by Earl T. Crawford, 1940; Beck v. Smith (1836) 2 MW 191; Abdul Majid Khan v. Chief Settlement and Rehabilitation Commissioner PLD 1968 SC 154; Divisional Superintendent, P.W.R. v. Bashir Ahmad PLD 1973 SC 589; Rab Nawaz v. Jahana PLD 1974 SC 210; Maxwell on Interpretation of Statutes, 12th Edn., p.40; 1992 SCMR 2351 and The Concise Oxford Dictionary, 9th Edn., p.1281 ref.

Dr. Ilyas Zafar and G. Abbas Chatha for Appellant (in W.T.As. No. 411/LB and 412/LB of 1999).

Shafqat Mehmood Chohan, L.A. and Imran Raza Kazmi, D.R. for Respondent (in W. T. As. No. 411/LB and 412/LB of 1999).

Shafqat Mehmood Chohan, L.A. arid Imran Raza Kazmi, D.R. for Appellant (in W.T.As. No.622/LB and 623/LB of 1998).

Siraj-ud-Din Khalid for Respondent (in W.T.As. Nos.622/LB and 623/LB of 1998). .

M. R. Farooqi, I.T.P. for Appellant (in W.T.A. No.921/LB of 1998).

Mst. Talat Altaf, D.R: for Respondent (in W.T.A. No.921/LB of 1998).

M. R. Farooqi, I.T.P. for Appellant (in W.T.A. No.920/LB of 1998):

Shafqat Mehmood Chohan, L.A. and Imran Raza Kazmi, D.R. for Respondent (in W.T.A. No.920/LB of 1998).

Habib Fakharud Din, F.C.A. for Appellant (in W.T.A. No.404/LB of 1997-98).

Shafqat Mehmood Chohan, L.A. and Imran Raza Kazmi, D.R. for Respondent (in W.T.A. No.404/LB of 1997-98).

Hafiz Muhammad Idrees for Appellant (in W.T.As. Nos.912 and 913/113 of 1998-99).

Shafqat Mehmood Chohan, L.A. and Imran Raza Kazmi, D.R. for Respondent (in W.T.As. Nos.912/LB and 913/LB of 1998-99).

M. Aslam Anwar for Appellant (in W.T.As. Nos.248/LB and 249/LB of 1998-99):

Shafqat Mehmood Chohan., L.A. and Imran Raza Kazmi, D.R. for Respondent (in W.T.As. Nos.248/LB and 249/LB of 1998-99).

Muhammad Nazir Shad and Shahid Abbas for Appellant (in W.T.A. No. 624/LB of 1999)

Shafqat Mehmood Chohan, L.A. and Imran Raza Kazmi, D. R. for Respondent (in W.T.A, No.624/LB of 1999).

Shafqat Mehmood Chohan, L.A. and Imran Raza Kazmi, D.R. for Appellant (in W.T.A. No.585/LB of 1998-99). .

Syed Nazar Hussain Bokhari for Respondent (in W.T.A.. No.585/LB of 1998-99).

Iftikhar Ahmed Khan for Appellant (in W.T.As. Nos:1281/LB and

Shafqat Mehmood Chohan, L.A. and Imran Raza Kazmi, D.R. for Respondent (in W.T.As. Nos. 1281/LB and 1282/LB of 1998).

Date of hearing: 8th June, 1999.

2000 P T D (Trib.) 2157

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Daud Khan, Accountant Member

I. T. A. No. 190/KB of 1997, decided on 2nd September, 1999.

Income Tax Ordinance (XXXI of 1979)---

----S. 66-A---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order ---Assessee showed opening stock as Rs.52,000 instead of Rs.5,20,000 through a clerical mistake while total of trading account could be arrived at only by adding Rs.5,20,000---Assessment was revised under S.66-A of the Income Tax Ordinance, 1979---Validity--­Section 66-A of the Income Tax Ordinance was meant for being invoked only in such cases in which some patently erroneous order was passed by the Assessing Officer which caused prejudice to the Revenue---Order under S.66-A should not be in the nature of tinkering or just on petty matters or without properly examining the substance of the matter---Order of Inspecting Additional Commissioner under S.66-A of the Income Tax Ordinance, 1979 was annulled by Appellate Tribunal in the circumstances.

Javed Iqbal, I.T.P. for Appellant.

Mehfooz-ur-Rehman Pasha, D.R. for Respondent.

Date of hearing: 2nd September, 1999.

2000 P T D (Trib.) 2162

[Income-tax Appellate Tribunal Pakistan]

Before S. M. Sibtain, Accountant Member and Tahseen Ahmed Bhatti, Judicial

Member

M.A. (RECT) 160/KB of 1999-2000 (Ref: I.T.O: No.1502/KB of 1998), decided on 16th December, 1999.

(a) Income Tax Ordinance (XXXI of 1979)---

----S. 156---Rectification of mistake---Application for rectification/recall of order recorded by Appellate Tribunal ---Assessee filed application for rectification/recall of order passed by Appellate Tribunal on the ground that Appellate Assistant Commissioner had recorded in- his order that "to elaborate his viewpoint the assessee also filed written arguments in this context that read as under but he did not reproduce the written submissions thereafter and the Appellate Tribunal erred in recording the observation to the effect that "we find on the facts and circumstances supra" ---Validity--­Assessee having quoted the Appellate Tribunal out of context, if First Appellate Authority had omitted to record any fact the error could have been committed by the same but not by the Appellate Tribunal---Application for rectification was dismissed, in circumstances.

(b) Income Tax Ordinance (XXXI of 1979)---

---S. 156---Rectification of mistake---Application for rectification/recall of order of Appellate Tribunal on the ground that Appellate Tribunal committed error by observing that "Assessing Officer had dismissed the explanation on the ground that assessee had shown purchases of Rs.14,000,000 in the trade account" whereas purchases in trading account were actually shown as Rs.12,400,000---Validity---Admittedly the figure recorded in the impugned orders was Rs.14,000,000 and the assessee had made no attempt to get the same rectified in the assessment order nor it was brought to the notice of the Appellate Tribunal at the time of hearing---Application for rectification was dismissed in circumstances.

(c) Income Tax Ordinance (XXXI of 1979)---

----S. 156---Rectification of mistake---Plea not taken in respect of an issue by the assessee before Appellate Tribunal, could not be rectified.

Abdul Tahir Ansari, I.T.P. for Appellant.

Muhammad Umer Farooque, D.R. for Respondent.

Date of hearing: 16th December, 1999.

2000 P T D (Trib.) 2171

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Mujibullah Siddiqui, Chairman and Muhammad Mahboob

Alam, Accountant Member

I.T. As: Nos. 1416/KB and 1417/KB of 1999-2000, decided on 1st March, 2000.

Income Tax Ordinance (XXXI of 1979)---

----Ss. 156, 86, 88, 59(1), 50(7C), 80-D, 52 & 52A---Rectification of mistake---Self-Assessment Scheme---Additional tax---Deduction of tax at source---Liability of persons failing to deduct or pay tax ---Assessee's return was accepted under Self-Assessment Scheme---Assessment was rectified under S.156 of, the Income Tax Ordinance, 1979 and tax was levied under S.50(7C) of the Ordinance at the rate of 7.5 % on the amount earned by winning prize bond with additional tax under S.88, Income Tax Ordinance, 1979---Assessee contended that tax was deductible by the Authority from the payment and such payment/income was covered under presumptive tax regime under S.80-D of the Income Tax Ordinance, 1979 which had nothing to do with the Return filed under Self-Assessment Scheme that Assessing Officer could initiate proceedings under Ss.52 & 52A as well as under S.86 of the Income Tax Ordinance, 1979 and that the price won by assessee was not liable to deduction to tax under S.50(7C) of the Income Tax Ordinance, 1979 because no prize individually was in excess of Rs.25,000---Validity--­Assessing Officer had incorrectly invoked jurisdiction under S.156 of the Income Tax Ordinance, 1979 and he had to take recourse to the provisions contained in Ss.52 & 52A of the Income Tax Ordinance, 1979---Both orders under Ss.56 & 88 were without jurisdiction which were annulled by Appellate Tribunal with the observation that Assessing Officer might initiate proceedings under Ss.52 & 52A of the Ordinance if so advised and warranted in law.

A.S. Jafry for Appellant.

Zaki Ahmad, D.R. for Respondent.

Date of hearing: 1st March, 2000.

2000 P T D (Trib.) 2188

[Income-tax Appellate Tribunal Pakistan]

Before Mahmood Ahmed Malik, Accountant Member and Khawaja Farooq Saeed, Judicial Member

I.T.As. Nos.423/LB of 1993 and 2115/LB of 1992-93, decided on 13th December, 1999.

Income Tax Ordinance (XXXI of 1979)---

----Ss.19 & 156---Income from house property---Rectification of mistake--­Assessee was a co-owner of property let out to a company of which he was a Director---Company (the tenant) sublet the property to other tenants on much higher rent than what was being paid to the assessee---Assessee declared its share from rent received from the company which was far less than the rent received by the company from the sub-lettees---Assessing Officer considered the position as collusive arrangement between the assessee and the company and assessee’s income from property was charged to tax on notional basis on account of the rent received by the company from the sub-lettees rather than actual rent received by the assessee from the company---Company's assessment had also been made separately against which application under S.156 of the Income Tax Ordinance, 1979 was pending asserting that assessment may be cancelled in the case of company because the income from property had been assessed in the hand of individual owner ---Validity--­Provisions of S.19(2) of the Income Tax Ordinance, 1979 provide that it was not always the rent actually received, but the sum for which property reasonably be expected to be let from year to year was liable to tax--­Property had admittedly been let out on a higher rent by the lessee, which was a limited company and owners of the property being the Directors of said company Assessing Officer was justified in making assessment of income from property on the basis of rent received by the lessee/company--­Annual value being relatable to the building owned by assessee, value assessable shall comprise of the amount which even a sub-lessee or sub­tenant pays for its occupation---Assessment was confirmed by Appellate Tribunal in circumstances.

M. Rehman, Income-tax Officer and others v. Narayangang Company (Pvt.) Ltd. (1971) 23 Tax 223; (1978) 113 ITR 136; 1992 PTD (Trib.) 161 and 1989 PTD (Trib.) 859 distinguished.

1996 PTD (Trib.) 122 and I.T.As. Nos. 933 to 937/LB of 1991-92 ref.

S. A. Khan for Appellant. .

Sh. Muhammad Hanif, D.R. for Respondent.

Date of hearing: 25th November, 1999.

2000 P T D (Trib.) 2193

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Mujibullah Siddiqui, Chairman, Syed Masood ul Hassan Shah, Judicial Member and Muhammad Daud Tahir, Accountant Member

M.A. (R) 82 (IB) in I.T.A. No. 201/113 and M. A. (R) No. 50(IB) of 1999-2000, decided on 7th Match, 2000.

Income Tax Ordinance (XXXI of 1979)---

----Ss. 156, 65, 62, 86, 88, 80C, 143-B, 50(4), 52 & 52A---Rectification of mistake---Additional assessment---Deduction of tax at source---Failure of--­Liability of persons failing to deduct or pay tax---Recovery from the person 'from whom tax was not deducted or collected ---Assessee, a contractor filer: statement under S.143-B of the Income Tax Ordinance 1979 wherein are amount of Rs.23.00.000 received on account of construction work was declared to the statement ---Assessing Officer reopened the assessment un&° S.65 of the Income Tax Ordinance, 1979 and created a demand and charge.: additional tax under S.88 of the Income Tax Ordinance, 1979 on the ground that the provisions of the Income Tax Ordinance, 1979, with reference to proviso to S.50(4) of the Income Tax Ordinance, 1979, were applicable where tax had not been deducted or collected under S. 50(4) of the Income Tax Ordinance, 1979 and found that provisions of S.65 were also applicable ---Assessee assailed the jurisdiction of Assessing Officer in respect of reopening of assessment under S.65 of the Income Tax Ordinance, 1979 pertaining to the income covered under presumptive tax regime---First Appellate Authority and Appellate Tribunal repelled the objection of the assessee---Validity---Held, there was a mechanism contained in the scheme of presumptive tax regime and if any deemed income under ,presumptive tax regime escaped deduction of tax, the revenue could be retrieved by recourse to the provisions contained in Ss.52 & 86 of the Income Tax Ordinance, 1979 and now by recourse to the provisions contained in S.52A inserted by Finance Act,. 1999 which was retrospective in effect being procedural in nature---Section 65 caters the requirements of normal tax regime where total income was assessed/determined after filing of returns while under the presumptive tax regime neither return of Income vas required to be filed nor any total income was assessed/determined---Non-compliance of requirement of law pertaining to presumptive tax regime shall not have the effect of taking the case to the normal tax regime---Once it was found that any transaction was covered under the presumptive tax regime then all subsequent actions were to be taken pertaining to the presumptive tax regime and no provisions relating to the normal tax regime shall be attracted until and unless provided for to be otherwise in the Income Tax Ordinance, 1979--­Section 52 of the Income Tax Ordinance, 1979 provides that where any person fails to deduct or collect or having deducted or collected, failed to pay the tax, he shall be deemed to be an assessee in default in respect of such tax and all the provisions relating to recovery of tax from the assessee shall be applicable---Section 52A specifically provided that if tax had not been deducted or collected all the provisions of Income Tax Ordinance, 1979 relating to recover; of tax shall play.. Finding of Appellate Tribunal to the effect that if the tax was not deducted or collected in respect of a deemed income under S.80C of the Income Tax Ordinance, 1979, Assessing Officer could resort to the provisions contained in S.65 of the Income Tax Ordinance, 1979 was mistake of law apparent on record were recalled and it was held that the alleged receipts in the hands of the assessee were admittedly covered under the presumptive tax regime, therefore, the Assessing officer had no jurisdiction to reopen the assessment under S.65 of the Income Tax Ordinance, 1979 and call upon the assesses to file return of income in clear contravention and violation of the provisions contained in S.80-C of the Income Tax Ordinance, 1979---Assessing Officer had no jurisdiction to issue notice under S.65 of the Income Tax Ordinance, 1979 which was illegal and of no legal effect---Entire proceedings in pursuance of notice under S.65 were without jurisdiction, illegal and void---Application under S.156 of the Income Tax Ordinance, 1979 for rectification of mistake and appeal were allowed in circumstances.

1997 PTD (Trib.) 1143; 1998 PTD 121; I.T.A. No.473/KB of 1999-2000 I. T. A. No.1416/1417/KB of 1999-2000 and Messrs Elahi Cotton Mills Limited's case PLD 1997 SC 582 ref.

Bashir Ahmed for Applicant.

Abdul Wadood, D. R. for Respondent.

Date of hearing: 7th March, 2000.

2000 P T D (Trib.) 2401

[Income-tax Appellate Tribunal Pakistan]

Before Karamat Hussain Niazi, Judicial Member and Muhammad Daud Tahir, Accountant Member

I.T. As. Nos.838/IB to 841/IB of 1998-99, decided on 1st June, 1999.

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss. 14 & 2(16) & Second Sched., Part I, cls.62, 62A---SRO No.240(KE)/90, dated 7-10-1990---SRO No.1042(1)/83, dated 3-11-1983--­Finance Act (VII of 1992)---Charitable Endowment Act, (VI of 1890)--­Exemption---Assessment years 1991-92, 1992-93, 1994-95 and 1995-96--­Assesssee was a charitable trust/a company as defined in S.2(16) of the Income Tax Ordinance, 1979 and earning income from donations, voluntary contribution, investment in securities of Federal Government and from business of printing and manufacturing of steel and wooden furniture and stitching of garments---Trust was set up for the welfare of ex-employees. and serving personnel of Federal Government and their dependents under the scheme approved by the Federal Government---Income declared by the assessee was claimed to be exempt under c1.62A of Part I of the Second Sched. to the Income Tax Ordinance, 1979---Assessing Officer rejected the claim of the assessee and assessments were finalized by accepting the declared sales, G.P rate and making certain disallowances out of various heads of profit and loss account---First Appellate Authority found that business income of the assessee was not exempt under cl.62A of Part I of the Second Sched. of the Income Tax Ordinance, 1979 and certain relief in the add backs were granted---Validity---Business income of charitable trust established in accordance with the requirement of c1.62A was brought to tax net w.e.f. 1-7-1983 but proviso inserted by Finance Ordinance, 1983 was omitted through SRO No.1042 (1)/83, dated 3-11-1983 and up till 30-6­1992 c1.62A remained unamended and as a result, the income including the business income of a trust/assessee remained outside the purview of levy of tax under the Income Tax Ordinance, 1979---Income of the assessee's Trust, therefore, was not taxable for the assessment year 1991-92---Exemption was taken away through an amendment in c1.62A brought by the Finance, Act, 1992, therefore, the business income for the assessment year 1992-93 was not exempt from the levy of tax under c1.62A of Part I of the Second Sched. of the Income Tax Ordinance, 1979---Word "expend" used in cl.62, substituted by cl.62A through Finance Act, 1992, referred to actual, expenditure and so much of the business income as was actually expended on welfare projects was exempt under cl.62 of Part-I of the Second Sched. of the Income Tax Ordinance, 1979---Appellate Tribunal modified the order of First Appellate Authority by directing that so much of the income from business as had been actually expended on the welfare activities, being exempt shall be deleted from the assessments made for the assessment years 1992-93, 1994-95 and 1995-96.

1992 SCMR 1652 ref.

(b) Income Tax Ordinance (XXXI of 1979)---

----Second Sched. Part I, cl.62---Exemption--Words "so much of the income"---Meanings---Words used in cI.62 of Part I of the Second Sched. of the Income Tax Ordinance, 1979 were very important and meant that only the amount from the income earned by the Trust from business which had been actually spent on the welfare activities was exempt from the levy of tax and not the amount which had not been actually spent on such projects.

Syed Ali Imran for Appellant.

Muhammad Ali Shah; D.R. for Respondent.

Date of hearing: 4th May, 1999.

2000 P T D (Trib.) 2424

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Mahboob Alam, Accountant Member and Tahseen Ahmed

Bhatti, Judicial Member

W.T.As. Nos. 408/KB to 410/KB of 1998-99, decided. on 17th November, 1999.

Wealth Tax Act (XV of 1963)---

----S. 17---Wealth escaping assessment--- assessee excluded, some properties from his wealth tax return being benami owner claiming that funds were provided by the son of the assessee for purchase of said properties—Properties were declared in the wealth tax return of the assessee's son which were assessed in the hands of the assessee's son by the Department--­Assessing Officer re-opened the case of the assessee under S.17, Wealth Tax Act, 1963 and included the said properties in the net wealth of the assessee--­ First Appellate Authority confirmed the treatment of the Assessing Officer--­ Validity---Claim of the assessee that assets had already been taxed in the hands of the son had not been disputed by the Department in respect of any of the assessment years involved---Claim of the assessee that these assets wire purchased out of funds provided by the 'son had also not been subjected to any verification by the Assessing Officer, in other words the claim of the assessee that he was not the real owner of the properties and was just a benami holder had not been rebutted by the Assessing Officer. with any evidence brought on record and the claim of the assessee about being a just benami holder of these assets remained uncontroverted---Assessments of these assets in the hands of the son having been completed and not annulled before their subsequent inclusion in the wealth of the father/assessee did not make the re-,assessment maintainable and were accordingly vacated by the Appellate Tribunal.

(1971) 23 Tax 223 (SC) ref.

Jawed Zakaria and Jan-e-Alam for Appellant.

Muhammad Umer Farooq, D.R. for Respondent

Date of hearing: 22nd July, 1999

2000 P T D (Trib.) 2433

[Income-tax Appellate Tribunal Pakistan]

Before Mansoor Ahmad, Accountant Member and Karamat Hussain Niazi, Judicial Member

W.T.As. Nos.816/IB of 1998-99 and 175/113 of 1999-2000, decided on 15th November, 1999.

Wealth Tax Act (XV of 1963)---

----Ss. 16, 14C, 14B, 14(1)(d), 13A & 13D---Assessment---Tax on ownership of certain immovable assets---Collection of tax at source in case of rented property---Advance payment of tax---Assessing Officer determined value of the house on the basis of Gross Annual Letting Value and included the value While computing the net wealth of the assessee---Tax liability or the net wealth so determined was calculated at the normal rates--- Assessing Officer also determined the tax under S. 14C ,in the Wealth Tax Act, 1963 in respect of the house and added same to the tax liability in respect of net wealth ---Assessee contended that assets referred to in S.14(1)(d) of the Wealth Tax Act, 1963 constituted a separate block of assets to be taxed under the provision of S.14C of the Wealth Tax Act, 1963---First Appellate Authority directed that house in question be excluded front net wealth arid be treated as a separate block of asset for levy of tax under relevant provision of law---Validity---Assets referred to in S.14(1)(d) did not constitute a separate block, of assets for wealth tax Purposes--- Section 14C(1) simply provided that a person who owned an immovable asset referred to in S.14(1)(d) shall pay wealth tax at the rates specified in paragraph B of Part II of the First Sched. of Wealth Tax Act, 1963 and there was nothing in S. 14C to suggest that tax paid under the said section was the final discharge of tax liability in respect of the assets---Section 14C(2) read with S.13D(2) of the Wealth Tax Act 1963 indicated that tax under S. 14C was in the nature of advance tax---Tax under S. 14C, therefore, could only be construed as advance tax and not as final tax liability in respect of assets referred to in S.14(1)(d)---Tax under S. 14C having been found to be advance tax, it could, not be reckoned in calculation of final -tax liability on "net wealth "----"Final tax liability" referred to tax liability on the basis of nit wealth comprising of taxable assets including the assets referred to in S.14(I)(d) of the Wealth Tax Act, 1963--­Section 14C(2) provides that where final tax liability exceeded the amount of tax paid under Ss.13A & 13D of the wealth Tax Act, 1963, such amount; was adjustable against, final tax liability---Tax paid under S. 14C would also be adjustable even in a case where final tax liability in respect of net wealth was less than the amount of tax paid under S. 14C of Wealth Tax Apt, 1963-­Assessing Officer, therefore, rightly included the value of the house in the net wealth of the assessee---Assessing Officer could not however, add the tax under S. 14C inrespect of the house, to tax liability determined on the net wealth---If the assessee paid tax under S.14C in accordance with the provisions of S.13D(2)', she has entitled to adjustment of the said tax against the tax liability determined on net wealth---Orders of 'the Authorities below were vacated and Assessing officer was directed to re-compute the tax liability in the light of order of the Appellate Tribunal.

Nadir Mumtaz Warraich, D.R. for Appellant.

Oliver Peter Pervez, FCA for Respondent.

Date of hearing: 14th October, 1999.

2000 P T D (Trib.) 2437

[Income-tax Appellate Tribunal Pakistan]

Before Jameel Ahmed Bhutto, Accountant Member and Syed Masood-ul-Hassan

Shah, Judicial Member

I.T.A. No. 1145/IB of 1995-96, decided on 21st January, 2000.

(a) Workers Welfare Fund Ordinance (XXXVI of 1971)---

----S. 2(f)---Income Tax Ordinance (XXXI of 1979), Preamble---Industrial establishment ---Assessee was engaged in fabrication of bus/truck bodies---Workers Welfare Fund levied by the Assessing Officer was deleted by the First Appellate Authority on the ground that assessee did not fall within the definition of "industrial establishment" as the making of bus bodies mainly involved labour and the use of electrical, mechanical or any other form of energy was minimal---Validity---Workers Welfare Fund Ordinance, 1971 and the definition of "industrial establishment" contained therein covered every factory, workshop or other establishment in which articles were produced, adapted or manufactured with the aid of electrical, mechanical, thermal nuclear or any other form of energy transmitted mechanically---Said definition, however, excluded only that form of energy which was generated by human or animal agency and all other forms of energy transmitted mechanically were included in the said definition for the purpose of treating any concern as an industrial establishment---Question of determining the extent of such energy or stating that manual labour was mainly involved in the making of bus bodies was not relevant for that purpose---Whether such industrial establishment was big or small or the use of human energy was greater than the other forms of energy was also not a relevant factor for correct interpretation of the term "industrial establishment"-- -Once it was admitted that the assessee was manufacturing bus/truck bodies with the aid of electrical and mechanical energy along-with human labour, there was no reason to hold that the assessee did not fall within the definition of "industrial establishment" ---Deletion of Workers Welfare Fund was, therefore, not justified in circumstances.

(b) Income Tax Ordinance (XXXI of 1979)----

----Ss. 88 & 54---Additional tax for failure to pay tax with the return--­Assessee filed return declaring loss--Return was revised during the course of assessment proceedings declaring an income which was accepted by the Department but additional tax was charged in the assessment order on the ground that tax under S.54 of the Income Tax Ordinance, 1979 was not paid correctly as .the assessee had accepted the rejection of declared version filed originally ---Assessee challenged the order on the ground that no separate order was passed and an opportunity of being heard was also not provided--­First Appellate Authority set aside the order under S.88 of the Income Tax Ordinance, 1979 with the direction to issue a proper notice of hearing and then to decide the case on merits---Validity---No tax was payable under S.54 of the Income Tax Ordinance, 1979 when the return of loss was filed and was only after an agreement was reached with the assessee that revised return was filed and the tax due on that basis was paid---Additional Tax under S.88 was not chargeable in such a situation and apparently, there was no failure to pay tax under S.54 of the Income Tax Ordinance, 1979---Record did not make it clear that the assessee had agreed to pay any additional tax under S.88 on the basis of revised return, even if it were so, such an agreement against the provisions of law was not enforceable---Direction given m the impugned order for proper notice of hearing and decision of the case on merits was not interfered with by the Appellate Tribunal.

Nadir Mumtaz, D.R. for Appellant.

Nasir Ahmed Sahi, I.T.P. for Respondent.

Date of hearing: 19th January, 2000.

2000 P T D (Trib.), 2531

[Income-tax Appellate Tribunal Pakistan]

Before Rasheed Ahmed Sheikh, Judicial Member and Mrs. Safia Chaudhry, Accountant Member

I.T.A. No.3728/LB of 1995, decided on 20th April, 2000.

(a) Income Tax Ordinance (XXXI of 1979)---

----S. 65---Definite information---Concept---Definite information does not allow inclusion of any, estimate, gossip or surmises.

1997 PTD 47;1997 PTD (Trib.) 1097; 1997 PTD (Trib.) 1994 and 1993 PTD (Trib.) 16.81 rel.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss. 65(1), 13(1)(d) & 59(1)---Additional assessment---Addition---Definite information---Assessment completed under Self-Assessment Scheme was re­opened under S.65 of the Income Tax Ordinance, 1979 and addition was made under S.13(1)(d) of the Income Tax Ordinance, 1979 by adopting the value of the property estimated by Department in his report, rejecting the value shown in registered sale-deed---Validity---Information used by Assessing Officer for re-opening of assessment could not be said to be "definite information" which was a pre-condition for proceedings under S.65 of the Income Tax Ordinance, 1979 because the report of Inspector was required to be further probed---Assessing Officer neither called the seller of the property to. find out factual position of the transaction nor any corroborative evidence was adduced to justify his action of re-opening of the assessment---Such re-assessment was declared without lawful jurisdiction, void ab initio, illegal and was cancelled by Appellate Tribunal`--Assessment made under S.59(I) of the Income Tax Ordinance, 1979 was restored.

1997 PTD 47; 1997 PTD (Trib.) 1097; 1997 PTD (Trib.) 1994; 1993 PTD (Trib.) 1681; 1998 PTD (Trib.) 973 and 1985 PTD (Trib:) 178 ref.

1993 PTD (Trib.) 1681 and 1997 PTD (Trib.) 1994 rel.

(c) Income Tax Ordinance (XXXI of 1979)---

----S. 65---Definite information---Further trial or authenticity---Information which was being put to further trial or the authenticity whereof had yet to be determined that piece of information did not fall within the parameters of "definite information."

(d) Income Tax Ordinance (XXXI of 1979)---

----S. 65---Notice---Non-ticking of relevant clause on the notice ---Effect--­Discarding of registered sale deed without any evidence as well as non­-ticking of relevant clause in notice under S.65(1) of the Income Tax Ordinance, 1979, render the assessment illegal.

1997 PTD (Trib.) 1994 rel.

(e) Income Tax Ordinance (XXXI of 1979)---

----S. 65(1)---Notice---Non-ticking of relevant clause on the notice--­Conclusion/presumption ---Non-ticking of, relevant clause enumerated in notice issued under S.65(1) of the Income Tax Ordinance, 1979 lead to the conclusion that the Assessing Officer was not definite m his mind as to which one clause of the notice wasattracted to the facts of the case

Shahid Abbas for Appellant.

Muhammad Asif, D.R. for Respondent.

Date of hearing: 8th April, 2000.

2000 P T D (Trib.) 2664

[Income-tax Appellate Tribunal Pakistan]

Before Mahmood Ahmad Malik, Accountant Member and Khawaja Farooq Saeed, Judicial Member

I. T. As. Nos. 2728/LB to 2732/LB, 2803/LB to 2807/LB of 1999, decided on 7th March, 2000.

Income Tax Ordinance (XXXI of 1979)---

----Ss. 52 R 50(4)---Deduction of tax at source---Liability of persons failing to deduct or pay tax---Unidentified recipient ---Responsibility of payer in respect of such recipient---Tax was the responsibility of the recipient which could not be shifted to the payer who was not receiving but was parting with money unless it could be shown that the payer of amount failed to deduct tax from a particular payment to a specified person---Whole of the tax burden will be shifted to the payer unless those persons were specified--­Section 50(8)(b) of the Income Tax Ordinance, 1979 provides that the sum deducted shall be treated as payment of tax on behalf of the assessee---Unless the assessee was identified the provision of S.50(8)(b) of the Income Tax Ordinance, 1979 will become vague, inoperative and redundant.

Mian Muhammad Tahir for Appellant (in I. T. As. Nos. 2728/LB to 2732/LB of 1999).

Sh. Muhammad Hanif, D.R. for Respondent (in ITAs.Nos.2728/LB. to 2732/LB of 1999).

Sh. Muhammad Hanif, D.R. for Appellant (in I. T. As. Nos. 2803/LB to 2807/LB of 1999).

Mian Muhammad Tahir for Respondent (in I. T. As. 2803/LB to 2807/1-13 of 1999).

Date of hearing: 25th February, 2000.

2000 P T D (Trib.) 2668

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Mujibullah Siddiqui, Chairman and Muhammad Mahboob

Alam, Accountant Member

I. T. A. No. 126/KB of 1999-2000, decided on 11th April, 2000-

(a) Income Tax Ordinance (XXXI of 1979)---

----S.23---Deductions---Penalties and fines---Financial charges/interest/ mark-up---Admissibility---Principles.

(b) Income Tax Ordinance (XXXI of 1979)---

--S. 23(vii)---Foreign Exchange Regulation Act (VII of 1947), S.20(3)--­Admissible deduction---Interest/mark-up---Penalties and fines ---Assessee was a public limited company deriving income from refining crude oil into various petroleum products ---Assessee paid additional amount to State Bank of Pakistan for delayed deposit of counter part rupee fund and claimed as an expense under the head "financial charges'; Assessing Officer disallowed such expenses treating them as penalty levied by the State Bank of Pakistan--­Validity---Payment of excess amount was automatic and was charged by mere calculation and issuance of a calculation sheet and State Bank had not resorted to the provisions contained in the Foreign Exchange Regulation Act, 1947 for imposition of civil or criminal penalty---Excess amount charged was not in the nature of any fine or in consequence of penalty order by any Competent Authority in exercise of discretion vested in the Authority---No infringement of any statute law had been made---Excess payment was wholly and exclusively for business consideration and neither these payments were in the nature of penalty nor fine---Excess payment having been incurred for business consideration, was an admissible expenditure under S.23 of the Income Tax Ordinance, 1979---Addition made was deleted by the Appellate Tribunal.

Atherton v. British Insulated and another (1926) 10 Tax Cas. 155; Commissioner of Income-tax, Cos. II v. General Tyre and Rubber Company of Pakistan Limited 1993 PTD 383; Radio Picture Limited v. Commissioner of Inland Revenue 22 Tax Cas. 106; CIT v. Messrs Alpha Insurance Co. Limited PLD 1981 SC 293; Beecham Pakistan Ltd. v. 1995 PTD 577; CIT, Jagannath Kissonlal (1961) 41 ITR 360; Triveni Engineering Works Limited v. CIT, Delhi (1993) 144 ITR 732; Govind Choudhry & Sons v. CIT (1971) 79 ITR 493; 123 ITR 429 and CIT v. Naintial Bank Ltd. 55 ITR 707; Maddi V. & Co. (Pvt.) Ltd. v. CIT (1988) 229 ITR 534; (1983) 144 ITR 373; ACIT v. Rustam Jehangir Vakil Mills Limited (1976) 103 ITR 298; (1979) 120 ITR 321; Nanhoomal Jyoti Prasad v. CIT (1981) 123 ITR 269; (1960) 2 Tax 389; Mahalakshmi Sugar Mills Co. v. CIT (1980) 123 ITR 429 (SC); (1972) 85 ITR 320 and CIT, Karnataka v. Mandya National Paper Mills timited (1984) 150 ITR 27 ref.

CIT v. Premier Bank Limited 1999 PTD 3005 distinguished.

Shabbar Zaidi, F.C.A. for Appellant.

Muhammad Farid and Anisul Hasnain Mausvi, D.R. for Respondents.

Date of hearing: 29th March, 2000.

2000 P T D (Trib.) 2853

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Mujibullah Siddiqui, Chairman, Muhammad Daud Khan and Shahid Jamal, Accountant Members

I.T.A. No.26/KB of 1999-2000, decided on 27th September, 1999.

Per Muhammad Mujibullah Siddiqui, Chairman and Shahid Jamal, Accountant Members---[Majority view]---

(a) Interpretation of statutes---

---- Fiscal statute---Scope---Any tax burden can be imposed by the Legislatures by a clear and explicit provision of law, though the same may not always be based on good logic or reason, and to which no exception could be taken.

(b) Interpretation of statutes---

---- Statute should be construed, rather than interpreted with due regard to its avowed object and to its character.

(c) Income Tax Ordinance (XXXI of 1979)---

----Second Sched.---Interpretation---Provisions contained in Second Sched to the Income Tax Ordinance, 1979 were for the benefit of assessee and could never be strained to the determent or disadvantage of assessee.

(d) Income Tax Ordinance (XXXI of 1979)---

----Second Sched., Part IV, Cl.(9B)---Clause (9B) of Part IV of the Second Sched. was in the nature of concession rather that of imposition, charge or additional burden on the taxpayer---Second Sched. was an exemption from total income and all the four Parts of the Second Sched. were intended to give relief to the taxpayer, in various forms, from the normal taxing provisions; classified as exemption from total income; reduction in tax rate reduction in tax liability; and exemption from specific provisions--­Clause (9B), Part IV of the Second Sched. of the Income Tax Ordinance, 1979 should be interpreted as concessionary and not charging or over­bearing---Purpose of enactment was to provide relief to importer-cum­-supplier from the operation of S.50(4) of the Income Tax Ordinance, 1979, against double and enhanced deduction and bring same to a level more or less close to the tax paid at import stage.

(e) Income Tax Ordinance (XXXI of 1979)---

----Ss. 80C(2)(i)&(ii), 50(4)&(5) & Second Sched., Part IV, cl. (9B)--­C.B.R. Circular No.10 of 1996, dated 16-7-1996- -Tax on income of contractors and importers----Imports and supplies ----Deductions---Assessee was- a public limited company and engaged in manufacturing and sale of Man-made Fibre Yam ---Assessee imported raw material for manmade fibre for trading purpose also ---Assessee filed normal tax return under S.55 of the Income Tax Ordinance, 1979---Assessing Officer charged tax on such import, being an import in the nature of commercial item to the extent of trading, under S.50(5) and also on supply of such goods under S.50(4) read with S.80C of the Income Tax Ordinance, 1979 on the ground that assessee did not file any option under cl. (9B) of Part IV of the Second Sched. of the Income Tax Ordinance, 1979 to opt out of presumptive tax regime---First Appellate Authority deleted the charge of tax on supplies on the plea that once tax on import stage was paid, the tax liability stood finally discharged---Department contended that as the assessee had not filed irrevocable option for normal law assessment with the return of total income, the was liable to pay both the taxes under S.50(4)&(5) of the Income Tax Ordinance, 1979---Validity---Clause (9B) of Part IV of the Second Sched. to the Income Tax Ordinance, 1979 was tot operative with the result 'that the assessee was entitled to be governed according to law contained in S.80-C of the Income Tax Ordinance, 1979---Once an assessee had paid tax at import stage, he acquired a right, as per scheme of presumptive taxation, and not to be bothered with any other charge under the Income Tax Ordinance--­Assessee had chosen to remain within the presumptive fold and protection, by not opting, out, the. right could not be taken away or violated---Once the assessee was finally discharged of his tax liability under S.50(5) read with S.80-C of the Income Tax Ordinance, 1979, he could not be charged again on supply of same goods second time under S.50(4) read with S.80-C of the Income Tax Ordinance, 1979---Relief allowed by the First Appellate Authority was upheld by the Appellate Tribunal and appeal of the department was dismissed.

1997 PTD (Trib.) 1143 rel.

1999 PTD (Trib.) 2949; CIT, East Pakistan v. Hussain Qasim Dada PLD 1961 SC 375; Messrs Friend Sons v. Deputy Collector, Central Excise and Sales Tax PLD 1989 Lah. 337; (1961) 4 Tax 96; Dreamland Cinema v. CIT PLD 1977 Lah. 292; CIT v. Muhammad Kassim 2000 PTD 280; I.T.A. No.282/KB of 1999-2000; I.T.A. No.1917/KB of 1988-89; 1997 PTD (Trib.) 879 and I.T.As. Nos.42 and 43/KB of 1999-2000 ref.

Zaki Ahmed, D.R. for Appellant.

Tayyab G. Adeeb, F.C.A. and Javed Zakaria for Respondent.

Date of hearing: 23rd September, 1999.

2000 P T D (Trib.) 2883

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Mujibullah Siddiqui Chairman Muhammad Mahboob Alam

and Muhammad Daud Khan, Accountant Members

I.T.A. No 1794/KB of 1999-2000, decided on 13th May, 2000.

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss.52, 50, 52A & 86---Liability of persons failing to deduct or pay tax--­Additional tax---Jurisdiction---Nature of proceedings---Orders under S.52/86 of the Income Tax Ordinance. 1970 was not rectificatory in nature--­Rectification could be made in the order by an officer who had made original order or his successor in office could rectify the mistake---No other officer had any jurisdiction to rectify the mistake---Assessment in respect of a tax­payer shall be made by an officer having jurisdiction over such assessee while in the case of default in deduction or collection of tax, the Assessing Officer having jurisdiction over the case of assessee in default could initiate action by virtue of Explanation to S.52 of the Income Tax Ordinance, 1979 and Assessing Officer having jurisdiction over the case of person from whom tax was deductible or collectable may also recover the sum deducted or collected from the person from whom tax was to be deducted or collected--­Proceedings under Ss.52 & 86 of the Ordinance were totally independent in nature and were neither a , part of any other proceedings nor they were subservient to any other proceedings under the Income Tax Ordinance, 1979---While passing order under S.52, the Assessing Officer was required to examine whether the tax liability stood discharged either on account of offering the amount under consideration for tax or on account of recovery of tax not deducted under S.50 by initiation of proceedings under S.52A of the Income Tax Ordinance, 1979---Once the tax had been deducted or collected from one person it could not be deducted or collected from another person.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss.52, 86 & 50---Liability of persons failing to deduct or pay tax--­Additional tax---Jurisdiction---Explanation to S.52 of Income Tax Ordinance, 1979 by the Finance Act, 1999---Effect---Assessee failed to deduct tax under S.50 of the Income Tax Ordinance, 1979---Assessing Officer created demand under S.52 of the Ordinance, and also levied additional tax under S.87 of the Income Tax Ordinance, 1979---Assessee pleaded that jurisdiction for making order under S.52 lay with Assessing Officer having jurisdiction over recipient which was not accepted by the Assessing Officer on the ground that law was amended by Finance Act, 1999---Validity---Assessing Officer as well as the assessee both had acted in a manner not warranted by law ---Assessee failed to furnish necessary information and details under mistaken notion of a proposition of law which was rendered inoperative by virtue of amendments inserted by Finance Act, 1999 and Assessing Officer failed to do justice by ignoring the contents of record available on file---Miscarriage of justice had taken place to which the assessee and Assessing Officer both had contributed---Order of the First Appellate Authority was vacated and order under S.52/86 of the Assessing Officer was set aside by the Appellate Tribunal in circumstances ---[I.T.A. No. 1129/KB of 1996-97; I.T.A. No.671/KB of 1998-99; I.T.A. No.673/KB of 1998-99 and 1996 PTD (Trib.) 65 overruled].

I.T.A. No.1129/KB of 1996-97; I.T.A. No.671/KB of 1998-99; I.T.A. No.673/KB of 1998-99 and 1996 PTD (Trib.) 65 overruled.

Constitutional Petitions Nos.1335, 1336 and 1337 of 1999 and 1999 PTD 4037 not applicable.

1999 PTD (Trib.) 3357 distinguished.

Rehan Hassan Naqvi and Ms. Lubna Pervaiz for Appellant.

Khalid Siddiqui, D.R. for Respondent.

Date of hearing: 11th May, 2000.

2000 P T D (Trib.) 2905

[Income-tax Appellate Tribunal Pakistan]

Before Khawaja Farooq Saeed, Judicial Member and Muhammad Munir Qureshi, Accountant Member

I.T.A. No.5758/LB of 1999, decided on 13th May, 2000.

Income Tax Ordinance (XXXI of 1979)---

----S. 65---Additional assessment---Definite information---Profit and loss account---Re-opening of assessment---Assessment was finalized under Self­ Assessment Scheme ---Assessee claimed less expenses of electricity bills in profit and loss account than the actual ones---Assessment was re-opened considering the same, a piece of evidence amounting to "definite information"---Validity---Law required a piece of information covered under the term "definite information" which leads to believe that income of the assessee had either escaped assessment or had been under assessed---Lesser claim of expenditure may be a piece of evidence but it did not give the impression that the income of the assessee had either been under assessed or escaped assessment---Assessment re-opened under S.65 of the Income Tax Ordinance, 1979 was considered to be without legal justification and the same was cancelled by the Appellate Tribunal.

1998 PTD (Trib.) 973 and I.T.A. No. 1726/LB of 1998 ref.

Shahid Abbas for Appellant.

Mrs. Talat Altaf, D.R. for Respondent.

Date of hearing: 13th May, 2000.

2000 P T D (Trib.) 2949

[Income-tax Appellate Tribunal Pakistan]

Before Syed Nadeem Saqlain, Judicial Member

I.T.A, No.2437/LB of 1999, decided on 12th February, 2000.

Income Tax Ordinance (XXXI of 1979)---

----Ss. 65 & 59(1)---Additional assessment---Assessment Year 1996-97--­Assessment was finalized under Self-Assessment Scheme---Assessment was reopened on the ground that opening stock for the assessment year 1996-97 was on the higher side (different) than the closing stock for the assessment year 1995-96 while this fact was available on record at the time of assessment---Validity---Assessing Officer did not have any new material let alone a "definite information" at the time of reopening of assessment under S.65 of the Income Tax Ordinance, 1979---Reopening of assessment on the same facts was by all means change of opinion, which was not permitted under law---Original assessment was restored by the Appellate Tribunal in circumstances.

1995 PTD (Trib.) 580; 2000 PTD (Trib.) 329; 1997 PTD 1485; 1994 PTD (Trib.) 1360 and 1990 PTD 155 ref.

Muhammad Ajmal Khan for Appellant.

Mrs. Talat Altaf, D.R. for Respondent.

Date of hearing: 12th February, 2000.

2000 P T D (Trib.) 3358

[Income-tax Appellate Tribunal Pakistan]

Khalid Waheed Ahmed, Judicial Member

I. T.A. No.481/LB of 1999, decided on 29th January, 2000.

(a) Income Tax ordinance (XXXI of 1979)---

----Ss.59(1) & 59A---Self-assessment--Assessment on the basis of Return---, Distinction---Assessee becomes entitled for finalization of assessment under S.59(1), Income Tax Ordinance, 1979 if the Return of income is filed by the assessee in accordance with the provisions of Self-Assessment Scheme issued by the Central Board of Revenue for the relevant year which qualifies for acceptance under the Scheme--Provision of S.59A of the Ordinance confers the power upon the Assessing Officer to assess the total income of the assessee without requiring the presence of the assessee or the production of any evidence if he was satisfied that .the return furnished under S.55 was correct and complete---Assessing Officer was to look into the facts and circumstances of each and every case and to decide that whether the assessment of a particular case could be finalized under S.59A of the Income Tax Ordinance, 1979 or not.

(b) Income Tax Ordinance (XXXI of 1979)---

--S.8---Central Board of Revenue---Letter C. No. 7(27) S.Asstt/96, dated 2-6-1997---Instructions in the letter were of administrative nature and did not in any way create any right in favour-of the assessee.

(c) Income Tax Ordinance (XXXI of 1979)---

----S.59(1)---Broad Based Self-Assessment Scheme, 1996-97--New assessee-­Return filed by new assessee also qualified for acceptance under "Broad Based Self-Assessment Scheme" for the assessment year 1996-97 and there was no mention in the Scheme of any liability for the new taxpayers:

(d) Income Tax Ordinance (XXXI of 1979)---

----S. 59A---Assessment on the basis of Return---Broad Based Self­-Assessment Scheme, 1996-97---C.B.R. Circular No. 16 of 1996, dated 4-5-1996---C.B.R Letter C. No.7(27) S.Asstt/96, dated 2-6-1997---New assessee---Assessment year 1996-97---First Appellate Authority directed the Assessing. Officer to accept the Return of the assessee under S.59A.of the Income Tax Ordinance, 1979 as no concealment was pointed out by, the Assessing Officer---Validity---Order of the First Appellate Authority was modified and assessment was set aside by the Appellate Tribunal with the direction that Return filed by the assessee for the year 1996-97 be accepted under Broad Based Assessment Scheme subject to the condition that same fulfilled other requirements of the scheme.

Malik Bros. Cloth Dealers, Lahore (NTN 6-12-000874) v. SOIT Circle 12, Zone-B, Lahore, I.T.A. No.618/LB of 1998 rel.

Noor ul Amin Hotyana, D.R. for Appellant.

Ch. Muhammad Akram Gondal, A.R. for Respondent.

Date of hearing: 23rd October, 1999.

2000 P T D (Trib.) 3377

[Income-tax Appellate Tribunal Pakistan]

Before Jameel Ahmed Bhutto, Accountant Member and Syed Masood ul Hassan

Shah, Judicial Member

I.T.As. Nos.255/IB, 269/KB of 1995-96, 1280/113, 486/IB of 1998-99, 1139/IB of 1997-98, decided on 30th May, 2000.

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss.66-A(2), 66(1), 64 & 59(4)---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Limitation for assessment in certain cases---Assessment year 1993-94---Original assessment was made under S.62, Income Tax Ordinance, 1979 on 3-8-1994 and same was cancelled by the Inspecting Additional Commissioner under S.66A on 16-4-1995---Assessment under S.66-A/62 was made by the Assessing Officer on 10--5-1997---Assessee contended that assessment might have been finalized before 30-6-1995 in terms of S.64 of the Income Tax Ordinance, 1979 and assessment passed under S.66-A/62 as on 10-5-1997 was barred by time---Validity---Section 66(1) of the Income Tax Ordinance, 1979 clearly provides that assessment could be made at any time within two years from the end of the financial year in which order of the Inspecting Additional Commissioner made under S.66-A was received by the Assessing Officer--­Order under S.66-A by the Inspecting Additional Commissioner was made on 16-4-1995 and fresh assessment was finalized on 10-5-1997 by the Assessing Officer before the period of limitation of two years prescribed under S.66(1) of the Income Tax Ordinance, 1979.

PLD 1957 (SC Ind.) 448; PLD 1982 Lah. 109; PLD 1974 Lah. 458; PLD 1965 (W.P) Kar. 69 and 1981 SCMR 267 irrelevant.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss.3(1)(AA), 4(2), 2(17-A) & 5---Income-tax Authorities---Appointment and jurisdiction of---Assessment was finalized by the Special Officer--­Assessee contended that Regional Commissioner of Income-tax was neither empowered to appoint any Special Officer nor the Special Officer was listed as an Income Tax Authority under S.3 of the Income Tax Ordinance, 1979 for the purposes of the Ordinance, and assessment order finalized by the Special Officer was, therefore, of no legal effect, ab initio illegal. void and without lawful authority---Validity---Regional Commissioner of Income-tax, being one of the Income-tax Authorities specified in S.3(1) of the Income Tax Ordinance, 1979, was competent to appoint an Inspector of Income-tax subordinate to him under S.3(1-A) as Special- Officer by virtue of powers vested in him under S.4(2) of the Income Tax Ordinance---1f Inspector of Income-tax was appointed as Special Officer under S.4(2). he became competent to function as Deputy Commissioner of Income-tax within the jurisdiction assigned to him under S.5 of the Income Tax Ordinance, 1979.

(c) Income Tax Ordinance (XXXI of 1979)---

----S.8---Administrative order challanged before Appellate Authorities--­Administrative orders issued by the officers in administrative hierarchy of Income-tax Department were not amenable to the Appellate jurisdiction of the Appellate Authorities in the hierarchy established under the Income Tax Ordinance, 1979---Any administrative error, irregularity or excess of jurisdiction lies exclusively within the domain of the administrative hierarchy and could not be contested before the Appellate Authorities under the Income Tax Ordinance, 1979.

(d) Income Tax Ordinance (XXXI of 1979)---

-----S.7---Draftassessment, approval of ---Assessee objected that draft assessment order of Assessing Officer which had the approval of Inspecting Additional Commissioner was bad in the eyes of law and assessment made in pursuance of direction of Inspecting Additional Commissioner was without lawful authority and of no legal effect---Validity---Draft order which contained grammatical mistakes and was not in a proper form was returned by Inspecting Additional Commissioner without any adverse directions, orders or instructions to cause any prejudice to the case of assessee--­ Approval of draft assessment order in favour of assessee was an internal administrative matter and was not against any provision of the Income Tax Ordinance, 1979 including S.7 dealing with assistance, guidance or instructions by the superior Income-tax Authorities.

1993 SCMR 29 anti 1991 PTD 219 distinguished.

(e) Income Tax Ordinance (XXXI of 1979)---

----S.59---C.B.R. Circular No.9 of 1994, dated 1-1-7-1994, para.4(i) & (ii)--­Self-assessment---Assessment was finalized under S.62, Income Tax Ordinance, 1979---Assessee pleaded that if its return had been selected for total audit under para. 4(ii) of the Self-Assessment Scheme, as provided under S.59 (1-A) of the Income Tax Ordinance, 1979 the Assessing Officer was empowered- to pass an order under S.62 or 63 of the Income Tax Ordinance, 1979 but if return was selected under para. 4(i) of the Self ­Assessment Scheme through computer random ballot, it still remained in the scheme itself and should have been assessed under S.59(1) within the limitation provided under S.59(4) of the Income Tax Ordinance, 1979--­Validity---No distinction existed between the returns selected for audit through computer ballot or selected otherwise for the reasons mentioned in the Self-Assessment Scheme made under S.59(1) of the Income Tax Ordinance, 1979---All returns selected for audit fall outside the ambit of S.59(1) and assessments in such selected cases were to be made under S.62 or 63 as provided in S.59(1-A) of the income Tax Ordinance, 1979--­Objection was rejected by the Appellate Tribunal.

1980 SCMR 156 ref.

Nadir Mumtaz. D.R. for Appellant (in I.T.As Nos.255/IB of 1995-96 and 1280/IB of 1998-99).

Mir Ahmed Ali for Respondent. (in I.T.As. Nos.255/IB of 1995-96 and 1280/IB of 1998-99).

Mir Ahmed Ali for Appellant (tit I.T.As. Nos.1139/IB of 1997-98 269/IB of 1995-96 and 486/ Its of 1998-99.

Date of hearing: 18th .May, 2000.

2000 P T D (Trib.) 3407

[Income-tax Appellate Tribunal Pakistan]

Before Rasheed Ahmad Sheikh, Judicial Member

I.T.As. Nos. 3218/LB to 3223/LB of 1999, decided on 9th March, 2000.

Income Tax Ordinance (XXXI of 1979)---

----Ss. 64(3), 56 & 63---Assessment---Limitation----Notice for furnishing return of total income---Best judgment assessment---Assessee was brought on tax roll on the strength of notice under S.56 of the Income Tax Ordinance, 1979 and ex parte assessment was made after the expiry of two years from the end of the assessment year during which the notice under S.56 was issued---Validity---Ex parte assessment made under S.63 of the Income Tax Ordinance, 1979 being hit by limitation under S.64(3) of the Income Tax Ordinance, 1979 assessment was not sustainable in law appeal of assessee was accepted by Appellate Tribunal:

1998 PTD (Trib.) 1250 ref.

M. M. Akram fox Appellant.

Basharat Ullah Khan, D.R. for Respondent.

Date of hearing: 9th March, 2000.

2000 P T D (Trib.) 3719

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Mujibullah Siddiqui, Chairman and Muhammad Mahboob

Alam Accountant Member.

W.T.As. Nos.411/KB and 412/KB of 1999-2000, decided on 24th August, 2000.

Wealth Tax Act (XV of 1963)---

----Ss. 2(5)(ii), Explanation II, III & 17---Assets---Wealth escaping assessment---Assessment years 1994-95 and 1995-96---Agricultural land or non-agricultural land ---Assessee acquired a piece of land in gift---Land was admittedly included in the Housing Scheme which issued No-Objection Certificate for flat site subject to payment of conversion fee which was not paid and No-Objection Certificate was withdrawn---Land was also described in the gift deed as flat site ---Assessee declared the land as agricultural land for the assessment years on the plea that it was converted from agricultural to residential on 13-11-1995 by the Survey Officer---Assessing Officer assessed the property holding that the property was for the purposes of construction and sale and it was subject to levy of wealth tax---First Appellate Authority founder the Assessing Officer was not justified in considering the land to be a residential area---Validity---Land in question lost the character of agricultural land a long time back in the circumstances and Assessing Officer had rightly assigned to the same the status of non-agricultural land which was a flat site and consequently estimated the value of property in accordance with the Collector's valuation for the purpose of wealth tax---First Appellate Authority having not considered the facts and law in proper perspective finding of the First, Appellate Authority was vacated and findings of Assessing Officer were restored by the Appellate Tribunal---Appeal at the instance of department was allowed.

Ghulam Rasul v. Ikramullah PLD 1965 (W.P.) Lah. 429; Vir Bhan and another v. Sham Singh AIR 1944 Lah. 455; AIR 1953 Pb. 250; Shah Muhammad v. Mst. Pyari AIR 1936 Lah. 202; Naseer Ahmed v. Asghar Ali 1992 SCMR 2300; 1995 PTD (Trib.) 1426 and (1969) 72 ITR 552 ref.

C.W.T. v. H. V. Mungala (1984) 145 ITR 208 distinguished.

Khalid Siddiqui, D.R. for Appellant.

Shafi Muhammad Awan, I.T.P. for Respondent.

Date of hearing: 23rd August, 2000.

2000 P T D (Trib.) 3732

[Income-tax Appellate Tribunal Pakistan]

Before M. Munir Qureshi, Accountant Member and Khawaja Farooq Saeed, Judicial Member

I.T.A. No.4538/LB of 1999, decided on 20th June, 2000.

(a) Income Tax Ordinance (XXXI of 1979)---

---Ss. 156, 59(4), 61, 62 & 13(1)(c), (d)---C.B.R. Circular No.4 of 1996, dated 1-7-1996, para-(h)---Rectification of mistake---Self assessment--­Assessment year 1996-97---Return was filed under Broad Based Self­ Assessment Scheme---Assessment was finalized under S.62, Income Tax Ordinance, 1979 after 30-6-1997 on account of concealment of property and suppression of commission receipts---Addition was made under Ss.13(1)(c) & 13(1)(d) of the Ordinance---First Appellate Authority (predecessor) found that Return filed under Broad Based Self-Assessment Scheme stood disqualified for concealment of property and suppression of commission receipts and there could be no question of acceptance of return under the Scheme under S.59(I) of the Ordinance or finalization of assessment under deeming provision of S.59(4) on 30-6-1997---Addition made was set aside for de novo consideration ---Assessee filed application for rectification of mistake on 14-4-1999 before (successor) First Appellate Authority on the ground that predecessor Appellate Authority allegedly failed to adjudicate the ground pertaining to automatic finalization of assessment under deeming provisions of S.59(4) on 30-6-1997 for the reason that neither formal order of assessment had been passed by that date nor the return filed had been found ineligible under Broad Based Self-Assessment Scheme---Rectification was made accordingly by the (successor) First Appellate Authority and return filed under BBSAS was accepted---Department contended that (successor) First Appellate Authority had no authority under the law to resort to such rectification when the predecessor-in-office had recorded firm findings on all pertinent issues and when the assessee had failed to file formal appall before the: Tribunal against the order of his predecessor-in-office ---Validity--­Application filed under S.156 of the Income Tax Ordinance, 1979 was in the nature of an application for review of -the order---Review made by successor-in-office was beyond the scope of S.156 and scoop of S.156 of the Income Tax Ordinance, 1979 could not be enlarged perforce to permit wholesale review of predecessor's order---Action of successor-in-office to rectify the order of predecessor-in-office was found to be illegal and without jurisdiction for the reason that the predecessor-in-office had recorded firm findings after discussing exhaustively all pertinent aspects and these `findings were not open to review by successor-in-office --- Assessee was required to file formal appeal rather than to move a rectification application-­Order of (successor) First Appellate Authority was annulled and of (predecessor) First Appellate Authority's was restored by the Appellate Tribunal. [pp. 3740, 3741] A & D

1996 PTD (Trib.) 1117 and AIR 1987 SC 1160 ref.

(b) Income Tax Ordinance (XXXI of 1979)----

----Ss.59(4), 62, 13(1)(d), (c)---C.B.R. Circular No. 4 of 1996, dated 1-7-1996, para. 2(h)---Self-assessment---Assessment year 1996-97---Return was filed under Broad Based Self-Assessment Scheme---Assessment was finalized under. S.62 of the Income Tax Ordinance, 1979 after 30-6-1997 on account of concealment of property and under statement of commission receipts ---Assessee contended that assessment was automatically finalized under deeming provision of S.59(4) of the Income Tax Ordinance, 1979 and no formal order of assessment had been passed by 30-6-1997 nor return filed had been found ineligible under Broad Based Self-Assessment Scheme--­Validity---Assessee was guilty of concealment as envisaged under the Income Tax Ordinance, 1979 having a patent evidence of concealment of property. and under statement of investment made therein---Return filed did not qualify under Broad Based Self-Assessment ab initio i.e. from the very date of its filing before the Assessing Officer in-view of the patent concealment of acquisition of immovable property and investment made therein and the misstatement on account of commission earned--Defects were present in the return from the day the return was filed which could not lie accepted under Broad Based Self-Assessment Scheme ---Departmental appeal was accepted in circumstances.

Shahid Zaheer, D.R. for Appellant.

Talat Javed, F.C.A. for Respondent.

Date of hearing: 3rd June, 2000.

2000 P T D (Trib.) 3752

[Income-tax Appellate Tribunal Pakistan]

Before M. Munir Qureshi, Accountant Member and Khawaja Farooq Saeed, Judicial Member

I. T. A, No. 4537/LB of 1999, decided on 7th June, 2000.

(a) Income Tax Ordinance (XXXI of 1979)---

-----S.59(1)---C.B.R. Circular No.5 of 1995 dated 11-7-1995, para. 10(b)--­Broad Based Self-Assessment Scheme---New taxpayer---Change in nature of business and name ---Assessee who changed his business from sale of second hand motor vehicles of assorted brands to sale of new brand motor vehicles on the same premises to be treated as "New taxpayer".

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss.59(1) & 129---Broad Based Self-Assessment Scheme---Appeal to the Appellate Additional Commissioner---Successor Appellate Authority--­Jurisdiction to revise predecessor's order---Not open to the successor-in­-office to disturb the clear-cut finding recorded by his predecessor with regard to disqualification of assessee's return under Broad Based Self-Assessment Scheme especially when successor-in-office could not show that predecessor had wrongly cited pertinent facts or had wrongly interpretated the relevant law/applicable Circulars---Successor-in-office had no authority under the law to record a different finding on the same cited facts.

(c) Income Tax Ordinance (XXXI of 1979)---

----Ss.59(1) & 65---C.B.R. Circular No.5 of 1995, dated 11-7-1995, para. 10(b)---Self-assessment---Additional assessment ---Assessee's ease was processed under normal law due to concealed/suppressed gross commission receipts ---Assessee contended that return should have been first accepted under S.59(1) to invoke the provision of S.65 of the Income Tax Ordinance, 1979---Validity---Provision of S.65 would be applicable . in the case of an "existing assessee" in terms of C.B.R. Circular No.5 of 1995---For a "new taxpayer" it was open to the department to select a certain percentage of returns filed for normal law assessment---Assessee's case, being new taxpayer, could be taken up for normal law assessment.

(d) Income Tax Ordinance (XXXI of 1979)---

----Ss.59(l), 61, 62, 129 & 156---Self-assessment---C.B.R. Circular No.5 of 1995, .dated 11-7-1995---Assessment year 1995-96---Return was filed under .Broad Based Self-Assessment Scheme---Notices under Ss.61 & 62 of the Income Tax Ordinance, 1979 were issued to process the case under normal law before 30-6-1996 and assessment was made after 30-6-1996---Appeal of the assessee was- dismissed by the First Appellate Authority ---Assessee moved application under S.156 of the Income Tax Ordinance, 1979 before successor Appellate Authority claiming that Assessing Officer was not justified to make assessment under S.62 of the Income Tax Ordinance, as the case had already been finalized under S.59(4) of the Income Tax Ordinance,. 1979---Successor-in-office ' rectified the order accordingly ---Validity--­Findings of the predecessor-in-office had been totally ignored by the successor-in-office and without exanuning and disposing of the finding, the successor-in-office. had proceeded to "rectify" the order of his predecessor under 5.156 of the Income Tax Ordinance, 1979 which action was found to be patently illegal---Successor-in-office had proceeded to "review" the order of his predecessor, which he could not do---Finding that assessment stood finalized under S.59(4) as no order had been passed by 30-6-1996 was - wholly misconceived as the assessee had already been advised well before 30-6-1996 that his return for the year did not qualify under Broad Based Self-Assessment Scheme and notices under S.61 had been issued and served and case was discussed with the D.R.---Order of the successor-in-office was annulled by the Appellate Tribunal in circumstances.

Shahid Zaheer, D.R. for Appellant

Talat Javed, F.C.A. for Respondent.

Date- of hearing: 3rd June, 2000.

2000 P T D (Trib.) 3773

[Income-tax Appellate Tribunal Pakistan]

Before Inam Ellahi Sheikh, Accountant Member and Zafar Ali Thaheem, Judicial

Member

I.T.As. Nos.2822/LB and 2823 of 1998, decided on 19th May, 2000.

Income Tax Ordinance (XXXI of 1979)---

-----Ss. 66A & 65---Powers of Inspecting Additional Commissioner.-to revise Deputy Commissioner's order---Assessment years 1993-94 & 1994-95--­Assessments were finalized under S.63 of the Income Tax Ordinance, 1979 and under Self-Assessment Scheme respectively---Assessments were cancelled by the Inspecting Additional Commissioner after obtaining information from supplier in respect of supplies to the assessee on subsequent date that is 30-4-1998---Assessee contended that Inspecting Additional Commissioner proceeded to invoke jurisdiction under S.66A of the Income Tax Ordinance, 1979 on the basis of information received from supplier which was not available with the Assessing Officer at the time of .framing original assessments and information subsequently received was not permissible under the provision of S.66A of the Income Tax Ordinance, 1979 to cancel the assessments---Validity---Inspecting Additional Commissioner could not invoke the jurisdiction on the basis of information received subsequently which could have been used for invoking the jurisdiction under S.65 of the Income Tax Ordinance, 1979 by the Assessing Officer---Order of the Inspecting Additional Commissioner was cancelled by the Appellate Tribunal.

(1979) 118 ITR 447 ref.

Muhammad Ajmal Khan for Appellant.

Muhammad Asif, D.R. for Respondent.

Date of hearing: 18th May, 2000.

2000 P T D (Trib) 3776

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Mujibullah Siddiqui, Chairman, S. M. Sibtain and Muhammad

Mahboob Alam, Accountant Members

I.T.As. Nos.703/KB and 1499/KB of 1999-2000, decided on 5th September, 2000.

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss.80D & 22---Minimum tax on income of certain persons---Income from business or profession---Use of terms "trade discount", "invoices or bills" "sale of goods", "rendering, giving or supplying services or benefits" and "execution of contracts" in the context of "gross receipts" in the Explanation. to S.80D explicitly connote that such "gross receipts" were from "business or profession", profits and gains which were ordinarily chargeable under S.22 of the Income Tax Ordinance, 1979 and that the use of the word "means" in the Explanation was intended to restrict the scope of the word "turnover''.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.80D, First Explanation---Expressions "where no tax is payable or paid" and "or the tax payable or paid"---Applicability---Expressions "where no tax is payable or paid" and "or the tax payable or paid" apply to all cases where tax was not payable or paid for any reason whatsoever including certain situations conceived therein---Situations conceived in the Explanation I to S.80D include where tax is not payable due to any loss of income, profits and gains; set off of loss of earlier years; exemption from tax and allowances and deductions (including depreciation) admissible under any provision of the Ordinance or any other law for the time being in force.

(c) Interpretation of statutes---

---- Fiscal statute---Construction---Principles.

Where a word is inclusively defined it does not take away its ordinary meaning for the reasons that interpretation clause is not meant to prevent the word receiving its ordinary, popular and natural sense whenever that would be properly applicable.

Interpretation clause is meant to enable the word as used in the statute, when there is nothing in the context or the subject-matter to the contrary, to be applied to something to which it would not ordinarily be confined.

Word as used in the statute shall be so construed as the context or the subject-matter of the section warrants.

(d) Income Tax Ordinance (XXXI of 1979)---

----Ss.80D & 22---Minimum tax on income of certain persons---Income from business or profession---Word "tax" used in S.80D(1) of the Income Tax Ordinance, , 1979 and in its First Explanation---Meaning---Word "tax" as used in S.SOD(1) of the Income Tax Ordinance, 1979 as well as in the First Explanation appended to the said section in the context and the subject-matter of the main section means the tax not payable or paid on the income from business or profession chargeable under S.22 of the Income Tax Ordinance, 1979.

(e) Income Tax Ordinance (XXXI of 1979)---

----Ss.80D & 30(2)(a)---Minimum tax on income of certain persons--­Dividend income---Tax was imposed on dividend income in addition to the tax under S.80D of the Income Tax Ordinance, 1979---First Appellate Authority directed to allow credit of tax paid on dividend income while working out the tax under S.80D of the Income Tax Ordinance, 1979--­Validity---Expression "the amount representing its turnover from all sources" as used in S.80D(1) of the Income Tax Ordinance, 1979, refers to turnover of business or profession carried on by the companies and registered firms--­Expressions "where no tax is payable or paid" and "or the tax payable and paid" as used in S.80D(1) of the Income Tax Ordinance, 1979 were used in the context of income, profits and gains from business and profession as computed under the Income Tax Ordinance, 1979 and that tax on income of such companies and registered firms under any head other than the income under the head "income from business or profession" was payable in addition to the tax chargeable in the manner specified in S.SOD(2) of the Income Tax Ordinance, 1979---[I.T.As. Nos.1220 and 1221/KB of 1998-99 overruled]. [pp. 3787] H I. T. As. Nos. 1220 and 1221 /KB of 1998-99 overruled. I.T.A. No.955/KB of 1998-99 approved.

1996 PTD (Trib.) 286; Lt.-Col. Muhammad Amin Khan and others v. Government of West Pakistan and others PLD 1966 (W. P.) Lah. 111;Ellahi Cotton Mills Ptd. and others v. Federation of Pakistan through Secretary, Ministry of Finance, Islamabad and others PLD 1997 SC 582 = 1997 PTD 1555; I.T.A. No.523/KB of 1999-2000; CGT, Madras v. M. S. Gette Chettiar (1971)82 ITR 590 and CIT v. Amarchand N. Shroff (1963)ITR 59 ref.

Abdul Mateen, F.C.A. for Appellant.

Khalid Siddique, D.R. Mahfuz-ur-Rehrnan Pasha, IAC and Ilyas Elahi Ganjani, D.R. for Respondent

Iqbal Naeem Pasha, Rehan Hasan Naqvi and 'Siraj-ul-Haque Memon: Amicus curiae.

Date of hearing: 26th August, 2000.

2000 P T D 17

[Karachi High Court]

Before Saiyed Saeed Ashhad and Abdul Ghani Shaikh, JJ

IHSAN COTTON PRODUCTS (PVT.) LIMITED

versus

COMMISSIONER OF INCOME-TAX (APPEAL) ZONE-V and 2 others

Constitutional Petition No. 130 of 1999, decided on 13th April, 1999.

Income Tax Ordinance (XXXI of 1979)--

----S.80-D---Constitution of Pakistan (1973), Art. 199-Constitutional petition---Minimum tax on income of certain companies and registered firm ---Refund---Assessee claimed refund in respect of deduction made under S.80-D, Income Tax Ordinance, 1979 in view of judgment of Supreme Court in case of Elahi Cotton Mills and others v. Federation of Pakistan PLD 1997 SC 582 = 1997 PTD 1555---Validity---High Court referred the matte to the concerned Assessing Officer to decide the application for refund submitted by the assessee within a period of four weeks from the date of service of order in accordance with the judgment of the Supreme Court.

Ellahi Cotton Mills and others v. Federation of Pakistan PLD 1997 SC 582 rel.

Dr. Nasim Ahmed Khan for Petitioner.

Muhammad Farid for Respondent No.1

Mushir Alam, Standing Counsel.

2000 P T D 254

[Karachi High Court]

Before Saiyed Saeed Ashhad and S. Ahmed Sarwana, JJ

COMMISSIONER OF INCOME-TAX

versus

NATIONAL AGRICULTURE LTD., KARACHI

Income Tax Reference No .174 of 1991, heard on 13th October, 1998.

(a) Interpretation of statutes--

-Non obstante clause---Function---Non obstante clause overrides other or the earlier provisions and, therefore, must be read in the context in which it would operate.

Packages Limited and others v. Muhammad Maqbool PLD 1991 SC 258 rel.

(b) Interpretation of statutes---

---- Expression "notwithstanding any judgment of any Court" in a provision--­Impact---Expression would save act, order, proceedings or things done validly and the benefits thereof would not extend to save acts done, orders made or proceedings taken without jurisdiction, coram non judice or mala fide.

Packages Limited and others v. Muhammad Maqbool PLD 1991 SC 258 rel.

(c) Interpretation of statutes---

---- Expression "notwithstanding" and "non obstante" clause in a provision--­Impact---When a provision of the statute starts with the expression "notwithstanding" or with "non obstante" clause then the effect thereof would be that such provision would have to be given preference and that would override any other provision or the section of the statute---Other provision or the section of the statute inconsistent with the provision containing the "non obstante" clause would be subjugated and preference would be given to the provision or the section containing the non obstante clause.

Packages Limited and others v. Muhammad Maqbool PLD 1991 SC 258; Federation of Pakistan and others v. Saeed Ahmed and others PLD 1974 SC 151 and Arif Hussain Shah v. The Operative Director Administration, Electric Equipment Manufacturing Co. Limited 1979 PLC389 rel.

(d) Interpretation of statutes---

---- Expression "notwithstanding" and "non obstante" clause in a provision--­Impact---If two provisions of a statute are not consistent or are in conflict with each other then the provision of the section starting with the expression "notwithstanding" or with "non obstante" clause would have preference and would override the provisions or the sections of the statute dealing with the same subject-matter.

(e) Interpretation of statutes---

---- Inconsistent provision in a statute---Effect---If there are two provisions or sections in a statute which are inconsistent or in conflict with each other then the Court is required to interpret the two provisions of the statute in a harmonious manner and both the provisions should be made to work side by side and one of the two provisions or the sections is to be rendered surplus or redundant.

(f) Income Tax Ordinance (XXXI of 1979)---

----Second Sched., Part I, cl. 99, Third Sched., R.7(c), Ss.23(1)(v) & 136(2)---Exemption from total income---Disposal of assets and treatment of resultant gains or losses---Sale of assets of poultry form---Sate of the assets were treated as profits and was taxed under R.7(c) of the Third Sched. of the Income Tax Ordinance, 1979 by the Assessing Officer ---Assessee contended that Assessing Officer had no jurisdiction to have recourse to the provisions of Third Sched. of the Income Tax Ordinance, 1979 as the Assessing Officer had no jurisdiction to compute exempted income from poultry farm and concession provided by cl.99 of the Second Sched. of the Income Tax Ordinance, 1979 exempting income of the assessee from business of poultry farming from charge to tax, would continue to be available in respect of sale proceeds from disposal of the assets---Validity---Exemption granted by cl .99 of the Second Sched. to the Income Tax Ordinance, 1979, the jurisdiction of the Assessing' Officer to proceed with the computation of total/taxable income in accordance with the provision of S.23 of the Income Tax Ordinance, 1979 was completely ousted---Concession would be available to assessee as long as it continued to carry on business of poultry farming and derived income there from---Provisions of Third Sched. to the Income Tax Ordinance, 1979 laid down rules for the computation' of depreciation allowance in pursuance of cl. 5 of S.23(1) of the Income Tax Ordinance, 1979 as well as treatment of resultant gains or losses from disposal of assets used for carrying sin, a business or profession---Concession or the exemption made available by cl. 99 of the Second Sched. would come to an end and the sale proceeds would be dealt with in accordance with the provisions of R.7 of the Third Sched. to the Income Tax Ordinance, 1979 which starts with the expression "notwithstanding" anything contained in this Ordinance and by using the said expression the Legislature had made its intention clear that in dealing with the resultant gains or losses from disposal of assets used for carrying' on business or profession the provision of R.7 would not be regulated, restricted or limited by any provision of the Income Tax Ordinance, 1979--..Despite the fact that income derived by assessee from business of poultry farming was exempted, the benefit of such concession or exemption would not be available to the assessee on disposal of business and assets used by him for carrying on business of poultry farming and sale proceeds in the hands of assessee from disposal of assets would be subjected to the provisions of R.7 of the Third Sched. of the Income Tax Ordinance, 1979 for dealing with the resultant gains/sale proceeds---Transaction of sale of poultry farming business together with all the assets, however, was to be treated as a "slump transaction" the proceeds of which was not liable to be taxed---Finding of the Appellate Tribunal that sale proceeds obtained by assessee from disposal of its business and assets would not be liable to be taxed as per R.7 of the Third Sched. was proper in circumstances.

Packages Limited and others v Muhammad Maqbool PLD 1991 SC 258; Federation of Pakistan and others v Saeed Ahmed and others PLD 1974 SC 151; Arif Hussain Shah v. The Operative Director Administration, Electric Equipments Manufacturing Co. Limited 1979 PLC 389 and Commissioner of Income-tax (East) y. Messrs Cr scent Pak Soap and Oil Mills Ltd 1985 3 rel.

A1-Samonterprises v. The Federation of Pakistan 1986 SCMR 1917 - and Commissioner of Income-tax v. Ayurvedic Pharmacy (Dacca) Limited and others PLD 1970 SC 93 ref.

Shaikh Haider for Applicant.

Mansoor Ahmed Khan for Respondent.

Date of hearing: 13th October, 1998.

2000 P T D 280

[Karachi High Court]

Before Saiyed Saeed Ashhad and S. Ahmed Sarwana, JJ

COMMISSIONER OF INCOME-TAX

versus

MUHAMMAD KASSIM

I. T. R. No.456 of 1990, heard on 20th August, 1998:

(a) Interpretation of statutes---

---- No provision of an enactment was to be treated as redundant or surplus and had to be given its meaning and effect to.

Rakhani & Company v. M.V. Lakatoi Express and 2 others PLD 1994 SC 894 rel.

(b) Interpretation of statutes---

Taxing statute---If there was any doubt or ambiguity in the language used in the statute which rendered same capable of several interpretations, then the interpretation favourable to the assessee or the citizen was to be adopted.

Messrs B.P. Biscuit Factory Ltd. v. Wealth Tax Officer 1996 SCMR 1470 rel.

(c) Interpretation of statutes---

---- Meaning of a provision---While interpreting a provision of statute, Court has to read the provision as it exists and to deduce or infer the meaning in accordance with the existing test or the words-or particular provision---Court is not supposed to add to or subtract any word(s) from any provision of a statute while interpreting a provision so as to give same a meaning other than the one which obviously and plainly flows or can be inferred from it.

A & B Food Industries Limited, v. Commissioner of Income-tax 1992 SCMR 663 and lqbal Muhammad Khan v. Sindh Labour Appellate Tribunal 1992 PLC 549 rel.

(d) Income-tax Act (XI of 1922)---

----S.4(2d)---Income Tax Ordinance (XXXI of 1979), S.13---Value of property---Addition---Approval of I. A. C.---Reference---Assessing Officer made addition after obtaining prior approval of the Inspecting Assistant Commissioner but no approval was obtained before confronting,. The assessee with proposed addition to the value of the property it dispute --- Assessee contended that Assessing Officer was required to obtain two separate approvals from Inspecting Assistant Commissioner one before confronting the proposes: addition and second after feeling dissatisfied with, the explanation o1 show-cause notice---Department contended that,, prior, approval of Inspecting Assistant Commissioner was not required to be obtained for confronting the assessee with proposed addition as the value of the property had been got determined by an expert/valuer which was not an arbitrary estimate or guesswork of the Assessing Officer---Validity---Provision of S.4(2d) of the Income-tax Act, 1922 postulated two separate and independent approvals of Inspecting Assistant Commissioner for making addition to the declared income of an assessee by way of enhancement/increase in the value of any valuable article or property---Assessing Officer, therefore, had not proceeded in accordance with the provision of S.4(2d) of the Income-tax Act, 1922---Addition made was declared to be illegal in circumstances.

Messrs V.N. Rakhani & Company v. M.V. Lakatoi Express. and 2 others PLD 1994 SC 894; Messrs B.P. Biscuit Factory Ltd. v. Wealth Tax Officer 1.996 SCMR 1470; A & B Food Industries Limited v. Commissioner of Income-tax 1992 SCMR 663 and Iqbal Muhammad Khan v. Sindh Labour Appellate Tribunal 1992 PLC 549 ref.

Shaikh Haider for Appellant.

Sirajul Haq for Respondent.

Date of hearing: 20th August, 1998.

2000 P T D 285

[Karachi High Court]

Before Saiyed Saeed Ashhad and S. Ahmed Sarwana, JJ

DAWOOD COTTON MILLS

versus

COMMISSIONER OF-INCOME-TAX

I.T.R. No.38 of 1988, decided on 9th October, 1998.

Income-tax Act (XI of 1922)---

----Ss.23. 10(4)(bb) & 18---Reference---Assessment year 1977---Assessing Officer disallowed commission paid to non-resident---Provision of S.10(4)(bb), Income-tax Act, 1922 was amended by Finance Act, 1978, with the insertion of words "chargeable under the provision of this Act"--­Assessee's plea was that by the said amendment deduction of tax at source of payment made to non-resident was removed as the commission paid was not chargeable under the provisions of Income-tax Act, 1922---Department contended that amendment was introduced by Finance Ordinance, 1978 to be effective from 1-7-1998 and would be applicable to the assessment year 1978-79---Contention of assessee was that amendment was a remedial or curative amendment/statute and such amendment/statute operated retrospectively and that the amendment or modification of S.10(4)(bb) of Income-tax Act 1922 being more beneficial and advantageous to assessee, would be deemed to operate retrospectively so as to be applicable to the case of assessee for the Assessment Year 1977-78---Validity---Finance Ordinance, 1978 by amending S.10(4)(bb) of the Income-tax Act, 1922 had removed burden of deducting tax at source on payment made to a non-resident in Pakistan for claiming such payment as an admissible deduction though it was not chargeable to tax under the Income-tax Act, 1922---Amending Ordinance had provided benefit both to the assessee and the non-resident in Pakistan--­Amending Ordinance being a remedial or a curative statute would be operative retrospectively---Benefit of amending Ordinance would not be available only in respect of Assessment Year 1978-79, and thereafter but also for Assessment Years prior to 1978-79, subject to the condition that at the time when the amending Ordinance was promulgated the case had not been finally decided and was pending---Case of the assessee having not been finally decided at the time when the amendment was made, assessee would be entitled to the benefit provided by the amending Ordinance--­Commission paid to the non-resident was allowed as expenses in circumstances.

1978 PTD 126 ref.

1993 SCMR 73 and Malik Gul Hasan & Co. and others v. Allied Bank of Pakistan 1996 SCMR 237 rel.

Iqbal Naeem Pasha for Applicant

Nasrullah Awan for Respondent

Date of hearing: 9th October, 1998.

2000 P T D 306

[Karachi High Court]

Before Saiyed Saeed Ashhad and Abdul Ghani Shaikh, JJ

ISLAMUDDIN and 3 others

versus

THE INCOME-TAX OFFICER and 4 others

Constitutional Petition No.D-556 of 1991, heard on 9th April, 1999.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.156---Rectification of mistake---Mistake apparent from record--­Requirements.

A mistake of an error to be rectifiable under section 156, Income Tax Ordinance, 1979 must be a mistake in the order which is apparent from the record, i.e. to say a finding which is absolutely contrary or in ignorance or in disregard of the evidence and material on record or a finding which could not have been arrived at on thebasis of the material on record or a mistake or error which may be seen floating and it should be so obvious that on reading of the order surfaces on the face of it. The other requirement for a mistake or an error to be apparent from the record is that in exercising power under section 156 of the Income Tax Ordinance the concerned Assessing Officer would not be required to undertake reappraisal of the evidence and interpretation of any provision of law for corning to a different opinion. If such an exercise was to be undertaken then it would not amount to rectification of the order and the concerned officer could not exercise power under section 156 of the Income Tax Ordinance for modifying and/or amending the finding or opinion expressed originally.

Commissioner of Income-tax v. Messrs National Food Laboratories 1992 SCMR 687; Shaikh Muhammad Iftikharul Haq v. Income-tax Officer, Bahawalpur PLD 1966 SC 524 and Pakistan River Steamer Limited v. Commissioner of Income-tax 1971 PTD 204 rel.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss.156, 12(13), 19 & 21---Constitution of Pakistan (1973), Art.199--­Constitutional petition---Assessment years 1981-82 to 1982-83--­Rectification of mistake---Addition---Assessing Officer made addition to the declared income relating to the 1/4th share of each assessee in the rent received in respect of a building ---Assessee filed application for rectification of mistake under S.156, Income Tax Ordinance, 1979 with the contention that a grave mistake was committed in finalizing the assessments under S.19, Income Tax Ordinance, 1979 treating the assessee as an "Association of Persons" instead of framing the assessment under S.21, Income Tax Ordinance, 1979 and this illegality and/or mistake was due to inadvertent over-sight and as such was apparent on the face of the order and the record-­Assessing Officer dismissed the application---First Appellate Authority as well as Appellate Tribunal found that no mistake was apparent from record and they confirmed the order of the Assessing Officer---Contentions of the assessees were that they could not have been treated as an Association OF Persons in respect of income/rent received by them from building as the respective share of each of the assessees was definite and ascertainable and the assessees should have been assessed under S.21 of the Income Tax Ordinance, 1979---Validity---Assessing Officer had given a finding consciously, deliberately and knowingly after taking into consideration the relevant provision of law applicable to the facts and the circumstances of the case and as such the order could only be modified, amended or set aside in exercise of the appellate powers---Both the Commissioner of Income-tax (Appeals) and the Appellate Tribunal had, therefore, rightly refused to interfere with the order of the Income-tax Officer rejecting the application under S.1.56, Income Tax Ordinance, 1979 and refusing to rectify the alleged mistake/error in exercise of the power under S.156, Income Tax Ordinance, 1979, as the finding which was labelled as an apparent mistake or error was not on account of inadvertence or over-sight.

(c) Income Tax Ordinance (XXXI of 1979)---

----Ss.136(1), (2) & 156---Constitution of Pakistan (1973), Art.199--­Constitutional petition---Reference to High Court---Rectification of mistake-­Assessing Officer rejected application for rectification of mistake---First Appellate Authority as well as Appellate Tribunal confirmed order of the Assessing Officer ---Assessee neither moved reference application under S.136(1), Income Tax Ordinance, 1979 before the Appellate Tribunal nor made application under S.136(2) of the Income Tax Ordinance, 1979 before High Court but approached the High Court by way of Constitutional petition---Validity---Order of the Appellate Tribunal having not been challenged by way of Reference .application under S.136 of the Income Tax Ordinance, 1979 either before the Appellate Tribunal or before High Court had attained finality and same could not be challenged by way of Constitutional petition ---Assessees before invoking the Constitutional jurisdiction of the High Court were required to exhaust all the remedies available to them under the Income Tax Ordinance, 1979---Assessee having not, availed the remedy by way of Reference Application under S.136 of the Income Tax Ordinance, 1979 were not competent to invoke the Constitutional jurisdiction of High Court- --Constitutional petition was dismissed in circumstances.

Chief Administrator of Auqaf v. Muhammad Ramzan and others PLD 1991 SC 102; Mumtaz Ahmed v. Assistant Commissioner and another PLD 1990 SC 1195; Al-Ahrarm Builders v. Income-tax Appellate Tribunal 1993 SCMR 29; Commissioner of Income-tax v. Hamdard Dawakhana (Waqf) PLD 1992 SC 847; Ibne Hasan v. Government of West Pakistan and others PLD 1972 Lah. 294; Mumtaz - Khan v. Chief Settlement and Rehabilitation Commissioner PLD 1966 SC 276; Commissioner of Income­tax v. Messrs Electronic Industries Ltd. 1988 PTD 111; Syed Saghir Ahmed Naqvi, v. Province of Sindh and another 1996 SCMR 1165 and Abdul Wahab Khan v. Government of.Punjab and others PLD 1989 SC 508 rel.

Shabbir Ahmad v. Mst. Kabirun Nisa PLD 1975 SC 58; 1988 PTD 1014; (1955) 28 ITR 462; 1991 PTD 463; (1979) 39 Taxation 14; (1984) 145 ITR 24; 1987 PTD 500; 1988 PTD 111; 1991 PTD 385; Sh. Akhtar Ali v. Federation of Pakistan 1980 PTD 406; A. Habib Ahmed v. M.K. C. Scott PLD 1992 SC 353;' Adamjee Insurance Co. Ltd. v. Federation of Pakistan 1993 SCMR 1998; Nigina Silk Mills, Lyallpur v. Income-tax Officer PLD 1963 SC 622; Premier Cloth Mills, Lyallpur v. Sales Tax Officer Investigation 1.972 SCMR 257; Shabbir Ahmed v. Khairun Nisa PLD 1975 SC 58; Hussain Bhi v. Muhammad Din and others 1976 SCMR 395; Eastern Poultry Service v. Government of Pakistan 1993 PTD 1291; Messrs Pakistan Educational, Society v. Government of Pakistan 1993 PTD 804; Usmania Glass Sheet Factory v. Sales Tax Officer Chittagong 1971 PTD 1; Eruck Maneckji and others v. Income-tax Officer 1979 PTD 461; Hussain Sugar Mills Ltd. v. Government of Pakistan 1981 PTD 169; Edulji Dinshaw Ltd. v. Income-tax Officer 1990 PTD 155; Jullian Hoshang Dinshow Trust v. Income-tax Officer 1992 SCMR 250; Sh. Akhtar Ali v. Federation of Pakistan 1980 PTD 406; Butla Company v. Sales Tax Officer 1983 PTD 221; Badar Iqbal v. Provincial Assembly PLD 1983 Kar. 312; Controller of Customs v. S.M. Ahmed & Co. Pvt. Ltd. 1999 SCMR 183; Gatron Industries (Ltd.) v. Government of Pakistan and others 1999 SCMR- 1072; Murree Brewery Co. Ltd. v. Federation of Pakistan PLD 1972 SC 279; S.P., Lahore v, Muhammad Latif, ASC PLD 19$8 SC 387; Abdul Wahid Khan. v. Government of Punjab PLD 1989 SC 508; Sarwani and others v.. Government of Pakistan 1991 SCMR 1041; Agricultural Development Bank of Pakistan v. Imtiaz Ahmad Gul 1999 SCMR 650; Income-tax Officer v. Chappal Builders 1993 SCMR 1106; H. M. Abdullah v. I.T.O., Circle V and 2 others 1993 SCMR 1195 and Wealth Tax Officer and another v. Shaukat Afzal and 4 others 1993 SCMR 1810 distinguished.

(d) Constitution of Pakistan (1973)---

----Art.199---Remedies available under statute---Failure to avail ---Effect--­Where petitioner failed to avail remedies available. under any statute, he would have no locus standi to file a Constitutional petition in the High Court to challenge the legality and validity of the orders.

Mumtaz Ahmed v. Assistant Commissioner and another PLD 1990 SC 1195 rel.

(e) Constitution of Pakistan (1973)---

----Art.199---Invocation of Constitutional jurisdiction---Principles--If the party had availed the remedy in the ordinary law then it would continue to have recourse to other remedies provided in the framework of that law and exhaust all of those remedies---Petitioner could not abandon or bypass same without any valid or reasonable cause and file Constitutional petition challenging the same order.

Al-Ahrarm Builders v. Income-tax Appellate Tribunal 1993 SCMR 29 and Commissioner of Income-tax v. Hamdard Dawakhana (Waqf) PLD 1992 SC 847 rel.

(f) Constitution of Pakistan (1973)---

----Art.199---Income Tax Ordinance (XXXI of 1979), Preamble--­Negligence---Circumvention of law---Constitutional jurisdiction ---Scope--­Petitioners having acted negligently, carelessly and imprudently, would not be allowed to circumvent the law and Constitutional jurisdiction would not be exercised in their favour to .put stamp of legality on their act of circumvention of law and to negate or render redundant the provisions of the relevant law:

Ibne Hasan v. Government of West Pakistan and others PLD 1972 Lah. 294 and Mumtaz Khan v. Chief Settlement and Rehabilitation Commissioner PLD 1966 SC 276 rel.

(g) Income Tax Ordinance (XXXI of 1979)---

----S.136---Reference to High Court---Validity of assessment which was set aside---Order of Appellate Tribunal setting aside assessment framed and remanding the case to the Assessing Officer for fresh assessment after further examination of the evidence and material and verification of the facts on record could not be challenged by way of Reference Application under S.136 of the Income Tax Ordinance, 1979.

Commissioner of Income-tax v. Messrs Electronic Industries Ltd. 1988 PTD 111 rel.

(h) Constitution of Pakistan (1973)---

----Art.199---Constitutional petition---Maintainability---Where a statute had not provided the remedy by way of appeal or reference against the order then the same could not be challenged by way of a Constitutional petition which would amount to rendering the provision of statute not providing an appeal or a Reference or any other remedy against a particular order as redudant.

Syed Saghir Ahmed Naqvi v. Province of Sindh and another 1996 SCMR 1165 and Abdul Wahab Khan v. Government of Punjab and others PLD 1989 SC 508 rel.

Muhammad Naseem for Petitioner for Respondent.

Date of Hearing: 9th April, 1999.

2000 P T D 322

[Karachi High Court]

Before Saiyed Saeed Ashhad and S. Ahmed Sarwana, JJ

MUHAMMAD ALI KHAN

versus

COMMISSIONER OF INCOME-TAX

I.T.R. No. 34 of 1992, decided on 6th October, 1998.

Wealth Tax Act (XV of 1963)

----Ss.5(1), cl.(xv)(i), (ii), Second Sched., cl.7(i), (ii) & 27---Foreign Exchange Bearer Certificate Rules, 1985, R.5---C.B.R. Circular No.I.T.O. 1(42)/1985, dated 22-8-1985---Exemption---Admissibility---Reference--­Assessee claimed exemption from Wealth Tax on account of Foreign Exchange Bearer Certificates---Assessing Officer did not accept the claim of exemption on account of encashment of Foreign Exchange Bearer Certificates and rejected the same on the basis of C.B.R. Circular No.IT0-1(42)/I985, dated 22-8-1985---Such order of the Assessing Officer was confirmed by the Appellate Tribunal on the ground that no proof was adduced regarding receipt of such Foreign Exchange in Pakistan through normal Banking channels---Case of the assessee was, thus, not covered either by para. (i) or (ii) of cl. (xv) of S.5 of the Wealth Tax Act, 1963---Contention of the assessee was that he was not required to adduce any evidence to establish that the foreign exchange was received through normal Banking channels in view of sub-clause (i) of cl. (xv) of S.5 of the Wealth Tax Act, 1963---Validity--­Case of the assessee was not covered under sub-clause (i) of cl. (xv) of S.5 of the Wealth Tax Act, 1963---Foreign Exchange Bearer Certificates purchased from remittance received in Pakistan brought the case of the assessee within the scope of sub-clause (ii) of cl. (xv) of S.5 of the Wealth Tax Act, 1963--­One of the ingredients, for entitling the assessee to claim exemption in respect of assets/certificates from charge to wealth tax was that assessee would have to establish that money utilized in creating the asset in the shape of purchase of certificate was received or brought into Pakistan through normal Banking channels ---Assessee having failed to establish necessary ingredient, would not be entitled to the exemption provided under sub­-clause (ii) of cl. (xv) of S.5 of the Wealth Tax Act, 1963---Order of the Appellate Tribunal was upheld with modification.

Rehan Hassan Naqvi for Appellant.

Jawed Farooqui for Respondent.

Date of hearing: 6th October, 1998.

2000 P T D 334

[Karachi High Court]

Before Saiyed Saeed Ashhad and S. Ahmed Sarwana, JJ

Messrs COMMODITY AND EQUIPMENT INTERNATION (PVT.) LTD., KYC

versus

COMMISSIONER OF INCOME-TAX

I.T.R. No.207 of 1991, decided on 2nd December, 1998.

Income Tax Ordinance (XXXI of 1979)---

----Ss.62 & 136---Assessment on production of accounts, evidence etc.--­Reference---Assessee declared gross profit rate of 0.67 % as compared to the gross profit rate of 21.46 % in the previous assessment year---Assessing Officer applied gross profit rate of 21.46% on the declared sale---First Appellate Authority reduced the gross profit rate from 21.46 % to 12.5 % on the basis of past history of the assessee as well as the gross profit rate declared by the assessees carrying on parallel business---Appellate Tribunal confirmed the order of the First Appellate Authority ---Reference---Assessee contended that he was not bound to declare high profit as he had advanced reasonable explanation which led to earning less profit and thus, it was not open to the Assessing Officer to reject the declared gross profit rate and on the basis of past history of the assessee as well as on the basis of gross profit rate declared by the assessees carrying on parallel business---Department contended that question referred was not a question of law but a purely question of fact and Appellate Tribunal had taken into consideration the facts and circumstances of the case and examined the evidence on record in a proper manner and finding arrived at did not suffer from any misreading. misconstruing or in discarding the evidence on record or on placing reliance on any extraneous material with the result that finding of fact arrived by the Tribunal on the basis of evidence on record could not be considered to be a question of law---Validity---Declared gross profit rate was ridiculously low which could not be conceived of in the line of trade or business carried on by the assessee and was also to great contrast to the gross profit rate of 21.46 % declared by the assessee in previous assessment year and 15.3 % in the next previous year as well as gross profit rates of 12.62 % and 15.7.3 % declared by two comparable concerns in the assessment year in question, for which no plausible and cogent explanation was advanced by the assessee---Assessing Officer was justified to reject the ridiculously low gross profit rate declared by the assessee and apply a higher rate in accordance with the past history of the assessee and gross profit rates declared by comparable concerns-­Appellate Tribunal had arrived at the finding in confirming the gross profit rate applied by the First Appellate Authority on a proper and just appreciation of the evidence on record and the finding being finding of fact, High Court could not in exercise of its power under S.136 of the Income Tax Ordinance, 1979 go behind a finding of fact based on just and proper appreciation of the evidence on record ---Question referred was refused to be answered---Order of the Appellate Tribunal was confirmed.

Commissioner of Income-tax, Calcutta Discount. Ltd. (1973) 91 ITR 8 and Commissioner of income-tax Krudd Sons Ltd. 1994 SCMR 229 = 1994 PTD 174 distinguished.

Commissioner of Income-tax v. Saeeda Nasreen 1994 PTD 949 and Harmones Laboratories v. Commissioner of Income-tax 1988 PTD 84 rel.

Iqbal. Naeem Pasha for Appellant.

Shaikh Haider for Respondent.

Date of hearing: 2nd December, 1998.

2000 P T D 344

[Karachi High Court]

Before Saiyed Saeed Ashhad and S. Ahmed Sarwana, JJ

COMMISSIONER OF WEALTH TAX

versus

MAQSOOD A. RAZZAK

W. T. A. No.289 of 1997, decided on 26th January, 1999.

(a) Wealth Tax Act (XV of 1963)---

---S. 27(1)---Income-tax Appellate Tribunal Rules, 1948, R. 34---Appeal--­Limitation---Department filed appeal after 16 months from the date of service of an order received by Inspector of the Commissioner's office ---Assessee objected that appeal was time-barred as the same had to be filed within 60 days from the date of receipt of order of the Tribunal---Department contended that starting point of limitation for filing appeal would he governed from the date when the judgment of the Appellate Tribunal was put up or brought to the notice of the Commissioner, who was the authority to decide as to whether appeal was to be filed against the order of the Tribunal or not and that service on Inspector or any body else would not amount to service on the Commissioner as envisaged by R.34 of the Income-tax Appellate Tribunal Rules, 1948---Validity---Service of the order of the Appellate Tribunal on the Income Tax Inspector would not amount to communication of the order to the Commissioner as envisaged by R.34 of the Income-tax Appellate Tribunal Rules, 1948---Period of limitation for filing appeal would be calculated not from the date on which the Income Tax Inspector had received the copy of the order of the Tribunal but from the date when the order of the Appellate Tribunal was brought to the notice of the concerned Commissioner---Dismissal of appeal of the Department as time-barred would result in acting in aid of injustice by not strictly following the technicalities of R.34 of the Income-tax Appellate Tribunal Rules, 1948.

E.A. Evans v. Muhammad Ashraf PLD 1964 SC 536; Jayalakshmi Cloth Stores v. Income-tax Officer 1982 PTD 73; Nandram Hunatram y. Commissioner of Income-tax (1959) 37 ITR 5110; Gopiram Bhagwandas v. Commissioner of Income-tax (1956) 30 ITR 8 and Muhammad Saleem v. Superintendent of Police, Sialkot fLD 1992 St.' 369 re-1.

(b) Wealth Tax Act (XV of 1963)---

----Ss.5(1)(xv), Second Sched., Part I, Cl. 9 (iii) & 17---C.B.R. Circular No.3/12-WT/85, dated 1-6-1985---Income Tax Ordinance (XXXI of 1979) Second Sched., cl. 171---Exemption---Encashment of Foreign Exchange Bearer Certificates---Effect on claim for exemption- --Appellate Tribunal allowed exemption on amount obtained by the assessee by encashment of Foreign Exchange Bearer Certificates from charge of wealth tax in view of S.5(i)(xv) of the Wealth Tax Act, 1963---Validity-,-.-Clause 171 of the Second Sched. to the Income Tax Ordinance 1979 specifically provided exemption to the amount received on encashment of such certificates issued m pursuance--of the Foreign Exchange Certificates Rules, 1985, whereas c1.9(iii) of the Second Sched. to the Wealth Tax Act, 1963 provided exemption from charge to wealth tax only in respect of certificates issued in pursuance of the Foreign Exchange Bearer Certificates Rules, and did not speak of the money/amount held or possessed by an assessee ' from encashment of the certificates issued under the Foreign Exchange Bearer Certificates Rules, 1985---Clause 171 of the Second Sched. to the Income Tax Ordinance specifically and unambiguously provided exemption from charge to income-tax in respect of the amount received or possessed by an assessee from encashment of Foreign Exchange Bearer Certificates exemption clause in the Wealth Tax Act 1963, however, provided exemption only to the Foreign Exchange Bearer Certificates and not to the amount possessed by an assessee from encashment of the Foreign Exchange Bearer Certificates--­Reference by the Appellate Tribunal to cl.171 of the Second Sched. to the Income Tax Ordinance, 1979 was not at all justifiable and the Appellate Tribunal erred in importing the meaning of cl. 171 of the Second Sched. to the Income Tax ordinance, 1979 and applying same to cl. 9 (iii) of the Second Sched. to the Wealth Tax Act, 1963---Order of Appellate Tribunal was set aside by the High Court.

Shaikh Haider for Appellant.

K. Salahuddin for Respondent.

Date of hearing: 15th September, 1998.

2000 P T D 359

[Karachi High Court]

Before Saiyed Saeed Ashhad and S. Ahmed Sarwana, JJ

COMMISSIONER OF INCOME-TAX

versus

ABDUL MAJEED

I.T.Cs. Nos.285 and 336 of 1998, heard on 4th September, 1999.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.14---Appeal to Appellate Tribunal---Question of law ---Jurisdiction--­Question of law which goes to the root of the case or raises a question with regard to the jurisdiction of a particular forum to proceed with the matter or with- a particular issue can be raised at any stage of the proceedings--­Assessee could raise such question even at the stage of second appeal before the Appellate Tribunal and the Appellate Tribunal was competent to entertain the question and decide whether the Assessing Officer had jurisdiction to proceed with the assessment of such income and to bring the same within tax net..

Sabir Shah v. Shad Muhammad Khan PLD 1995 SC 66 and Commissioner of Income-tax v. Abdul Karim Transport Co. Ltd. 1993 PTD 508 rel.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.14 & Second Sched., C1.99 & S.136(2)--Exemption---Reference--­Income from source of "fish catching "---Assessee had taken additional ground verbally before Appellate Tribunal that income declared by assessee from source of "fish catching" was exempt under cl.99 of the Second Sched. of the Income Tax Ordinance, 1979 while said plea was not taken up by the assessee either before the Assessing Officer or in the grounds of appeal filed before First Appellate Authority---Appellate Tribunal found that question as to whether income earned from fishing/fish catching was exempt from charge to income-tax was a question of law and even if the assessee had not raised the same before Assessing Officer or First Appellate Authority, there was no bar for the same being raised before the Appellate Tribunal and the Appellate Tribunal had jurisdiction to decide the same and direct the Assessing Officer to accept the declared income under the head "fish catching" in toto as the Assessing Officer was not entitled to probe into the income declared by the assessee---Validity---Once the Assessing Officer came to the conclusion that declared income Was actually earned from fishing/fish catching then he had no authority or jurisdiction to proceed or probe further with regard to declared sales, gross profit rate etc. in relation to such income and to make estimate with regard thereto---Appellate Tribunal, therefore, was justified in allowing the assessee to raise plea of income from fishing/fish catching being exempt from tax and beyond the jurisdiction of the Assessing Officer---Order of the Appellate Tribunal was confirmed by High Court.

Sabir Shah v. Shad Muhammad Khan PLD 1995 SC 66 and Commissioner of Income-tax v. Abdul Karim Transport Co. Ltd. 1993 PTIJ 508 rel.

Shaikh Haider for Appellant.

Rehan Hassan Naqvi and Miss Lubna Pervaz for Respondent.

Date of hearing: 4th September, 1998.

2000 P T D 363

[Karachi High Court]

Before Saiyed Saeed Ashhad and S. Ahmed Sarwana, JJ

COMMISSIONER OF INCOME-TAX

versus

Messrs KHAIRUL HAYAT AMIN & CO. LTD

Income Tax Case No.66 of 1992, heard on 8th October, 1999

Income Tax Ordinance (XXXI of 1979)---

----Ss.22, 30 & 136(2)---Income from business or profession---Interest income---Business income or income from other sources---Reference--­Assessee had not carried on any business during the relevant year and had earned interest income on loan advanced---Carry forward of losses--­Adjustment of interest income against losses of business---Assessing Officer refused to adjust the amount declared by way of loss on the ground that loss represented the loss from business and could not be adjusted against the income which was not earned from the business---First Appellate Authority confirmed the assessment order---Appellate Tribunal directed the Assessing Officer to treat the interest income as income from business on the basis of previous year assessment---Reference---Department contended that there was not an iota of evidence regarding the closing down of business by assessee and starting a new business of money lending so as to infer- that loan advanced was business of the assessee liable to be assessed under S.22 of the Income Tax Ordinance, 1979---Validity---Impugned order of Appellate Tribunal was not only based on misreading and overlooking the evidence and material on the record but was also contrary to the provisions of the Income Tax Ordinance, 1979 inasmuch as in the absence of a finding that assessee was doing the business of money-lending, the interest income could not be treated as business income so as to be charged to tax under S.22 of Income Tax Ordinance, 1979---Such interest income was to be charged to tax under S.30 of the Income Tax Ordinance, 1979 which specifically included interest income under the heading "income from other sources"---Appellate Tribunal having taken into consideration extraneous material and non-existent facts its order could not be sustained in circumstances---Order of Appellate Tribunal was set aside and order of Commissioner of Income-tax (Appeals) was restored by High Court.

Commissioner of Income-tax v. Motilal Hirabhai Spinning and Weaving Co. Ltd. (1978) 113 ITR 173 distinguished.

M. G. Hassan for Applicant.

Date of hearing: 8th October, 1998.

2000 P T D 1193

[Karachi High Court]

Before Rasheed Ahmed Razvi, J

Mst. SHANTI

versus

KARACHI TRANSPORT CORPORATION and others

Suit No.318 of 1988; Civil Miscellaneous Applications Nos. 1353 of 1999 in Ex.30 of 1997, 1268 of 1999 in Ex.51 of 1996, 1357 of 1999 in Ex.51 of 1996, 1354 of 1999 in Ex 52 of 1996, 169 of 1999 in Ex.53 of 1996, 1363 of 1999 in Ex. 53 of 1996, 1266 of 1999 in Ex. 4 of 1997, 1356 of 1999 in Ex.4 of 1999, 1360 of 1999 in Ex. 5 of 1999, 1267 of 1999 in Ex. 6 of 1999, 1362 of 1999 in Ex. 6 of 1999, 1264 of 1999 in Ex. 10 of 1999, 1363 of 1999 in Ex. 10 of 1999, 1165 of 1999 in Ex. 13 of 1999, 1355 of 1999 in Ex. 13 of 1997, 1569 of 1999 in Ex.62 of 1997, 1270 of 1999 in Ex.64 of 1998, 1359 of 1999 in Ex.64 of 1998; Nazir Ref. dated 15-9-1999 and O.A.'s Refs. dated 27-8-15199, 18-6-1999, decided on 22nd January, 2000.

(a) Civil Procedure Code (V of 1908)---

----S. 82---Decree against Government---Scope---One of the purpose of provisions of S.82, C.P.C. is to enable the Government to meet and face the demands of a decree-holder and not to frustrate the same.

(b) Civil Procedure Code (V of 1908)---

----S.' 73 --Principle .of rateable distribution of proceeds of execution/sale among the decree-holders---Preference to Government liability over claim of secured creditors---Scope---Such liabilities of the Government arising subsequent to a charge on the properties cannot have preference over the claim of secured creditors.

Federation of Pakistan v. Pioneer Bank Ltd. PLD 1958 Dacca 535 and Industrial Development Bank Ltd. v. Messrs Maida Limited and 3 others

(c)Income Tax Ordinance (XXXI of 1979)---

----S. 92---Recovery of tax from persons holding money on behalf of an assessee---Prerequisites---Existence of assessee against whom income-tax was due or payable and that the amount being retained by such person should belong to the assessee.

(d) Income Tax Ordinance (XXXI of 1979)---

----S. 92---Civil Procedure Code (V of 1908), S. 73---Sindh Chief Court Rules (O.S.), R-. 364---Principle of rateable distribution of proceeds of execution/sale---Recovery of income-tax of the judgment-debtor from sale proceeds---Preference to Government liabilities over claim of decree holders-- Property of the judgment-debtor was publicly auctioned in execution proceedings to satisfy the decrees---Income-tax Department made a demand out of such proceeds for the recovery of income-tax due on the judgment-debtor---Such demand was made without establishing that the claim of income-tax was the result of duly conducted assessment proceedings--­Validity---Unless it was established that such claim by the defendant was well determined and settled, right to priority of the Government dues could not be given preference as against the decree-holders---High Court directed the Nazir of the Court to disburse the respective claims of the decree-holders and remaining amount to be given to the Income tax Department---No preference was given to the Government dues over the decree-holders in circumstances.

Saeed Abu Mian v. Haji Abdul Ghani and another PLD 1974 Kar. 39; Messrs Anwar H. Pir Bhai & Co. PLD 1974 Kar. 42; Murli Tahilaram v. T. Asoomal & Co. AIR 1955 Cal. 423; Oudh Commercial Bank Ltd. v. Secretary of State AIR 1935 Lah. 319(2); Lala Muni Lal v. Dewan Chand and another AIR 1939 Lah. 488; Rex v. Wells (1812) 16 East 278; Quick's case 16 East 282; Henlay & Co.'s case (1878) 9 Ch. D 469; New South Wales Taxation Commissioners v. Palmer (1907) AC 179; Secretary of State v. Bombay Landing and Shipping Co. 5 Bom. HCR (OC) 23; Ganpat Putaya v. Collector of Kanara 1 Bom. 7; Gulzari Lai v. Collector of Bareilly 1 All. 596; Union of India v. Messrs Somasundaram Mills (P.) Ltd. and another AIR 1985 SC 407; Messrs Builders Supply Corporation v. Union of India and others (1955) 28 ITR 979; Builders Supply Corporation v. Union of India and others AIR 1965 SC 1061 = (1965) 56 ITR SC 91 and Habib Bank Ltd. v. Rudolf Donhill and others (1999) 80 Tax 99 ref.

(e) West Pakistan Land Revenue Act (XVII of 1967)---

----Ss. 79 & 80---Recovery of Government dues as, arrears of land revenue---. Scope---All the provisions of law which authorise any statutory authority to recover any amount as arrears of land revenue can be invoked only after determination of the amount of dues as fixed, ascertained and determined sum of money.

Agricultural Development Bank of Pakistan v. Sanaullah Khan and others PLD 1988 SC 67; Abdul Latif v. Government of West Pakistan and others PLD 1962 SC 384; Muhammad Akbar Cheema v. The Province of West Pakistan and another 1984 SCMR 1047 and Raj Kumar and 3 others v. National Bank of Pakistan and another 1994 CLC 206 ref.

Hussain Shah Rashdi and Nasir Maqsood for the Decree-Holder.

Nasrullah Awan for the Income-tax Department.

Munirur Rehman, Addl. A.-G. alongwith Gul Muhammad Soomro, Legal Advisor, K.T.C.

2000 P T D 1288

[Karachi High Court]

Before Saiyed Saeed Ashhad and S. Ahmed Sarwana, JJ

Messrs QASIM ALI and others

versus

COMMISSONER OF INCOME-TEX ZONE VI KARACHI

I.T:R. No.23 of 1995, decided on 24th December, 1998.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.21---Words "definite" and "ascertainable" used in S.21, Income Tax Ordinance, 1979--Connotation---Words "definite" and "ascertainable" used in S.21 of the Income Tax Ordinance, 1979 could not be interpreted or defined to mean that the share of each co-owner must be capable of physical partition or division and that the partitioned share or portion must be such that it must form an independent unit capable of being identifiable -by metes and bounds.

(b) Income Tax Ordinance (XXXI of 1979)---

---S.21.---'Transfer of Property Act (IV of 1882), S.45---Liability in case of co-owners---Liability of assessees in absence of specific shares in the property rented out or in sale-deed of such property--Determination of---In the absence of specific shares having been assigned to assessees in the sale­-deed of the property assessees would have equal shares in the property in accordance with S.45, Transfer of Property Act, 1882.

(c) Income Tax Ordinance (XXXI of 1979)---

----S.21, 19 & 136---Transfer of Property Act (IV of 1882), S.45---Liability in case of co-owners---Rental income ---Reference---Assessees were joint owners in the rented out property and their shares were not mentioned in the sale-deed of the property---Assessing Officer framed assessment of the assessees in the status of Association of Persons under S.19 of the Income Tax Ordinance, 1979 instead of S.21 of the Income Tax Ordinance, 1979 as Was being done in the previous assessment years on the ground that shares of all the co-owners of the property were not definite and "ascertainable within the meaning of the words "definite" and "ascertainable" used in S.21 of the Income Tax Ordinance, 1979, thus, rendering the property incapable of division or partition in equal shares or definite portions and the assessee could not be assessed under S.21 of the Income Tax Ordinance, 1979 in respect of the rental income derived by them from the property ---Assessee contended that although no specific or definite shares were assigned in the sale-deed to the joint owners in the property, the shares of each owner of the property would be definite and ascertainable in view of the provisions of S.45 of the Transfer of Property Act, 1882---Validity---Assessee would be holding equal share in the property in accordance with the provisions of S.45 of the Transfer of Property Act, 1882 and such equal shares were to be held as "definite" and "ascertainable" as used in S.21 of the Income Tax Ordinance, 1979---Assessees, therefore, were to be assessed under S.21 of the Income Tax Ordinance, 1979 on the basis of their independent shares and not as Association of, Persons---Order of the Appellate Tribunal was set aside and the Assessing Officer was directed by the High Court to frame the assessment under S.21 of the Income Tax Ordinance, 1979.

Nizam-ud-Din Amir-ud-Din of Lahore's case (1943) 11 ITR 443; and Abdul Azeez & Brothers v. Commissioner of Income-tax, Kerala (1961) 4 Taxation 155 rel.

Black's Law Dictionary; Chambers' Dictionary (New Edn.), p.92. Stroud's Judicial Dictionary, Fifth Edn. and Baliantine's Dictionary, Third Edn. ref.

(d) Words and phrases---

----"Definite" and "ascertainable"---Connotation.

Muhammad Farid for Applicants.

Shaikh Hyder for Respondent:

Date of hearing: 12th August, 1998.

2000 P T D 1320

[Karachi High Court]

Before Saiyed Saeed Ashhad and S. Ahmed Sarwana, JJ

Messrs KENHILL LTD. KARACHI

versus

THE I.T.O., CO. CIR. A-3, KARACHI

Income Tax Reference No. 104 of 1991, decided on 15th December; 1998.

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss.13(1) & 136---Addition---Reference---Encashment of cheque--­Payment was made by assessee after withdrawal of cash from Bank through bearer cheque---Cheque carried name of another party, not the party to whom payment was made---Assessing Officer made addition of such amount on the ground that payment made was from undisclosed source and not that of amount encashed from Bank as the cheque was not in the name of the party to whom the payment was made but in the name of another party ---Assessee­Company explained that amount was received through bearer cheque from his Accounts Department and handed over to the accountant for payment to said party and denied the identity of the party in whose name bearer cheque was issued---Payment to the party in whose name barer cheque was issued was not verified from -the facts and material available on record nor the person was identified who received the payment from the Bank ---Effect--­Assessee having established that amount was credited in its account books and thereafter debited in favour of the party to whom payment was made and it was the same amount which was received from encashment of the cheque in dispute---Amount received, therefore, was not from an undisclosed source and there was no justification for adding the same to the income of the assessee---Actions of the Authorities were declared contrary to law and could not be sustained---Addition made was deleted in circumstances.

Lalchand Bhagat Ambica Ram v. Commissioner of Income-tax, Bihar and Orissa (1959) 37 ITR 288 and Industrial Management Ltd., Karachi v. Commissioner of Income-tax, Karachi PLD 1978 Kar. 673 ref.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.135(1)---Disposal of appeal by Appellate Tribunal---Powers of enquiry by Tribunal---Appellate Tribunal if not satisfied with the enquiry allegedly conducted by the Assessing Officer could cause further enquiry to be made by the Assessing Officer, but could not itself proceed to hold such an enquiry.

(c) Income Tax Ordinance (XXXI of 1979)---

----S.136---Reference---Scope---Evidence of record---Misreading and misconstruction of evidence on record---Powers of High Court---Findings of facts, which had been arrived at on the basis of evidence on record and not suffering from misreading and misconstruing the evidence on record were protected from being disturbed by the High Court under S.136 of the Income Tax Ordinance, 1979---Finding of facts, which was based on irrelevant and extraneous material or consideration or on conjectures and surmises, was, however, not protected from scrutiny and could be disturbed or set aside by the High Court in exercise of its powers under S.136 of the Income Tax Ordinance, 1979:

Harmones Laboratories v. Commissioner of Income-tax 1988 PTD 84; Commissioner of Income-tax v. Saeeda Nasreen 1994 PTD 949 and Lal Chand Bhagat v. Commissioner of Income-tax (1959) 37 ITR 288 rel.

Sirajul Haque for Petitioner.

Shaikh Haider for Respondent.

2000 P T D 1798

[Karachi High Court]

Before M. Shaiq Usmani, J

Messrs UNITED EXPORTS COMPANY through Proprietor

versus

PAKISTAN through Secretary, Ministry of Finance, Federal Secretariat, Islamabad

and 3 others

Suit No. 1600 of 1998, decided on 19th March, 1999.

(a) Sales Tax Act (VII of 1990)---

----Ss. 36 & 48---Issuance of-show-cause notice---Requirement of---Scope--­Provision of S.48, Sales Tax Act, 1990, is penal in nature and the same cannot be enforced without a show-cause notice served on the party concerned---When S.48 is read in conjunction with S.36 of Sales Tax Act, 1990, it clearly lays down that serving of a show-cause notice is mandatory.

(b) Sales Tax Act (VII of 1990)---

----Ss.36 &. 48---Adjusting of duty drawback amount in a claim for arrears of sales tax, without issuance of show-cause notice---Contention by Authorities was that letter containing audit observation constituted show-cause notice--­Validity---No indication was found in that letter to the effect that the Authorities had given any intimation to the plaintiff of their intention to adjust the amounts due against any other payment that might be due to them by any other Government body---Where the law had provided for a show­ cause notice to be issued, it was necessary that such show-cause notice should clearly indicate that it happened to be a show-cause notice, so that the person to whom it was issued was aware that if he did not appear to show ­cause, adverse action might be taken against such person---No such intimation could be gleaned from the letter containing audit observation, consequently such letter did not constitute a show-cause notice under the provisions of Sales Tax Rules, 1992, or Sales Tax Act, 1990, in circumstances.

(c) Sales Tax Act (VII of 1990)---

----S. 36---Exercising lien on amount held by Collector of Sales Tax--­Jurisdiction---Collector of Sales Tax was fully entitled to exercise lien on the amounts held by him on account of refund of claim of a person---Such exercise of lien could not be regarded as violation of S.36 of Sales Tax Act, 1990, or the principle of natural justice.

Makhdoom Ali Khan for Plaintiff.

Musheer Alam, Standing Counsel for Defendants.

Date of hearing: 24th February, 1999.

2000 P T D 2173

[Karachi High Court]

Before Saiyed Saeed Ashhad and S. Ahmed Sarwana, JJ

COMMISSIONER OF INCOME-TAX

versus

NATIONAL AGRICULTURE LTD., KARACHI

Income Tax Reference No. 174 of 1991, heard on 13th October, 1998.

(a) Interpretation of statutes---

----Non obstante clause---Overriding effect---Non obstante clause overrides other or the earlier provisions only when there is a conflict or inconsistency between the earlier provisions and in the later, provision obstante clause must be read in the context in which same would operate.

(b) Interpretation of statutes---

----Expression "notwithstanding any judgment of any Court"---Scope--­Expression would save act, order, proceedings or thing done validly--­Benefit of said expression would not extend to save acts done, orders made or proceedings taken without jurisdiction, coram non judice or mala fide.

(c) Interpretation of statutes--­

------Expression "notwithstanding" or "non obstante" clause---Effect --When a provision-of a statute starts with expression "notwithstanding" or with non obstante clause, the effect thereof would be that such provision would have to be given preference and would override any other provision or section of the statute---Other provisions or the sections of the statute inconsistent with the provisions containing the. "non obstante" clause would be subjugated and preference would be given to the provision or the section containing the non obstante clause.

(d) Interpretation of statutes---

---- If two provisions of statute are not consistent or are in conflict with each other, the provisions of the section starting with expression "notwithstanding" or with non obstante clause would have preference and would override the provisions or the sections of the statute dealing with the same subject-matter.

(e) Income Tax Ordinance (XXXI of 1979)---

----Second Sched., Part I, cl.99 & Third Sched., cl.7(c)---Exemption--­Slump sale of business ---Profit---Taxability---Assessee, sold its entire poultry farm business and earned profit from the sale thereof---Sale proceeds were treated by the Assessing Officer as profit and was subjected to tax in view of the provision of cl.7(c) of Third Sched. of the Income Tax Ordinance, 1979---Validity---Entire assets of business consisting of building. cages, equipment, furniture and fixtures were sold for a lump sum price as assessee had decided to bring an end to the business of poultry farm---Sale being that of sale of whole concern in one transaction, proceed of such sale represented the price of entire business and assets thereof consisting of the building, cages, equipment, furniture and fixtures it was, thus., not possible to assign any particular amount or price to the building, cages, equipment,. furniture and fixtures sold---Sale transaction of the nature where the whole business concern was sold together with all the assets for a lump sum price and where it was not possible to separately determine or assign an amount or price of the building, equipment of plant, furniture or fixture was a "slump transaction" or "slump sale"---Sale proceeds resulting from disposal of the whole business concern together with the building, plant and machinery were not liable to be taxed in accordance with the provisions of cl.7 of the Third Sched. of the Income Tax Ordinance, 1979---Sale. of poultry farming business together with all the assets was to be treated as a "slump transaction" the proceeds of which would not be liable to be taxed.

Packages Limited and others v. Muhammad Maqbool PLD 1991 SC 258; Federation of Pakistan and others v. Saeed Ahmed and others PLD 1974 SC 151 and Arif Hussain Shah v.. The Operative Director Administration, Electric Equipments Manufacturing Co. Limited 1979 PLC 389 ref.

Al-Samrez Enterprises v. The Federation of Pakistan 1986 SCMR 1917 and Commissioner of Income-tax v. Ayurvedic Pharmacy (Dacca) Limited and others PLD 1970 SC 93 distinguished.

Commissioner-of Income-tax (East) v. Messrs Crescent Pak Soap and Oil Mills Ltd. 1985 PTD 3 rel.

Shaikh Haider for Applicant.

Mansoor Ahmed Khan far Respondent.

2000 P T D 2407

[Karachi High Court]

Before Dr. Ghous Muhammad and Zahid Kurban Alavi, JJ

Messrs PAKISTAN ELECTRIC FITTINGS MANUFACTURING CO., LTD.

through Directors

versus

COMMISSIONER OF INCOME-TAX and 2 others

Income Tax Appeal No. 158 of 1998, decided-on 3rd January, 2000.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.154---Constitution of Pakistan (1973), Art. 199---Service of notice by affixture---Validity---Constitutional petition--- Maintainability ---Consti­tutional petition challenging the service of notice by affixture was dismissed in limine on the ground that the matter regarding service of notice was a factual controversy and a Constitutional petition would not lie.

(b) Income Tax Ordinance (XXXI of 1979)---

----Ss.156 & 62---Rectification of mistakes---Merger of orders---Where Assessing Officer had passed an order under S.62 or any other provision of the Income Tax Ordinance, 1979, the same would be subject to rectification under S.156 of the Income Tax Ordinance, 1979---Once the order under S.156 was passed that would merge with the former---Appellate order passed by Appellate Authorities under S.132 or under S.135 of the income Tax Ordinance, 1979 were also subject to rectification under S.156 and once the orders allowing or dismissing the application for rectification were passed by Appellate Authorities, the rectification orders merge with the original appellate orders and the final merged orders were to be read as orders under S.132 read with S.156 or under S.135 read with S.156 of the Income Tax Ordinance, 1979, as the case may be.

Karsan Das Bhagwan Das Patel v. G.V. Shah Income-tax Officer (1975) 98 ITR 273 (Guj.), S. Sankappa v. Income-tax Officer (1968) 68 ITR 760 (SC) and Mandal Ginning and Pressing Co. Ltd. v. Commissioner of Income-tax (1973) 90 ITR 332 (Guj.) rel.

(c) Income Tax Ordinance (XXXI of 1979)---

----Ss.156 & 136---Rectification of mistakes---Appeal to High Court--­Appellate Tribunal dismissed the miscellaneous application of assessee filed under S.156 of the Income Tax Ordinance, 1979---Assessee filed appeal before the High. Court against such order under S.136 of the Income Tax Ordinance, 1979---Department objected that appeal. filed on 16-6-1998 was barred by limitation since it was directed against the original order of the Tribunal, dated 5-5-1996 which was issued on 26-6-1996 and a period of one year an& eleven months had elapsed since the original order was passed by the Tribunal---Validity---Order passed under S.156, Income Tax Ordinance, 1979 was to be construed as an order that had merged with the earlier order passed under S.135 of the Income Tax Ordinance, 1979---Order under S.156 was to be read with the order under S.135---Order would become appealable under S.136, being an order under S.156 read with S.135 of the Ordinance and S.136 which provide for an appeal against the order under S.135--­Appeal was maintainable and the objection on the maintainability of appeal was repelled by High Court.

Commissioner of Income-tax v. Adam Ltd. PLD 1969 Kar. 300; Hassan Ali Karabhai v. CIT PLD, 1974 Kar. 473 and Imperial Chemical Industries Ltd. v. CIT (1979) 116 ITR 516 (Cal.) rel.

(d) Income Tax Ordinance (XXXI of 1979)---

----S.136---Constitution of Pakistan (1973), Art. 199---Appeal to High Court---Conversion of appeal into Constitutional petition---If the High Court had come to the conclusion that appeal under S.136 of the Income Tax Ordinance, 1979 was not maintainable, it would have been a fit case to have converted the appeal into a Constitutional petition under Art. 199 of the Constitution of Pakistan (1973) where there was no remedy and the only remedy was a Constitutional petition under Art. 199 of the Constitution of Pakistan (1973).

Engineering Industries Ltd. v. The Bank of Bahawalpur Ltd. and another 1979 SCMR 32 rel.

(e) Income Tax Ordinance (XXXI of 1979)---

----S.136---Constitution of Pakistan (1973), Art. 199---Constitutional jurisdiction of High Court---Scope---High Court has power to adopt a procedure not provided by law but which was not barred by law---No prohibition in law against conversion of a writ petition into an appeal---High Court could convert a writ petition into an appeal but a writ petition could not be converted into a miscellaneous application in a disposed of confirmation case/criminal appeal---Revision could also be converted into a second appeal.

Akhtar Nasimi v. MLA, Zone C PLD 1982 Kar. 130; Saleh v. SP, Central Prison PLD 1982 Kar. 542; Abdul Aziz v. Sh. Abdur Rehman PLD 1984 SC 164; Karamat Hussain v. Muhammad Azam PLD 1987 SC 139 and Noorul Amin v. Muhammad Hashim 1992 SCMR 1744 rel.

(f) Income Tax Ordinance (XXXI of 1979)---

----S.156---Constitution of Pakistan (1973), Art. 199---Rectification of mistakes---Authorities were bound to rectify mistakes brought to their knowledge and in case Authorities failed to rectify the mistake, High Court was empowered to issue writs.

Hirday v. ITO 78 ITR 26 and Vithal Das v. ITO 1971 PTD 411 rel.

(g) Income Tax Ordinance (XXXI of 1979)---

----Ss.156(4) & 136---Rectification of mistakes ---Limitation---Assessee filed appeal before High Court against the order passed by Appellate Tribunal on miscellaneous application under S.156 of the Income Tax Ordinance, 1979--­Department objected that appeal filed on 16-6-1998 was barred by limitation since it was directed against the original order of the Tribunal, dated 5-5-1996 which was issued on 27-6-1996 and a period of one year and eleven months had lapsed since the original order was passed---Validity---Law provides a period of four years to move the application for rectification which had been duly done---Original order having merged in the order passed on application under S. 156 of the Income Tax Ordinance, 1979 objection on the aspect of limitation was repelled by High Court.

P. Kuttikrishna Nair v. ITAT (1948) 34 ITR 540 distinguished.

(h) Limitation---

----Orders in contravention of mandatory provisions of law were a nullity and no limitation would run against such orders.

Khawaja Muhammad v. Marduman Babar Kahol 1987 SCMR 1543 and Ali Muhammad v: Hussain Bakhsh PLD 1976 SC 37 rel.

(i) Income Tax Ordinance (XXXI of 1979)---

----Ss.27, 22, 2(11), 9 & 156---Constitution of Pakistan (1973), Fourth Sched., Entry No.50---C.B.R. Circular No.10 of 1979, dated 1-10-1979--­Adventure in the nature of trade ---Assessee acquired plots of land and construction was raised thereon for factory/manufacturing unit which was shown in the Balance Sheet as Capital Asset--- Assessee could not establish manufacturing unit due to financial crisis and construction/plot remained undeveloped for almost 23 years---Plots and building were transferred to a sister concern of assessee against share of the said concern---Controller of Capital Issues approved the transaction---Said transaction though resulted in surplus in the shape of share but Department did not treat same as "adventure in the nature of trade"---Terms of transfer having failed between the parties, plots and construction thereon was released back after a period of five years ---Assessee ultimately sold the plot along-with the construction thereon---Capital" gain ,from such sale accrued to the assessee which was declared in the income-tax return---Assessing Officer treated such capital gain as income from business by way of "adventure in the nature of trade" under S.2(11) of the Income Tax Ordinance, 1979 and levied tax thereon--­Validity---Assessee was not in the business of real estate---Plots were purchased in 196.4 and sold nearly after 23 years---Transaction was an isolated one---Plots and construction were shown in the Balance Sheet as capital .assets and not as a stock in trade during all the past years without any dispute from the Department---No intention of trade in the property could be inferred at the time of purchase of such plots and even when the property was sold by assessee to its sister concern, the Department did not treat such transfer as an "adventure in the nature of trade"---Once the transaction was reversed the consequent sale could not have altered the original intention of .the assessee which was not treated as an adventure in the nature of trace---Such circumstance would, thus, make it a clear case of estoppels---Sale of capital assets was admittedly not treated by the Department as, a stock. in trade nor could it be---Authorities fundamentally erred it assumption of jurisdiction so as to bring a surplus from the sale of plot/building as an adventure in the nature of trade in the circumstances and also violated provision of law;, on the subject, orders of the Appellate Tribunal and Authorities, therefore suffered from obvious mistakes floating on the surface of the record--- transaction to question which was treated as an adventure in the nature of trade and taxation of surplus capital gain was, declared to be without lawful authority which was cancelled by High Court:

G. Venkataswami Naidu Co. v. CIT (1959) 35 ITR 594; Saroj Kumar Mazumdar v. CIT West Bengal (1959) .37 ITR 242: Jankitam Rahaduratn v. ('IT (1965) 5' ITI2 71: CIT v. PKN Co. Ltd. (1966) 60 ITR 65; Bhogilal H. Patel v. CIT (1969) 74 ITR 692 and CIT, West Beiqal v Rajasthan Mines Ltd. (1970) 78 ITR 45 ref.

Julian Hoshang Dinshaw Trust v. ITO 1992 PTD 1 = 1992 SCMR 250 and CIT.v. Habib Bank Executors and Trustees Co. 1985 SCMR 284 ref.

(j) Income Tax Ordinance (XXXI of 1979)---

----S.156---Rectification of mistakes---Jurisdiction---Scope---Jurisdiction to rectify mistakes apparent on the face of record is obligatory---Once mistake was pointed out, the Authority was under a mandatory obligation to rectify the mistakes brought to its knowledge---Once the mistake, which was apparent on the face of record, was detected by the Authority, the power to correct the mistake was wider and not confined to only such rectifications which were available and floating on the face of record---In other words, once the mistake was corrected all consequential orders could be passed--­While looking into any mistake apparent on the face of record it was not necessary to look only at the order---Term "record" contemplated proceedings, evidence and record which were relatable to the order of assessment including the applicable law determining the error---Scope of rectification had been spelt out to eliminate errors even to the extent of cancellation of the whole order, if necessary---Power of rectification did not authorize investigation or reassessment of evidence---However, such powers were to be exercised where any mistake was apparent from the record.

Hirday v. ITO 1978 ITR 26; Sidhramappa Andannappa Manvi v. CIT, Bombay (1952) 21 ITR 333; Maharana Mills (Pat.) Ltd. v. ITO (1959) 30 ITR 350; (1969) 73 ITR 287 and CIT v. National Food Industries (1992) 62 Taxation 25 ref.

Muhammad Naseem for Appellant.

Shaikh Haider for Respondents.

Date of hearing: 23rd December, 1999.

2000 P T D 3715

[Karachi High Court]

Before Ghulam Nabi Soomro and Wahid Bux Brohi, JJ

Messrs DADEX ETERNIT LIMITED

Versus

FEDERATION OF PAKISTAN through Central Board of Revenue through Chairman, Pakistan Secretariat, Islamabad and 3 others

Constitutional Petitions Nos.D-788 and D-789 of 1994, decided on 25th May, 2000.

(a) Interpretation of statutes---

----Absence of technical definition of a technical term in a statute---Where there is no technical definition in the statute or the rules framed thereunder, then one has to resort to dictionary meaning.

(b) Sales Tax Act (VII of 1990)---

----Ss.33(i).(d) & 36---Notification, SRO No.1111(I)/90---Constitution of Pakistan (1973), Art.199---Constitutional petition---Input tax, claiming of--­Authorities by a subsequent notification, 'dated 1-11-1990 substituted the definition of "stock-in-trade" and issued show-cause notices to the petitioners for recovery of input tax and refused to adjust the same---Contention by the petitioners was that notice under S.33(i)(d) of Sales Tax Act, 1990, was void ab initio and illegal as the same was ultra vires the statutes and was without jurisdiction lawful authority---Validity---Controversy qua adjustment of input tax in favour of the manufacturers had been resolved by Supreme Court in case of Attock Cement Pakistan Ltd. v. Collector of Customs reported as 1999 PTD 1892---With the consent of the parties the petition was disposed of in terms of said judgment of Supreme Court--Petition was allowed accordingly.

Attock Cement Pakistan Ltd. v. Collector of Customs 1999 PTD 1892 fol.

Sirajul Haq for Petitioner. Ch. Muhammad Iqbal for Respondents.

2000 P T D 1245

[233 I T R 674]

[Karnataka High Court (India)]

Before G. C. Bharuka and V. Gopala Gowda, JJ

COMMISSIONER OF INCOME-TAX

versus

MYSODET (PVT.) LTD.

I.T.R C. Nos. 126 and 127 of 1986, decided on 8th July, 1997.

(a) Income-tax---

----Payments not deductible---Company---Remuneration payable to Director--Ceiling limit would be Rs.72,000---Only excess over Rs.72,000 cannot be allowed as deduction---Indian Income Tax Act, 1961, S. 40(c).

(b) Income-tax---

----Business expenditure---Business promotion expenses---Expenditure on advertisement---Expenditure disallowed merely on ground that presentation items of articles were of value of more than Rs.50---Tribunal finding that presentation was made for business promotion and not for purpose of advertisement---Expenditure allowable deduction---Indian Income Tax Act, 1961, S.37(3)---Indian Income Tax Rules, 1962, R. 6B.

For the assessment years 1978-79 and 1979-80, the assessee claimed deduction under section 37 of the Income Tax' Act, 1961, to the extent of Rs.79,912 and Rs.50,585, respectively, under the head "Business promotion expenses". The Inspecting Assistant Commissioner disallowed the expenditure to the extent of Rs.74,863 and Rs.46,502, respectively, on the ground that in accordance with rule 6B of the Income-tax Rules, 1962, any presentation made valued at above Rs.50 was not admissible. The Commissioner of Income-tax (Appeals) found that the disallowance was not justified since it was not for advertisement. The Tribunal affirmed the order of the Commissioner of Income-tax (Appeals). On a reference:

Held, affirming the order of the Tribunal, that rule 6B of the Income Tax Rules, 1962, has to be understood only in the context of the restrictive provisions contained under section 37(3) of the Act which means that if an article of value of above Rs.50 is presented, then expenditure claimed on this count can be disallowed, only if it is found as of fact that the said presentation was made with the intention of advertising the articles dealt in by the assessee. But, in the present case, as found from the order of the Assessing Officer, he had disallowed the expenses in question by reading merely rule 6B in isolation, as if it provided that any expenditure claimed out of the gross business income on account of gift of articles of more than Rs.50 had to be ipso facto disallowed. Before the Assessing Officer, though a specific contention was raised by the assessee that the articles presented to their clients were of sandalwood or ivory pieces which were meant only as a measure of business promotion and not for any advertisement of their products, the Assessing Officer without examining the said aspect in its proper perspective, mechanically applied the restrictive conditions contained in rule 6B of the Rules, by merely holding that since the presentation items were of value more than Rs.50, therefore, the same were not allowable as business expenditure. The presentation was made just for business promotion and not for the purposes of any advertisement. Therefore, the Tribunal was justified in deleting the disallowance of the business promotion expenses:

Held also, that the Tribunal was justified in holding that only section 40(c) of the Income Tax Act, 1961, would apply in respect of payment made to the director and that the ceiling limit would be Rs.72,000.

International Instruments (P.) Ltd. v. CIT (1981) 130 ITR 315 (Kar.) fol.

M.V. Seshachala for the Commissioner.

G. Sarangan with S. Parthasarathy for the Assessee

2000 P T D 1461

[240 I T R 912]

[Karnataka High Court (India)]

Before V. K. Singhal, J

K. V. SATHYANARAYANA RAJU

versus

UNION OF INDIA and another

Writ Petition No. 16302 of 1994, decided on 16th June, 1999.

Wealth tax---

---- Legislative powers---Assets---Definition---Inclusion of land and building as assets for purposes of Wealth Tax Act---Sections 2(ea)(i), 2(ea)(ii) & 2(m) inserted with effect from 1-4-1993 by Finance Act, 1992---Parliament has power to levy tax on land and building---No encroachment on powers of State Legislature---Provisions are valid---Indian Wealth Tax Act, 1957, Ss.2(ea)(i), (ii) & 2(m)---Constitution of India, Sched. VII, List I, Entry 86; List II, Entry 49.

Legislative entries are to be given a liberal interpretation. The power to levy tax on land and building under Entry 49, List II, has been held as not encroaching upon the power conferred on Parliament under Entry 86, List I in the case of Sudhir Chandra Nawn v. WTO (1968) 69 ITR 897. A distinction has been drawn between the levy of tax on land and building or both as a unit, for which various State Legislatures have enacted Land and Building Tax Acts and that on the capital value of the assets owned. Under Entry 86, List I, the principle of aggregation is made applicable and tax is imposed on the totality of the value of all the assets. By the amendment in respect of levying wealth tax on all the assets, a few items have been selected and land and building is one of them. In a particular case, arid assessee may own land and building alone while in other cases, it may be a number of lands and buildings with or without other assets which are liable to wealth tax. If there is no other asset, then the principle of aggregation cannot apply and it is the value of that asset which is liable to tax. The Legislature could have levied the tax on the capital value of the asset without even providing for deduction of any debt owed in respect thereof. Earlier it was the total debts owed which were to be reduced from the total assets owned. Even before the amendment, exemptions, were provided, and the capital value of those assets was to be excluded from the total value of the assets four determining the wealth tax liability. In the case of tax on land and building it is a tax directly imposed on land and building irrespective of the fact as to who owns it and whether there is any liability on that asset or not. Now the aggregation of land and building is with the number of assets and the debt which is owed by the assessee in respect of such asset is allowed as a deduction, because all the assets are not taken for computation purpose in aggregation. The Central Legislature has the power to classify the assets or limit the liability of wealth tax in respect of selected items, but for that reason it cannot be considered that the tax is levied by the Central legislation on that very item and more particularly in respect of land and building. The principle of aggregation still applies. In these circumstances, it cannot be considered that the amendment made by the Finance Act, 1992, is ultra vires the Constitution or that the Central legislation has encroached upon the field of the State Legislature. Sections 2(ea)(i), 2(ea)(ii) and 2(m) of the Wealth Tax Act, 1957, inserted with effect from April 1, 1993, are valid.

Assistant Commissioner of Urban Land Tax v. Buckingham and Carnatic Co. Ltd. (1970) 75 ITR 603 (SC); CWT v. Karan Singh (br.) (1993) 200 ITR 614 (SC); Second Gift Tax Officer v. Nazareth (D. H.) (1970) 76 ITR 713 (SC); Sudhir Chandra Nawn v. WTO (1968) 69 ITR 897 (SC) and Union of India v. Harbhajan Singh Dhillon (1972) 83 ITR 582 (SC) ref.

Murthy Kumar for Petitioner.

M. V. Seshachala for Respondents.

2000 P T D 1550

[234 I T R 15]

[Karnataka High Court (India)]

Before Ashok Bhan and S. R. Venkatesha Murthy, JJ

COMMISSIONER OF INCOME-TAX

Versus

H. C. SHANKARAPPA

Income-tax References Cases Nos. 5, 6 and 7 of 1995, decided on 9th July, 1998.

Income-tax---

----Capital or revenue expenditure---Business---Tests to determine whether two units constitute same business ---Assessee exhibiting films in a theatre constructing a new cinema theatre---New cinema theatre did not constitute a new business---Interest on amount borrowed for construction of new theatre was revenue expenditure---Indian Income Tax Act, 1961, S. 37.

The test laid down for determining whether two lines of businesses constitute the same business are to find out if there was any interconnection, any interlacing, any interdependence, any unity at all embracing those two businesses. The question whether the different ventures carried on by the assessee form part of the same business would depend on the facts and circumstances of each case and it has to be established on the facts that the different ventures form part of the same business.

The assessee, an exhibitor of films, was running a cinema theatre. He purchased a site and commenced construction of another cinema theatre.

During the previous year relevant to the assessment year 1981-82, the assessee claimed deduction of interest of a sum of Rs.56,429 paid to the Karnataka Bank Limited. The said interest was claimed as the interest on the loan raised from the bank for the construction of the theatre. Similarly, for the assessment years 1982-83, 1983-84 and 1984-85, the assessment years under consideration, the assessee paid interest amounting to Rs.1,65,738, Rs.2;29,206 and 3,97,032 and claimed the same as revenue expenditure against its business income. The Income-tax Officer disallowed the assessee's claim on the ground that the borrowed amount on which interest had been paid was utilised for the construction of a new cinema building and as such, the payment of such interest had to be capitalised. The Income-tax Officer also noticed that the theatre building was still under construction and the construction was incomplete during the previous years relevant to the assessment years 1982-83, 1983-84 and 1984-85. Hence, according to the Income-tax Officer the payment of interest till construction of the theatre was completed had to be capitalised and the same was not admissible as revenue expenditure against the assessee's business income. The disallowance was deleted by the Commissioner of Income-tax (Appeals) and this was confirmed by the Tribunal. On a reference:

Held, that the finding of fact recorded by the Tribunal that the loan had been taken for expansion of business had not been challenged by the Revenue. There was an interconnection,, interlacing and interdependency between the existing business and the new unit. Setting up of the new cinema hall in Mandya did not constitute 'a new business, but was only an establishment of a new unit of an existing business which was already being carried on by the assessee. It constituted the same business. The assessee was entitled to deduct the interest as revenue expenditure, irrespective of the fact at the building in question was not actually put to use for carrying out a business during the accounting year by the assessee.

CIT v. Prithvi Insurance C. Ltd. (1967) 63 ITR 632 (SC) and Produce Exchange Corporation Ltd. v. CIT (1970) 77 ITR 739 (SC) applied.

Challapalli Sugars Ltd. v. CIT (1975) 98 ITR 167 (SC); CIT v. Alembic Glass Industries Ltd. (1976) 103 ITR 715 (Guj.); CIT v. Hindustan Machine Tools Ltd. (No. 1) (1989) 175 ITR 212 (Kar.); CIT v. Indian Telephone Industries Ltd. (1989) 175 ITR 215 (Kar.) (Appex.); CIT v. Insotex (Private) Ltd. (1984) 150 ITR 195 (Kar.); CIT (Addl.) v. Southern Founders (1979) 120 ITR 37 (Kar.); Desai (C. T.) v. CIT (1979) 120 ITR 240 (Kar.); India Cements Ltd. v. CIT (1966) 60 ITR 52 (SC); L. M. Chhabda & Sons v. CIT (1967) 65 ITR 638 (SC); Ravi Machine Tools (P.) Ltd. v. CIT (1978) 114 ITR 459 (Kar.) and Scales v. George Thompson & Co. Ltd. (1927) 13 TC 83 ref.

E. R. Indra Kumar for the Commissioner.

?G. Sarangan and S. Parthasarathi for the Assessee.

2000 P T D 1580

[234 I T R 70]

[Karnataka High Court (India)]

Before Ashok Bhan and S. R. Venkatesha Murthy, JJ

SATISHCHANDRA & CO.

Versus

COMMISSIONER OF INCOME-TAX

I.T.R. Cases Nos. 39 to 41 of 1995, decided on 24th July 1998.

Income-tax---

----Rectification of mistake---Mistake apparent from record ---ITO setting off carried forward business loss of assessment year 1976-77 against income from business and interest income shown as income from other sources of assessment years 1979-80, 1980-81 and 1981-82---Assessments rectified by limiting set off of brought forward losses against "income from business" only and to tax income from other sources---Interest income arose from deposits made at instance of Bank to enable Bank to give Bank guarantee--­Interest income closely connected with business income and was part of business income---In any case two views possible on question and point debatable---Rectification not valid---Indian Income Tax Act, 1961, S.154.

For the assessment year 1979-80, the Income-tax Officer computed the business income of the assessee at Rs.2,30,758 and "income from other sources" at Rs.1,07,670; for the assessment year 1980-81 the "income from business" at Rs.1,33,189 and "income from other sources" at Rs.1,85,103; and for the assessment year 1981-82, the total income was computed at Rs.2,99,273 and income from other sources at Rs.1,61,194. For all the three assessment years, the income from other sources was on account of interest, which was earned on the deposits made at the instance of the bank to enable .the bank to give bank guarantee for making bids for the contracts. There was carried forward business loss of Rs.10,20,700 pertaining to the assessment year 1976-77. The Income-tax Officer set off the carried forward business loss and made the assessment for the assessment years 1979-80 and 1980-81 at nil income and the remaining loss of Rs.3,64,983 against the income of Rs.4,61,267 for the assessment year 1981-82. Later, the Income-tax Officer issued notices under section 154 of the Income Tax Act, 1961, for rectifying the assessments by limiting the set off of losses brought forward from the earlier years against the income computed under the head "Business" only and to subject to tax the interest income. The assessee filed objections and overruling the objections, the Income-tax Officer rectified the assessment as, according to him, there was a mistake apparent from the-record in so far as the carried forward business loss was set off against income under the head "Income from other sources", since under section 72(1) of the Act the carried forward business loss of an earlier year could in no case be set off against the profits from a source other than business, profession or Vocation. On appeal to the Commissioner of Income-tax (Appeals), the assessee contended that the deposits which had yielded interest were made at the instance of the bank to enable the bank to give bank guarantee for bidding for the contracts, that the deposits were made in the course of business and as such the interest income arose in the course of the business, and that since the interest income was assessable as business income, there was no mistake in the orders of assessment wherein a set off of the carried forward loss had been allowed against interest as well. In the alternative, the assessee contended that in the event two views were possible in the matter of assessability of the interest like, whether it should be assessed as business income or under the head "Income from other sources", it would not be justified to take recourse to the provisions of section 154, as it could not be said that the setting .off of the carried forward loss against interest income was a mistake that was apparent on the face of records. The Commissioner of Income-tax (Appeals) accepted the contention of the assessee and cancelled the order of rectification on the ground that there could be two views on the question. On further appeal before the Tribunal, the Revenue contended that the assessee itself had shown the interest income under the head "Income from other sources" and the same had been assessed under that head, that it was a patent mistake of law committed by the Income-tax Officer to have set off carried forward business loss against the interest income as well, which was rectifiable under section 154. The Tribunal accepted the contention of the Revenue and held that there was a mistake apparent from the record in giving set off of carried forward business loss of earlier years against interest income of the subsequent years. On a reference:

Held, reversing the decision of the Tribunal, (i) that merely because the assessee had shown the income by way of interest as income from other sources, that would not disentitle it to urge before the authorities that the income earned by way of interest was business income as the said income arose in the course of the business. The assessee had to make deposit in the bank as a condition for obtaining bank guarantee to be filed before the excise authorities as required under the Excise Rules. The interest income which arose out of the transaction was closely connected with the business of the assessee and so the interest income was also part of business income. If the income was assessable as business income, then the-mere circumstance that the assessee had shown it as "income from other sources" or that it was assessed under the head "Income from other sources", should not be made a ground for denying to the assessee the set off of the carried forward losses.

In any case the assessee could not be precluded from establishing before the authorities that it was business income.

(ii) That whether interest income was assessable as "business income" or as "income from other sources" was a debatable point giving rise to the possibility of two views, it could not be said that there was a mistake apparent from the record and that, therefore, the order of rectification under section 154 passed by the Income-tax Officer was not valid.

Snam Progetti S. P. A. v. CIT (Addl.) (1981) 132 ITR 70 (Delhi) and CIT v. Madras Refineries Ltd. (1997) 228 ITR 354 (Mad.) fol.

Balaram (T. S.), ITO v. Volkart Bros. (1971) 82 ITR 50 (SC) ref

G. Sarangan, Senior Advocate for S. Parthasarathy for the Assessee.

M. V. Seshachala for the Commissioner.

2000 P T D 1717

[234 I T R 308]

[Karnataka High Court (India)]

Before Ashok Bhan and S. R. Venkatesha Murthy, JJ

COMMISSIONER OF INCOME-TAX

Versus

I.T.I. EMPLOYEES' DEATH AND SUPERANNUATION RELIEF FUND

I.T.R. C. Nos.34, 31, 32, 33, 34, 35, 36 and 37 of 1995, decided on 24th July, 1998.

(a) Income-tax---

----Charitable purposes---Charitable trust---Trust established for benefit of employees of a public sector company---Trust was not established for charitable purposes within the meaning of S..2(15) Not entitled to exemption under S.11---Indian Income Tax Act, 1961 Ss. 2 (15)& 11.

(b) Income-tax--

---Income Mutual concern-- General ''principle Trust established for benefit of employees of a public sector company---Trust fund's to consist of contributions front employees, contribution front employer, contribution from employer donation etc.--­Trust empowered to invest funds---interest' on investments would riot be covered by principle of mutuality---Not entitled to exemption -Indian Income Tax Act, 1961: "

The essence of mutuality lies in the return for what one has contributed to a common fund. The fund should fulfil the essential requirements, that all the contributors to the common fund must be entitled to participate in the ,surplus, and that all the participators in the surplus. It does not mean that each member should contribute to the common fund or that each member should participate in the surplus or get back from the surplus'-precisely what he had paid.- The principle of mutuality is not destroyed by the presence of transactions which are non-­mutual in character and the principle of mutuality can, tit such cases," be confined to transactions with members. The two activities in appropriate cases can be separated and the profits derived from non-members can be brought to tax.

The assessee-trust styled The Indian Telephone Industries Employees Death and Superannuation Relief Fund" was created by a deed, dated December 19, 1983,by 'the employees of the Indian Telephone Industries called the settlers for the :btef,of:abpu1,120,000 employees of ITI in various towns in the country. As per clause 2 of the Trust deed, the trust funds consisted of (i) monthly contributions "by employees; (ii) contributions if any made by the, ITI management, (iii) donations;. (iv) interest or other income earned from the funds or any investments thereof, (v) securities and investments made out of the funds, and (vi) money or other assets vested in any manner in the trust. The assessee earned interest income on its deposits from various 'banks. The assessee claiming to be' a charitable Trust constituted for a charitable purpose claimed exemption of its income from taxation under section 11 of the Income Tax Act, 1961. The Assessing Officer denied the exemption. On appeal the assessee contended that it was entitled to exemption under section 11 and in the alternate as a mutual concern. The appellate authority rejected the contention but the Tribunal accepted, the assessee's plea that it was constituted for charitable purposes and, therefore, its income was exempted finder section 11 of the Act. The alternative plea raised by the assessee that the assessee was a mutual benefit fund and'; therefore interest, income: derived by, it was' not. chargeable to tax, was rejected. On a reference;

Held, (i) that the objects of the Trust did not fall within the purview of section 2(15) of the Act and its income was not exempt under: sections 11 and 12 of the Act.

CIT v. Bel, Employees Death Relief Fund and Service Benefit Fund Association (1997) 225 ITR 270 (Kar.) fol.

(ii) that if the facts of the present case were examined in the light' of the principles applicable to the concept of mutuality, then it had to be held that the ingredients of mutuality were missing in the present case: Apart from the contributions made by the members there were other sources of funding of the Trust fund. The Trust fund could be augmented by contributions made by the ITI management, donations, interest or other income, accrued or earned from the said funds or any investment thereof and investment made from out of the funds. The object of the Trust was to invest the funds of the Trust in banks and securities for, earning interest to discharge the liabilities and obligations created under the Trust. The fund was a welfare fund established for providing benefit to the employees on retirement/termination of service death, etc.,; of such employees. It was not a case of a surplus from the contributions made by the members. It was also not a- case where the assessee had advanced its funds to its, members and had earned interest on those loans. Income from interest earned from outside agency, namely, from the bank and securities would not be covered on the principle of mutuality. It was not, exempt from taxation.

Carlisle and Silloth Golf Club v. Smith (1912) 6 TC 48,(KB); CIT v. Kumbakonam Mutual Benefit Fund Ltd. (1964)-53 ITR 241 (SC);:,CIT v. Madras Pace Club (1976) 105 ITR 433 (Mad.); CIT v. Ranchi Club Ltd. (1992) 196 ITR 137 (Pat.); CIT v. Nataraj Finance' Corporation (1988) 169 ITR,t732; (AP-;.,Sports Club of Gujarat Ltd. v.. CIT (1988) 171. I,TR 504 (Guj.); Styles (Surveyor of Taxes) u.. New York Life Insurance Company (1989) 2 TC 460 (HL) and. Thomas v. Richard-Evans & Co. Ltd. (1927) 1 ITC 790 (HL) ref.

E.R. Indra Kumar for the Commissioner.

K.R.. Prasad for the Assessee.

2000 P T D 1790

[234 I T R 535]

[Karnataka High Court (India)]

Before Ashok Bhan and S. R. Venkatesha Murthy, JJ

COMMISSIONER OF INCOME-TAX

versus

BHARATH EARTH MOVERS LTD

I.T.R. No. 108 of 1995, decided on 10th September, 1998.

Income-tax---

----Revision---Appeal---Merger of assessment order in appellate order---No evidence that particular issue had not been considered by Appellate Authority---Order of revision with regard to such an issue was not valid--­Indian Income Tax Act, 1961, S.263.

Held, that, in the present case, it was not clear from the statement of the case as to whether the subject-matter in appeal before the appellate authority was other than what had been considered by the Commission while exercising his revisional powers under section 263(1) of the Income Tax Act, 1961. It was for the Revenue to have contended before the Tribunal and brought on record the fact that the subject-matter for consideration before the Commissioner in exercise of jurisdiction under section 263(1) was other than what had been considered by the Commissioner (Appeals) while deciding the appeal. The order of revision was not valid.

CIT v. Shri Arbuda Mills Ltd. (1988) 231 ITR 50 (SC) and CIT (Addl.) v. Vijayalakshmi Lorry Service (1986) 157 ITR 327 (Kar.) ref.

E.R. Indrakumar for the Commissioner.

King and Patridge for the Assessee.

2000 P T D 2302

[236 I T R 829]

[Karnataka High Court (India)]

Before V. K. Singhal, J

SHREE SOMESHWARA FARMERS COOPERATIVE SPINNING MILLS LTD.

versus

JOINT COMMISSIONER OF INCOME-TAX (ASSESSMENT) and others

Writ Petition No.38098 of 1998, decided on 7th January, 1999

Income-tax---

----Recovery of tax---Writ--Notice of demand---Intimation under S.143(1)(a) is deemed to be a notice of demand---Appeal, against assessment pending before Tribunal---Assessee not applying to Tribunal for stay of recovery proceedings---Recovery proceedings could not be interfered with by High Court in writ proceedings---Indian Income Tax Act, 1961, Ss. 143, 220 & 226(3)---Constitution of India, Art. 226.

The provisions of section 143(1)(a)(i) of the Income Tax Act, 1961, provide that if any tax or interest is found due on the basis of the return after adjustment of the tax liability deducted or paid, an intimation is required to be sent to the assessee and that intimation is deemed to be a notice of demand issued under section 156:

Held, dismissing the writ petition, that in the intimation sent under section 143(1)(a), dated November 30, 1994, a note was given that this intimation was deemed to be a notice of demand under section 156 and the amount was required to be paid within 30 days of the service of the intimation. This was not objected to earlier and, therefore, it could not be objected to at this stage. Even on merits the fiction created for treating the intimation under section 143(1)(a) dispenses with the requirement of issuing notice of demand under section 156. All the machinery provisions of recovery of tax passed are applicable to the tax for which intimation only has been given. The contention, therefore, that the tax had not become due was not correct. The other contention regarding the application which was pending before the Commissioner of Income-tax, could not also be considered at this stage. It was for the petitioner to have approached the Tribunal when the second appeal was pending before it. There is no restriction in moving the application for stay before the Tribunal even if the application is pending before the Commissioner where the appeal is pending. In these circumstances, the High Court could not under its extraordinary jurisdiction interfere with the recovery proceedings.

Manmohanlal v. ITO (1987) 168 ITR 616 (SC) not applied.

ITO v. Seghu Buchiah Setty (1964) 52 ITR 538 (SC) ref

E. S. Kiresur for Petitioner.

E. R. Indra Kumar for Respondents

2000 P T D 2741

[237 I T R 112]

[Karnataka High Court (India)]

Before Ashok Bhan and S.R. Venkatesha Murthy, JJ

S. TAKENAKA

versus

COMMISSIONER OF INCOME-TAX

Income-tax Reference Case No.85 of 1995, decided on 3rd September, 1998.

Income-tax---

----Salary---Perquisites---Income-tax on salary paid by employer constitutes perquisites---Such income-tax must be grossed up for purposes of taxation--­Indian Income Tax Act, 1961, S.17.

Tax paid by the employer is a perquisite given to the employee which has to be added to the salary of the employee like other perquisites and then calculate the tax subject to any admissible deductions in law.

Tokyo Shibaura Electric Co. Ltd. v. CIT (1964) 52 ITR 283 (Mys.) applied.

Hartland v. Diggines (1926) AC 289 (HL) and North British Rail Co. v. Scott (1923) AC 37 (HL) ref.

G. Sarangan for S. Parthasarathi for the Assessee.

E. R. Indra Kumar for the Commissioner.

2000 P T D 3053

[235 ITR 13]

[Karnataka High Court (India)]

Before V.K. Singhal, J

SALAR PUBLICATIONS TRUST

versus

INCOME-TAX OFFICER and another

Writ Petition No. 10269 of 1990, decided on 30th July, 1998.

(a) Income-tax---

----Recovery of tax---Writ---Garnishee proceedings---Admission of liability by garnishee---No evidence to show that notice had not been properly served---Fact that a notice under S.226(3) mentions a lesser amount would not render it invalid---Garnishee had alternate remedy by way of revision--­Writ would not issue to quash recovery proceedings---Indian Income Tax Act, 1961, S.226---Constitution of India, Art.226.

(b) Writ---

---- Existence of alternate remedy---Writ will not normally issue--­Constitution of India, Art.226.

There was a firm S, which had, borrowed a sum of Rs.10,74,000 between February, 1981 and May, 1981, from one A who was an assessee under the Income-tax Act and there were dues to the Income-tax' Department outstanding against him. The Tax Recovery Officer initiated proceedings under section 226(3) of the Income Tax. Act, 1961, and notice, dated May 25, 1982 was issued in the name of the firm, which was served on R on May 29, 1982. R was managing the affairs of the firm. This notice was for a sum of Rs.5,49,644. The firm, S, consisted -of six partners and it admitted the petitioner-trust as the seventh partner on March 1, 1984. The firm was dissolved within a short span of one month from March 31, 1984 whereby all the retraining six partners ceased to be partners of the firm and all assets and liabilities were taken over by the trust. In the statement, dated May 21, 1987, M, the trustee of the petitioner-trust, admitted the liability of the trust to the extent of Rs.10,74,000. The trust filed a writ petition against the notice. It contended that it was not liable to pay the dues because there was no valid service of notice tinder section 226(3) and the proceedings were barred under section 231 of the Act and that the affidavit of M had only been rejected but not found to be false:

Held, dismissing the writ petition, (i) that it was the burden of the petitioner to establish that there was no valid service of notice. No steps were taken by the petitioner to establish that R was a stranger and was not concerned with the day-to-day business of the firm. The only contention which had been raised was that he was not a partner. Presuming that he was not a partner, it was not necessary that the service of notice could be on the partner alone in accordance with the provisions of section 282 of the Act. The burden which was on the petitioner had not been discharged and, therefore, the service of notice, dated May 29, 1982; was considered to be sufficient service.

(ii) That section 231 of the Act had been omitted by the Direct Tax Laws (Amendment) Act of 1987, with effect from April 1, 1989. This section mentions that no proceedings for the recovery of any sum payable under the Income-tax Act shall be commenced after the expiry of three years from the last date of the financial year in which the demand is made. Since it was considered that the valid service was effected on May 29, 1982, this contention was not sustainable.

(iii) That it was admitted in the affidavit of M that the trust had taken over the liability of the firm on dissolution, and the liability was denied only on the ground of limitation. It was also submitted that the notice, dated May 25, 1982, was for a sum of Rs.5,49,644 and, therefore, the recovery beyond that amount could not be effected. This contention had also no force as valid proceedings were initiated by issuing notice under section 226(3), which was served on May 29, 1982. Even if no amount was mentioned in the notice, the notice would not be void.

(iv) That, moreover, against the order of the income-tax Officer, the petitioner had the remedy of revision. A writ would not issue to quash the recovery proceedings.

Beharilal Ramcharan v. ITO (1981) 131 ITR 129 (SC); Behari Lal Ram Charan Kothi v. ITO (1972) 84 ITR. 113 (All.); Kundan Laf Vedi v. CIT (1958) 34 ITR 414 (Punjab); Mansa Devi Mithal v. U.P. State

Warehousing Corporation (1979) 116 ITR 413 (All.); National Glass Silicate and Chemical Works v. Dy. CIT (1992) I98 ITR 733 (All.); Sunderlal Daga v. TRO (1997) 225 ITR 10 (Bom.) and Sunil Siddharthbhai v. CIT (1985) 156 ITR 509 (SC) ref.

K.R. Prasad for Petitioner.

M.V. Sheshachala for Respondents.

2000 P T D 3063

[237 I T R 630]

[Karnataka High Court (India)]

Before V. K. Singhal, J

V. M. SALGAOCAR & BROS. LTD. and others

versus

INCOME-TAX OFFICER and others

Writ Petitions Nos. 14991-93, 24697, 26725, 28494-95, 29410, 32004 of 1994 and 18245 and 19947 of 1997, decided on 14th January, 1999.

Income-tax---

----Deduction of tax at source---Contractor---Deduction of tax at source on payment to contractor---Law applicable---Effect of Expln. III to S.194C--­Explanation applicable only from 1-7-1995---Prior to 1-7-1995, S. 194C was not applicable to contracts for transport of goods---Indian Income Tax Act, 1961, S.194C---[Ekonkar Dashmesh Transport Co. v. CBDT (1996) 219 ITR 511 (P&H) dissented from].

Section 194C of the Income Tax Act, 1961, provides that any person responsible for paying any sum to any resident for carrying out any work including supply of labour for carrying out any work in pursuance of a contract between the contractor and the Central Government or any State Government or any local authority or any corporation established by or under a Central, State or Provincial Act: or any company or any cooperative society, shall at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to two percent. of such sums as income-tax on income comprised therein. By an amendment by the Finance Act, 1995 this amount has been reduced to one percent. in the case of advertising and in any other case it is 2 percent. It is physical force which is comprehended in the word "work".. Section 194C(1) refers to carrying out of any work. If subsection (1) is read as a whole then it could be interpreted that it is the work of labour which is done by the contractor or he may supply the labour as a sub-contractor. Subsection (2) of section 194C also refers to the contract for carrying out the work undertaken by the contractor or for supplying wholly or partly any labour which the contractor has undertaken to supply. The judgment of the Supreme Court in Associated Cement Co. Ltd. v. CIT (1993) 201 ITR 435 was in respect of loading of cement bags into wagons/trucks. It was .in this context that the word "any work" was held not restricted to payment in relation to works contract. Even the circular, dated May 29, 1972, interpreted the provisions of section 194C and clarified that the tax is not to be deducted under section 194C from payments to transaction contractors. It was only because of the judgment given in the case of Associated Cement Co. Ltd., that another circular, dated March 8, 1994, was issued by the CBDT and section 194C was held applicable only from April 1, 1994, and for a long time, i.e., more than twenty years, the interpretation which was taken by the Department and acted upon was that transport contractors are not liable for deduction of tax under section 194C. It- is only by virtue of Explanation III added by the Finance Act, 1995, that advertising, broadcasting, telecasting, carriage of goods and passengers by any mode of transport and catering have been included. This Explanation cannot be considered procedural. The inclusive definition given by this Explanation, therefore, is to be made applicable only from July 1, 1995. Prior to July 1, 1995 section 194C was not applicable in the case of a mere transportation of goods.

Advertising Agency Association of India v. CBDT (1994) 210 ITR 152,(Bom.); Bombay Goods Transport Association v. CBDT (1994) 210 ITR 136 (Bon.) and Chamber of Income-tax Consultants y. CBDT (1994) 209 ITR 660 (Bon.) fol.

Ekonkar Dashmesh Transport Co. v. CBDT (1996) 219 ITR 511 (P&H) dissented from. ..

Associated Cement Co. -Ltd. v. CIT (1993) 201 ITR 435 (SC), Calcutta Goods Transport Association v. Union of India (1996) 219 ITR 486 (Cal.); Delhi Goods Transport Association v. CBDT (1995) 80 Taxman 52 (Delhi) and Sethi Transport v. CBDT (1997) 226 ITR 274 (Orissa) ref.

Parthasarathi for Petitioners (in W.Ps. Nos.14991 to 14993 of 1994 and 29410 of 1994).

Vigneshwar S. Shastry for Petitioner (in W.P. No.26725 of 1994)

S. Shekar Shetty for Petitioner (in W.P. No.24697 of 1994).

P.K. Basheer Ahmed for Petitioner (in W.P. No.32004 of 1994).

M. Ravi Prakash for Petitioner- (in W. Ps. Nos. 18245 and 19947 of 1997).

M. V. Seshachala for Respondents.

2000 P T D 3310

[237 I T R 445]

[Karnataka High Court (India)]

Before V K. Singhal, J

BIDAR SAHAKARI SAKKARE KHARKHANE NIYAMAT and 3 others

Versus

UNION OF INDIA and others

Writ Petitions Nos.5373 of 1992, 19042, 19050 and 19043 of 1994, decided on 25th November, 1998.

Income-tax---

----Assessment---Loss---Additional tax---Constitutional validity of provisions---Object of provision to prevent tax evasion or filing of incorrect return---"Tax" includes "Additional Tax" ---Dispensing with hearing at pre­-decisional stage and providing such hearing subsequently under different provisions not unreasonable---Character of additional tax is not that of penalty---Parliament has power to legislate prospectively or retrospectively--­Provisions not violative of Arts. 14 & 265---Provisions valid---Indian Income Tax Act, 1961, S.143(1)(a), (IA) ---Constitution of India, Arts. 14 & 265.

Entry 82 of List 1 of Schedule VII to the Constitution (Union List) authorises imposition of tax on income other than agricultural income. It is the computation of the income by which the resultant figure may result in a loss figure which is sought to be taxed. This is with the object to prevent tax evasion or filing of incorrect return and to ensure proper payment of tax and compliance with law. Such an object could be considered as ancillary and incidental to the main power and thus, even without seeking any assistance from Entry 97 of the Union List, Parliament has power to levy the tax. The word "tax" will include "additional tax". The character of tax and penalty may differ, but not of tax and additional tax: In penalty, normally discretion has to be exercised to levy or not to levy; it is not automatic. In all cases where return is filed, action under section 143(1A) of the Income Tax Act, 1961, has to be taken levying additional tax of 20 percent. No discretion is left with the assessing authority. Explanation 6 to section 271(1)(c) of the Act has only clarified the position that the penalty would not be levied where additional tax has been levied. That Explanation does not make the character of additional tax as that of penalty. Parliament has power to legislate prospectively or retrospectively. Section 143(1A) inserted by the Finance Act, 1993, retrospectively from April 1, 1989, therefore, cannot be considered to be violative of Articles 14 and 265 of the Constitution of India. The very object of section 143(1)(a) by making prima facie adjustment is to avoid hearing being given. Debatable adjustments exclude prima facie adjustments. It is post-decisional hearing which is provided enabling the assessee to file objection by moving an application under section 143(2)(a), within one month from the date of service of notice of demand. A revision could. be filed under section 264 and in view of the Explanation to section 143(5) even against an intimation. Appeal could be filed under section 246 besides availability of the remedy of revision under section 264. The provisions of section 143(1)(a) or, section 143(1A) of the Act cannot be considered to be violative of the principles of natural justice or discriminatory, arbitrary or unreasonable being violative of Articles 14 and 265 of the Constitution of India.

The provisions being within the legislative competence ensuring proper and correct payment of tax and particulars in the return dispensing with the hearing at pre-decisional stage and providing such hearing under the provisions of the Act, subsequently under different provisions, cannot be considered as unreasonable. The Legislature can by specific provision exclude an opportunity being given and if such an opportunity is given subsequently for redressals then the provision cannot be considered: to be beyond the competence of the Legislature.

Therefore, additional tax which .has been levied uniformly at 20 per cent under section 143(1A) of the Act on account of prima facie adjustment cannot be considered to be unreasonable or violative .of the provisions of Articles 14 and 265 of the Constitution of India.

Kamal Textiles v. Income-tax Officer (1991) 189 ITR 339 (M.P); Kerala State Coir Corporation Ltd. v. Union of India (1994) 210 ITR 121 (Ker.) and Sanctus Drugs Pharmaceuticals (Pvt.) Ltd. v. Union of India (1997) 225 ITR 252 (MP) fol.

A reference under the Government of Ireland Act, 1920, section 51 and section 3 of the Finance Act (Northern Ireland), 1934, In re (1936) 2 All ER 111; (1936) AC 352 (PC); Banwari Paper Mills (P) Ltd. v. Deputy CIT (1997) 228 ITR 320 (Kar.); CITv. B.C. Srinviasa Setty (1981) 128 ITR 294 (SC); Indo-Gulf Fertilizers and Chemicals Corporation Ltd. v. Union of India (1992) 195 ITR 485 (All.); J.K. Synthetics Ltd. v. Assistant CIT (19933 200 ITR 584 (Delhi); Modi Cement Ltd. v. Union of India (1992) 193 ITR 91 (Delhi); Rai Ramkrishna v. State of Bihar (1953) 50 ITR 171 (SC); Rajasthan State Electricity Board v. Deputy CIT (1993) 200 ITR 434 (Raj.); Saiko Matek Engineering (Private) Limited v. D.C. Pant, Deputy CIT (1993) 204 ITR 839 (Bom.); Sati Oil Udyog Ltd. v. CIT (1998) 232 ITR 502 (Gau.); Sukra Diamond Tools (Pvt). Ltd. v. Deputy CIT (1998) 229 ITR 682 (Mad.) and Union of India v. Bombay Tyre International Ltd. (1986) 59 Comp. Cas. 460 (SC) ref.

Kishore Mallya for Petitioner.

H.N. Naga Mohan Das and M.V. Seshachala for Respondents.

2000 P T D 3347

[237 I T R 502]

[Karnataka High Court (India)]

Before V.K. Singhal, J

N. VINODKUMAR & CO. and another

versus

UNION OF INDIA and others

Writ Petitions Nos.21889 of 1992 and 8898 of 1993, decided on 18th November, 1998.

Income-tax---

----Company---Return--Compulsory audit of accounts---Different dates fixed for companies for obtaining audit report or for submitting return vis-a-vis non-companies---Constitutional validity of provisions---Companies constitute a different class---Provisions not discriminatory and violative of Art. 14--­Provisions valid---Indian Income Tax Act, 1961, Ss. 44-AB, `139(1) & 271-B---Constitution of India, Art. 14.

On the question whether prescribing different dates for obtaining the audit report under section 44AB of the Income Tax Act, 1961, or prescribing different dates for filing the return under section 139(1), for companies vis-a-­vis non-companies is discriminatory and violative of Article 14 of the Constitution of India.

Held, that in the case of companies even the time-limit- for filing return, where provisions of section 44AB are not applicable, is December 31, which has now been changed to November 30. A company even after the audit has to get the accounts approved and, therefore, the general date for filing return is at a later date. Therefore, in the case of a company it has been considered by Parliament to fix a date subsequent to that which is available to the other assessee. Persons other than the companies are not required to follow the procedure prescribed under the Companies Act, 1956, where some delay may take place. Companies constitute a separate class by themselves and, therefore, if Parliament has prescribed different dates for obtaining report or filing return, it cannot be said that the other assessees are of the same group as a company is. Classification of a company and other assessee is a reasonable classification as companies constitute a, different class. There are other provisions under the Act, where different treatment is being given to companies. Since companies themselves constitute a different class, prescribing different dates for obtaining audit report under section 44AB or prescribing different dates for filing return under section 139(1) cannot be considered to be violative of Article 14 of the Constitution of India.

Abhay Kumar & Co. v. Union of India (1987) 164 ITR 148 (Raj.); Mohan Trading Co. v. Union of India (1985) 156 ITR 134 (MP); Nataraj (T:S.) v. Union of India (1985) 155 ITR 81 (Kar.); Rajkot Engineering Association v. Union of India (1986) 162 ITR 28 (Guj.); Sarma (A.S.) -v. Union of India (1992) 175 ITR 254 (AP); Sathya Moorthy. (R.) v Union of India (1991) 189 ITR 491 (Mad.); State of Gujarat v. Shri Ambica Mills Ltd. (1974) 45 ITR 381, and AIR 1974 SC 1300 fol.

R. Rama Murthy for Petitioners.

K.H. Kalmath for Vasan Associates and Seshachala for respondents.

2000 P T D 3535

[238 I T R 89]

[Karnataka High Court (India)]

Before V.K. Singhal, J

BHARAT CONDUCTORS (PVT.) LTD, versus

COMMISSIONER OF INCOME-TAX

Writ Petition Nb.4996-98 of 1993, decided on 11th February, 1999.

Income-tax---

----Interest---Waiver of interest---Delay in filing return---Failure to file estimate of advance tax---Income from sale of import entitlements made taxable because of retrospective amendment by Finance Act, 1990---Levy of interest for assessment years 1984-85 to 1986-87 requires waiver---Indian Income Tax Act, 1961, Ss. 139(8) & 217.

If for any reason the law is amended retrospectively creating liability of tax then, it would be sufficient cause for not charging interest under section 139(8) of the Income Tax Act, 1961:

Held, that interest levied under section 139(8) of the Income Tax Act, 1961, for the assessment years 1984-85 to 1986-87 in respect of income on sale of import entitlements which became taxable because of retrospective amendment of section 28 by the Finance Act, 1990, required waiver. Interest under section 217 of the Act on the same reasoning was also to be waived in respect of the income derived by the assessee on sale of import entitlement which was made taxable because of retrospective amendment by the Finance Act, 1990.

CIT v. Pure Beverages Ltd. (1995) 214 ITR 57 (Guj.) ref.

Ramabhadran for Petitioner.

M. V. Seshachala for Respondent.

2000 P T D 59

[231 I T R 607]

[Kerala High Court (India)]

Before P. Shanmugham, J

K. VENUGOPALAN NAMBIAR

versus

ASSISTANT COMMISSIONER OF INCOME-TAX (ASSESSMENT) and another

O. P. No. 13044 of 1997, decided on 24th September, 1997.

Income-tax---

----Recovery of tax---Delay in payment of tax----Interest---Assessment and issue of notice of demand---Appeal and order of remand by Tribunal to recompute income---Notice of demand remained valid and effective to extent tax was finally determined ---Assessee liable to pay interest under S.220(2)--­Indian Income Tax Act, 1961, S.220.

The proviso to subsection (2) of section 220 of the Income Tax Act, 1961, states that if as a result to a subsequent order the amount on which the interest was payable under this section had been reduced, the interest shall be reduced accordingly. Where an assessment order is set aside and a fresh assessment is directed to be made, the assessment must be deemed to be still pending. The notice of demand remains valid and effective to the extent that the tax is finally determined to be due and payable by the assessee. The enforceability of the notice of demand is qualified by and subject to the fresh determination of the liability. What is required by an order of remand is not to refund the money collected as per the original order, but to recompute the amount of tax that is payable by the assesssee. The original assessment is annulled not with a view to refund but with a view to correct the determination of liability. Where the assessee had not paid the tax as per the original demand notice, the amount on which the interest was payable would. have to be reduced according to the subsequent order consequent on the appeal. That is the import of the proviso to subsection (2) of section 220 of the Act.

The original assessment of the petitioner for the years 1982-83 and 1984-85 to 1987-88 was completed on March 27, 1991, and demand was raised accordingly. On appeal to the Commissioner of Income-tax (Appeals) by the petitioner, the assessment order was set aside with certain directions. On second appeal, the Tribunal found that there was no need for setting aside the assessment. It allowed the appeal partly and directed the Assessing Officer to recompute commission income and bring to tax the interest from banks. The Tribunal's orders were given effect to, and the total income and tax were finally determined. Thereafter, the Deputy Commissioner levied interesteinder section 220(2) of the Act for the delay in payment of tax for the above years. As against these demands the petitioner filed a revision petition before the Commissioner of Income-tax who upheld the demand of interest. On a writ petition against this order:

Held, dismissing the petition, that the petitioner was liable to pay interest as per section 220(2) of the Act read with the proviso thereto.

C IT v. Chittoor Electric Supply Corporation (1995) 212 ITR 404 (SC) ref.

ITO v. A. V. Thomas.& Co. (1986) 160 ITR 818 (Ker.); New Woodlands v. CIT (1982) 138 ITR 795 (Ker.); New Woodlands Hotel v. CIT (1991) 188 ITR 137 (Ker.) and Purshottam Dayal Varshney v. CIT (1974) 94 ITR 187 (All.) ref.

T. M. Sreedharan and N. Unnikrishnan for Petitioner.

P. K. R. Menon for Respondents.

2000 P T D 114

[232 I T R 807]

[Kerala High Court (India)]

Before G. Sivarajan, J

BENZ CORPORATION

versus

INCOME-TAX OFFICER and others

O. P. No. 15113 of 1992-Y, decided on 3rd November, 1997.

Income-tax---

----Transfer of case---Powers of C.I.T.---Power of transfer is quasi-judicial and must be exercised in a fair and reasonable manner---Order should contain reasons---Order of transfer without considering objections of assessee---Not valid---Indian Income Tax Act, 1961, S.127---Constitution of India, Art.226.

The power of transfer of assessment files from one authority to another is conferred on the Commissioner of Income-tax under section, 127(1) of Income Tax Act, 1961. The power is a quasi-judicial one. Such a power has to be exercised in a fair and reasonable manner and not in an arbitrary or mechanical way. The passing of a reasoned order is one of the requirements of fairness in action.

The petitioner, who was an assessee to income-tax on the files of the Income-tax Officer, Ernakulam, made an application to him for transfer of the said files to Delhi, where the petitioner's administrative office also was transferred. It was stated that, since no reply was received from the first respondent, the petitioner filed returns before the Assistant Commissioner of Income-tax, Circle 10(1), New Delhi, and the assessment for the year 1990-91 had been completed. Meanwhile, the Assistant Commissioner of Income-tax, Circle I, Division II, Ernakulam, issued a communication stating that the assessment files of the petitioner had been transferred to him. Within one month thereafter, the petitioner received a communication from the Chief Commissioner of Income-tax, Cochin, stating that he proposed to transfer the petitioner's assessment files from the Income-tax Officer, Ernakulam, to the Assistant Commissioner of Income-tax, Central Circle I, Emakulam, for administrative convenience and called for the petitioner's objection, if any, to the above. The petitioner filed his objection stating that the petitioner was then assessed to income-tax by the Income-tax Authorities at Delhi. The Chief Commissioner of Income-tax issued a notification transferring the assessment of the petitioner to the Assistant Commissioner of Income-tax, Central Circle, Ernakulam. On a writ petition to quash the communications and the notification:

Held, that the Chief Commissioner of Income-tax had filed a counter-affidavit stating certain facts and circumstances which were not disclosed in any of the communications. The Chief Commissioner of Income­-tax could not supplement the notification with averments made in the counter-affidavit. The transfer of the assessment file to the Assistant Commissioner of Income-tax , Central Circle I, Ernakulam, was liable to be quashed. The Chief Commissioner of Income-tax had to consider the petitioner's objections and take a decision after giving an opportunity of personal hearing to the petitioner as expeditiously as possible, at any rate, within a period of two months. from the date of receipt of a copy of this judgment.

P. Balachandran for Petitioner.

N.R.K. Nair for Respondents.

2000 P T D 128

[231 I T R 668]

[Kerala High Court (India)]

Before Om Prakash, C. J. and J. B. Koshy, J

COMMISSIONER OF INCOME-TAX

versus

V. I. ABRAHAM

O. P. No. 4021 of 1997-S, decided on 23rd January, 1998.

Income-tax---

----Reference---Question of law--Penalty---Delay in filing return---Assesses contending that delay was due to delay in finalising accounts of firms in which he was partner---Tribunal cancelling penalty but no finding recorded by it that there was sufficient cause for not finalising accounts of firms--­Whether Tribunal right in cancelling penalty is a question of law fit for reference---Indian Income Tax Act, 1961, Ss.271(1)(a) & 256(2)

For the assessment year 1983-84 the due, date for filing the return was July 31,1983, but the assesee filed the return on November 14, 1985. The assessee explained that the return could not be filed in time as there was delay in finalising the accounts of the firms in which the assessee was a partner. The Tribunal held that it was well-settled that where the accounts of the firm were not finalised the delay in filing the return by the partner would constitute reasonable cause and cancelled the penalty imposed on, the assessee under section 271(1)(a) of the Income Tax Act, 1961. However, the Tribunal did not record any finding whether there was sufficient cause for not finalising the accounts of the firms which delayed the submission of the return by the assessee. The Revenue filed an application under section 256(1) of the Act for referring a question of law, which wets rejected by the Tribunal. On an application filed under section 256(2):

Held, that a question of law, whether in the absence of a finding that there was sufficient cause for not finalising the accounts of the firms in which the assessee himself was a partner, the Tribunal was right in cancelling the penalty imposed under section 271(1)(a), arose for reference.

P. K. R. Menon and N. R. K. Nair for the Commissioner.

R. Harikrishnan and C. A. Rajeev for. the Assesses.

2000 P T D 173

[232 I T R 678]

[Kerala High Court (India)]

Before Mrs. K.K. Usha and N. Dhinakar, JJ

COMMISSIONER OF INCOME-TAX

versus

H. H. MAHARANI SETHU PARVATHI BAYI through Legal Heirs

Income-fax Reference No.77 of 1992 along with I.T.Rs. Nos.37 of 1990 and 48 of 1996, decided on 26th September, 1997.

(a) Income-tax---

----Capital gains---Firm---Partner---Contribution of shares in company as capital in firm---Decision of Supreme Court in 156 ITR 509 was directly applicable---Tribunal had to consider if transaction was genuine---Indian Income Tax Act, 1961, S.45.

(b) Income-tax---

----Appeal to Appellate Tribunal---Revenue adducing evidence that particular transaction was not genuine---Duty of Tribunal to. consider evidence---Indian Income Tax Act, 1961, S.254.

During the previous year relevant. To the assessment year 1976-77, the assessee had transferred 4,000 shares of N by way of share capital to a partnership firm by name P in which the assessee was a partner. The value of the said shares was shown as Rs.10 lakhs, that is, at the rate of Rs.250 per share. The Income-tax Officer took the view that since the assessee had transferred 4,000 shares as share capital in the firm, she was liable for capital gains tax. The Commissioner of Income-tax (Appeals) held that tax could not be levied under section 45 of the Income Tax Act,1961. The Tribunal took the view that the Commissioner of Income-tax (Appeals) had committed an error in deleting the entire levy of capital gains tax. The Tribunal took the view that tax could be levied only on the basis of the stated consideration of Rs.250 per share and not on the basis of the market value as determined by the Income-tax Officer. The assessee field an application for rectifying the order under section 254(2). The contention raised by the assessee was that the Supreme Court had held in Sunil Siddharthbhai v: CIT (1985) 156 ITR 509 that the transferor of assets to a firm as capital, received no consideration within the meaning of section 48 and consequently, there could be no profit or gain under section 45. Even though the above prayer was opposed by the Revenue, the Tribunal allowed the petition. The order was recalled. The Revenue filed an application seeking to recall this order and to pass suitable orders directing the Income-tax Officer to go into the real nature of the transaction and find out whether the interpolation of the firm P was only a device or ruse for evading liability to income-tax on capital gains and to pass orders accordingly. It was stated by the Revenue in its petition that immediately after the transfer of 4,000 shares by the assessee to the firm P, there was a further transfer of these very same shares from the assessee on December 26,1975, to the joint names of the assessee, P and B. These 4,000 shares were later transferred from the joint names of the above persons to B, on March 24,1976, in lieu of which, the assessee was allotted 10,000 shares of Rs.100 each of B. According to the Revenue, the above transactions would clearly show that the real transfer of shares in question was actually made to B by originally transferring the ownership to the joint names of the assessee, P and B, and the name of the firm P to whom the shares were shown to have been transferred was interpolated to evade tax on the capital gain arising as a result of this transfer. The miscellaneous petition filed by the Revenue was dismissed by the Tribunal by merely observing that at the time of hearing, it made an enquiry as to whether the firm in which capital contribution had been made, still continued and the answer was in the affirmative, and since the firm was still in existence and no other material was brought on record to hold that the transaction of contribution of capital was a ruse or device, there was no apparent mistake in the order, dated May 6,1987. On a reference:

Held, that the Revenue had made a clear statement in its petition as to the transaction relating to the 4,000 shares which followed immediately after the transfer. To the firm on November 15,1975.When these materials were placed before the Tribunal, it was the bounden duty of the Tribunal to have examined the same by making appropriate enquiry. The Tribunal should have enquired into the real nature of the transaction in the light of the observations contained in the judgment of the supreme Court in Sunil Siddharthbhai v. CIT (1985) 156 ITR 509. The rejection of the petition filed by the Revenue in the manner in which it was done by the Tribunal was not , justified. (Tribunal directed to consider matter afresh by making necessary enquiry as contemplated by the judgment of the Supreme Court in 156 ITR 509), Abdul Rahim (A.) v. CIT (1977) 110 ITR 595 (Ker.); Sunil Siddharthbhai v. CIT (1985) 156 ITR 509 (SC) and Varghese (K. P.) v. ITO (1981) 131 ITR 597 (SC) ref.

P.K.R. Menon and N.R.K. Nair for the Commissioner.

B. Krishnamani and N. Srinivasan for the Assessee.

2000 P T D 193

[232 I T R 692]

[Kerala High Court (India)]

Before G. Sivarajan, J

GEORGE JOHN

versus

COMMISSIONER OF INCOME-TAX and another

O. P. No.7572 of 1991-B, decided on 27th October, 1997.

Income-tax--­

---Assessment---Loss---Return disclosing loss and claiming carry forward of loss---Rejection of return ---Assessee must be given opportunity to be heard before such rejection---Indian Income Tax Act, 1961, S.143---Constitution of India, Art.226.

Under section 143(1) of the Income Tax Act, 1961, there is an obligation, on the part of the Assessing Authority to make an assessment of the total income or loss of the assessee after making such adjustment to the income or loss declared in the return. Under subsection (2), where a return has been made under section 139 and an assessment having been made under subsection (1), if the assessee makes within one month from the date of service of the notice of demand issued in consequence of such assessment, an application to the Income-tax Officer objecting to the assessment, or whether or not an assessment has been made under subsection (1), if the Income-tax Officer considers it necessary or expedient to verify the correctness and completeness of the return by requiring the presence of the assessee or the production of evidence in this behalf, the Income-tax Officer shall serve or: the assessee a notice requiring him to attend at the Income-tax Officer's office or to produce, or cause to be produced any evidence on which the assessee may rely.

For the assessment. year 1986-87, which was the first year of assessment, the assessee filed a loss return before the Income-tax Officer ,declaring a total loss of Rs.1,11,248 comprising unabsorbed depreciation of Rs.34,201 and unabsorbed investment allowance of Rs.77,047. It was states that the petitioner also claimed carry. forward of such loss to the following assessment' year. For the assessment year 1987-88, the petitioner filed a loss return on December 22,1987, claiming an aggregate loss of Rs.1,39,631 comprising Rs.1,11,248 being loss carried forward from the assessment year 1986-87, unabsorbed depreciation for the relevant year of Rs.23,118 and share of loss from other partnerships Rs.5,265. It was further stated that the petitioner claimed that the aggregate loss of Rs.1,39,631 be carried forward to the following assessment year to be set off against the income, if any, of such year. The Income-tax Officer did not pass any assessment order on the .returns filed for the years 1986-87 and 1987-88. Subsequently, for the assessment year 1988-89, the petitioner filed his return before the Income-tax Officer on July 29, 1988, returning an aggregate loss of Rs.2,68,703 comprising business loss for the year 1988-89 of Rs.1,20,072 and loss carried forward from the assessment year 1987-88 of Rs.1,39,631.The petitioner claimed that such aggregate loss should be carried forward to the following assessment year to be set off against the income, if any, of that year. The Income-tax Officer completed the assessment for 1988-89 under section 143(1) of the Act and allowed a loss of Rs.1,06,495 to be carried forward. The petitioner then filed a rectification petition. The Income-tax Officer replied that the loss for the years 1986-87 and 1987-88 were allowed to be carried forward\as the returns were filed belatedly. The petitioner then filed a revision petition which. was rejected. On a writ petition against the orders:

Held, that in the instant case, the petitioner had not been afforded an opportunity as contemplated under subsection (2) of section 143 of the Act. It was practically admitted that the order stated to have been passed for the assessment year 1986-87 had not been served on the petitioner. Regarding the communication of the assessment order for the year 1987-88 it was stated that the same was intimated by an inland letter. There was absolutely no proof or evidence regarding the service of notice of the assessment order for the year 1987-88 also on the petitioner. At any rate, when the petitioner had specifically brought to the notice of the Income-tax Officer that he had not received any order of assessment for the years 1986-87 and 1987-88; the Income-tax Officer was bound to intimate the fact of completion of the assessment for the said two years and also communicate the order for 1987-88. Nothing had been stated in .the communication rejecting the application for rectification. The only reason stated was that the returns submitted for the years 1986-87 and 1987-88 were belated and, therefore, the carry forward was not allowed. The petitioner in the revision filed against the assessment order for 1988-89 had pointedly taken all these contentions before the Commissioner of Income-tax but the Commissioner of Income-tax had rejected the same stating that these matters could not be agitated in a revision filed against the assessment order for the year 1988-89.The Commissioner of Income-tax was not justified in rejecting the revision petition. Since the petitioner was not afforded an opportunity before rejecting the loss returns and the claim for carry forward of the said loss, the order of assessment for the year 1988-89, the order rejecting the application for rectification and the order of dismissal of the revision petition, were liable to be quashed. Since the matter related to the assessment years 1986-87 to 1988-89, the Income-tax Officer was directed to complete the proceedings for the aforesaid three years afresh with notice and opportunity to the petitioner as expeditiously as possible, at any rate; within a period of two months from the date of receipt of a copy of this judgment).

CIT v. Khushal Chand Daga (1961) 42 ITR 177 (SC); Garden Silk Weaving Factory v. CIT (1991) 189 ITR 512 (S); Fatechand Agarwal v. CWT (1974) 97 ITR 701 (Orissa) and Sathappa Textiles (Pvt.). Ltd. v. Second I.T.O. (1969) 71 ITR 260 (Mad.) ref.

S. Siri Jagan for Petitioner.

N.R.K. Nair and P.K.R. Menon for Respondents.

2000 P T D 205

[238 I T R 79]

[Kerala High Court (India)]

Before Om Prakash, C.J. and J. B. Koshy, J

COMMISSIONER OF WEALTH TAX

versus

P. KRISHNA WARRIER

Income-tax References Nos.45 to 48 of 1995, decided on June 8, 1998.

Wealth tax---

----Exemption---Property held on trust for religious or charitable purposes--­Tribunal finding that objects of assessee-trust predominantly charitable and religious in nature---Entire property of trust exempt from wealth tax though only 60 percent. of income of trust spent for charitable and religious purposes---Difference between provision in Income-tax Act and Wealth Tax Act-.--Indian Wealth Tax Act, 1957,S. 5(1)(i).

As per the deed of the assessee-trust, 60 percent. of the income of the trust was to be spent for charitable and religious purposes and the remaining 40 percent. was to be spent for the descendants of the settlor for a period of 20 years and thereafter, the entire income was to be utilised for charitable purposes. All the relevant assessment years fell during the interregnum period of 20 years, which expired on January 30, 1964. During the relevant assessment years, the assessee-trust claimed exemption under section 5(1)(i) of the Wealth Tax Act,1957, in respect of the properties held under trust. The Wealth Tax Officer took the view that inasmuch as only 60 percent. of the total income was to be spent for charitable and religious purposes, for the purposes of wealth tax, the property belonging to the trust would be treated to have been held for charitable and religious purposes only to that extent and the remaining part of the property would be assessed to wealth tax. The Wealth Tax Officer apportioned the property and brought the part of the property to. the extent of 40 percent. to wealth tax for the relevant assessment years. On appeal, the Appellate Assistant Commissioner held that the entire property was exempt from wealth tax. On further appeal, the Tribunal held that unlike the provisions of the Income-tax Act, for the purposes of wealth tax the entire property held by the trust had to be treated as exempt from tax under section 5(1)(i), if the predominant object of the trust was charitable and religious in nature and since the predominant object of the assessee-trust was charitable and religious in nature, the assessee-trust was entitled to exemption in respect of the whole property and not to the extent of 60 percent only. On a reference:

Held, that the Tribunal had recorded a finding of fact that the assessee-trust was primarily and predominantly a public charitable trust and, therefore, the assessee-trust would be entitled to exemption under section 5(1)(i) of the Act in respect of the entire corpus of the trust.

Trustees of K.B.H.M. Bhiwandwalla Trust v CWT (1977) 106 ITR 709 (Bom.) applied.

Abdul Sathar Haji Moosa Sait Dharmastapanam v. CIT (1988) 169 ITR 84 (Ker.); Krishna Warrier (P.) v. CIT (1981) 127 ITR 192 (Kei.) and Managing Shebaits of Bhukailash Debutter Estate v. WTO (1977) 106 ITR 904 (Cal.) ref

P.K.R. Menon and N.R.K. Nair for the Commissioner.

C. Kochunni Nair for the Assessee.

2000 P T D 235

[238 I T R 280]

[Kerala High Court (India)]

Before Om Prakash, C. J. and J. B. Koshy, J

COMMISSIONER OF WEALTH TAX

versus

P.V. VARGHESE

O. P. No. 11665 of 1997, decided on 3rd March, 1998.

Wealth tax---

----Reference---Question of law ---Exemption---Assessee, partner in firms dealing in jewellery---Firms purchasing old gold comments and handing them over to goldsmiths to manufacture new gold ornaments---Assessee producing goldsmiths vouchers showing ornaments, making charges, weight of old gold, its purity, wastage, etc.---Firms were engaged in business of manufacture of new gold jewellery from old gold ornaments--­Goldsmiths worked under firms' premises ---Assessee entitled to exemption--­Indian Wealth Tax Act, 1957, Ss.5(1)(xxxii) & 27(3).

The Appellate Tribunal found that the assessee was a partner in two firms dealing in jewellery, that these firms used .to purchase old gold ornaments and hand them over to goldsmiths to manufacture new gold ornaments, that the assessee had produced the goldsmith vouchers showing the ornaments, making charges paid, weight of old gold and its purity, wastage, etc., that from the vouchers produced by the assessee, it was clear that the firms in which the assessee was a partner were engaged in the business of manufacture of new gold jewellery from old gold ornaments purchased from various people and that the goldsmiths worked under, the firms' premises. The Tribunal, therefore, reached the conclusion that the firms in which the assessee was a partner, being engaged in the business of manufacture of new gold jewellery from old gold ornaments, were entitled to exemption under section 5(1)(xxxii) of the Wealth Tax Act, 1957:

Held, that the finding of the Tribunal was a finding of fact and no question of law arose for reference.

P.K.R. Menon and N.R.K. Nair for the Commissioner.

2000 P T D 437

[232 I T R 115]

[Kerala High Court (India)]

Before V. V. Kamat and K. Narayana Kurup, JJ

K. MAHIM

versus

COMMISSIONER OF INCOME-TAX

Income-tax References Nos. 177 and 178 of 1991, decided on 9th September 1996.

Income-tax ---

----Penalty---Concealment of income---Finding, that income from contract business had been concealed---Imposition of penalty was valid---Indian Income Tax Act, 1961, S.271(1)(c).

The assessee filed returns for the assessment year 1967-68 showing Rs.2,723 as his income, and for the assessment year 1966-67 it was shown as Rs.3,692. Thereafter revised returns were filed. For the assessment year 1967-68, revised income was shown to be Rs.24,882 and in regard thereto, Rs.15,700 was shown as business income from contract and Rs.5,982 as income from share of profit from K. The materials on record showed that there was an investment of 86.30,000 of the assessee in the firm K and in the said firm, the assessee was a partner having 1/7th share of profit alongwith six other partners. This source of investment was disclosed to be (1) Rs.10,000 received as loans from his uncle, and (2) Rs.20,000 received from one A. The Income-tax Officer completed the assessment for the year 1966-67. When the return disclosed an income of Rs.23,435, with regard to an item amounting to Rs.6,000 there from as income from other sources, an addition of Rs.7,063 was made by the officer. On the other count, on Rs.10,850 as income from contracts, it was assessed at Rs.11,049. This was with refer lice to one receipt of Rs.16,258 for the work done with the executive engineer. It appeared that for the assessment year 1967-68, the amount of Rs.5,962 shown towards share of profit from K was increased to Rs.12,242. Apart from the above orders passed by the Income-tax Officer, the matter was referred to the Inspecting Assistant Commissioner for concealment of income for both the years. The assessee submitted his explanation. For the year 1966-67, a penalty of Rs.20,000 was imposed and for the year 1967-68, a penalty of Rs.30,500 was imposed. The Tribunal held that for the assessment year 1966-67, a penalty could not be levied. However, with regard to the assessment year 1967-68, the penalty of Rs.6,000 was sustained. The High Court considered the situation in CIT v. Mahim (1984) 149 ITR 737, and held that the filing of returns voluntarily would not exonerate the assessee from the penal provision under section 271(1)(c) of the Income Tax Act, 1961, for the assessment year 1966-67. For the assessment year 1967-68, the High Court held that the correct income in relation to contract income had been fixed at Rs.14,242 and that penalty should be reckoned as Rs.14,242, in the event of its being held that penalty was leviable. The Tribunal imposed minimum penalty for both the years. On a reference:

Held, that in the instant case, it had been established that there had been concealment of income. Penalty levied under section 271(l)(c) for the assessment years 1966-67 and 1967-68 was valid.

CIT v. Mahim (K.) (1984) 149 ITR 737 (Ker.) ref.

S.A. Nagendran, K.M. Majeed and Premjit Nagendran for the Assessee.

P. K.R. Merton and N.R.K. Nair for the Commissioner

2000 P T D 665

[232 I T R 887]

[Kerala High Court (India)]

Before Mrs. K. K. Usha and G. Sivarjan, JJ

COMMISSIONER OF INCOME-TAX

versus

SUPRIYA ENTERPRISES

Income-tax References -Nos.15 to 18 of 1995, decided on 12th August, 1997

(a) Income-tax---

----Income from undisclosed sources---Additions to income---Tribunal considering evidence and reducing addition---Order of Tribunal was valid.

(b) Income-tax---

----Reference---Finding of Fact---Finding of fact based on evidence is final=-­Indian Income Tax Act, 1961, S: 256.

On a reference, the High Court and- the Supreme Court have the jurisdiction to intervene only if it- appears that the Tribunal has arrived at a finding based on no evidence or where the finding is inconsistent with the evidence or contradictory to it or it has acted on material partly relevant and partly irrelevant or where the Tribunal has drawn upon its own imagination, imports facts and circumstances not apparent from the record, or bases its conclusions on mere conjectures or surmises, or where no person judicially acting and properly instructed as to the relevant law could have come to the determination reached.

The assessee-firm entered into an agreement with the M company on July 18, 1982, for sale of the company's estate having an extent of 698.92 acres to the assessee or its nominee for a consideration of Rs.210 lakhs. An amount of Rupees five lakhs was paid as advance. As per the agreement, the balance consideration was to be paid in instalments. The assessee could not pay the instalments on the due dates. Therefore, the company extended the time and the entire dues to the company were finally settled on September 24, 1984. A search under section 132 of the Income Tax Act, 1961, was conducted on January 15, 1985, at the residential premises of three partners of the firm. Simultaneously search was conducted at the office of the company and the assessee-firm. Certain files, deeds of settlement including torn copies of agreements were seized. After the search the assessee approached the Commissioner of Income-tax to settle its income-tax by assessing a profit of Rs.25 lakhs distributed equally among the assessment years 1985-86 to 1987-88. The above proposal was not accepted by the Department. The assessing authority estimated the average rate of sale consideration at Rs.50,000 per acre as against Rs.40,000 per acre as shown by the assessee and on that basis calculated the average gross profit at Rs.12,362.37 per acre. The assessment was, thus, completed for the assessment years 1985-86 and 1986-87 at Rs.51,86,290 and Rs.23,97,200 which was reduced, to Rs.41,23,000 and Rs.19,10,000 respectively by the Commissioner of Income-tax (Appeals). The Tribunal restricted the addition for the years 1985-86 and 1986-87 to Rs.5,00,000 and Rs.3,00,000 respectively. On a reference:

Held, that the Tribunal noted that even though no proper books of account had been maintained, the assessing authority accepted the expenses claimed by the assessee. What was disbelieved by the Income-tax Officer was only the rate at which sale of property was effected. The conveyance deed was ultimately made by the company N to the individual purchaser. These registered documents reflected the price of the land. According to the Tribunal, this was a piece of evidence which could not be discarded. The Tribunal also took into consideration the settlement of account between the firm and the individual purchaser. The Tribunal had correctly found that in making the estimate of income a uniform rate of Rs.50,000 per acre could not be assumed. Even though the assessee had sold 698 acres of land, it comprised plantations of different age. Therefore, the value would differ. It was on the basis of all these materials and after detailed discussion, that the Tribunal came to the conclusion that an addition to the extent of Rs.5,00,000 for 1985-86 and Rs.3,00,000 for the year 1986-87 to the income returned by the assessee would be just and reasonable. The Tribunal had not taken into account any irrelevant material in support of its conclusions and it had not omitted to consider any relevant material. Its order was not perverse and could not be interfered with.

CIT v. Jain (S. P.) (1973) 87 ITR 370 (SC); CIT v. Karam Chand Thapar & Bros. (P.) Ltd. (1989) 176 ITR 535 (SC); CIT v. Nirmal Liquors (1991) 190 ITR 636 (Ker) and CIT/EPT v. Sen (S.) (1949) 17 ITR 355 (Orissa)

P.K.R. Menon and N.R.K. Nair for the Commissioner.

Joseph Markose and Thomas Vellapally for the Assessee.

2000 P T D 684

[232 I T R 530]

[Kerala High Court (India)]

Before Mrs. K. K. Usha and G. Sivarajan, JJ

COMMISSIONER OF INCOME-TAX

versus

MIDLAND RUBBERS AND PRODUCE CO. LTD

Income-tax Reference No. 76 of 1994, decided on 10th January, 1997

Income-tax---

----Business expenditure---Current repairs---Disallowance of expenditure--­Expenditure on repairs and insurance of cars and jeeps is covered by S.31--­Section 37(3A) is not applicable---Expenditure on repair cannot be disallowed---Indian Income Tax Act, 1961, Ss.31 & 37.

Expenditure incurred by the assessee as repair charges of car and jeep would come directly under section 31 of the Income Tax Act, 1961. Section 37(1) takes in cases which are not covered by sections 30 to 36, and the non obstante clause in section 37(3A) does not have the effect of bringing the provisions contained under section 31 also within the purview of section 37(1). Hence, expenditure in respect of repairs and insurance of motor car or jeep cannot be included in the expenditure incurred on running and maintenance of motor cars for the purpose of restriction under section 37(3A). Repairs are governed by section 31 and taxes are regulated under section 30 and such expenditure cannot be construed as running and maintenance expenditure of motor cars described under section 37(3A).

CIT v. A. V.. Thomas & Co. Ltd. (1997) 225 ITR 29 (Ker.) ref.

P.K.R. Menon and N.R.K. Nair for the Commissioner

C.N. Ramachandran Nair for the Assessee.

2000 P T D 735

[232 I T R 624]

[Kerala High Court (India)]

Before P. A. Mohammed, J

S. A. WAHAB

versus

INCOME-TAX OFFICER and another'

O.P. No.2218 of 1993 L, decided on 27th August, 1997.

Income-tax---

----Revision---Discretion of Commissioner---Commissioner cannot pass an order "prejudicial to assessee"---Interference with order passed by Commissioner not automatic---Reduction or waiver of interest ---I.T.O. refunding excess tax paid by assessee arising from Tribunal's order---High Court setting aside Tribunal's order---Notice of demand issued for tax and interest---Revision petition filed by assessee dismissed by Commissioner--­Commissioner holding that tax demanded not paid in time---Assessee diverting funds for construction of theatre building without paying tax when it was due ---Establishes that assessee has not co-operated in proceedings for recovery of tax---Commissioner finding that no genuine hardship to assessee as he derived income from transport business regularly ---Assessee unable to establish that default in payment of tax due to circumscribes beyond control of assessee---Commissioner holding that due to non-­compliance with provisions interest cannot be waived---Discretion of Commissioner properly exercised---Indian Income Tax Act, 1961, Ss.220(2), (2A) & 264.

The power of the High Court to interfere with an order passed by the Commissioner under section 264 of the Income Tax Act, 1961, is not automatic; it has its own limitations.

For the assessment year 1987-81, the Income-tax Officer passed an order of assessment fixing the total income of the petitioner at Rs.1,31,810 and the total tax payable at Rs.70,483. Against the order of the Income-tax Officer, the petitioner, filed an appeal before the Appellate Assistant Commissioner who rejected the appeal. On further appeal, the Tribunal allowed the application of the petitioner for rectification under section 154 of the Income Tax Act, 1961, as a result of which the depreciation in respect of buses was fixed at the rate of 40 percent. Subsequently, the Income-tax Officer passed an order giving effect to the order of the Tribunal, thereby allowing refund of the iota] amount of Rs.11,554 being the excess tax paid. Against the order of the Tribunal, the Commissioner came on a reference to the High. Court and the High Court set aside the order of the Tribunal and answered the reference in favour of the Revenue. Thereafter, the Income-tax Officer passed art order demanding an w mount of Rs. 36,349 towards interest under section 220(2) of the Act. The petitioner thereafter filed a revision petition under section 264 of the Act against the order of the Income-tax Officer before the Commissioner of Income-tax. The Commissioner dismissed the revision petition. On a writ petition challenging the order of the Commissioner, the petitioner contended that the Commissioner had failed to apply his mind to the case of the assesses for waiver of interest under section 220(2A) of the Act, because the appeal preferred by the assessee had been allowed by the Tribunal ordering refund of tax to the assessee and hence the respondents, were not entitled to recover interest under section 220(2) of the Act:

Held, that the Commissioner of Income-tax in exercise of his revisional power under section 64 might grant relief to the assessee but under the section the Commissioner is not empowered to pass an order prejudicial to the assessee. Though the Commissioner dismissed the revision petition filed by the petitioner, it did not mean it was an order prejudicial to the assessee and hence the commissioner had no power to pass such an order. The Commissioner had found that the entire tax demanded in respect of the assessment year 1980-81 had not been paid by the petitioner even at the time of passing the order by the Commissioner dismissing the revision petition filed by the petitioner. The petitioner's plea was that he could not remit the tax in time inasmuch as he had to raise funds for the construction of a theatre building, which meant that the petitioner was diverting the money for other purposes without paying the tax as and when it was due. This established that the petitioner had not cooperated in the proceedings for recovery of tax legally due from him. The Commissioner had further found that there was no genuine financial hardship to the petitioner inasmuch as he derived income from transport business regularly. The petitioner had no case that the default in the pay anent of tax was caused due to circumstances beyond the control of the petitioner. The Commissioner was not satisfied as to the requirements contemplated by subsection (2A) of section 220 of the Act, though he had not specifically mentioned the same in his order. The commissioner in view of the non-compliance with the provisions of subsection (2A) of section 220 refused to waive the interest. There was no infirmity in the order passed by the Commissioner and no miscarriage of justice and no error apparent on the face of the record which required interference. The writ petition was liable to be dismissed.

CIT v. Chittoor Electric Supply Corporation (1995) 212 ITR 404 (SC), CIT v. The Tribunal (1948) 16 ITR 214 (PC); ITO v. Seghu Buchaiah Setty (1964) 52 ITR 538 (SC):-New Woodlands Hotel v. CIT (1991) 188 ITR 137 (Ker.) and New Woodlands v. CIT (1982) 138 ITR 795 (Ker ) ref.

P. V. Baby for Petitioner .

P.K.R. Menon and N.R.K. Nair for Respondents.

2000 P T D 748

[232 I T R 824]

[Kerala High Court (India)]

Before Mrs. K. K. Usha and N. Dhinakar, JJ

MIDAS RUBBER (PVT.) LTD.

versus

COMMISSIONER OF INCOME-TAX

Income-tax References Nos. 125 of 1992, 4 of 1994, 166 and 167 of 1995, decided on 27th October, 1997.

(a) Income-tax---

----Previous year---Company---Surtax---Chance in previous year---Rejection of change on the ground that surtax liability would be affected---Rejection permissible ---Matter remanded to find out if in fact surtax liability would be adversely affected---Indian Income Tax Act, 1961, S. 3---Indian Companies (Profits) Surtax Act, 1964.

(b) Income-tax---

----Appeal to Appellate Tribunal---Powers of Tribunal---Rejection of application for change in previous year on the ground that liability for surtax would be adversely affected---Rejection upheld by Tribunal---Tribunal should not have entered a finding on its own that there would be such adverse effect---Calculation of surtax liability had to be made---Tribunal should remand matter to Assessing Officer--Indian Income Tax Act, 1961, S.255.

While considering a request for consent to change the previous year the assessing authority should not act arbitrarily. The power should be exercised in a judicial manner.

The Statement of Objects and Reasons attached to the Bill introducing the Companies (Profits) Surtax Act shows that it is the income of the assessee-company that is brought to tax under this enactment. Surtax is levied on chargeable profits of the previous year or years which have to be computed taking into consideration the total income of the assessee under the Income Tax Act, 1961. Therefore, it is very clear that the assessment of tax liability -under the Companies (Profits) Surtax Act, 1964, is integrally connected with the provisions of the Income Tax Act, 1961, regarding computation of total income. The term "previous year" is not defined under the Companies (Profits) Surtax Act, 1964, but section 2(9) of that Act provides that all other words and expressions used in that Act but not defined under it shall have the meaning as per the definition of the term under the Income-tax Act. Therefore, the definition of previous year under section 3 of the Income-tax Act has to be applied for the purpose of the Companies (Profits) Surtax Act, 1.964, also. If due to the change in the previous year, the surtax liability of the assessee is reduced, it will be a case where the Revenue is adversely affected. It cannot be treated as a remote effect. It is a direct consequence. If consent for change of previous year was denied under section 3(4) of the Income-tax Act for the reason that it would adversely affect the surtax liability, such an action would be reasonable:

Held, that, in the instant case, the order of the Tribunal would show that the surtax liability had been calculated first on the basis of the returns submitted by the assessee, then on the basis of the assessment made by the Income-tax Officer and thereafter on the basis of the view taken by the Commissioner of Income-tax (Appeals). It was not known from where the necessary figures were obtained in making such calculation. In order to finalise an assessment under the Companies (Profits) Surtax Act, 1964, it was necessary to get the details regarding capital, etc., which could not-be, in the normal course, part of the file of assessment under the Income Tax Act, 1961. The Tribunal should not have entered a finding on its own that there would be such adverse effect for the assessment year 1982-83. The Tribunal should have remanded the matter for the consideration of the Income-tax Officer. Apart from this, the Tribunal itself was not quite sure whether there would be such adverse effect on the Revenue for the subsequent years also: The Tribunal should have directed the Income-tax Officer to consider this aspect also after giving an opportunity to the assessee. '

CIT v. Travancore Titanium Products Ltd. (No. 1) (1993) 203 ITR 685 (Ker.); Rattan Lal Ved Prakash v. CIT (1983) 144 ITR 135~(All.) and Union of India v. J. K. Synthetics Ltd. (1993) 199 ITR 14 (SC) ref.

Joseph Marhas, Joseph Kodianthara and Markose Vellappally for the Assessee.

P. K. R. Menon and N. R. K. Nair for the Commissioner.

2000 P T D 961

[233 I T R 257]

[Kerala High Court (India)]

Before V. V. Kamat and K. Narayana Kurup, JJ

MERCANTILE AND MARINE SERVICES

versus

COMMISSIONER OF INCOME-TAX

I. T. R. No. 118 of 1992, decided on 11th September, 1996.

Income-tax---

----Business income or income from property---Clearing and forwarding agents handling exports and imports of Government bodies---Contract providing for storage of goods pending despatch and payment of charges therefore---Godown rent paid by Director-General of Supplies and Disposals-­Is incidental to contract---Is Business income not income from property--­Indian Income Tax Act, 1961, S.28.

The assessee was a firm of clearing and forwarding agents. Under a contract with the Director-General of Supplies and Disposals. It was appointed as a clearing agent at the port of Cochin on certain terms and conditions. Under the contract, the assessee was to handle imports and exports, both overseas and costal, of the Ministry of Supplies, Government of India, and-various branches thereof, kindred organizations attached to the Ministry as well as Government undertakings. The assessee would normally receive complete disposal instructions from the Director of Supplies and Disposals. The contract also provided for holding incoming and outgoing cargoes at the port pending despatch, and for storage, port charges and other consequential and incidental situations necessarily connected with the. clearing and forwarding activity under the contract. The assessee claimed that a sum of Rs.2,21,068 received as godown rent from the Director-General of Supplies and Disposals was income from property, but the Income-tax Officer taxed it as business income. This was confirmed by the Tribunal. On a reference:

Held, that in the process of the activity of the assessee as a clearing and forwarding agent it had demanded and the Director-General of Supplies and Disposals had paid the sum in question as godown rent. The godown rent was incidental to the activity under the agreement and the activity of the assessee was co-related with the clearing. and forwarding activity agreed under the contract. Therefore, the godown rent received by the assessee was income from business and not income from property.

CIT v. Malabar and Pioneer Hosiery (Pvt.) Ltd. (1996) 221 ITR 117 (Ker.) ref.

P. Balachandran for the Assessee

P.K.R. Menon and N.R.K. Nair for the Commissioner.

2000 P T D 992

[233 I T R 344]

[Kerala High Court (India)]

Before P. A. Mohammed and P. Shanmugam, JJ

D. K. B. & CO.

versus

COMMISSIONER OF INCOME-TAX

I. T. R. Nos. 13 and 14 of 1995, decided on 25th November, 1997

(a) Income-tax---

----Income from undisclosed sources---Firm---Deposits in name of husband of one of partners---Admission by such person that he was controlling business of firm and that deposits belonged to firm---Amount assessable as income of firm.

(b) Income-tax---

----Penalty---Concealment of income---Burden of proof---Returned income less than 80 percent. of assessed income ---Assessee must prove that there has been no concealment of income---Tribunal erroneously placing burden of proof on Revenue-- -Matter remanded----Indian Income Tax. Act, 1961, S.271(1)(c).

(c) Income-tax---

----Reference---Reference at the instance of revenue ---Assessee cannot raise a question not raised before Income-tax Authorities---Question regarding validity , of notice of penalty not raised before Income-tax Authorities---Question could not be raised for first time before High Court---Indian Income Tax Act, 1961, S.256.

The assessee-firm was engaged in business of Abkari contracts. One of its partners was P. The original assessment was completed on January 13, 1983,, on the net income of Rs.1,20,430. Subsequently, the Department conducted search operations in the office premises of the firm and the residential premises of partners on February 14, 1984. On the basis of the materials collected at time of search, the Department found certain bank accounts amounting to Rs.21,54,240 in the name of B. B. accepted that amount was traceable to the assessee-firm and that he was in full management of the business. B was P's husband. In the course of the search, the Department has also come across the statement of division of profits both accounted an unaccounted in which it was shown that B had 4/21 share in the profits. The statement was signed by all the partners, thus, showing that they had accepted B as a partner. Additions were made in the reassessment based on the credits found in the bank account. The assessment was confirmed by the Commissioner in appeal and the, Tribunal. Penalty proceedings were also initiated and penalty was levied. The Tribunal set aside the order of penalty on the ground that the Revenue had not proved concealment of income. On a reference:

Held, (i) that from all the materials made available and the ,circumstances of case, it was established beyond doubt that deposits belonged to the firm. From the statement of B himself. coupled with the statement of two bank employees and another partner by name D, it was clear that there was positive evidence to prove that the deposits were made for the firm and belonged to the firm. The Tribunal was right in holding that the income accrued to the assessee-firm in the assessment year 1982-83.

(ii) that if the assessee was aggrieved about the notice seeking to levy penalty it should have made a reference application. The assessee having not raised an issue on that point it was not entitled to raise it before the High Court.

(iii) that in the penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961, the burden is on the assessee to establish that there is no concealment. The burden had been wrongly placed on the Revenue. Besides even while invoking the proviso to Explanation 1 to section 271(1)(c), there were no materials existing or additional materials furnished warranting the conclusion that there was bona fide action on the part of the assessee. However, the applicant must be given another opportunity before the Tribunal to place materials for consideration. (Matter remanded.)

It is not open to the respondent in an application filed by the Department, to raise a question which was neither raised before the authorities below nor considered by it.

CIT v. Anwar Ali (1970) 76 ITR 696 (SC); CIT v. Damodaran (V.) (1980) 121, ITR 572 (SC); CIT v. Daulat Ram Rawatmull (1973) 87 ITR 349 (SC); CIT (Addl.) v. Jeevanlal Sah (1994) 205 ITR 244 (SC) and CIT v. Shri Pawan Kumar Dalmia (1987) 168 ITR I (Ker.) ref.

P. Balachandran for Assessee.

P. K. R. Menon and N.R.K. Nair for the Commissioner.

2000 P T D 1016

[233 I T R 369]

[Kerala High Court (India)]

Before V. V. Kamat and G. Sivarajan, JJ

COMMISSIONER OF INCOME-TAX

versus

PUNALUR PAPER MILLS LTD.

Income-tax References Nos. 152 and 153 of 1991, decided on 11th March, 1996.

Income-tax---

----Business expenditure---Interest---Interest on amount drawn from gratuity fund by employer---Deductible---Indian Income Tax Act, 1961, S.37, Sched. IV---Indian Income-tax Rules, 1962, R.106.

Held, that under the provisions of rule 106 of the Income Tax Rules, 1962, and rule 7 of Part C of the Fourth Schedule to the Income Tax Act, 1961, no money of the gratuity fund would become receivable by the employer under any circumstances and in regard thereto there would not be any lien or charge on the said gratuity fund. Hence, the Tribunal was right in law in holding that the assessee was entitled to deduction in respect of the interest payment made by it on the amount drawn by it from the gratuity fund.

P. K. R. Menon and N. R. K. Nair for the Commissioner.

C. N. Ramachandran Nair and Antony Dominic for the Assessee.

2000 P T D 1024

[233 I T R 383]

[Kerala High Court (India)]

Before Mrs. K. K. Usha and G. Sivarajan, JJ

COMMISSIONER OF INCOME-TAX

versus

POPULAR AUTOMOBILES

I.T.R. No 76 of 1995, decided on 5th March, 1997.

Income-tax---

----Firm---Business expenditure---Disallowance of expenditure---Interest paid to partner---Law application ---Assessee partner as trustee---Personal funds deposited in firm---Interest paid on such deposits could not be disallowed in assessment year 1977-78----Explanation 2 to S.40(b) is retrospective in operation---Indian Income Tax Act, 1961, S. 40(b).

Explanation 2 to section 40(b) of the Income Tax Act, 1961, in the context of clause (b) of section 40 is declaratory in nature. Therefore, even for periods anterior to April 1, 1985, with effect from which date Explanation 2 to section 40(b) was inserted, any interest paid to a partner, who is a partner representing his Hindu Undivided Family, on deposit of his personal/individual funds, does not fall within the mischief of clause (b) of section 40. Such interest would be allowable as a deduction in the computation of profits of the firm.

The assessee was a firm. While computing the income for the assessment year 1977-78, the Assessing Officer added a sum of Rs.33,921 representing interest paid to E, a partner in the firm, in her capacity as a trustee, of a trust. She had deposited her personal funds in the firm and on such deposit, an amount of Rs.33,921 was paid to her by the firm as interest. The assessing authority disallowed the interest. But the Tribunal held that the interest was deductible. .On a reference:

Held, that, on the facts, the Tribunal was right in law in upholding the claim of the assessee-firm, for deduction of interest paid to E.

Brij Mohan Das Laxman Das v. CIT (1997) 223 ITR 825 (SC) and CIT v. S. Veeriah Reddiar (1998) 229 ITR 186 (Ker.) fol.

N. T. R. Estate v. CIT (1986) 157 ITR 285 (AP) ref.

P. K. R. Menon and N. R, K. Nair for the Commissioner

M. C. Sen and M. P. Sreekrishnan for the Assessee.

2000 P T D 1108

[233 I T R 521]

[Kerala High Court (India)]

Before V. V. Kamat and K. Narayana Kurup, JJ

COMMISSIONER OF INCOME-TAX

versus

RAMANUJAM THAMPI and others

income-tax References Nos. 1 to 6 of 1993, decided on 9th October, 1996.

Income-tax---

----Penalty---Concealment of income ---Assessees purchasing grape garden with funds of firm of which they were partners---Sale deed showing assessees individually as vendees---Grape garden not, shown as an asset of firm---In books of grape garden accounts, assessees credited with profits of grape garden as agricultural income---Income from grape garden boosted up to give it colour of agricultural income, so that no tax would be leviable under Income-tax Act---Tribunal cancelling penalty on ground that concealment of income was by firm and not by assessees---Grape garden belonged to co­ownership of assessees and there was no firm---Tribunal not justified in cancelling penalty---Indian Income Tax Act, 1961, S.271(1)(c).

The assessees purchased a grape garden with the funds obtained from a firm of which they were partners. The sale deed mentioned the assessees individually as vendees and the grape garden was not shown as an asset of the firm. In the books of the grape garden the account of each of the assessees was credited with the profits of the grape garden divided equally between them. The assessments of the assessee-partners were reopened on the ground that iii the original assessments, the assessments were made without noticing the income from the grape garden and each of the assessees was additionally assessed at an amount of Rs.57,790 which came to be reduced to Rs.43,350 before the appellate authority. Thereafter, penalty proceedings under section 271(1)(c) of Income Tax Act, 1961. were initiated by the Inspecting Assistant Commissioner against the assessee which resulted in the imposition. of a penalty amounting to Rs.50,000, on each of the assessee­ partners. The Tribunal cancelled the imposition of penalty on the ground that the concealment of income was by the firm and not by the partners, rejecting the contention of the Revenue that, the assessees were not partners but only co-ownens. When this question originally came up before the High Court, the matter was remanded to the Tribunal. The Tribunal, on remand, had held that the income from the grape garden represented the actual income of. the assessees and the assessees had given the colour of agricultural income to their otherwise taxable income and that the assessees were co-owners. However, the Tribunal cancelled the penalties on the grounds that different authorities had taken different figures but had not rejected the explanation offered by the assessees and that the assessees might have earned the income estimated by them:

Held, that the assessees had intentionally boosted up the income from the grape garden, so that no tax would be leviable under the Income-tax 'Act on account of the said income being agricultural income and thereby concealed the real income liable to be assessed. Therefore, the Tribunal was not right in cancelling the penalty under section 271(1)(c) of the Act.

CIT v. Leela Vasanth Nair (R.) (1987) 167 ITR 837 (Ker.) fol.

Held also, that the Inspecting Assistant Commissioner had jurisdiction to deal with the proceedings under section 271(1)(c) of the Act.

CIT v. Sharadamma (Sort.) (R.) (1996) 219 ITR 671 (SC) applied.

CWT v. S. V. Doshi (1998) 229 ITR 671 (Ker.) and CIT v. K. P. Varoo (1998) 229 ITR 667 (Ker.) ref.

P. K. R. Menon and N. R. K. Nair for the Commissioner.

C. Kochunni Nair and M. C. Madhavan for the Assessees.

2000 P T D 1158

[233 I T R 620]

[Kerala High Court (India)]

Before V. V. Kamat and K. Narayana Kurup, JJ

COMMISSIONER OF INCOME-TAX

versus

S. KODER

I. T. R. No. 34 of 1993, decided on 20th September, 1996.

Income-tax---

----Succession of business---Valuation of stock---Conversion of firm to private limited company with erstwhile partners being the only shareholders-­Business of firm continued by company---Section 170 applied---Stock of firm could not be valued at market price---Indian Income Tax Act, 1961, S.170.

The assessee-firm was converted into a private limited company, on and from June 1, 1980. The entire business of the firm continued to be carried on by the company, with the partners of the firm as the only share­holders and with all the existing assets and liabilities of the firm. The Income-tax Officer held that in computing the income of the dissolved firm for the period ending on April 30, 1980, the closing stock of the firm had to be valued 'at market price. However, the Appellate Assistant Commissioner and the Tribunal found that the business which was run by the firm prior to June 1, 1980, was continued to be run by the successor limited company, its identity had not changed nor was the continuity of the business affected. The Tribunal observed that the intention of the partners in transferring the business to a private limited company was to change the form of" organization. The Tribunal recorded a finding that the dissolution was consequential to the transfer of business to the company. It held that section 170 of the Income Tax Act, 1961, was applicable. On a reference:

Held, that considering the facts and circumstances of the case it was clear that this was not a case where dissolution preceded the transfer. The consistent fact-finding of the three authorities rules out ,the question- of valuation of closing stock at market rate.

CIT v. K. H. Chambers (1965) 55 ITR 674 (SC) ref.

P. K. R. Menon and N. R. K. Nair for the Commissioner.

P. G. K. Wariyar for the Assessee.

2000 P T D 1209

[233 I T R 715]

[Kerala High Court (India)]

Before V. V. Kamat and K. Narayana Kurup, JJ

COMMISSIONER OF INCOME-TAX

versus

ASIAN TECHS LTD.

Income-tax References Nos. 126 to 131 of 1992, 71 to 74 and 75 to 78 of 1996 and 64 to 67 of 1993, decided on l6th October 1996.

(a) Income-tax---

----Appeal to Appellate Tribunal---Powers of Tribunal---Power to admit additional. evidence is a restricted power---Tribunal relying upon additional evidence produced before it without admitting it and without giving any reason---Difference of opinion between Members of .Tribunal regarding conclusions from such additional evidence---Order of Tribunal was not valid---Indian Income Tax Act, 1961, S. 260---Indian Income Tax Rules. 1962, R. 46A-7-Indian Income-tax (Appellate Tribunal) Rules. 1963, R. 29.

(b) Income-tax---

----Reference---Powers of High Court---High Court finding that Tribunal had relied on additional evidence without admitting it and following the conditions for doing so---Difference of opinion between members of Tribunal regarding conclusions from such additional evidence---High Court had power to quash order of tribunal and direct it to rehear the case---Indian Income Tax Act, 1961, Ss. 256 & 260.

The characteristic feature of the system of procedure relating to the quasi judicial tax authority is much different from that under the ordinary civil law. The system of procedural functioning justifiably expects that all the necessary materials in support of the contentions taken up by the assessee, must be made available in the proceedings before the Income-tax Officer. There has to be a contention and with regard thereto, there has to be material. Rule 46A of the Income-tax Rules, 1962, which deals with the appeal before the first appellate authority, is in the negative form, enacting that the appellant shall not be entitled to produce before the appellate authority any evidence, whether oral or documentary other than the evidence produced by him during the course of proceedings before the Assessing Officer. On sewn-d-appeal, the Tribunal gets power to admit additional evidence under rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963.

This power is with reference to certain situations enacted in regard thereto. Firstly, it is to enable the Tribunal to pass order, secondly, it is for any other substantial cause and, thirdly, in the event of a situation that the income-tax authorities have decided the case without giving sufficient opportunity to the assessee to adduce evidence either on points specified by them or not specified by them. The Tribunal, with regard to all these situations, is under a statutory obligation to record reasons as per the provisions of rule 29. Hence, it is clear that, ordinarily the Tribunal should dispose of the appeal, only on the basis of the material on record and available before it. It is also important that in regard to the material, the parties to the appear, the assessee and the Revenue, should have notice and knowledge.

Under section 260 of the Income Tax Act, 1961, the Court gets concerned with the question referred to it in its advisory function. Normally, the High Court and the Supreme Court while exercising advisory jurisdiction have only two options in the process of dealing with the situation, either to answer the question of law or to call for a supplementary statement of the case. However, there is a third course which has-been adopted by the Supreme Court itself on three occasions, where it resorted to a direction to the Tribunal to consider the question afresh, and consequently to dispose of the appeal in the light of its observations, after taking into consideration and account all the materials legally and properly received on record.

The assessee-company undertook engineering contracts. It had done elaborate work in Bhutan and for that purpose it had set up a huge factory at the work site. Its claim' for special deduction under sections 80J and 80HH was negatived by the Assessing Officer and the First Appellate Authority on the ground that it did not manufacture or produce any article. On further appeal to the Tribunal, a copy of the details showing description of the articles manufactured and also the amounts received by the assessee came to be fled on behalf of the assessee, on the directions of the Tribunal. The Judicial Member based his entire reasoning on the material tendered in the above situation for the first time before the Tribunal. The Accountant Member also relied on the same material but did not agree with the conclusion of the Judicial Member. Thereafter, the President of the Tribunal proceeded to consider the position on the basis that the assessee was manufacturing intermediate products, that too on the basis of the situation as admitted by both the members. The President referred to the decision of the Supreme Court in CIT v. Cellulose Products (199.1) 192 ITR 155. The President emphasised the fact that the Supreme Court reversed the decision of the Gujarat High Court in Cellulose Products (I.) Ltd. v. CIT (1977) 110 ITR 151, holding that even if intermediate products are manufactured, only if they are marketable by themselves and if their production was covered by the objects specified in the memorandum of association, such products would .be covered by the expression "articles". The majority view was that the assessee was not entitled to the benefit under sections 80J and 80HH in the relevant assessment years. On references filed at the instance of both the Revenue and the assessee:

Held, that the difficulties in this case were that there had been a complete violation of the statutory provisions of rule 29 of the Income-tax Appellate Tribunal Rules, 1963, and an anomalous situation had been created which was clear on a reading of the three judgments of the members of the Tribunal. The course adopted by the Tribunal, in relying on the additional material without admitting it as additional evidence, and that too without giving any reasons in regard thereto, would have to be termed as grossly unfair and illegal, The President recorded the opinion that the assessee had not manufactured any article or thing independent of the main contract, to claim the benefit under sections 80J and 80HH of the Act and further recorded that the view expressed by the Accountant Member was agreeable. In the process of reasoning, reported- decisions had been taken into consideration, mainly drawing strength from the decision of the Supreme Court in Cellulose Products of India Ltd.'s case on the assumption that marketability is an essential factor to be established as declared by the Supreme Court in the said decision. However, the observations did not flow as a result of the reading of the above judgment. As a result of these factors, the decision of the Tribunal had to be quashed and the Tribunal has to re?hear the appeals.

Cellulose Products of India Ltd. v. CIT (1977) 110 ITR 151 (Guj.); CIT v. Anusyya Devi (1968) 68 ITR 750 (SC).; CIT v. Cellulose Products of India Ltd. (1991)192 ITR 155 (SC); CIT v. George Henderson & Co. Ltd. (1967) 66 ITR 622 (SC); CIT v. Greaves Cotton & Co. Ltd. (1968) 68 ITR 200 (SC); CIT v. Travancore Titanium Products Ltd. (No.' 1) (1993) 203 ITR 685 (Ker.) and Muniappa Gounder (B.) v. CIT (1976),102 ITR 787 (Mad.) ref.

P. K. R. Menon and N. R. K. Nair for the Commissioner.

Joseph Markose and Joseph Kodianthara for the Assessee (in I.T.Rs. Nos. 126 to 131 of 1992 and I.T.Rs, Nos. 64 to 67 of 1993).

P. G. K. Warrier, Joseph Markose and Joseph Kodianthara for the Assessee (in I.T.Rs. Nos.71 to 74 and 75 to 78 of 1996).

2000 P T D 1237

[233 I T R 646]

[Kerala High Court (India)]

Before V. V. Kamat and K. Narayana Kurup, JJ

COMMISSIONER OF INCOME-TAX

versus

N. KRISHNAN

Income-tax Reference No.49 of 1993, decided on 9th October, 1996.

Income-tax---

----Reassessment---Assessment---Effect of reassessment---Entire order of assessment is not set aside ---I.T.O.'s jurisdiction is confined to income which has escaped tax or has been under-assessed---Indian Income Tax Act, 1961, S.147.

The Supreme Court has laid down in CIT v. Sun Engineering Works (P.) Ltd. (1992) IP8 ITR 297, that the Income-tax Officer's jurisdiction under section 147 of the Income Tax Act, 1961, is confined to such, income which has escaped tax or has been under-assessed and does not extend to revising, reopening or reconsidering the whole assessment or permitting the assessee to reagitate the question which had been decided in the original assessment proceedings. It is further observed in the context that it is only the under-assessment that gets set aide and not the entire assessment when reassessment proceedings are initiated. The Supreme Court held that the words "such income" clearly mean income which is clearly chargeable to tax but has escaped assessment.

CIT v. Sun Engineering Works (P.) Ltd. (1992) 198 ITR 297 (SC) explained.

CIT v. Onkar Saran & Sons (1992) 195 ITR 1 (SC) and Jaganmohan Rap (V.) v. CITICEPT (1970) 75 ITR 373 (SC) ref.

P. K. R. Menon for the Commissioner.

C. Kochunni Nair for the Assessee.

2000 P T D 1249

[233 I T R 770]

[Karala High Court (India)]

Before V. V. Kamat and K. Narayana Kurup, JJ

COMMISSIONER OF INCOME TAX

versus

K. T. MATHEW

Income-tax References Nos. 94 of 1994 and 40, 41, 42 and 43 of 1992, decided on 23rd October, 1996.

Income-tax---

----Representative assessee---Trustee---Creation of trust by assessee for benefit of his minor son---Assessee and his wife appointed trustees---Transfer of business held by assessee as an individual to trust represented by his wife for consideration---Transfer was valid---Income from business which had been transferred was not assessable in hands of assessee---Indian Income Tax Act, 1961.

The assessee created a trust for the benefit of his minor son. The trustees were the assessee and his wife. The beneficiary was possessed of funds of his own and the creation of the trust was with a desire that the funds of the beneficiary should be properly and profitably managed. The minor was admitted to the benefits, of a partnership. In that process, there was a credit entry of Rs.3,31,469, dated March 31, 1979, in the name of the minor son. On April 2, 1979, there was an agreement between the assessee in his capacity as the individual proprietor of a printing business V and the trust, for the sale of the printing business V to the trust in its entirety for a consideration of Rs.3,79,810.66. The trust was represented by the assessee's wife. The Income-tax Officer rejected the assessee's claim that the income from printing business was not assessable in his hands. However, the Tribunal found that the trust had been validly and legally created. The Tribunal also recorded that it was a genuine trust. The Tribunal observed that the transaction entered into on April 2, 1979, was a purchase of the business for the benefit of the minor and the purchase was out of the funds of the minor. The Tribunal held that the income from printing business V was not assessable in the hands of the assessee. On a reference:

Held, (i) that on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that there was a valid trust.

(ii) That the transaction of sale was clearly between the vendor and vendee where the vendor was an individual and the vendee was a trust and in the transaction the trust was represented by the remaining trustee. The document showed consideration. Even under the Transfer of Property Act there can be a transfer by a person to himself or to himself and another person or persons. The transfer was valid. Hence, the Tribunal was justified in deleting the income from the printing business V from the assessment of the assessee.

CGT v. K. R. Kumaran (1997) 223 ITR 683 (Ker.); CIT v. Maridu Hari Daimia (1982) 133 ITR 550 (Delhi) and Tulisdas Kilachand v. CIT (1961) 42 ITR 1 (SC) ref.

P. K. R. Menon for the Commissioner.

P. G. K. Warrier and P. K. Suresh Kumar for the Assessee.

2000 P T D 1274

[234 ITR 835]

[Kerala High Court (India)]

Before G. Sivarajan, J

KEERTHI LIQUORS

versus

COMMISSIONER OF INCOME-TAX and others

O. P. No. 11551 of 1997-A, decided on 16th July, 1997.

(a) Writ---

---- Existence of alternate remedy---Writ will not normally issue--­Constitution of India, Art.226.

(b) Income-tax---

----Appeal to Appellate Tribunal---Writ---Complaint that order of Tribunal was passed without giving petitioner opportunity to be heard---Application for recall of order or for reference barred by limitation---High Court can grant additional time for such applications---Indian Income Tax Act, 1961, Ss.254 & 256---Constitution of India, Art.226.

Held, that the grievance of the petitioner was that the appellate order was passed by the Tribunal without notice and opportunity to the petitioner. The petitioner could file an application to the Tribunal itself for recalling the order. The petitioner also had the remedy by way of reference. Hence, the High Court would not interfere under Article 226 of the Constitution, of India. However, it was submitted on behalf of the petitioner that the time available for filing the application for recalling/reference was already over. In such circumstances, if the petitioner filed an application within two weeks either for recalling the order on the ground that the said order was passed without notice and opportunity to the petitioner or, for reference under section 256(1) of the Income Tax Act, 1961, the same would be considered by the Tribunal on the merits.

N. D. Premachandran for Petitioner.

P.K.R. Menon for Respondents.

2000 P T D 1564

[234 I T R 55]

[Kerala High Court (India)]

Before V. V. Kamat and K. Naryana Kurup, JJ

JOSEPH KURUVILLA

Versus

COMMISSIONER OF INCOME-TAX

Income-tax Reference No. 63 of 1993, decided on 24th October 1996.

Income-tax---

----Appellate Tribunal---Rectification of mistakes---Advocate---Role of lawyer---Counsel for assessee not raising particular issue at time of hearing by oversight ---Assessee filing miscellaneous petition contending laches of counsel should not make a litigant suffer---Tribunal holding that issues should be deemed to have been decided against assessee or alternatively it could be presumed that same not pressed before Tribunal---Tribunal dismissing miscellaneous petition---No error of law---Indian Income Tax Act, 1961.

Courts have always considered counsel, who, are members of the Bar, as officers of the Court. If the lawyer is considered in the context of the litigation, he has to be understood to have a discretion as to whether to argue a particular point or not. In any proceedings, the role of the lawyer has to be appreciated in the context of his discretion flowing from his engagement in the proceedings. Especially in the context of a litigation urging that he did not raise the issue at the time of hearing by oversight the above background would have to be meaningfully understood in the context of the role of the lawyer. The High Court, being concerned with a situation with reference to the averment relating to the mistake of counsel or his oversight, has to understand and appreciate the situation in the context of the discretion available to him.

The assessee filed amiscellaneous petition and contended that its counsel did not raise a particular issue at the time of hearing by oversight and such a situation would not preclude the assessee from raising it now since laches on the part of counsel, should not make the litigant suffer. The Tribunal held that it considered it to be a situation deemed to have been decided against the assessee or alternatively it should be presumed that the concerned issue was not pressed before the Tribunal and accordingly dismissed the miscellaneous petition. On a reference:

Held, that if the Tribunal, while rejecting the application, had observed that it should be deemed to have been decided against the assessee or at least it could be presumed that the concerned issue was not pressed before the Tribunal, would have to be understood as having acted in consonance with the recognition of the discretion of counsel.

Joseph Vallamattom and V. J. Kurian Vallamattom for the Assessee.

P. K . R. Menon and N. R. K. Nair for the Commissioner.

2000 P T D 1575

[234 I T R 65]

[Kerala High Court (India)]

Before V. V. Kamat and K. Narayana Kurup, JJ

CONTINENTAL. TOURIST HOME

Versus

COMMISSIONER OF INCOME-TAX

I.T.R. No. 59 of 1993, decided on 24th October 1996.

Income-tax---

----Business expenditure---Capital or revenue expenditure---Building tax--­Tax is on capital value of building and levied with reference to value of asset---Tax is paid on completion of building once and for all---Payment not of recurring nature---Building tax not payment made for purpose of business or profession---Tax forms part of capital asset as it remains with building just like bricks or tiles---Building tax paid is capital expenditure.

The Kerala Building Tax Act, 1975, provides for the levy of tax on buildings. Section 5 of the Act is the charging provision requiring payment of tax on the construction of building and it is not of a recurring nature. Once the payment is made on the completion of the building, it is once and for all. It is thus clear that the payment of tax under section 5 would have to be understood as forming part of the capital asset as it remains with the building just like .bricks or tiles and the payment would have to be categorised as capital expenditure.

Micheal Joseph & Co. v. CIT (1997) 225 ITR 786 (Ker.) fol

V. M. Kurian, A. V. Thomas, C. K. Dilraj and Mathew B. Kurian for the Assessee.

P.K.R. Menon for the Commissioner.

2000 P T D 1645

[234 I T R 227]

[Kerala High Court (India)]

Before G. Sivarajan, J

SANTHOSH ELECTRICALS

Versus

INCOME-TAX OFFICER and another

O.P. No. 10263 of 1992, decided on 12th December, 1996.

Income-tax---

----Assessment---Advance tax---Interest---Waiver---Assessment made for first time on return filed in response to a notice under S.148 is a regular assessment---Interest can be levied in such a case under Ss. 139 & 217---No case made out for waiver of interest---Interest could not be waived---Indian Income Tax Act, 1961, Ss. 139, 209 & 217---Indian Income Tax Rules, 1962, Rr.40 & 117A---Constitution of India, Art. 226.

The assessment made for the first time on the basis of the return filed pursuant to a notice under section 148 of the Income-tax Act. 1961, is a regular assessment:

Held, dismissing the writ petition, that in the instant case, the assessments were completed only on the basis of the returns filed by the petitioner pursuant to the notice under section 148. Hence, the levy of interest under sections 139(8) and 217 was'. valid. The Commissioner of Income-tax had found that no valid reason had been urged on behalf of the petitioner for waiver of interest levied under section 139(8) or under section 217 of the Act. The Commissioner of Income-tax was justified in rejecting the application for waiver of interest.

Lally Jacob v. ITO (1992) 197 ITR 439 (Ker.) fol

P.C. Chacko for Petitioner.

P.K.R. Menon and N.R.K. Nair for Respondent.

2000 P T D 1754

[234 I T R 461]

[Kerala High Court (India)]

Before Mrs. K.K. Usha and K.A. Mohamed Shafi, JJ

COMMISSIONER OF INCOME-TAX

versus

P.P. KHADER HAJI

Reference No.2 of 1994, decided on 4th July, 1997.

Income-Tax-----

----Appeal to Appellate Tribunal---Best judgment assessment---Best judgment assessment on the ground that assessee had not complied with notices under Ss. 148 & 142(1)---Tribunal should not have cancelled assessment---Matter should have been remanded to ITO ---Indian Income Tax Act, 1961, Ss. 144 & 254.

The assessee was a non-resident. During the previous year relevant to the assessment year 1982-83, the assessee had purchased certain immovable properties for a consideration of Rs.4,76,000. The Income-tax Officer initiated proceedings under section 147 of the Income Tax Act, 1961. Since the assessee did not comply with the notice under section 148, the Income-tax Officer issued notice under section 142(1) twice. There was no response from the assessee, and so the Income-tax Officer issued a letter giving out the information in his possession regarding the purchase of properties and proposing to complete the assessment ex parte estimating the income at Rs.6,00,000. There was no response to this letter also, and hence the Income-tax Officer completed the assessment under section 144 estimating the income at Rs.6,00,000. On appeal, the Commissioner of Income-tax (Appeals) confirmed the order of the Income-tax Officer. The assessee filed a second appeal before the Tribunal. Before the Tribunal, the assessee contended that under the notice, dated January 2, 1985, referred in the assessment order, the assessee was never required to explain the sources of the investment and there was no reference to the sources of money for his personal expenditure. It was also contended that for the assessment year 1981-82, the assessee had been assessed to wealth tax in the status of a non­resident on a net wealth of Rs.20,00,000. The Tribunal took the view that the assessment was clearly arbitrary and could not be sustained. On a reference:

Held, that the Tribunal should not have annulled the assessment as such. It should have set aside the order passed by the first appellate authority and remitted the matter to the assessing authority for fresh consideration.

CIT v. Segu Buchiah Setty (1970) 77 ITR 539 (SC) ref.

P.K.R. Menon and N.R.K. Nair for the Commissioner.

C. Kochunni Nair for the Assessee.

2000 P T D 1884

[235 I T R 481]

[Kerala High Court (India)]

Before P.A. Mohammed and P. Shanmugam, JJ

JAI TRADING COMPANY

versus

COMMISSIONER OF INCOME-TAX

Income-tax Reference No.58 of 1995, decided on 24th November, 1997.

Income-tax---

----Penalty---Audit of accounts---Failure to get accounts audited---Imposition of penalty, whether justified---Provisions of S.44-AB and S.271-B inserted by Finance Act, 1984, with effect from 1-4-1985---Assessing Officer directed to consider explanation of assessee and whether there was "reasonable cause" for failure to submit audited accounts---Indian Income Tax Act, 1961, Ss.44-AB & 271-B.

The Income-tax Officer imposed a penalty of Rs.40,162- on the assessee under section 271-B of the Income Tax Act, 1961, for the assessment year 1985-86. The assessee's appeal before the Commissioner of Income-tax failed. On further appeal; the Tribunal confirmed the levy of penalty. On a reference, the assessee contended that it had shown "reasonable cause" for its failure to get its accounts audited in respect of the previous year under section 271-B and, therefore, the levy of penalty was not valid. The assessee further contended that section 271-B was inserted by the Finance Act of 1984 with effect from April 1, 1985, and section 44-AB creating obligation on the part of the assessee to get the accounts audited also came into force with effect from April 1, 1985, and that these provisions were not in the statute book during the relevant previous year and, therefore, the assessee could not make arrangements to get the accounts audited as prescribed under the above provisions, that when the notice was issued proposing to levy penalty the assessee filed a detailed reply, inter alia, pointing out that even though a sincere endeavour was made to get the services of an accountant, it could not succeed in getting one for auditing the accounts in view of various reasons, that there was no obligation to furnish the audited accounts as referred to in the notice during the relevant assessment year, that the assessee pleaded that it be granted sufficient time to get the accounts audited and furnish the audited accounts and that irreparable injury and hardship would be caused to the assessee if such time was not granted:

Held, that taking into account the circumstances pointed out by the assessee it could not be said that there was a total defiance of law by the assessee in submitting the audited accounts. The explanation offered by the assessee had not properly been appreciated or evaluated by the income-tax authorities. The question which required to be decided by the officer was whether the explanation offered ° by the assessee would constitute a "reasonable cause" for not submitting the audited accounts during the relevant year. This was a matter which required to be considered and decided afresh by the Assessing Officer.

[The Court declined to answer the question but, however, directed the Assessing Officer to consider the explanation offered by the assessee and decide whether "reasonable cause" had been made out for its failure to submit the audited accounts.]

C. Kochunni Nair and S. Vinod Kumar for the Assessee.

P.K.R. Menon and N.R.K. Nair for the Commissioner.

2000 P T D 1913

[220 I T R 318]

[Kerala High Court (India)]

Before U. P. Singh, C. J. and S. Sankarasubban, J

K.T. THOMAS

versus

TAX RECOVERY OFFICER and another

W.A. No. 128 of 1990, decided on 8th October, 1997.

Income-tax--

----Recovery of tax ---Attachment and sale of property---Person having first charge over property obtaining decree before auction by Revenue Authorities---Decree-holder filing petition to set aside sale or in alternative to pay her amount decreed---Order passed for such payment---Order not challenged by assessee---TRO could not return excess over tax arrears to assessee---Indian Income Tax Act, 1961, Sched. II.

Normally, under Rule 8 of Schedule II to the Income Tax Act, 1961, the Income-tax Officer has to return the excess amount after adjusting the amount due to the Department. But in a case where there is a first charge, it is the duty of the Department to adjust the amount realised under the auction towards that first charge.

The appellant was in arrears of income-tax, wealth tax and interest thereon amounting to Rs.8,97,773. Recovery proceedings were initiated by the Tax Recovery Officer, Calicut. An item of immovable property belonging to the appellant, viz., bank house property, was put to auction. The property was sold for an amount of Rs.12,01,000 at the auction conducted on February 7, 1989. There was a prior liability on the property in favour of the Chartered Bank and the Chartered Bank had obtained a decree on July 31, 1982. The decree was later assigned in favour of one J.T. The charge, created in favour of the Chartered Bank on the property was not initially known to the Department. J.T. filed a petition requesting the Tax Recovery Officer to set aside the sale or in the alternative to pay her a sum of Rs.8,07,327.14. But the request for setting aside the sale was rejected and the auction sale was confirmed on March 14, 1989. J.T. filed a petition for a 'direction to the Tax Recovery Officer to deposit the entire sale proceeds in Court. The Court ordered the Tax Recovery Officer to pay the amount due as per the decree with interest. In the meanwhile, the appellant filed a petition before the Tax Recovery Officer for the return of the balance amount after adjusting the amount of tax arrears. The Tax Recovery Officer rejected the same. An appeal against dismissal of the petition was dismissed and so was a writ petition. On further appeal:

Held, dismissing the appeal, that J.T. had a first charge over the property. Further, J.T. had made the appellant and the Department parties to the execution proceedings. It was in those proceedings that the order was made to deposit some amounts towards the liability. That order had not been challenged by the appellant. The appellant was not entitled to the balance after adjustment of tax arrears.

C. Kochunni Nair for Appellant.

P.K.R. Menon and N.R.K. Nair for Respondent.

2000 P T D 1962

[235 I T R 161]

[Kerala High Court (India)]

Before G. Sivarajan, J

Smt. NILOFER HAMEED and another

versus

INCOME-TAX OFFICER

O.P. No. 17555 of 1997-M, decided on 28th August, 1998

Income-tax---

----Assessment under S.148---Notice---No restriction on number of notices that can be issued under SA48---Notice cannot be issued. if assessment or reassessment proceedings are pending,--Indian Income Tax Act, 1961, Ss. 147 & 148---Constitution of India Art.226.

The Assessing Officer can issue any number of notices under section 148 of the Income Tax Act, 1961, provided the conditions stipulated in section 147 are satisfied and if the same is within the period specified under section 149 read with section 151. However, if an assessment is pending either by way of original assessment or by way of reassessment proceedings, the Assessing Officer cannot issue a notice under section 148:

Held that, in the instant case, the first notice under section 148 was issued on March 21, 1994, and served on March 29, 1994 and there was time till March 31, 1998, for completion of the assessment. So, on the date of issuance of the second notice on March 25, 1997, the assessments for the two years 1986-87 and 1988-89 were pending. In such circumstances, notice issued under section 148 on March 25, 1997, and the further notices were not valid.

Ashok Kumar Dixit v. ITO (1992) 198 ITR 669 (All.); CIT v. Adinarayana Murthy (K.) (1967) 65 ITR 607 (SC); CIT v. Maharaja Pratap .Singh Bahadur of Gidhaur (1961) 41 ITR 421 (SC); Gurdayal Berlia v. CIT (1966) ,62 ITR 494 (Cal.) and Muhammad Ibrahim Maracair (K.E.M.) v. ,CIT (1964) 52 ITR 890 (Mad.). ref.

P.G.K. Warrier and P. Balakrishnan for Petitioners.

N.R.K. Nair and P.K.R. Menon for Respondent.

2000 P T D 1976

[235 I T R 191]

[Kerala High Court (India)]

Before P. A. Mohammed and P. Shanmugam, JJ

COMMISSIONER OF INCOME-TAX

versus

P.P. THOMAS

Income-tax. Reference No. 122 of 1994, decided on 13th November, 1997.

Income-tax---

----Capital gains---Transfer---Company---Surrender of shares in exchange for land---Transaction amounted to transfer---Surplus resulting from transaction assessable as capital gains---Indian Income Tax Act, 1961, Ss.2(47) & 45.

Section 2(47) of the Income Tax Act, 1961, which is an inclusive definition, inter alia, provides that relinquishment of an asset or extinguishment of any right therein amounts to a transfer of a capital asset. It is not necessary for a capital gain to arise that: there must be a sale of a capital asset. Sale is only one of the modes of transfer envisaged by section 2(47) of the Act. Relinquishment of the asset or the extinguishment of any right in it, which may not amount to a sale, can also by considered as a transfer and any profit or gain which arises from the transfer of capital asset is liable to be taxed under section 45 of the Act. If an assessee surrenders some of his shares in a company the assessee continues to remain a shareholder but there is an extinguishment of part of his right as a. shareholder.

The assessee was an individual who surrendered 148 shares held by him in company C and received land belonging to the company in lieu of such surrender worth Rs.1,46,200. The Assessing Officer took the view that what was received would constitute dividend. The Commissioner of Income tax (Appeals) held that surrender of shares was a transfer within the meaning of section 2(47) of the Act and, therefore, the surplus resulting from such transaction was liable to be taxed as capital gain. The Tribunal, however, held that the surplus did not constitute capital gains. On a reference:

Held, that the surplus resulting from the surrender of shares in exchange for land was assessable as capital gains.

Kartikeya V. Sarabhai v. CIT (1997) 228 ITR 163 (SC) fol.

CIT v. Kulu Valley Transport Co. (Pvt.) Ltd. (1970) 77 ITR 518 (SC); CIT v. G. Narasimhan (1979) 118 1TR 60 (Mad.) and Kartikeya. V. Sarabhai v. CIT (1982) 138 ITR 425 (Guj.) ref.

P.K.R. Menon and N.R.K. Nair for the Commissioner.

2000 P T D 2025

[235 I T R 236]

[Kerala High Court (India)]

Before G. Sivarajan, J

T.K. NARENDRAN

versus

INCOME-TAX OFFICER and another

O. P. No. 13959 of 1997-J, decided on 19th August, 1997.

Income-tax---

----Recovery of tax---Writ---Firm---Partner---Arrears of tax due by firm which was defunct---Recovery proceedings against partner---Writ petition on the ground that petitioner was , not a partner---Finding that petitioner appeared before Settlement Commission as a partner---Writ petition was not maintainable---Indian Income Tax Act, 1961, S.220---Constitution of India, Art.226.

A notice was issued under sections 222 and 223 of the Income Tax Act, 1961, demanding a sum of Rs.3,91,829 being arrears of income-tax due from W. There was a further communication issued by the Tax Recovery Officer stating that since the firm was defunct, the petitioner and others were jointly and severally responsible to clear the arrears as partners of the defunct firm. It was also stated that coercive measures for recovering the arrears by attachment and sale of movable properties were proposed to be initiated. The petitioner was given an opportunity to pay the said amount. According to the petitioner, he was not a partner of the firm, W. On a writ petition against the recovery proceedings:

Held, dismissing the writ petition, that the W firm had filed an application before the Settlement Commission for settlement of its tax liabilities. In the proceedings before the Settlement Commission, the petitioner alongwith the Advocate appeared in his capacity as a partner. The said fact was evident from the copy of the proceedings. Hence, the contention taken by the petitioner in this original petition, that- he was not a partner of the firm, W, could not be sustained.

S.A. Nagendran with Premjit Nogendran acid Joy Thattil for petitioner.

P.K.R. Menon for Respondents.

2000 P T D 2030

[235 I T R 94]

[Kerala High Court (India)]

Before Om Prakash, C. J. and J. B. Koshy, J

COMMISSIONER OF INCOME-TAX

versus

S.P. KAYAK AND RAMESH M.

Income-tax Reference No. 169 of 1995, decided on 21st January, 1998.

Income-tax---

----Business expenditure ---Assessee engaged in business of transportation undertaking contracts with Civil Supplies Corporation for transporting sugar ---Assessee executing contract by using its own lorries and also engaging vehicles taken on hire ---Assessee claiming expenditure incurred by way of hire charges payable for vehicles taken on hire for transportation work---Expenditure disallowed as assessee unable to produce cogent evidence to prove expenditure---Duty of assessing authority to assess expenditure by best judgment assessment---Tribunal allowing full expenditure in absence of cogent evidence---Not justified---Matter remanded---Indian Income Tax Act, 1961, S.37.

The assessee-firm engaged in the business of transportation undertook contracts with the Kerala State Civil Supplies Corporation for transporting sugar. The assessee-firm executed the contract by using its own lorries and also vehicles taken on hire. Every month, the assessee submitted the bills to the Corporation. As per the information furnished by the Corporation, the assessee had presented a bill for January, 1982, for Rs.5,34,635 and another bill for Rs.2,06,112 for March, 1982. The Assessing Officer found that the Corporation had paid the full amount due to the assessee under the January bill in February itself. Similarly, in respect of the bill for March, 1982, the Corporation had paid Rs.1,69,495 in March itself. Thus, the Assessing Officer concluded that a sum of Rs.7,40,747 being the aggregate of the amounts received from the Corporation in respect of the bills presented in January and February, 1982, were not accounted for in the year ended March 31, 1982, relevant to the assessment year 1982-83. Since the assessee was following the mercantile system of accounting, the Assessing Officer added the sum of Rs.7,40,747 to the income of the assessee for the assessment year 1982-83. The assessee claimed before the Income-tax Officer that for earning the gross income of Rs.7,40,747, it had incurred expenditure by way of hire charges payable for vehicles taken on hire for transportation work at Rs.9,31,920 and hence the said expenditure should be allowed as revenue expenditure under section 37(1) of the Income Tax Act, 1961. The assessee contended that the Assessing Officer had allowed lorry hire expenses incurred in respect of the bills for the earlier month and, therefore, the lorry hire expenses incurred during January and March, 1982 should also be allowed. The Assessing Officer, however, rejected the claim for deduction on the ground that no evidence in support of the expenditure way adduced by the assessee. On appeal, the Appellate Assistant Commissioner held that the onus to prove that the expenditure had been actually incurred for the purpose of earning income was on the assessee and since the assessee was unable to bring evidence to prove the expenditure, no deduction could be allowed against the receipt of Rs.7,40,747. On further appeal, the Tribunal found that the assessee had to utilize the lorries either belonging to it or to others for transporting sugar; that the fact that it had transported sugar must be accepted because the Corporation had paid the bills presented by them, that the Corporation, therefore, was satisfied that service was done and that, therefore, it could not be said that no expenditure could be allowed against the addition, that the expenditure was on lorry hire, that the assessee's books showed lorry numbers and the amounts paid and that the expenditure on the lorries was in no way different from the expenditure incurred by the assessee under identical circumstances for 10 months m the year. The Tribunal, therefore, directed the Income-tax Officer to allow the expenditure of Rs.9,31.920. On a reference:

Held, that the claim for expenditure was disallowed merely on the ground that the assessee failed to produce evidence. It was not the case of the assessing authority that the gross amount of Rs.7,40,747 came to the hands of the assessee without incurring any expenditure. If income was not received without incurring expenditure, then it was the duty of the assessing authority to assess expenditure by best judgment assessment, if the assessee failed to produce cogent evidence in support of his claim. However, it was not denied that the assessee failed to produce cogent evidence to prove the expenditure. Therefore, the Appellate Tribunal was not justified in allowing the full expenditure of Rs.9,31,920 as claimed by the assessee, especially in the absence of good reasons therefore.

P.K.R. Menon, Senior Advocate and -N.R.K. Nair for the Commissioner.

P. Balachandran for the Assessee.

2000 P T D 2040

[235 I T R 467]

[Kerala High Court (India)]

Before P.A. Mohammed and P. Shanmugam, JJ

KERALA CHEMICALS AND PROTEINS LTD.

versus

COMMISSIONER OF INCOME-TAX

Income-tax Reference No.23 of 1995, decided on 24th November, 1997.

Income-Tax---

----Appellate Tribunal---Scope of powers--Duty of Tribunal to consider law as it existed though assessee failed to bring it to notice of Tribunal--­Assessee becoming entitled to interest under S.214(1-A)---Tribunal holding that interest payable only up to date of first assessment ---Assessee filing application before Tribunal and contending that mistake was committed by it in not specifically referring to subsection (I-A) of S.214 when claiming interest---Tribunal rejecting application on ground that no reference made to S.214(1-A), in course of hearing Revenue's appeal---Provision existed in statute book when question came up for decision before Tribunal---Tribunal bound to consider all provisions of 5.214 including subsection (1-A)---Indian Income Tax Act, 1961, S.214(1), (1-A).

The original assessment for the assessment year 1983-84 was completed on March 27, 1986, fixing the total income of Rs.19,94,620 and demanding a total sum of Rs.11,18,460 towards income-tax, interest, etc. On appeal, the Commissioner of Income-tax (Appeals) granted certain relief’s and consequently the advance tax paid by the assessee was found to be in excess of the tax demand which resulted in a refund. Consequently, the amount on which interest was payable under subsection (1) of section 214 increased and the assessee became entitled to interest in terms of section 214(1­ A) of the Act. However, the Assessing Officer did not allow any interest under section 214(1-A). On appeal, the Commissioner of Income-tax (Appeals) directed the Assessing Officer to grant interest under section 214. On appeal by the Revenue to the Tribunal it held that the interest under section 214 is payable only up to the date of first assessment under section 143 or under section 144, on the amount found to be in excess of the tax demand. The assessee filed a miscellaneous application before the tribunal and contended that it had committed a mistake in not referring to the provisions of subsection (1-A) of section 214. The Tribunal rejected the said petition holding that no reference was made to section 214(1-A) in the course of hearing of the Revenue's appeal. However, in view of the submission of the assessee that it was the duty of the Tribunal to make a reference to the provisions contained in section 214(1-A) of the Act, the Tribunal made a reference on the question redrafted by the Tribunal:

Held, that subsection (1-A) of section 214 was in the statute book when the question came up for decision before the Tribunal. Even though the assessee did not specifically refer to subsection (1-A) the Tribunal could not ignore the said provision when taking the decision. The Tribunal ought to have considered and referred to .the said provision. It is the duty of the Tribunal to consider the law as it existed then even though the assessee failed to bring it to its notice. Therefore, -the Tribunal is bound to consider all the provisions of section 214 including section 214(1-A) when the assessee did not refer to section 214(1-A) in the course of the argument and the case proceeded only the provisions of section 214(1) of the Income-tax Act.

CIT v. Mahalaxmi Sugar Mills Co. Ltd. (1986) 160 ITR 920 (SC)

CIT v. Carona Sahu Co. Ltd. (1984) 146 ITR 452 (Bom.); CIT v. G.B. Transports (1985) 155 ITR 548 (Ker.) and Parekh Brothers v. CIT (1984) 150 ITR 105 (Ker.) ref.

Pathros Mathai M. and Mariam Mathai for the Assessee.

P.K.R. Menon and N.R.K. Nair for the Commissioner.

2000 P T D 2049

[235 I T R 455]

[Kerala High Court (India)]

Before U. P. Singh, C. J. and S. Krishnan Unni, J

KERALA CLAYS AND CERAMIC PRODUCTS LTD.

versus

TAX RECOVERY OFFICER and others

W. A. No. 131 of 1991, decided on 21st October, 1997.

Income-tax--­

---Recovery of tax---Arrears of tax due by company---Successor liable to pay arrears---Indian Income Tax Act, 1961, S. 220.

Held, dismissing the writ appeal that the Single Judge had recorded that protection was given only for the amounts specified in the balance-sheet audited as on December 31, 1975. The tax dues were not shown in the balance-sheet. A statutory liability cannot be evaded by the petitioner­ company, which was the successor-in-interest of the fourth respondent which was taken over by the Government. As successor-in-interest, the petitioner was liable to pay the amount. In view of these findings and considering the fact that the matter related to the assessment year 1974-75 and the writ petition was filed in the year 1987 and the writ appeal in 1991, the judgment of the Single Judge deserved to be affirmed.

Kerala Clays and Ceramic Products Ltd. v. T.R.O. (1991) 190 ITR 164 (Ker.) affirmed.

P. Balachandran for Appellant.

N. R. K. Nair for Respondents Nos. l to 3.

2000 P T D 2108

[235 I T R 509]

[Kerala High Court (India)]

Before V. V. Kamat and P. A. Mohammed, JJ

COMMISSIONER OF INCOME-TAX

versus

Dr. K. GEORGE THOMAS through Executor of the Will

I.T.R. Nos. 170, 171, 172, 173 and 174 of 1991, decided on 27th June, 1996.

Income-tax---

----Income---Additions to income---Remittances received by assessee from abroad on account of Indian Gospel Mission---Not assessable in assessee’s hands.

Held, that the remittances received by the assessee from abroad were for and on behalf of the Indian Gospel Mission and that the amounts could not be assessed in the assessee's hands.

P. K. R. Menon, Senior Advocate and N. R. K. Nair for the Commissioner.

P. Balachandran for the Assessee.

2000 P T D 2204

[235 I T R 344]

[Kerala High Court (India)]

Before Om Prakash, C. J. and J. B. Koshy, J

COMMISSIONER OF INCOME-TAX

versus

COOPERATIVE SUGARS LTD.

Income-tax Reference No-88 of 1995, decided on 18th February, 1998.

Income-tax-

----Capital or revenue expenditure ---Assessee engaged in manufacture and sale of sugar and molasses---Sugar plant consisting of several components like juice heater, juice sulphiter, vacuum filter drum, centrifugal machinery, sugar crystallizer sugar grader, etc.---Each machinery though had distinct function was integral part of sugar plant---All machinery put together complete sugar plant---Expenditure incurred on "machinery maintenance" resulting in substantial replacement of machinery---No new asset of enduring nature brought into existence---Expenditure on "machinery maintenance" is revenue expenditure.

The assessee-company which carried on the business of manufacture and sale of sugar and molasses incurred expenditure under the head "Machinery maintenance" amounting to Rs.27,49,029 on items of machinery like high velocity juice heater, sugar grader, centrifugal machinery, juice sulphiter, vacuum filter drum, pumps and meters. The assessee claimed the expenditure as revenue expenditure. The Assessing Officer rejected the claim of the assessee and held that the entire expenditure was capital in nature on the grounds that the sugar plant of the assessee consisted of several independent components, viz., juice heater, juice sulphiter, vacuum filter drum, centrifugal machinery, sugar crystalliser, sugar grader, etc., that each unit was a separate entity by itself which could perform the' assigned task of each stage of operation and processing, that none of such components was part of other machinery, that the assessee replaced the entire machinery, that it was not a case of replacement of accessories of such components, that the assessee received benefits of enduring nature from the replacement of each equipment independent in itself, that a new asset by purchasing each such machinery had come into existence and, that therefore, the expenditure incurred by the assessee on the acquisition and installation of such assets could not be said to be expenditure incurred on repairs or replacement of some of the accessories of such independent equipment. On appeal, the Commissioner (Appeals) upheld the order of the Assessing Officer. On further appeal, the Tribunal held that though each machinery had distinct function, it was an integral part of the sugar plant, that sugar manufacturing process was- a continuous process and unless the sugarcane juice as such or in a different form passed through all the requisite components, the sugar, which was the end-product of, the sugar mill, could not be, produced, that none of the machinery purchased by the assessee during the relevant year to replace the old ones could produce sugar by itself, that sugar could be produced only when all the machinery, which were integral parts of the entire sugar plant, functioned in harmony and, that, therefore, : the expenditure was incurred only on the maintenance of the sugar mill---a profit earning apparatus. On a. reference:

Held, affirming the decision of the Tribunal, that though sugarcane juice processed through each equipment might undergo some change, the end product of the sugar mill would be available only after the entire process was complete and that would be complete only after the completion of the processing through all the machinery on which the expenditure was incurred by the assessee. Merely because each equipment changed the form of the sugarcane juice, that did not mean that sugar was produced by each equipment or machinery. The sugar mill was a gigantic plant. The Income tax Officer should not have been swayed by the extent of expenditure incurred on major components purchased for replacing the old ones. -For manufacture of sugar, all the machinery was necessary. Though the expenditure was incurred on the principal components of the sugar mill, yet each machinery was an independent unit. All the machinery put together completed the sugar plant. Though expenditure was incurred on substantial replacement, the fact remained that the sugar plant was there and the same plant existed even after replacement and, therefore, it was wrong to say that any new asset of enduring nature had come into existence. Therefore, the expenditure incurred on purchase of new machinery to ensure sound functioning of the sugar mill to replace the old ones was revenue expenditure.

Alembic Chemical Works Co. Ltd. v. CIT (1989) 177 ITR 377 (SC) rel.

B.P. Australia Ltd. v. Commission of Taxation of the Common­wealth of Australia (1966) AC 224 (PC) ref.

P.K.R. Menon; Senior Advocate and N.R.K. Nair for the Commissioner.

B.S. Krishnan, Senior Advocate, P.R. Raman and K. Anand for the Assessee.

2000 P T D 2214

[235 I T R 386]

[Kerala High Court (India)]

Before Mrs. K. K. Usha and N. Dhinakar, JJ

COMMISSIONER OF INCOME-TAX

versus

N. KRISHNAN

Income-tax References Nos.124 and 125 of 1994, decided on 13th October, 1997.

(a) Income-tax---

----General principles---Difference between irregular and invalid orders--­Waiver of irregularity.

There is a difference between irregularity and nullity. Irregularity is a deviation from a rule of law which does not take away the foundation or authority for the proceeding, or apply to its whole operation, whereas a nullity is a proceeding that is taken without any foundation for it or is so essentially defective as to be of no avail or effect whatever, or is valid and incapable of being validated. The safest rule to determine what is irregularity and what is nullity is to see whether the party can waive the objection; if he can waive it, it amounts to an irregularity; if he cannot, it is a nullity. A waiver is an intentional relinquishment of a known right, but obviously an objection to jurisdiction cannot be waived, for consent cannot give a Court jurisdiction, where there is none. Everyone has a right to waive and to agree to waive the advantage of a law or rule made solely for the benefit and protection of the individual in his private capacity, which may be dispensed with without infringing any public right or public policy.

(b) Income-tax---

--Assessment---Advocate---Appeal to Appellate Tribunal---Advocate engaged to appear in assessment proceedings and all proceedings connected therewith ---Assessee's Advocate filing petition signed by him for cancellation of ex parte assessment under 5.144---Order passed under S.146---Assessee participating in fresh assessment proceedings---No complaint that Advocate had .no authority to represent assessee. in proceedings under S.146 even at the stage of first appeal ---Assessee estopped from raising plea on appeal to Tribunal---Order under S.146 was valid--­Indian Income Tax Act, 1961.

For the previous year relevant to the assessment year 1982-83, the assessee filed a return of income on November 3, 1983, admitting a loss of Rs.58,216. The total loss returned was Rs.11,53,920. Since the assessee did not comply with the requirements of notices issued by the Income-tax Officer, an ex pane assessment -order was passed under section 144 of the Income Tax Act, 1961, on September 12, 1984. Notice of demand alongwith the assessment order was served on the assessee's Advocate. On the basis of a petition, dated September 15, 1984, filed in the name of the assessee but signed by his Advocate, the ex parte assessment was cancelled under section 146 on September 24, 1984, and fresh assessment was completed on March 27, 1987, making certain additions, etc. Thus, against the income initially assessed under section 144 at Rs.2,16,336 the income that was finally determined came to Rs.73,28,394. Aggrieved by the fresh-assessment order, the assessee filed an appeal before the Commissioner of Income-tax (Appeals) who confirmed the assessment with slight modifications. The assessee filed an appeal against the order. Additional grounds were subsequently filed. In these additional grounds, the assessee took up the contention that the Advocate who had filed the petition on behalf of the assessee under section 146 had no authority to present such a petition and hence the order passed by the Income-tax Officer setting aside the original assessment under section 144 should be treated as null and void and, therefore, the assessment order passed by the Income-tax Officer, dated March 27, 1987, was without jurisdiction. The Tribunal admitted all the additional grounds an¢ it held that the cancellation of the ex parte assessment was vitiated by lack of jurisdiction. On a reference:

Held, that the material on record showed that the assessee had participated in the fresh assessment proceedings after the ex parte assessment order was set aside by the order under section 146. Aggrieved by the fresh assessment order, the assessee had filed an appeal before the Commissioner of Income-tax (Appeals). No complaint was raised before the first appellate authority where the assessee was represented by a chartered accountant that the assessee was not aware of the ex parte assessment proceedings under section. 144 and also the petition filed by the Advocate for the assessee under section 146. If the story put forward by the assessee was correct, a mere reading of assessment order, dated March 27, 1987, would have alerted him as it referred to the earlier proceedings in its first paragraph itself. Even if the assessee's Advocate had filed the petition under section 146 without his knowledge or consent, subsequent,, conduct of the assessee would show that he had ratified the action taken by his Advocate. Section 146 of the Income­-tax Act enables an assessee assessed under section 144 to make an application to the Income-tax Officer, for the cancellation of the assessment on certain grounds. No specific form or procedure is prescribed in the application under section 146. No public interest is involved in this proceeding which would stand in the way of the assessee waiving his objection. The order passed by the assessing authority under section 146 on September 24, 1994, was not bad for any inherent lack of jurisdiction even if there was any irregularity in the manner in which the application was filed under section 146. The assessee was estopped by his conduct from raising an objection on that basis at the second appellate stage after having participated in the fresh assessment proceedings and after having failed to take any objection on that ground before the first appellate authority.

Dhrendra Nath Gorai v. Sudhir Chandra Ghosh .AIR 1964 SC 1300 and Byram Pestongi Gariwala v. Union of India (1992) 1 SCC 31 ref.

P.K.R: Menon and N.R.K. Nair for the Commissioner.

C. Kochunni Nair and M.A. Feroz for the Assessee.

2000 P T D 2281

[235 I T R 619]

[Kerala High Court (India)]

Before G. Sivarajan, J

TISSAN JOSEPH

versus

COMMISSIONER OF INCOME-TAX and others

O.P. No.21292 of 1997-I, decided on 11th December, 1997

Income-tax---

----Recovery of tax---Writ---Garnishee proceedings---Alleged creditor contending that no amount was due from him to defaulter---Petitioner had to be given opportunity to be heard---Indian Income Tax Act, 1961, S.226(3)--­Constitution of India; Art.226.

Held, that the petitioner had been proceeded against, under section 226(3) of the Income-tax Act, on the assumption that the petitioner owed money to the defaulter and the assumption was on the basis of the balance-sheet of the defaulter submitted along-with the returns. But the case of the petitioner was that the said amount was adjusted towards grant and that no amount was due from the petitioner to the defaulter. When there was a dispute with regard to the liability, the petitioner should have been afforded an opportunity to establish that the noting in the balance-sheet that the. said sum was given as loan was not correct. In the instant case, admittedly, an opportunity had not been given to the petitioner and he had not been heard personally. The certificate under section 226(3) directing the petitioner to pay the sum of Rs.11,73,085 was not valid and was liable to be quashed.

M. P. M. Aslam and Thomas M. Jacob for Petitioner

N. R. K. Nair for Respondents

2000 P T D 2348

[236 I T R 604]

[Kerala High Court (India)]

Before P. Shanmugam, J

PALA MARKETING COOPERATIVE SOCIETY LTD.

versus

STATE OF' KERALA and another

O. P. No. 13014 of 1998, decided on 20th October, 1998.

Income-tax

----Reassessment---Failure to disclose fully and truly all material facts necessary for assessment---Assessee giving detailed statement of depreciation showing written down value, rate of depreciation claimed etc.,, though depreciation claimed- was at higher rate---Assessing Officer completing assessment accepting depreciation claimed---Notice for reassessment to reduce excess depreciation allowed not valid---Indian Income Tax Act, 1961, Ss. 147 & 148.

The petitioner filed a return of income for the assessment year 1989-90 declaring a total income of Rs.17,30,000. In arriving at the total income, the petitioner deducted a sum of Rs.10,14,837 as depreciation allowance on plant and machinery-by filing a depreciation statement. On eight items depreciation was claimed at the rate of 33-1/3 percent. and with reference to 12 other items at the rate of 50 percent. The written down value as on March 31 1988, and as on March 31, 1989, after claiming depreciation at the rate specified were given in the statement. The assessment was made under section 143(3) of the Income Tax Act, 1961. On-the presumption that there was a, mistake apparent from the records rectifiable under section 154 of -the Act, as excess depreciation was claimed and granted to the petitioner, an order was passed to rectify the mistake. The petitioner preferred an appeal to the Commissioner of Income-tax (Appeals) contending that there was no mandatory notice under section 154(3). The Commissioner of Income-tax (Appeals,) allowed the appeal and cancelled the rectification on the ground that it was invalid for want of notice and opportunity. Thereafter, fresh proceedings were initiated by issuing notice under section 154. Again another notice under section 148 was issued to reassess the income on the ground that income chargeable to tax had escaped assessment within the meaning of section 147. The petitioner submitted a reply stating that the reassessment proceedings were barred by limitation. Thereafter, the petitioner filed a writ petition challenging the initiation of reassessment proceedings and the issue of notice. The Deputy Commissioner of Income ­tax contended that excess depreciation was claimed by the petitioner and that he had omitted/failed to make full and true 'disclosure of material facts necessary for reassessment:

Held that the primary facts regarding the claim of written down value had been furnished. However, while working the depreciation rate, instead of 33-1/3 percent. for all items the assessee made a claim of 50 percent. with reference to 12 items. This claim on the rate of depreciation could not be held to be failure to disclose fully and truly material facts necessary for assessment. It could not be stated that it was the duty of the assessee to point out that he had made a wrong claim in the rate of depreciation. The material facts having been placed before the Assessing Officer it was the duty of the Officer to draw the inference from those material facts disclosed. Section 147 is of special or extraordinary nature since it empowers reopening of an assessment after the period of limitation of four years and hence must satisfy the test strictly. -Therefore, the notice issued for reassessment was not valid.

Indo-Aden Salt Mfg. and Trading Co. (P.) Ltd. v. CIT (1986) 159 ITR 624 (SC) and Renusagar Power Co. Ltd. v. ITO (1979) 117 ITR 719 (All.) distinguished.

Bengal Luxmi-Cotton Mills Ltd. v. ITO (1973) 87 ITR 618 (Cal.); Calcutta Discount Co. Ltd. v. ITO (1961) 41 ITR 191 (SC); CIT v. Bhanji Lavji (1971) 79 ITR 582 (SC); CIT v. Burlop Dealers Ltd. (1971) 79 ITR 609 (SC); East India Hotels Ltd. v. Deputy CIT (1993) 204 ITR 435 (Cal.); ITO v. Lakhmani Mewal Das (1976) 103 ITR 437 (SC); Indian Oil Corporation v. ITO (1986) 159 ITR 956 (SC); Kantamani Venkata Narayana & Sons v. First Addl. ITO (1967) 63 ITR 638 (SC) and Parashuram Pottery Works Co. Ltd. v. ITO (1977) 106 ITR 1 (SC) ref.

Bechu Kurian Thomas for Petitioner.

P.K.R. Menon and N. R. K. Nair for Respondents. .

2000 P T D 2369

[236 I T R 288]

[Kerala High Court (India)]

Before G. Sivarajan, J

KERALA STATE BAMBOO CORPORATION LTD.

versus

COMMISSIONER OF INCOME TAX and another

O. P. No.5660 of 1997, decided on 27th August, 1998.

Income-tax---

----Return---Defects in return---Rectification of defects---Scope of sub­section (9) of S.139---Power to treat defective return as invalid---Power can be exercised only after assessment for year to which return relates is completed or time for such completion expires---Return submitted by public sector company not accompanied by audit report---Failure due to delay by Central Government in appointing auditor ---Assessee applying for extension of time up to 31-5-1996, for filing audit report---Revised return along-with audit report filed on 25-9-1996---Orders refusing acceptance of return, rejecting revision petition and issuing notice for reassessment---Application of assessee should have been considered as a petition under proviso to S.139(9)---Assessment proceeding pending when revised return was filed--­Orders of Income-tax Authorities rejecting return and revision petition were not valid---Notice for reassessment was not valid---Indian Income Tax Act, 1961,S.139.

Subsection (9) of section 139 of the Income Tax Act, 1961, obliges the Assessing Officer to intimate the assessee the defect, if any, noted in the return. This is for the purpose of affording an opportunity to the .assessee to cure the said defects. The minimum period to be granted for the said purpose is fifteen days but if an application is made by the assessee requiring more time the assessing authority is given power to grant further time. If the assessee does not cure the defect within the time allowed by the assessing authority then notwithstanding any other provision of the Act the return shall be treated as an invalid return and all the consequences of, not filing the return will follow. But it must be noted that this is subject to a rider which is mentioned in the proviso. It clearly says that if the assessee rectifies the defect beyond the time allowed by the Assessing Officer but before the assessment is made the Assessing Officer may condone the delay and treat the return as a valid return. From the above it is amply clear that the question of treating the defective return as invalid and visiting the assessee with consequences of not filing the return will arise only after the assessment for the year for which the defective return is filed is completed or after the time for completion of the assessment is over. This is for the reason that if the assessee filed the return curing the defect at any time before the said date the assessing authority has got the power to condone the delay and to treat the return as valid.

The assessee was a public sector undertaking fully owned by the State of Kerala. For the assessment year 1994-95, the petitioner-assessee filed a return of its income before the second respondent- the Assessing Officer on November 28, 1994. The Assessing Officer, on a scrutiny of the return, found that the return was defective, in that (i) it was not accompanied by the report of the audit mandated by section 44AB of the Act, and (ii) it was not signed by the managing director of the company, and the same was returned on January 24, 1995, to the petitioner for curing the defects. On February 20, 1995, the petitioner thereupon sent a fresh copy of the return filed on November 28, 1994, verified and signed by its managing director on February 15, 1995, with a covering letter in which it was explained that the audit under section 44AB of the Act could be finalised only after the statutory audit mandated by section 619 of the Companies Act, 1956, was done by the auditors to be appointed by the Central Government and that the Central Government had not yet appointed anyone for the said purpose. The petitioner requested for some more time for filing the tax audit report under section 44AB of the Act and the audited statement of accounts. The petitioner sent a petition, dated October 30, 1995, requesting for some more time to submit the tax audit report and the audited statement of accounts. It was pointed out therein that the Central Government issued orders appointing the auditors on September 25, 1995, which was received by the petitioner on October 16, 1995. The petitioner contacted the appointed auditors immediately and requested them to take up the audit of its accounts of 1993-94 immediately. The second respondent passed an order on the said application on November 27, 1995, granting time up to February 28, 1996, for filing the return. The petitioner again sent a petition, dated February 24, 1996, to the second respondent pointing out that the auditors appointed lay the Central Government did not complete the audit and requested for time up to May 31, 1996, for filing the return. The petitioner could get the audit report under section 44AB of the Act along-with the certificate in Form No.3CA from its auditors only on September 24, 1996 and on the very next day, that is, on September 25, 1996, the petitioner filed its revised return for the assessment year 1994-95 along-with all the necessary documents along with a covering letter. The second respondent on receipt of the revised return sent a communication, dated September 30, 1996, to the petitioner stating that as the time granted for filing the return for the year was already over the return filed on September 25, .1996, was beyond the time limit and hence could not be acted upon. The petitioner requested for a reconsideration of the decision but the request was rejected. The petitioner then filed a revision petition which was also rejected. In the meantime a notice of reassessment was served on the petitioner. On a writ petition against the order:

Held, that the Assessing Officer had not issued any declaration to the effect that the returns filed by the petitioner on November 28, 1994, or on February 20, 1995, were invalid and that he had declined to exercise the power vested in him under the proviso to subsection (9) of section 139 on the ground that no request in that regard was made by the petitioner. The Assessing Officer was bound to consider the petition keeping in mind the provisions of the proviso to subsection (9) of section 139 of the Act. He had failed to do so. The revised return or the correct return was filed on September 25, 1996, and, therefore, there was time till March 31, 1998, to complete the assessment. Therefore, it was clear that on the date when the petitioner had submitted the return along with all the required documents on September 25, 1996, the assessment of the petitioner for the year 1994-95 was pending. Hence, the orders passed including the notice of reassessment were not valid and were liable to be quashed.

The Assessing Officer was directed to consider the petitioner's application treating it as a petition for condonation of delay by invoking the provisions of the proviso to subsection (9) of section 139 of the Act. He was directed to afford an opportunity of being heard to the petitioner in the matter.

Collector, Land Acquisition v. Mst. Katiji (1987) 167 ITR 471 (SC); (1987) 62 Comp. Cas. 370; (1987) 66 STC 228; (1987) 71 FIR 143; Kerala State Drugs and Pharmaceuticals Ltd. v. CIT (1994) 210 ITR 1042 (Ker.) and National Insurance Co. Ltd. v. CIT (1995) 213 ITR 862 (Cal.) ref.

P. G. K. Warriyar, Mathew Cherian and P. Balakrishnan for Petitioner.

N. R. K. Nair and P. K. R. Menon for Respondent.

2000 P T D 2495

[236 I T R 726]

[Kerala High Court (India)]

Before Om Prakash, C.J. and J. B. Koshy, J

PREMIER BREWERIES LTD.

versus

COMMISSIONER OF INCOME-TAX

I.T.R. No.54 of 1992, decided on 12th January, 1999.

Income-tax---

----Business expenditure---Expenditure on repair and renovation---Burden on assessee to prove such repair and renovation---Finding that there had been no repair and renovation- Finding of fact---Tribunal finding that there had been no violation of principles of natural justice---Disallowance of expenditure was justified---Indian Income Tax Act, 1961, S.37.

The assessee-company had filed its returns for the assessment year 1985-86. On going through the accounts, the Assessing Officer noticed a sum of Rs.9,98,200 under the head "machinery and electrical repairs". The assessee produced sixteen bills of various dates from, December 2, 1984 to December 31, 1984, in support of the claim, issued by E. The assessee ­company was a company promoted by the directors of E and at the material time one of the directors of the assessee-company was the managing director of E, and both companies had a good business relationship. On perusing the records of E, the Assessing Officer found that the sixteen bills supplied to the assessee did not figure in the ledger maintained by them. The assessee was asked to reconcile the difference in trade balance and the assessee by letter, dated February 24, 1988, confirmed that the bills produced were genuine and bona fide. The sales executive engineer of E when summoned on March 8, 1988, under section 131 of the Income Tax Act, 1961, submitted in writing that the sixteen bills were given to show work involvement in reconditioning machines but the work was not carried out and as agreed subsequently a new machine was manufactured and supplied. The Assessing Officer carried out an inspection of the-factory premises and found that new equipment was cleared on July 30, 1985, at 10-45 p.m. under a gate pass issued by the Central Excise Department. Lorry weigh bridge receipts and despatch charges receipt showed that the unit was despatched on July 30, 1985. Evidence was collected from the labour contractor that from 1985 onwards labour charges were incurred for dismantling the old plant and for erection work of the new plant. Considering all these facts, the Assessing Officer concluded that no repairing work was carried out during 1984 as alleged, and disallowed the claim of the assessee for Rs.9,98,200. The Commissioner of Income-tax (Appeals) after considering the evidence and materials available in the case agreed with the Assessing Officer. The Tribunal also came to the conclusion that no repairing work was carried out during the year 1984. The Tribunal noticed that even for repairs and renovation work materials have to be transported. But, no such gate passes were available with the assessee and no supporting documents were there to show that repairs were carried out during the assessment year 1985-86. The Tribunal also found that there was no denial of natural justice before the Assessing Officer or before the appellate authority. The Tribunal confirmed the disallowance of the expenditure. On a reference:

Held, that in respect of the deduction claimed as revenue expenditure for repairs and renovation, it was for the assessee to prove the same and the assessee did not prove the same. The question whether the assessee carried out repairs and renovation work of the existing plant is a question of fact and there was a concurrent finding by the three authorities including the final fact-finding authority, the Appellate Tribunal. The Tribunal also found that there was no violation of the principles of natural justice by the Income-tax Authorities. Hence the disallowance of the expenditure was justified.

C. Kochunni Nair for the Assessee.

P. K. Ravindranatha Menon, Senior Advocate and N.R.K. Nair for the Commissioner.

2000 P T D 2519

[236 I T R 988]

[Kerala High Court (India)]

Before Om Prakash, C. J. and J. B. Koshy, J

COMMISSIONER OF INCOME-TAX

versus

Smt. P. M. CELINE

Income-tax References Nos. 150 of 1995 and 21 to 26 and 115 of 1996, decided on 8th July, 1998.

Income-tax---

----Penalty---Advance tax---Delay in filing returns ---Failure to furnish estimate of advance tax---Initiation of penalty proceedings--Condition precedent---Satisfaction of Assessing Officer regarding delay in filing returns before such initiation---Burden not discharged by showing that notice had been issued on the day of assessment---Indian Income Tax Act, 1961, Ss.271(1)(a) & 273.

What is contemplated by section 271(1) of the Income Tax Act, 1961, is that the Income-tax Officer should have been satisfied in the course of assessment proceedings regarding matters mentioned in the clauses of that subsection. It is not essential that the notice to the person proceeded against should have also been issued during the course of the assessment proceedings. Satisfaction in the very nature of things precedes the issue of notice. It is not necessary to record the satisfaction in the assessment order itself, but the duty of the Revenue is to show that the satisfaction was duly recorded and that preceded the issue of notice. This onus cannot be discharged by the Revenue by showing that the notice had been issued on the day of the assessment:

Held, that in these cases no valid satisfaction preceding the issue of notice was recorded by the Assessing Officer and hence the Tribunal was right in holding that the penalties levied under both the sections 271(1)(a) and 273 were liable to be quashed.

Manasvi (D. M.) v. CIT (1972) 86 ITR 557 (SC) applied.

A.V. Joy Alukkas Jewellery v. CIT (1990) 185 ITR 638 (Ker.) and Seetha Mahalakshmi Rice and Groundnut Oil Mill Contractors Co. v. CIT (1981) 127 ITR 579 (AP) ref.

P. K. R. Menon and N. R. K. Nair for the Commissioner

C. Kochunni Nair and Dale P. Kurian for the Assessee.

2000 P T D 2545

[236 I T R 909]

[Kerala High Court (India)]

Before A. S. Venkatachala Moorthy, J

MANUEL SONS WINES

versus

INCOME-TAX OFFICER and others

O. P. Nos. 11646 and 11649 of 1991, decided on 13th January, 1999.

Income-tax---

----Advance tax---Writ---Interest payable under S.215 or S.217---Reduction or waiver of interest---Reduction of interest by 50 per cent by Deputy CIT and CIT after considering matter in detail---High Court would not interfere with decision in writ proceedings---Indian Income Tax Act, 1961, Ss.215 & 217---Indian Income Tax Rules, 1962, RAO ---Constitution of India, Art.226.

Rule 40(5) of the Income Tax Rules, 1962, is to the effect that the Income-tax Officer may reduce or waive the interest payable under section 215 or 217 of the Income Tax Act, 1961, when the Inspecting Assistant Commissioner considers that the circumstances are such that a reduction or waiver of the interest payable under section 215 or 217 is justified. It is for the authorities to decide as to what extent the waiver has to be given, depending upon the facts and circumstances of each case. No hard and fast rule can be made in this regard. The High Court, while exercising jurisdiction under Article 226 of the Constitution of India, cannot interfere with the matter unless there is non-application of mind by the authorities concerned:

Held, dismissing the writ petition, that, in the instant case, the Deputy Commissioner of Income-tax as also the Commissioner of Income-tax examined the matter in detail and waived interest only to the extent of 50 per cent. The High Court could not set aside the order in writ proceedings.

P. Balachandran for Petitioner.

P. K. R. Menon, Senior Advocate for Respondents.

2000 P T D 2576

[236 I T R 397]

[Kerala High Court (India)]

Before Om Prakash C. J. and J. B. Koshy, J

CMISSIONER OF INCOME-TAX

versus

DHARMADEEPTI

Income tax Reference Nos. 119 to 121 of 1995, decided on 12th February 1998.

(a) Income-tax--

----Charitable purpose---Charitable trust---Business expenditure---Scope of S.13(1)(bb)---Assessee engaged in business of running Kuries---Income of assessee from Kuri business was income from property "hew under trust" for charitable purpose---Trust created for public charitable purposes and business carried on in course of actual carrying out of primary purpose of trust--­Entitled to exemption---Insertion of S.13(1)(bb) will not disentitle right of assessee to exemption---Indian Income Tax Act, 1961, Ss.l4(1)(a) & 13(1)(bb).

The assessee-company engaged in the business of running Kuries claimed that the income from the Kuri business was held under trust and was applied for charitable purposes and, therefore, it was entitled to exemption under section 11 of the Income Tax Act, 1961, on the basis of the Supreme Court decision in Dharmadeepti v. CIT (1978) 114 ITR 454, rendered in the case of the assessee itself, wherein the Supreme Court held that running of Kuri business was exempted under section 11 for the, assessment year 1969-70. The Assessing Officer rejected the claim for exemption on the ground that the decision was valid until the year 1976-77 but in view of the amendment to section 13(1)(bb), any income of a charitable institution from business or profession is not entitled to exemption under section 11, unless the business itself is carried on in the course of the actual carrying out of the primary object of the institution and that the. assessee-company is only appropriating the income from business and using it for charitable purposes and not earning the income during the course of carrying out the primary objects of the company. On appeal, the Commissioner (Appeals) affirmed the order of the Assessing Officer. On further appeal, the Tribunal, relying on the Supreme Court decision in the case of the assessee itself, held for the assessment years 1982-83 to 1984-85, that the income of the assessee from the Kuri business was the income derived from property "held under trust" for charitable purposes and as such was entitled to exemption under section 11(1)(a) and that the insertion of section 13(1)(bb) would not oust the right of the assessee to claim exemption. On a reference:

Held, (i) that the primary purpose of the trust was to carry out the charitable objects and the business was carried on as a means in the course of the actual carrying out of that primary purpose and not as an end in itself. That while the predominant object of the trust was the carrying out of the charitable objects referred to in the categories of charitable purposes referred to in section 2(15), the carrying on of the business which was actually the property held under trust or other legal obligation was incidental and the profit resulting from the business was only a by-product. Therefore, the trust was, entitled to exemption under section 11.

(ii) That the provisions of section 13(1)(bb) were not applicable in respect of the Kuri business which itself was the property held under trust.

(iii) That the inters on investment of the funds accumulated all the years could not be said to be business income that could be assessed to tax only under the head “Other sources”

(iv) That the assessee consistently claimed exemption under section 11 notwithstanding section 13(1)(bb) having been inserted in the Act. Therefore, when the assessee gave up a particular ground, the Tribunal was justified in considering the. ground on the merits on the basis that there was no estoppel against law.

Thanthi Trust v. CIT (Asst.) (1995) 213 ITR 626 (Mad.) fol.

CIT (Addl.) v. Surat Art Silk Cloth Manufacturers Association (1980) 121 ITR 1 (SC) and Dharmadeepti v. CIT (1978) 114 ITR 454(SC) ref.

(b) Income-tax---

----Income from other sources---Charitable trust ---Assessee engaged in running Kuri business---Interest on investment of funds accumulated---Not income from business of running Kuries---Assessable as income from "other sources".

(c) Income-tax---

----Reference---Estoppel---Assessee giving up particular ground---Tribunal justified in considering ground on merits on basis that there was no estoppel against law.

N. R. K. Nair for the Commissioner.

V. M. Kurian, A. V. Thomas, E. K. Dilraj and Mathew B. Kurian for the Assessee.

2000 P T D 2714

[237 I T R 217]

[Kerala High Court (India)]

Before Om Prakash, C. J. and J. B. Koshy, J

COMMISSIONER OF INCOME-TAX

versus

RAM BAHADUR THAKUR LTD.

I. T. R. No. 66 of 1996, decided on 28th October, 1998.

Income-tax---

----Appellate Tribunal---Power of rectification---Tribunal cannot rectify every mistake---Tribunal can rectify only a mistake apparent from record--­Assessee having office apartment leased out to another company---Apartment sold and given vacant possession to buyer ---Assessee paying Rs.30 lakhs to tenant for obtaining vacant possession and claiming deduction of same in computing capital gains as expenditure wholly and exclusively incurred in connection with transfer---Revenue claiming that no tenancy existed and payment unreasonable---Tribunal allowing deduction of Rs.15 lakhs on basis tenancy existed ---Assessee filing application for rectification before Tribunal---Tribunal exercising power under S.254(2) holding that Revenue's case was that payment of Rs.30 lakhs unreasonable in context and setting that whole transaction was, sham and an attempt to evade tax---Tribunal holding Income Tax Authority has no power to go into question of reasonableness of expenditure claimed in connection with transfer---Question whether plea of Revenue of unreasonableness of payment in context that whole transaction was sham or some other context was not free from debate---Entering into of reasonableness of expenditure claimed by assessee in connection with transfer not a mistake apparent from record---Tribunal not right in rectifying its earlier order---Indian Income Tax Act, 1961, Ss.48 & 254(2).

The assessee-company, which had an office apartment had leased out the same to another company, TS. The assessee sold the office apartment and gave vacant possession to the buyer. In computing its capital gains on the sale of the apartment, the assessee claimed deduction of Rs.30 lakhs under section 48(1)(a)(i) of the Income Tax Act, 1961, on the ground that the said expenditure was incurred wholly and exclusively in connection with the transfer to obtain vacant possession. The Assessing Officer, however, allowed deduction only up to Rs.16 lakhs. The Commissioner of Income-tax in exercise of his powers under section 263 set aside the assessment order and directed the Assessing Officer to reconsider the admissibility of the claim for deduction. Pursuant to the order of the Commissioner of Income-tax, the Assessing Officer disallowed the entire claim of Rs.30 lakhs on the ground that TS had no tenancy or right of possession over the property and that the claim for the deduction of Rs.30 lakhs was merely an attempt to avoid tax. On appeal, the Commissioner (Appeals) affirmed the order of the Assessing Officer. On further appeal, the Tribunal held, proceedings on the hypothetical basis that there existed a tenancy between the assessee and TS, that a sum of Rs.15 lakhs could be claimed as a reasonable deduction, to get vacant possession. The assessee, thereafter, filed an application for rectification before the Tribunal. The Tribunal, purporting to act under section 254.(2) of the Act, found that the case of the Revenue was that the whole arrangement leading to the payment of Rs.30 lakhs was a device or an attempt to avoid tax, that the Revenue had described the payment of Rs.30 lakhs as unreasonable which was in the context and setting that the whole transaction was sham and that there was force in the contention advanced on behalf of the assessee that the language employed, namely, "expenditure incurred wholly and exclusively" did not permit any authority to go into the question whether such expenditure was necessary or reasonable relying on Sassoon J. David & Co. (P.) Ltd. v. CIT (1979) 118 ITR 261 (SC). The question arose whether the Tribunal was right in exercising jurisdiction under section 254(2). On a reference:

Held, (i) that in Sassoon J. David & Co. (P.) Ltd.'s case (1979) 118 ITR 261 the Supreme Court was not required to go into the question of reasonableness of the expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922, analogous to section 37(1) of the Income Tax Act, 1961, and therefore, the decision in Sassoon J. David & Co. (P.) Ltd.'s case (1979) 118 ITR 261 (SC), could not be an authority for the proposition "whether the Tribunal could go into the reasonableness of the expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922". Therefore, no conclusion could have been drawn by the Tribunal on the basis of Sassoon J. David & Co. (P.) Ltd.'s case (1979) 118 ITR 261 (SC), that there was a mistake apparent from the record. Assuming that Sassoon J. David & Co. (P.) Ltd.'s decision (1979) 118 ITR 261 (SC), was an authority on the point that reasonableness of the expenditure could not be gone into under section 66(1) of the 1922 Act or section 37(1) of the Income Tax Act, 1961, it still remained debatable whether the said authority could be used for the purpose of section 48(1)(a)(i) of the Income Tax Act, 1961. Whether what was held for the purpose of section 10(2)(xv) of the Indian Income-tax Act, 1922, holds good for the purpose of section 48(1)(a)(i) of the Income Tax Act, 1961, was a question which was not free from debate and, therefore, on the facts and in the circumstances of the instant case, recourse could not have been had to section 254(2);

(ii) That the question whether the Revenue raised the plea of unreasonableness in the context and setting that the whole transaction was a device or sham, or in some other context was not free from debate;

(iii) That, therefore, the Tribunal was not right in having reviewed its earlier order exercising power under section 254(2) of the Act. Section 254(2) could not be resorted to rectify every mistake, but could be taken recourse to only to rectify a mistake apparent from the record. Entering into reasonableness of the expenditure claimed by the assessee in connection with the transfer could not be said to be a mistake apparent from the record.

CIT v. Golul Chand Agrawal (1993) 202 ITR 14 (Cal.); CIT v. Ramesh Electric and Trading Co. (1993) 203 ITR 497 (Bom.) and Sassoon J. David & Co. (P.) Ltd v. CIT (1979) 118 ITR 261 (SC) ref.

P. K. Ravindranatha Menon, Senior Advocate and N. R. K. Nair for the Commissioner.

Joseph Markos for the Assessee.

2000 P T D 2761

[237 I T R 20]

[Kerala High Court (India)]

Before P. V Naryanan Nambiar, J

B. INDIRA RANI

Versus

COMMISSIONER OF INCOME TAX and others

Original Petition No. 8361 of 1991-U decided on 4th December 1998.

Income-tax--

---- Recovery of tax---Notice of demand---Assessment making an addition of a particular amount on ground that it represented cash credits---Addition set aside by Tribunal with a direction to A.O. to re-examine genuineness of credit---Order of rectification deleting addition---Notice of demand issued on basis of rectified assessment order--Assessment order had not been set aside in its entirety---Recovery of tax and interest on the basis of notice of demand was valid---Indian Income Tax Act, 1961, Ss.156 & 220---Constitution of India; Art.226.

A notice of demand remains valid and effective to the extent that the tax is finally determined to be due and payable by the assessee and in case of reduction, so in the case of a remand, the -enforceability of the notice of demand is qualified by and subject to the fresh determination of the liability. The provisions contained in section 3 of the Taxation Laws (Continuation and Validation of Recovery Proceedings) Act, 1964, make this clear. It has been provided that where. Government dues are reduced in appeal or other proceedings, it shall not be necessary for the taxing authority to serve upon the assessee a fresh notice of demand and any notice of payment served upon the assessee before the disposal of the appeal or proceedings may be continued in relation to the amount so reduced from the stage at which such proceedings stood immediately before such disposal.

The Income-tax Officer completed the assessment of the assessee for the assessment year 1984-85 under section 143(3) of the. Income Tax Act, 1961, on a total income of Rs.17,32,260 which included an addition of Rs.50,000 being unexplained cash credit. The Commissioner of Income-tax (Appeals) confirmed the addition but the Tribunal set aside the addition of Rs.50,000 with a direction to the Assessing Officer to re-examine the genuineness of the cash credit after affording a reasonable opportunity to the assessee. On April 24, 1989, the Assistant Commissioner of Income-tax passed an order under section 154 of the Act in which it was held that the credit of Rs.50,000 was genuine and thus, the total income was re-determined to be Rs.16,82,260. He also issued a notice of demand on the same date. The assessee filed a petition under section 264 with a prayer to the Commissioner of Income-tax to give a direction to charge interest under section 220(2) of the Act only from the date on which the demand fell due on the basis of the notice of demand, but the same was rejected. On a writ petition against the orders:

Held, that the original assessment order and demand had not been wiped out or cancelled. The assessment order was not even set aside, it was, set aside only on the specific point regarding the addition of Rs.50,000. Therefore, it was clear that there was only a partial setting aside of the assessment order. The notice of demand was valid.

Brooke Bond & Co. Ltd. v. CIT (1986) 162 ITR 37 (SC); CIT v. Chittoor Electric Supply Corporation (1995) 212 ITR 404 (SC); New Woodlands v. CIT (1982) 138 ITR 795 (Ker.) and Ramanathan Chettiar (K. V. AL. M.) v. CIT (1973) 88 ITR 169 (SC) ref.

C. Kochunni Nair for Petitioner.

P. K. R. Menon and N. R. K. Nair for Respondent.

2000 P T D 2811

[236 I T R 993]

[Kerala High Court (India)]

Before Om Prakash, C. J. and J. B. Koshy, J

CENTRAL. BOARD OF DIRECT TAXES

versus

COCHIN GOODS TRANSPORT ASSOCIATION

W. As. Nos. 135, 163, 217, 218, 221, 224, 225, 243, 244, 247, 265, 331, 343, 415, 423, 498, 499 and 695 of 1996, decided on 14th October, 1998.

(a) Interpretation of statutes---

----Fiscal statute;---When language is clear,. Court should interpret statute on face value---In fiscal matters no res judicata and no estoppel.

So long as the language employed in the statutory provision and moreso in the fiscal statute is clear, the Court should interpret it on the face value and there is no warrant to go behind it. Nothing should be added or subtracted to interpret the plain language and the semantic view alone should betaken.

In fiscal matters there is no res judicata and no estoppel.

(b) Income-tax---

----Deduction of tax at source---Payment to contractors "for carrying but any work"---Provision for deduction of income-tax from payments---Is not restricted to payments in relation to "works contracts"- --Transport contract for mere carriage of goods without loading and unloading facility---Would amount to carrying out "any work" within the meaning of S.194-C(1)---"Any work" in subsection (1) of S. 194C means any work and not a "works contract"---Deduction of tax at source at rate of 2 percent. from amounts credited to account of contractor to be made by person responsible for paying---Indian Income Tax Act, 1961, S.194C(11).---(Bombay Goods Transport Association v. Central Board of Direct Taxes (1994) 210 ITR 136 (Bom.) dissented from].

There is nothing in subsection (1) of section 194C of the Income Tax Act, 1961, to hold that a contract to carry out a work or a contract to supply labour to carry out a work should be confined to works contracts and that the words "any work" occurring in the subsection mean any work and not a "works contract". Therefore, a transport contract simplicter (i.e. a transport contract for mere carriage of goods without loading and unloading facility) would amount to carrying out "any work" within the meaning of section 194C(1) of the Act and, therefore, deduction of tax at source at the rate of two percent. from the amounts credited to the account of the contractor has to be made by a person responsible for paying any sum for the transport contract.

Bombay Goods Transport Association v. Central Board of Direct Taxes (1994) 210 ITR 136 (Bon.) dissented from.

Associated Cement Co. Ltd. v. CIT (1993) 201 ITR 435 (SC) fol.

P. K. Ravindranatha Menon, Senior Advocate and N. R. K. Nair for Appellant.

2000 P T D 2993

[235 I T R 106]

[Kerala High Court (India)]

Before Mrs. K.K. Usha and G. Sivarajan, JJ

COMMISSIONER OF INCOME-TAX

Versus

ASPINWALL & CO. LTD.

Income-tax Reference No.39 of 1995, decided on 24th October, 1997

Income-Tax

----Business expenditure ---Assessee carrying on business of curing of coffee, steamer agency, clearing and forwarding agency---Expenditure incurred on foreign travel of wife of chief executive---Tribunal finding that no material to show that travel was for my other purpose other than business purpose--­Expenditure was incurred for foreign travel of assessee's employee and wife of employee and not wife of its own partner or director---Tribunal limiting disallowance of expenditure to fifty per cent of amount claimed since foreign visit might have social aspects also---Justified---Indian Income Tax Act, 1961, S.37(1):

For the assessment year 1985-86, the assessee-company engaged in the business of curing of coffee, steamer agency, clearing and forwarding agency, claimed deduction of Rs:2,08,465 as business expenditure on foreign travel which included Rs.33.796 incurred on the tour of the wife of the chief executive of the ,assessee-company. The Assessing Officer disallowed the claim for deduction on the ground that the expenditure was incurred for non-­business purposes. The Commissioner (Appeals) affirmed the order of the Assessing Officer. On further appeal, the Tribunal took the view that the wife of the chief executive accompanied him in the business travel and that there was no material to show that her travel was for any other purpose other than business, that the modern trend was that the senior executives were accompanied by their wives on visits for business purposes, that, however, since the visit might have some social aspects also, the entire amount could not be allowed as deduction and, therefore, the Tribunal disallowed 50 per cent of the amount of Rs.33,796. On a reference:

Held that the Tribunal had found that the travel was undertaken by the wife of the senior executive only for the purpose of business. This was a case where the assessee had incurred expenditure for the travel of its employee and the wife of the employee and not the wife of its own partner or director. It was under these circumstances that the Tribunal took the view that when the assessee permitted such travel, in the absence of contrary evidence, it had to be taken that the wife of the chief executive had to undertake the travel for business purposes. Therefore, the expenditure incurred on the foreign travel of the wife of the chief executive of the assessee-company was an allowable deduction.

Bombay Mineral Supply Co. (P.) Ltd. v. CIT (1985) 153 ITR 437 (Guj.) (Appex.) and CIT v. T.S: Hajee Moosa & Co. (1985) 153 ITR 422 (Mad.) ref.

P. K. R. Menon, Senior Advocate and N.R.K. Nair for the Commissioner.

C. N. Ramchandran Nair for the Assessee.

2000 P T D 3084

[237 I T R 527]

[Kerala High Court (India)]

Before Mrs. K. K. Usha and K.A. Mohamed Shafi, JJ

A. M. ZAINALABDEEN MUSALIAR

versus

COMMISSIONER OF INCOME-TAX

Income-tax Reference No. l of 1994, decided on 17th March, 1998

(a) Income-tax---

----Assessment---Draft assessment order--.-Reference to I.A.C.---Assessment set aside by Tribunal on ground that I.A.C. .issued directions to I.T.O. without giving opportunity of hearing to assessee---I.A.C. thereafter, hearing assessee and issuing directions to I.T.O.---Fresh assessment made by successor I.T.O.---No fresh draft assessment orders need to be forwarded during course of fresh assessment---Only procedural illegality committed by I. A. C. ---Proceedings can be continued from stage where proceedings were vitiated by illegality of not granting sufficient opportunity to assessee---Fresh assessment not void---Indian Income Tax Act, 1961, S. 144B.

For the assessment year 1978-79, the assessee returned an income of Rs.1,02,790 and an agricultural income of Rs.1,000 but the Income-tax Officer assessed him on an amount of Rs.11,63,660. Since the difference between the returned income and the income assessed was more than Rs.1 lakh, as per section 1448 of the Income Tax Act, 1961, the Income-tax Officer forwarded the draft order, dated March 13, 1981, to the assessee on March 17, 1981. The assessee filed his objections on March 31, 1981. The draft order along with the objections was then forwarded to the Inspecting Assistant Commissioner of Income-tax as contemplated by section 144E of the Act. Even though notice was issued to the assessee by the Inspecting Assistant Commissioner about the posting of the proceedings. for enquiry on September 19, 1981,- the notice was received by the assessee only on September 23, 1981. The Inspecting Assistant Commissioner without hearing the, assessee issued directions to the Income-tax Officer as contemplated under section 1448 on September 25, 1981. The Income-tax Officer thereupon completed the assessment on the basis of such direction and assessment order, dated September 26, 1981, was issued. The assessee filed an appeal before the Commissioner of Income-tax (Appeals) contending that the assessment was barred by limitation and that no opportunity was granted by the Inspecting Assistant Commissioner before directions were issued under section 1448. The assessee prayed that the assessment should be annulled. The Commissioner of Income-tax (Appeals) rejected the contention on the issue of limitation, but took the view that the Inspecting Assistant Commissioner had wrongly denied opportunity to the assessee. The appellate authority also held that-the assessment order could not be held as null and void, since it was vitiated only due to a procedural irregularity at the instance of the Inspecting Assistant -Commissioner. The assessment order was, therefore, set aside and the Income-tax Officer was directed to pass fresh orders in accordance with law. Being aggrieved by the order of the Commissioner (Appeals), the assessee went in second appeal before the Income-tax Appellate Tribunal. By order, dated November 17, 1983, the Tribunal dismissed the appeal. Pursuant thereto the Inspecting Assistant Commissioner took up the matter for hearing, heard the assessee's representative and then issued directions, dated January 11, 1984, to the Income-tax Officer. In pursuance of those directions, the income-tax Officer passed assessment order under section, 143(3) read with section 1448 of the Act on January 20, 1984, after giving a fresh opportunity of hearing to the assessee. The assessee took the matter again in appeal before the Commissioner of Income-tax (Appeals) contenting that since the original assessment was set aside, the Income-tax Officer ought to have sent a fresh draft order and only then the Inspecting Assistant Commissioner could have assumed jurisdiction under section 144B and that the Inspecting Assistant Commissioner had committed a grave error in issuing directions under section 144B(4) on the earlier draft order. The contention was repelled by the Commissioner of Income-tax (Appeals). On second appeal the Tribunal also took the view that the assessment order, dated January 20, 1984, was not liable to be declared as null and void nor was it liable to be set aside as vitiated by any illegality. On a reference:

Held, that the illegality which weighed with the appellate authorities while setting aside the assessment order, dated September 26, 1981, was a procedural irregularity committed by the Inspecting Assistant Commissioner in giving direction to the Income-tax Officer under section 14411(4) without granting an opportunity of hearing to the assessee._ The assessment order, dated September 26, 1981, had to be set aside only for this reason. There was nothing wrong in continuing the proceedings from the stage where the proceedings were vitiated by an illegality of not granting sufficient opportunity to the assessee.

(b) Income- Tax---

----Assessment---Limitation---Reference to I.A.C.---I:T.O. forwarding draft assessment order to assessee on 17-3-1981---Assessee filing objections on 31-3-1981---I.A.C. issuing notice fixing hearing on 19-9-1981, which was received by assessee only on 23-9-1981---I.A.C. without hearing assessee issuing directions to I.T.O. on 25-9-1981---I.T.O. completing assessment on 26-1-1981---Tribunal setting aside assessment ordered directing I.T.O. to pass fresh orders ---I.T.O. completing fresh assessment on 20-1-1984, as per direction of I.A.C., dated 11-1-1984---Assessment not barred by limitation as having been passed after 180 days from 17-3-1981---Indian Income Tax Act, 1961, S. 153, Expln., cl.(iv).

• As per the order passed by the Tribunal on November 17, 1983, the income-tax Officer was directed to proceed as per section 14411. He, therefore, forwarded the draft assessment order, dated March 17,. 1981, alongwith the objections of the assessee to the Inspecting Assistant Commissioner. The Income-tax Officer completed the fresh assessment on January 20, 1984, as per directions of the Inspecting Assistant Commis­sioner, dated January 11, 1984. A reading of clause (iv), Explanation 1 to section 153 showed that the provisions contained therein did not provide for a period of limitation. It provided for exclusion of certain period in calculating the period of limitation. Therefore, the fresh assessment could not be held void as having been passed after 180 days from March 17; 1981.

Goa Sea Foods v. CIT (1991) 189 ITR 431 (Ker.); Guduthur Bros. v. ITO (1960) 40 ITR 298 (SC) and Pancliamanal Steel Ltd. v. U. A. Joshi, ITO (1997) 225 ITR 458 (SC) ref.

M.A. Firoz, Dalip Kumar and C. Kochunni Nair for the Assessee.

P.K.R. Menon, Senior Advocate and N.R.K. Nair for the Commissioner.

2000 P T D 3113

[237 I T R 545]

[Kerala High Court (India)]

Before Mrs. K.K. Usha and K.A. Mohamed Shafi, JJ

COMMISSIONER OF INCOME-TAX

versus

KEEN PESTICIDES (P.) LTD.

(a) Income-tax

References Nos. 15 and 16 of 1993, decided on 17th June, 1997. ----Scientific research---Capital expenditure on scientific research---Condition precedent for allowance---Capital expenditure must have been incurred in previous year---Not necessary that ownership over land and building should have been acquired in previous year ---Assessee purchasing industrial sheds alongwith land from State Industries Development Corporation in previous year---Final registration made subsequently---Not relevant ---Assessee entitled to deduction under S.35---Explanation 2 to S.35 is declaratory--Indian Income Tax Act, 1961, S.35.

In order to get the benefit of deduction in respect of capital expenditure on scientific research, it is sufficient that the capital expenditure is incurred in the previous , year as provided under the provisions of section 35. Explanation 2 to section 35 is declaratory in nature.

The assessee was a private limited company engaged in the business of manufacture and sale of pesticides. During the previous year relevant to the assessment year 1980-81, the assessee commissioned an additional unit at Ankleshwar in Gujarat. For the purpose of starting this unit, the assessee entered into an agreement with the Gujarat Industrial Development Corporation for acquiring two sheds alongwith land. The claim put forward by the assessee under section 35 of the Income Tax Act, 1961, pertaining to capital expenditure on scientific research was declined to the extent of Rs.11,264 representing the value of the land for the reason that registration of document of sale was not executed during the relevant accounting period. The Tribunal, however, directed the Income-tax Officer to allow the entire amount claimed by the assessee as capital expenditure incurred for scientific research. On a reference:

Held, that Explanation 2 to section 35 is declaratory in nature and, therefore, it would be made applicable to the relevant assessment year also. even though, the Explanation had come into the statute only with effect from April 1, 1984. The assessee was entitled the deduction under section 35.

(b) Income-tax---

----Depreciation---Investment allowance---Actual cost---Central subsidy is not deductible in computing actual cost----Indian Income Tax Act, 1961, Ss.32, 32A & 43.

The Central subsidy is not deductible in calculating actual cost for purposes of computing depreciation and investment allowance.

CIT v. P.J. Chemicals Ltd. (1994) 210 1TR 830 (SC) fol.

P.K.R. Menon and N.R.K. Nair for the commissioner.

P. Balachandran for the Assessee.

2000 P T D 3121

[237 I T R 401]

[Kerala High Court (India)]

Before P. Shanmugham, J

OUTDOOR PUBLICITY

versus

COMMISSIONER OF INCOME-TAX and another

O.P. No, 25131 of 1998-P, decidedon 17th December, 1998.

Income-tax---

----Penalty---Failure to furnish returns in time---Firm---Delay of four years in filing return---Explanation that accounts could not be finalised because accounts of individual businesses of partners had not been completed--­Assessing Officer and CIT justified in

2000 P T D 3177

[236 I T R 883]

[Kerala High Court (India)]

Before P. Shanmugam, J

EMINENT ENTERPRISES

versus

COMMISSIONER OF INCOME-TAX and others

O.P. No.6990 of 1994-F, decided on 12th January, 1999.

(a) Income-tax---

----Return---Delay in furnishing return---Interest---Waiver of interest--­Assessee not establishing that he had financial difficulties and he would experience genuine hardship in paying interest under S.139(8)---Interest could not be waived---Indian Income Tax Act, 1961, Ss. 139 & 220.

Held, that three conditions are to be satisfied cumulatively for an order under section 220(2-A) of the Income Tax Act, 1961. Therefore, inasmuch as the petitioner had not satisfied the first condition, namely that the petitioner was in financial difficulties or that payment by way of interest would cause genuine hardship to it, the interest payable under section 139(8) could not be waived.

(b) Income-tax---

----Advance tax---Failure to file estimate of advance tax---Interest---Waiver of interest---Assessment not completed within one year---Delay not attributable to assessee---Assessee entitled to waiver of interest---Indian Income Tax Act, 1961, S.217.

The petitioner had filed the return on July 27, 1981. The assessment was completed only by order, dated -March 15, 1988. By virtue of rule 40 of the Income-tax Rules, 1962, the assessment had not been completed within the period of one year and the delay being not attributable to the assessee it was right in claiming waiver of interest under section 217.

P. G. K. Wariyar for Petitioner.

N.R.K. Nair, P.K. Ravindranatha Menon and George K. George for Respondents.

2000 P T D 3234

[237 I T R 348]

[Kerala High Court (India)]

Before P: Shanmugam, J

ASIAN TECHS LTD.

Versus

INCOME-TAX APPELLATE TRIBUNAL and another

O.P. No.24873 of 1998-J, decided on 17th December, 1998.

Income-tax--

----Appeal to Appellate Tribunal---Procedure---Raising of additional grounds of, appeal---Applicant must ensure that application for raising additional grounds is registered and that it is heard either earlier or alongwith appeal--­Applicant waiting from 1992 to 1998 without getting it registered or disposed of---Tribunal was justified in refusing to consider additional grounds of appeal---Indian Income-tax Appellate Tribunal Rules, 1963, R.11.

An applicant has to seek leave of the Tribunal to raise an additional ground under rule 11 of the Income-tax Appellate Tribunal Rules, 1963. When an additional ground is legally raised, the Tribunal is duty bound to render a decision on that. But the assessee has to show that the miscellaneous petition was filed, registered and it was pending for admission and such a ground has not been decided by the Tribunal. When the assessee makes an application, it is necessary for him to get it registered and see that the same is heard either earlier or alongwith the appeal:

Held, dismissing the writ petition, that the application of the petitioner filed to raise additional grounds had not been registered. The Tribunal had not granted leave as required. The said application was not before the Tribunal at the time of the disposal of the appeal. That apart, the petitioner had not taken due care, if really the petitioner had filed it, to get it registered and posted, from the years 1992 to 1998. Hence, the Tribunal was justified in dismissing the miscellaneous petition.

Joseph Markos and Joseph Kodianthara for Petitioner.

P.K.R. Menon for Respondent.

2000 P T D 3297

[237 I T R 694]

[Kerala High Court (India)]

Before Mrs. K. K. Usha and K. A. Mohamed Shafi, JJ

COMMISSIONER OF INCOME-TAX

Versus

KALA CARTONS

Income-tax Reference No-78 of 1993, decided on 6th April, 1998.

(a) Income-tax---

----Assessment---Draft assessment order ---I.A.C.---ITO issuing draft assessment order---Subsequent direction by I.A.C. under 5.144-A---Second Draft assessment order pursuant to such direction was valid--.Indian Income Tax Act, 1961, Ss. 144-A & 144-B.

Merely because the Income-tax Officer has issued a draft assessment order, it would not mean that the Inspecting Assistant Commissioner cannot proceed under section 144-A of the Income Tax Act, 1961. When directions are given by the Inspecting Assistant Commissioner under section 144-A sometimes the Income-tax Officer will have to make further investigation as per the directions, as a result of which, the Income-tax Officer may come across information which he did not have with him, when he originally issued a draft assessment order under section 144-B. It is not in all cases that the Income-tax Officer can immediately pass an assessment order as pre directions issued by the IAC under section 144-A. In cases where the Income-tax Officer comes across fresh materials, as a result of such investigation and the variation exceeds the amount fixed by the Board, it is open to the Income-tax Officer to issue a fresh draft assessment order and call for the objection of the assessee. Such action will be in the interest of the assessee and it will be in furtherance of the object of the provisions contained under sections 144-A and 144-B. Under section 144-A the Inspecting Assistant Commissioner is empowered to issue directions to the Income-tax Officer either suo motu or on a reference from the Income-tax Officer o on the application of the assessee. He can call for and examine the entire assessment record of any proceeding in which an assessment is pending and issue necessary directions to the Income-tax Officer. If such directions are against the ~interest of the assessee, he has to be given an opportunity of being heard. But when the Income-tax Officer takes action under section 144-B and forwards the draft assessment order to the Inspecting Assistant Commissioner, the power of the Inspecting Assistant Commissioner is limited to the proposed additions in the draft assessment order. He cannot travel beyond the draft assessment order as the assessment is not open before him as in the case of his exercising power under section 144-A. There is no reason to hold that once directions are issued by the Inspecting Assistant Commissioner to the Income-tax Officer in exercise of his power under section 144-A in no case the Income-tax Officer can issue a draft assessment order under section 144-B. It is true that the Income-tax Officer is bound by the directions given by the Inspecting Assistant Commissioner under section 144-A, but if such directions are for further enquiry it is open to the Income-tax Officer to issue a draft assessment order on the basis of the result of - the enquiry and forward the same to the Inspecting Assistant Commissioner.

The assessee filed a return for the assessment year 1980-81 disclosing a loss of Rs.13,90,950. The assessment was completed on a total income of Rs.5,53,580. Since the variation between the income returned and the income assessed was more than rupees one lakh; a draft assessment order under section 144-B was made on November 16, 1982. The assessee was called upon to file its objection, if any, within seven days of the receipt of the draft order. The assessee sought extension of time which was granted. The assessee filed a reply on January 6, 1983, stating that it had nothing more to add than what had been stated in the written reply to notice under section 144-B. In the meanwhile, the Inspecting Assistant Commissioner, Central Range, Ernakulam, initiated suo motu proceedings under section 144-A(1). Notice was issued to the assessee on January 13, 1983. The assessee did not appear before the Inspecting Assistant Commissioner passed an order, dated February 19, 1983, giving directions to the Income-tax Officer to look into the claim for investment allowance. On receipt of the directions under section 144-A(1), the Income-tax Officer considered the matter and heard the assessee's representative. Since the variation to the income returned exceeded rupees one lakh, a draft order under section 144-B was, passed on March 24,.1983, in conformity with the direction given by the Inspecting Assistant Commissioner. The Income-tax Officer passed final assessment order on August 24, .1983, after getting, directions from the Inspecting Assistant Commissioner The assessee filed an appeal contending that the assessment order was time-barred and this contention was accepted by the Tribunal. On a reference:

Held, that merely because the Income-tax Officer had initially sent a draft order under section 144-B on November 16, 1982, that would not debar him from issuing a second draft assessment order pursuant to the direction issued by the Inspecting Assistant Commissioner in exercise of his power under section 144-A(1), The draft assessment order dated March 24, 1983, issued by the Income-tax Officer under section 144-B pursuant to the direction issued by the '-Inspecting Assistant Commissioner under section 144-A was valid. The final assessment order dated August 24, 1983, was issued within the period of limitation by applying the provisions contained under clause (iv) of Explanation 1 under section 153, since the period between March 24, 1983, and August 16, 1983, had to be excluded.

Arrah Sasaram Light Railway Co. Ltd. v. CIT (1993) 204 ITR 807 (Cal.) and Shankar Lahiri v. CIT (1995) 78 Tazman 364 (Cal.) fol.

Panchamahal Steel Ltd. v. U.A. Joshi, 1T0 (1997) 225 ITR 458 (SC) distinguished.

Aspinwall & Co. Ltd. v. CIT (No.2) (1990) 220 ITR 617 (Ker.); Guduthur Bros. v. ITO (1960) 40 ITR 298 (SC); Panchmahal Steel Ltd. v. U.A. Joshi, ITO (1994) 210 ITR 723 (Guj.); State of Kerala v. Ramunni Pannikar (V.K.) (1977) 108 ITR 120 (Ker.); Sudhir Sareen v ITO (1981) 128 ITR 445 (Delhi) and Superintendent, Central Excise v. Pratap Rai (1978) 114 ITR 231 (SC) (sic) ref.

(b) Income-tax---

----Assessment---Limitation---Extension of period of limitation---Second draft assessment order pursuant to direction of IAC---Limitation extended--?Indian Income Tax Act, 1961, S.153.

P.K.R. Menon, Senior Advocate and N.R.K. Nair for the Commissioner.

C. Kochunni Nair for the Assessee.

2000 P T D 3330

[237 I T R 443]

[Kerala High Court (India)]

Before Om Prakash, C. J and J. B. Koshy, J

C.G.G. PANICKER

Versus

COMMISSIONER OF INCOME-TAX

O.P. No. 13408 of 1997-S, decided on 4th March, 1998.

Income-tax---

----Reference---Assessment--Notice---Want of notice---Does not cease to be a proceeding and could be corrected ---ITO has jurisdiction to continue proceeding from stage at which illegality has occurred---Assessing Officer passing assessment order observing that assessee's representative appeared and case discussed with him---Observations of Assessing Officer factually incorrect---Tribunal finding that assessment order passed without giving notice to assessee---Assessment only legally vitiated but not void warranting annulment---Tribunal not annulling assessment---No question of law arises--­Indian Income Tax Act, 1961, S.256.

The Assessing Officer made an assessment on the assessee which was challenged in appeal before the appellate authority, who set aside the assessment order and remitted the case to the Assessing Officer with the direction to re-do the assessment after giving an opportunity of being heard to the assessee. Thereafter, "the Assessing Officer passed the assessment order de novo observing that the case was posted for hearing and that the assessee's representative appeared and the case was discussed with him. On appeal to the Commissioner (Appeals), the assessee contended that the observations of the Assessing Officer were factually incorrect inasmuch as none on behalf of the assessee appeared before the Assessing Officer and the matter was not discussed with any representative of the assessee. The Commissioner (Appeals) as well as the Tribunal accepted the contentions of the assessee. The Tribunal found that the assessment order was passed de novo by the Assessing Officer without giving any notice to .the assessee. The Tribunal, therefore, declined to refer the questions of law, namely whether the Tribunal was right in not annulling the assessment. On a reference application under section 256(2) of the Income Tax Act, 1961:

Held, that the assessment proceeding does not cease to be a proceeding under the Act merely by reason of want of notice and it would be a proceeding liable to be challenged and corrected and the Income-tax Officer has jurisdiction to continue the proceedings from the stage at which the illegality had occurred Therefore, the assessment having been made without any notice might have been legally vitiated, but that was not rendered void, warranting annulment. Therefore, no question of law arose for reference.

Estate of Late, Rangalal Jajodia v. CIT (1971) 79 ITR 505 (SC) and Guduthur Bros. v. ITO (1960) 40 ITR 298 (SC) fol.

C. Kochunni Nair for Petitioner.

N.R.K. Nair for Respondent.

2000 P T D 3434

[237 I T R 821]

[Kerala High Court (India)]

Before Mrs. K. K. Usha and K. A. Mohammed Shafi, JJ

TRAVANCORE CHEMICAL AND MANUFACTURING CO. LTD.

Versus

COMMISSIONER OF INCOME-TAX

Income-tax Reference No.86 of 1994, decided on 22nd May, 1998.

Income-tax---

----Income---Profits chargeable to tax---System of accounting followed by assessee not relevant---"Obtained",, meaning of---Assessee, engaged in manufacture of chemical products, complaining against higher rate of charges collected by Electricity Department---Dispute resolved by judgment of. Supreme Court, dated 21-11-1975---Assessee granted refund of higher amount of tariff charged in a later year---Quantification was not done simultaneously along with judgment of Supreme Court, dated 21-11-1975--­Quantification done only in August, 1978---Refund of electricity charges not assessable in assessment year 1977-78---Indian Income Tax Act, 1961, S 41(l).

The assessee-company, engaged in the business of manufacture of chemical products, complained against higher rate of charges collected by the Electricity Department from the assessee. The dispute was ultimately resolved by the judgment of the Supreme Court, dated November 21, 1975, wherein it was held that the higher tariff was not applicable to the assessee. The assessee by letter, dated March 29, 1976, demanded from the Electricity Board refund of an amount of Rs.8,50,282 being the higher amount of tariff charged by the Electricity Board. The assessee was granted a refund of Rs.5,58,597 by the Electricity Board in a later year. The assessing authority took the view that the assessee had become 8ligible for refund of the amount by virtue of the judgment of the Supreme Court, dated November 21, 1975, and, therefore, the amount had to be assessed as income of the assessee for the assessment year 1977-78. The appellate authority confirmed the view of the assessing authority but the addition was limited to Rs.5,58,597. The Tribunal affirmed the view of the Appellate Authority. On a reference, the High Court remanded the matter to the Tribunal to consider the contention. raised by the assessee that the receipt could be assessed only under section 41(1) of the Income Tax Act, 1961, and not as a trading receipt. On remand, the Tribunal took the view that the amount of refund was to be assessed for the assessment year 1977-78 under section 41(1) of the Act, on the ground that once the judgment of the Supreme Court was pronounced, it laid down the rate of duty that could be levied by the electricity supply company and the actual quantification of the amount need not postpone the accrual of income:

Held, reversing the decision of the Tribunal, that the term "obtained" used in subsection (1) of section 41 of the Act could not be given the meaning "capable of being obtained". While considering the provisions of section 41(1), the system of accounting followed by the assessee was of no relevance or consequence. Even though the assessee had put forward a claim for refund of Rs.8,50,282, what was ultimately refunded was only Rs.5,58,597. This would also show that quantification was not done simultaneously alongwith the judgment of the Supreme Court rendered on November 21, 1975. The quantification was done only in August, 1978. Therefore, the amount received as refund of electricity charges could not be added back to the total income of the assessee during the year 1977-78.

CIT v. Moon Mills Ltd.,(1966) 59 ITR 574 (SC).fol. and applied.

CIT v. Bharat Iron and Steel Industries (1993) 199 ITR 67 (Guj.); CIT v. Rashmi Trading (1976) 103 ITR 312 (Guj.) and Motilal Ambaidas v. CIT (1977) 108 ITR 136 (Guj.) ref.

C. Kochunni Nair and M.A. Firoz for the Assessee:

P.K.R. Menon and N.R.K. Nair for the Commissioner.

2000 P T D 3485

[238 I T R 395]

[Kerala High Court (India)]

Before B.N Patnaik, J

SEEYAN PLYWOODS

versus

INCOME-TAX OFFICER and another

Original Petition No. 12977 of 1999-T, decided on 11th June, 1998.

Income-tax---

----Return--Defect in return---Limitation for curing defect---Defect in return of not filing audit report in Form No. IOC discovered after a lapse of nearly six years and after assessment set aside---Original assessment must be deemed to be non-existent---In view of order of remand fresh assessment proceedings initiated---ITO issuing show-cause notice under section 139(9) as to why deduction under S. 80HH should not be rejected for non-filing of Form No: 10C---Limitation for curing defect in return started from issue of show-cause notice under S. 139(9)---ITO not giving 15 days' time under S.139(9) to cure defect---Assessment made before expiry of statutory period to file objections cannot be sustained---Matter remanded---Indian Income Tax Act, 1961, S.139.

The petitioner-firm started an industrial undertaking and its claim for deduction under section 80HH of the Income Tax Act, 1961, was allowed during the assessment year 1977-78. This was confirmed by the Court. But on September 14, 1984, the Income-tax Officer rejected the claim for deduction under section 80HH of the Act for the assessment year 1982-83. The appeal filed by the petitioner before the Commissioner of Income-tax (Appeals), was allowed and the matter was remitted to the Income-tax Officer to examine the claim under section 80HH afresh. On March 17, 1988, the Income-tax Officer served a letter on the petitioner's chartered accountant pointing out that the assessee had not furnished the report of audit in Form No. 10C alongwith the return of income filed for the year 1982-83,. The assessee was directed to show cause as to why its claim for deduction under section 80HH should not be rejected for non-compliance with the prescribed conditions. The assessee was asked to file its objections before March 25, 1988. But, no such objection was filed by March 25, 1988. Hence, the Income-tax Officer passed an order on March 25, 1988, disallowing the claim of the assessee under section 80HH. The assessee, however, filed the objection on March 29, 1988, by which time the assessment order had already been passed. The assessee preferred a revision but it was dismissed. On a writ petition against the order:

Held, that there was no dispute that Form No.IOC was required to be produced alongwith the returns. But, it was not produced. That defect was not pointed out to the assessee before the assessment order was passed on September 14, 1984. This defect was also not noticed by the appellate authority while remanding the case to the Income-tax Officer, by his order, dated February 10, 1988. Thus, after a lapse of nearly six years this defect was pointed out. The order of the Income-tax Officer was set aside. Thus, in implied that the assessment made by the Income-tax Officer earlier was not a valid assessment and he was directed to make a fresh assessment. The earlier assessment was deemed to be non-existent. The actual assessment by the Income-tax Officer was made only after the matter was remanded. The Income-tax Officer not having given fifteen days' time under section 139(9) of the Act to cure the defect from the date of issue of notice to that effect, the petitioner was denied his valuable right and any order passed within fifteen days from the date of issue of notice was deemed to have caused prejudice to the petitioner under the law. Since the assessment was finalised before the expiry of the statutory period to file objections, the impugned orders could not be sustained.

Matter remanded to Income-tax Officer to pass appropriate orders after accepting the audit report filed on March 29, 1988, and after giving opportunity of being heard to assessee.

CIT v. Seeyan Plywoods (1991) 190 ITR 564 (Ker.); Modi Industries Ltd. v. CIT (1995) 216 ITR 759 (SC) and Sarangpur Cotton Manufacturing Co. Ltd. v. CIT (1957) 31 ITR 698 (Bom.) ref.

S.A. Nagendran and Premjit Nagendran for Petitioner.

P.K.R. Menon and N.R.K. Nair for Respondents.

2000 P T D 3521

[238 I T R 458]

[Kerala High Court (India)]

Before Om Prakash, C. J. and J. B. Koshy, J

ACHUTHAN PILLAI & CO.

versus

COMMISSIONER OF INCOME-TAX

Income-tax Reference No.36 of 1993, decided on 16th June, 1998.

Income-tax---

----Capital gains ---Mesne profits do not constitute capital gains---Indian Income Tax Act, 1961, S.45.

A, the managing partner of the assessee-firm was granted a 30 years' lease of 99.68 cents of land in the Willingdon Island effective from. September 23, 1959, by the Cochin Port Trust. Certain buildings were constructed on this land by the lessee---A---who then leased out the buildings to V Ltd. for ten years effective from February 1, 1961, under the lease deed, dated August 18, 1961, on a monthly rent of Rs.2,375. Later, A assigned to the assessee-firm his entire right, title and interest in the leased premises. Some disputes arose between the assessee-firm and V Ltd. and a civil suit was filed. The Court allowed certain reliefs to the assessee. As per the Court decree, V Ltd. was directed to hand over vacant possession of the disputed property to the assessee-firm and pay mesne profits at the rate of Rs.22,070 per month and interest at the rate of 6 per cent per annum from the date of filing the suit till recovery of the amount for V. Ltd. Such mesne profits were brought to tax by the Assessing Officer as revenue receipt. The Tribunal held that it was taxable as a capital receipt. On a reference.

Held, that there was no transfer of any capital asset in favour of V. Ltd. By lease of building by A to V Ltd., only the right to use and possession of the building was transferred. Ownership in the building, that is, the capital asset continued to remain in the lessor, who, later assigned his entire rights to the assessee-firm. From these facts, it was amply clear that there was no transfer of the capital asset within the meaning of section 45(1) of the Income Tax Act, 1961, and, therefore, no capital gains arose.

CIT v. Mrs. Annamma Alexander (1991) 191 ITR 551 (Ker.) rel.

Sevantilal Maneklal Sheth v. CIT (1968) 68 ITR 503 (SC) ref.

Party appeared in person.

P.K.R. Menon and N.R.K. Nair for the Commissioner.

2000 P T D 3573

[238 I T R 130]

[Kerala High Court (India)]

Before P. Shanmugam, J

MAHESH B. SHAH

versus

ASSISTANT COMMISSIONER OF INCOME-TAX and another

O.P. Nos.24656 and 17756 of 1998, decided on 18th December, 1998.

Income-tax---

----Business expenditure ---Writ--Assessee admitting before Assistant CIT and on revision before CIT that 'a particular expenditure was 'capital expenditure---No evidence that admission was made under compulsion by Income-tax. Authorities---No material to prove that expenditure was of a revenue nature---High Court could not set aside disallowance of such expenditure in writ proceedings---Indian Income Tax Act, 1961, S.37--­Constitution of India, Art. 226. '

The petitioner as a member of the Cochin Stock Exchange made contributions to the stock exchange building fund. This amount though claimed by the petitioner as a revenue expenditure incurred wholly, necessarily and exclusively for carrying on business, was not accepted by the Assessing Officer and the petitioner himself ultimately agreed for treating this amount as capital expenditure. Accordingly, the said contribution amounting to Rs.1,7,461 was added to assessee's total income. For the year 1993-94, a sum of Rs.42,539 was added on the same basis of the assessee's total income. The petitioner filed a revision against these orders. Before the Commissioner, the petitioner agreed that this was a voluntary contribution to a capital fund and could be disallowed and added back to his income. On a. writ petition against the orders passed by the Commissioner of Income-tax in revision under section 264 of the Act confirming the orders of assessment for the periods 1992-93 and 1993-94:

Held, dismissing the writ petition, that the petitioner had agreed to treat the expenditure as a capital expenditure both before the Assistant Commissioner of Income-tax as well as before the revisional authority. No evidence or material was furnished to show that the petitioner was coerced to make a statement. Nothing prevented the petitioner to retract the same. The allegation of compulsion or coercion could not be accepted on a mere statement. No materials had been furnished to show before the authorities or before the High Court to establish that this was a revenue expenditure and its was expended wholly and exclusively for the purposes of the business. There was no scope to interfere with the order of the Commissioner of Income-tax under Article 225.

Empire Jute Co. Ltd. v. CIT (19$0) 124 ITR 1 (SC) and Mafatalal Industries v. Union of India (1997) 5 SCC 536 ref.

Premjit Naendran and Joy Thattil for Petitioner.

P.K.R. Menon and George K. George for Respondent.

2000 P T D 3598

[238 I T R 185]

[Kerala High Court (India)]

Before P. Shanmugam, J

ATTUKAL JEWELLERY

versus

ASSISTANT COMMISSIONER OF INCOME-TAX and others

Original Petition No.2426 of 1999, decided on 29th January, 1999.

Writ-

---- Altemate remedy available---No appearance on behalf of petitioner when impugned order was passed---Delay in filing writ petition---Writ would not issue---Constitution of India, Art.226.

Held, dismissing the writ petition, that the petitioner had challenged an order of the Tribunal. The petition was not maintainable since if the petitioner was aggrieved by the decision rendered. The only course open to the petitioner was to file a reference application. The point that was raised by the petitioner was that this was an ex parte order. From the order, it could be seen that there was no appearance on behalf of the assessee. That apart, order was passed on August 29, 1997, and the application was filed only on January 12, 1999.

T.M. Sreedharan and N. Unnikrishnan for Petitioner.

P.K.R. Menon and George K. George for Respondent.

2000 P T D 3645

[238 I T R 905]

[Kerala High Court (India)]

Before Om Prakash, C. J. and J. B. Koshy, J

COMMISSIONER OF INCOME-TAX

Versus

P.K. NARAYANAN

Income-tax References Nos.56 and 57 of 1996, decided on 27th July, 1998.

Income-tax--

----Penalty---Concealment of income---Presumption of concealment where additions to income are sustained by Appellate Authorities--Presumption can be rebutted---Tribunal finding that explanation regarding additions was satisfactory---Tribunal justified in deleting penalty---Indian Income Tax Act, 1961, S.27I(1)(c).

Under Explanation 1 to section 271(1)(c) of the Income Tax Act, 1961, a presumption will arise that if any addition made by the Assessing Officer is sustained by the appellate authority, then that will represent the concealed income of an assessee and the onus will be on the assessee to rebut the presumption. A presumption under Explanation 1 is obviously available, when an assessee fails to offer an explanation or offers an explanation, which is found by the Assessing Officer to be. false or if the assessee offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him. Explanation 1 raises an initial presumption that the additions represented concealed income of the assessed, but that is not an absolute presumption and depending on the facts and circumstances of the case, the onus might shift to the Revenue by mere denial of the assessed:

For the assessment years 1979-80 and 1980-81 certain additions were made by the Assessing Officer on the basis of the materials seized on January 29, 1982, when a search under section 132 of the Act was carried out at the residence of the assessee. The additions finally upheld by the Tribunal related -to (i) income from toddy .business, (ii) income from benami jewellery business, and (iii) share income of minors from a firm. Penalty proceedings were initiated and penalty was imposed. The Tribunal found that so far as the toddy business income was concerned, the assessee contended that he had no connection with the business. The abkari business could not be carried on by any one without a valid licence. In view of the denial of the assessed, it was for the Revenue to prove nexus between the toddy business for which no licence was said to have been obtained by the assessee for the years in question and the assessee. In respect of the jewellery business, the assessee stated that his nephew was an employed of the jewellery firm and that the papers relating to the firm were brought by him, and that the business belonged to C. The Tribunal found that assessment in regard to the business had already been made in the hands of C. Lastly the minor children received money from a firm. The said firm did not apply for registration. This being so, the unregistered firm could have been assessed either in that status under section 183(a) or under section 183(b) treating it, as a registered firm, provided the condition to invoke clause (b) were satisfied. No such course was adopted and the Assessing Officer simply included the income purportedly falling to the share of the minors, in the hands of the assessee.

The Tribunal held that penalty could not be levied in respect of any of the additions. On a reference:

Held, that the assessee totally denied having owned the abkari business. No clear case had been set up by the Revenue to show who obtained the licence to carry on such abkari business and whether that business was carried on by the licensee in partnership with the assessee. In respect of the jewellery business since the assessment had already been made in this behalf on C and since the case of the assessee that the seized documents were brought with him by his nephew who was not examined by the Revenue, remained uncontroverted, the explanation of the assessee could not be said to be false nor had it been so established by the Revenue. The Tribunal was correct in holding that the income from the firm in which the minor children of the assessee earned income should have been assessed in the hands of the firm---unregistered. or registered---and only thereafter income falling to the share of the minors could be assessed in the hands of the assessee. The Tribunal discussed the explanation of the assessee and other facts and circumstances and found that the explanation was satisfactory. This being so, no penalty could be sustained under Explanation 1 on the facts and in the circumstances of the case.

P.K.R. Menon and N.R.K. Nair for the Commissioner.

S. Ananthakrishnan for the Assessee

2000 P T D 3665

[238 I T R 924]

[Kerala High Court (India)]

Before Om Prakash, C. J. and J. B. Koshy J

COMMISSIONER OF INCOME-TAX

Versus

DIZA ELECTRICALS

Income-tax Reference No. 110 of 1996, decided on 29th July, 1998.

(a) Income-tax--

----Firm---Assessment---Dissolution of firm---Effect Of- S. 189(1)---Firm deemed to continue for purposes of assessment--Firm would be entitled to deduction of liability---Indian Income Tax Act, 1961, S.189.

Section 189(1) of I the Income Tax Act, 1961, provides that in respect of any business carried on by a firm which stood dissolved, the Assessing Officer shall make an assessment of the total income of the firm as ­if no such dissolution had taken place and all the provisions of the Act including the provisions relating to the levy of penalty under any provision of this Act shall apply, so far as may be to such assessment. What follows from section 189(1) is that for the purpose of making the assessment, the firm notwithstanding its dissolution will be deemed to have continued and that would be subjected to assessment of the year in which the same was dissolved. If a firm is deemed to have continued for the purpose of the assessment for a particular assessment year notwithstanding its dissolution during that assessment year, there is no good reason why the firm, which is deemed to have continued under section 189(1), is not entitled to deduction of the liability, discharged during that year:-

Held, that, in the instant case, sales tax liability relating to the calendar year 1986, relevant to the assessment year 1987-88 and 12 days of the calendar year 1987, relevant to the assessment year 1988-89 was discharged during the previous year relevant to the assessment year 1988-89. The liability to pay sales tax did not exist against the erstwhile partner, but under an agreement this liability was discharged by the erstwhile partner, inasmuch as that partner had taken over the assets and liabilities of the assessee-firm. In this situation, discharge of liability by the erstwhile partner would be deemed to have been made for and on behalf of the assessee-firm and, therefore, it was the assesses-firm alone who could claim deduction.

(b) Income-tax---

----Valuation -of stock---Firm---Dissolution of firm---Closing stock of dissolved firm to be valued at market price---Indian Income Tax Act, 1961.

In a subsisting partnership, the closing stock will be valued either at cost or market price, whichever is lower. But, in the case of a dissolved firm, the closing stock will invariably be valued at the market price.

A.L.A. Firm v. CIT (1991) 189 ITR 285 (SC) and Muhammad Ussain Sahib v. Abdul Gaffoor Sahib (S.N.) AIR 1950 Mad. 758 ref.

P.KA. Merton and N.R.K. Nair for the Commissioner.

S. Ananthakrishnam for the Assessee.

2000 P T D 3674

[238 I T R 224]

[Kerala High Court (India)]

Before Om Prakash, C. J. and J. B. Koshy, J

COMMISSIONER OF INCOME-TAX

Versus

VRINDAVAN HOTELS (P.) LTD.

Income-tax References Nos. 161 and 162 of 1995, decided on 24th June, 1998.

Income-tax...

----Investment allowance---Industrial company---"Manufacture or production of an article or thing", meaning of ---Assessee engaged in business of running a hotel---Conversion of raw materials into food in hotel does not amount to manufacture or processing of goods---Building housing kitchen,, store room and equipment used for producing foodstuffs---Not entitled to investment allowance as there is no processing or manufacture of food materials in a hotel---Indian Income Tax Act, 1961, S.32A(2)(b)(iii).

The assessee engaged in, the business of running a hotel, is not an industrial undertaking engaged in the production of an article or thing as contemplated by section 32A of the Income Tax Act, 1961, and is not entitled to investment allowance under subsection (2)(b)(iii) of the section on the building housing the kitchen, store room and the equipment used for producing the foodstuffs, as there is no processing or manufacture of food materials in a hotel.

CIT v. Cashing (Pvt.) Ltd. (1973) 91 ITR 289 (Ker.) and Anjali Hotels (Private) Ltd. v. CIT (1988) 170 ITR 4-19 (Ker.) fol.

P.K.R. Menon and N.R.K. Nair for the Commissioner.

C. Kochunni Nair for the Assessee.

2000 P T D 3708

[238 I T R 226]

[Kerala High Court (India)]

Before Om Prakash, C. J. and J. B. Koshy, J

HOTEL AND ALLIED. TRADES (P.) LTD

Versus

COMMISSIONER OF INCOME-TAX

Income-tax References Nos.148 and 149 of 1995, decided on 24th June, 1998.

(a) Income-tax-

----Industrial company---"Manufacture or processing of goods", meaning of­--Concessional rate of tax ---Assessee running hotel business---Activity of preparing articles of food from raw materials---Would not amount to manufacture or processing of goods ---Assessee not eligible to be assessed at concessional rate of tax.

The assessee, running a hotel business, is not eligible to be assessed to tax at the concessional rate of tax as an industrial company as the activity carried on in preparing articles of food from raw materials in a hotel would not constitute "Manufacture or processing of goods".

CIT v. Casino (Pvt.) Ltd. (1973) 91 ITR 289 (Ker.) fol.

(b) Income-tax-

.... Investment allowance---Industrial company---"Manufacture or processing of goods", meaning of ---Assessee running hotel---No manufacture on processing of goods takes place in a hotel---Additions to plant and machinery---Not entitled to investment allowance---Indian Income Tax Act, 1961, S.32A.

The assessee, engaged in the business of running a hotel, is not entitled to investment allowance under section 32A of, the Income Tax Act, 1961, on additions to plant and machinery as there is no processing or manufacture of food materials in a hotel.

CIT v. Vrindavan Hotels (P.) Ltd. (1999) 238 ITR 224 (Ker.) fol.

(c) Income-tax-

----Initial depreciation ---Assessee running hotel business---Building incomplete and not used for business of hotel---Additions made daring the year to building---Not entitled to initial depreciation---Indian Income Tax Act, 1961, S.32(1)(v).

The assessee, running a hotel business, is not entitled to initial depreciation under section 32(1)(v) of the Income Tax Act, 1961, on additions made during the year to the building since the building was incomplete and was not used for the business of a hotel during the assessment year in question.

(d) Income-tax---

----Depreciation---Plant---Hotel building---Is plant---Entitled to depreciation at rate applicable to plant---Indian Income Tax Act, 1961, S.32.

A hotel building is a plant and is entitled to depreciation under section 32 of the Income Tax Act, 1961, at the rate applicable to a plant.

CIT v. Hotel Luciya (1998) 231 ITR 492 (Ken.) fol.

Joseph Markos and Joseph Kodianthara for the Assessee.

P.K.R. Menon and N.R.K. Nair for the Commissioner.

2000 P T D 39

[Lahore High Court]

Before Nasim Sikandar, J

Messrs AASMI PACKAGES (PVT.) LIMITED through Managing Director

Versus

COMMISSIONER OF INCOME-TAX (APPEALS), ZONE-A, LAHORE

and 3 others

Writ Petition No. 10396 of 1999, decided on 31st August, 1999.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.132(6)---Decision in appeal---Service of notice personally through office of the Commissioner (Appeals)---Effect---Contention that word "personally" did not mean only the person of the Commissioner (Appeals) but includes his office was repelled in view of the unacceptable consequences.

(b) Income Tax Ordinance (XXXI of 1979)---

----S.132(5)(6)---Decision in appeal---Effect of S.132(6) on the provision of S.132(5) of the Income Tax Ordinance, 1979 was two-fold: Firstly, that every appeal before Commissioner (Appeals) would not stand automatically decided on the expiry of period of three months; secondly, only those assessees who would like to get their appeals decided expeditiously were allowed a chance to serve the notice under S.132(6), Income Tax Ordinance, 1979---Service of notice contemplated in S.132(6) was a kind of request for early hearing of the appeal though the Appellate Authority had been made obliged not only to grant the same but to see that it positively stood disposed of within 30 days of the notice or the expiry of three months Once the period for making an application as contemplated in S.132(6) had expired, the appellant lost his right to get the appeal decided within the prescribed period of three months---Even after expiry of said limitation, assessee could always make a request to Commissioner (Appeals) for out of turn hearing which would be decided in accordance with his roster arrangements as well as the volume of pendency of cases before him---If no ground for early hearing was established, the Commissioner might very well decline the request.

(c) Administration of justice---

---- When law requires a thing to be done in a particular manner then it must be done in that manner or not at all.

(d) Income Tax Ordinance (XXXI of 1979)---

----S.132(5)(6)---Constitution of Pakistan (1973), Art.199---Constitutional petition--Decision in appeal ---Notice---Assessee filed appeal on 25-4-1998--­Notice under S.132(6), .Income Tax Ordinance, 1979 was served to the Commissioner (Appeals) on 26-12-1998 i.e. after a period of more than 8 months from the date of filing of appeal---Notice was also served through the subordinate staff of the Commissioner but not personally---Commissioner (Appeals) did not decide the appeal within the stipulated period ---Assessee sought a declaration through Constitutional petition that the relief claimed in appeal be treated as stands given in term of S.132(5), Income Tax Ordinance, 1979 as failure on the part of the Commissioner (Appeals) to dispose of appeal within three months had given rise to a valuable right in favour of the Assessee---Validity---Assessee neither made application within the prescribed time contemplated in S.132(6), Income Tax Ordinance, 1979 nor notice was served upon the person of Commissioner (Appeals)---Declaration sought under Constitutional jurisdiction from the High Court was refused being not warranted at all. Pakistan Herald Publications (Private) Ltd. and 23 others v. Federation of Pakistan and 21 others 1998 CLC 65; Khawaja Ghulam Sarwar v. Pakistan through the General Manager, P.W.R., Lahore PLD 1962 SC 142; Pakistan Industrial Credit and Investment Corporation Ltd. v. Bawany Industries Ltd. PLD 1998 Karachi 45 and Pakistan Textile Mill-Owners, Association, Karachi and others v. Administrator of Karachi and 2 others PLD 1963 SC 137 irrelevant.

Tariq Aziz for Petitioner.

Mian Subah Sadiq Klasson for Respondents.

2000 P T D 263

[Lahore High Court]

Before Ch. Ijaz Ahmad, J

Messrs PAK ARAB FERTILIZERS (PVT.) LTD.

versus

DEPUTY COMMISSIONER INCOME-TAX and others

Writ Petitions Nos. 10111 to 10114 of 1999, heard on 3rd November, 1999.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.65---Constitution of Pakistan (1973), Art. 199---Constitutional petition-­Additional assessment---Show-cause notice---Constitutional petition and parawise comments showed factual controversy---Department alleged in its parawise comments that assessee had concealed the material facts which were subsequently discovered by the Assessing Officer---Contents of parawise comments clearly revealed the concealment of material facts by the assessees---Ingredients of assuming jurisdiction by Assessing Officer prima facie existed in circumstances ---Assessee was well within his right to raise all legal and factual pleas before the Assessing Officer by filing a reply, who was duty bound to consider the same and pass speaking order including that of assuming of jurisdiction---Assessing Officer was directed by High Court to decide the case on merits in accordance with law without being influenced by the observations of the High Court.

1993 SCMR 493; 1993 SCMR 29; 1993 SCMR 96; 1993 SCMR 1108; Muhammad Younas' case 1993 SCMR 618, PLD 1989 SC 360; M/s. Bashir & Company's case 1968 SCMR 997 and Abdul Rehman Mayet's case 1988 SCMR 1712 rel.

1990 PTD 155: 1993 PTD 766; 1993 PTD 1108, PLD 1971 SC 305; Nagina Silk Mill's case PLD 1963 SC 322, 1981 PTD 169; 1992 PTD 1.671 and 1992 PTD 1 distinguished.

Nagina Silk Mill's case PLD 1963 SC 322; .PLD 1965 SC 161; PLD 1989 SC 360 and 1977 ITR 268 ref.

(b) Constitution of Pakistan (1973)---

----Art.199---Income Tax Ordinance (XXXI of 1979), Preamble--­Constitutional jurisdiction of High Court---Constitutional petition and parawise comments put in a juxtaposition, could not be resolved in Constitutional jurisdiction of High Court.

Muhammad Younas' case 1993 SCMR 618 rel.

(c) Income Tax Ordinance (XXXI, of 1979)---

----S.65---Constitution of Pakistan (1973), Art.199---Show-cause notice--­Constitutional petition---Maintainability---Constitutional petition was not maintainable qua the show-cause notice.

1990 PTD 155; 1993 PTD 766; 1993 SCMR 493; 1993 SCMR 29; 1993 SCMR 96; 1993 SCMR 1108 and PLD 1989 SC 360 rel.

(d) Income Tax Ordinance (XXXI of 1979)---

----S.65---Constitution of Pakistan (1973), Art. 199---Show-cause notice--­Constitutional petition ---Maintainability---Assessee could not be allowed to bypass jurisdiction vested by law in Special Tribunal and Constitutional petition could not be invoked in such matters.

Messrs Bashir & Company's case 1968 SCMR 997 and Abdul Rehman Mayet's case. 1988 SCMR 1712 rel.

Syed Abrar Hussain Naqvi for Petitioner.

Muhammad Ilyas Khan, Legal Advisor for Respondent.

Date of hearing: 3rd November, 1999.

2000 P T D 303

[Lahore High Court]

Before Malik Muhammad Qayyum, J

ZAHUR TEXTILE MILLS LIMITED

versus

THE CENTRAL BOARD OF REVENUE through Chairman, Government

of Pakistan, Islamabad and 2 others

Writ Petition No. 8110 of 1999, heard on 6th October, 1999.

(a) Protection of Economic Reforms Act (XII of 1992)---

----Preamble---Protection to economic measure---Scope---Perusal of various provisions of Protection of Economic Reforms Act, 1992, make it clear that it provides protection to the various economic measures taken, on or after 7-11-1990.

(b) Interpretation of statutes---

----Preamble---Function---Preamble can validly be referred to in case of doubt about interpretation of statutory provision.

(c) Income Tax Ordinance (XXXI of 1979)--

----Sched. II, Part I, para. 122-D---Protection of Economic Reforms Act (XII of 1992), S.6---Constitution of Pakistan (1973), Art.199---Constitutional petition---Protection of economic measures---Mentioning of two notifications in the Schedule appended with Protection of Economic Reforms Act, 1992--­Effect---Specifically mentioning of two notifications in the Schedule made it obvious that what S.6 of Protection of Economic Reforms Act, 1992, said was the measures taken by the Government after 5-11-1990 and the same was the date on. which the then Government came into power---Exemption granted by para. 122-D of Part I of Second Sched. to Income Tax Ordinance, 1979, had no protection of the Protection of Economic Reforms Act, 1992.

Messrs Elahi Cotton Mills Ltd. and others v. Federation of, Pakistan and others PLD 1997 SC 582 ref.

Imtiaz R. Siddiqui for Petitioner.

Shafqat Mahmood Chauhan for Respondents.

Date of hearing: 6th October, 1999.

2000 P T D 319

[Lahore High Court]

Before Malik Muhammad Qayyum, J

Messrs PIONEER CEMENT LIMITED, JAUHARABAD, DISTRICT KHUSHAB

versus

THE ASSISTANT COLLECTOR, SALES TAX, SARGODHA and 2 others

Writ Petition No. 16574 of 1999, decided on 4th October, 1999.

Sales Tax Act (VII of 1990)---

----S.34---Constitution of Pakistan (1973), Art. 199---Constitutional petition-­Sales tax, calculation of---Assessing Authorities calculated sales tax in a manner contrary to S.34, Sales Tax Act, 1990, and such calculation was made in the light of a leaflet issued by Central Board of Revenue--­Validity---Leaflet issued by Central Board of Revenue being contrary to S.34, Sales Tax Act, 1990., the same was without lawful authority and of no legal effect---Case was remitted to Assessing Authority for a decision afresh keeping in view S.34 of the Sales Tax Act, 1990 and without in any manner being influenced by the leaflet issued by the Central Board of Revenue.

Collector of Customs, Customs House, Lahore v. Messrs S.M. Ahmad & Company (Pvt.) Limited, Islamabad 1999 SCMR 1.38 and Edulji Dinshaw Limited v. Income-tax Officer PLD 1990 SC 399 ref.

M. S. Babar and M. M. Akram for Petitioner.

A. Karim Malik for Respondents.

Date of hearing: 27th September, 1999.

2000 P T D 353

[Lahore High Court]

Before Malik Muhammad Qayyum, J

Messrs RIAZ BOTTLERS (PVT.) LTD

versus

CENTRAL BOARD OF REVENUE and others

Writ Petitions Nos. 15188 and 14794 of 1999, decided on 2nd September, 1999.

(a) Central Excises Act (I of 1944)---

---S.4(2)--Constitution of (1973), Art. 199--C.B.R. Letter No. 1(20)-DEB-94, dated 9-10-1999---Constitutional petition---Maintainability ---Determination of value for purposes of excise duty---Petitioners were manufacturers of beverages which were supplied in un-chilled form to the general body of consumers---Assessing Authority directed the manufacturers that chilling charges be included in the retail price for the purpose of levy of Central Excise duty---Validity---Dispute in the Constitutional petition was limited to the question as to whether chilling charges should be included in the retail price of the beverages and answer to such question depended upon interpretation of S.4(2), Central Excises Act, 1944---Central Board of Revenue while issuing letter dated 12-6-1999 and by rejecting manufacturers representation had opined that chilling charges should be included while determining the retail price---Constitutional petition against such decision of the Central Board of Revenue was maintainable in circumstances.

Attock Cement Pakistan Ltd. v.- Collector of Customs, Collectorate of Customs and Central Excise, Quetta and others 1999 PTO 1892; Edulji Dinshaw Ltd. v. Income-tax Officer 1990 PTD 155 and Messrs Julian Hoshang Dinshaw Trust and others v. Income-tax Officer, Circle XVIII, South Zone, Karachi and others 1992 SCMR 250 rel.

(b) Central Excises Act (I of 1944)---

----S.4(2)---Constitution of Pakistan (1973), Art.199---C.B.R. Letter No. 1(20)-DEB-94, dated 9-10-1999---Letter dated 12-6-1999--­Determination of value for payment of excise duty---Petitioners were manufacturers of beverages which were supplied in unchilled form to the general body of consumers---Assessing Authority directed the petitioner that chilling charges be included in the retail price of the beverages for the purpose of levy of Central Excise Duty---Validity---Retail price fixed by the manufacturers was embossed and printed on the bottles on which the goods were required to be sold to the consumers---Manufacturers manufactured the beverages in an unchilled form while these were sold in chilled form and the retailer or middle man incurred some additional charges, which could not be considered to be charges fixed by the manufacturers and could not be added to the retail price fixed by the manufacturers---Provisions of S.4(2) entitled a manufacturer to fix the retail price on which the goods were to be supplied to the general body of consumers while manufacturers could not therefore be forced to add chilling charges not incurred by them in the retail price--­Authorities, in circumstances, were not justified to force the manufacturers to include the chilling charges in the retail price of aerated beverages--­Letters, dated 12-6-1999 and 4-8-1999 issued by the Central Board of Revenue, therefore, were declared to be without lawful authority and of no legal effect.

Atlas Battery Ltd. v. Superintendent, Central Excise and Land Customs Circle 'C', Karachi and others PLD 1984 SC 86 and Deputy Collector of Central Excise and Land Customs, Peshawar and 2 others v. Premier Tobacco Industries Limited, Peshawar 1993 SCMR 447 rel.

Ali Sibtain Fazli for Petitioner.

A. Karim Malik for Respondent.

Date of hearing: 2nd September, 1999.

2000 P T D 369

[Lahore High Court]

Before Syed Najam-ul-Hassan Kazmi, J

Malik LIAQUAT ALI

versus

ASSISTANT COMMISSIONER OF INCOME-TAX/ WEALTH TAX, CIRCLE-27, ZONE-B, LAHORE and another

Writ Petition No. 11688 of 1999, heard on 4th November, 1999.

Income Tax Ordinance (XXXI of 1979)---

----S.65---Constitution of Pakistan (1973), Art. 199---Constitutional petition-- Notice-; -Assessee challenged issuance of notice under S.65, Income Tax Ordinance, 1979 by way of Constitutional petition on the ground that Assessing Officer had no jurisdiction to issue the notice as pre-conditions of S.65, Income Tax Ordinance, 1979 were not in existence ---Validity--­Objection of jurisdiction and validity of notice could be raised before the concerned Assessing Officer who would hear the assessee and decide same as a preliminary step before proceeding on merits or to make any assessment ---Assessee would avail the remedy in the hierarchy of jurisdiction under the Income Tax Ordinance, 1979 in case he was not satisfied with the decision of Assessing Officer.

Ahmad Saeed Kirmani for Petitioner.

Mian Subah Sadiq Klasson for Respondents.

Date of hearing: 4th November, 1999.

2000 P T D 371

[Lahore High Court]

Before Mian Saqib Nisar, J

Brig. (Retd.) MUHAMMAD SADIQ KHAN, EX-CHAIRMAN, CHIEF

MINISTER'S INSPECTION TEAM, GOVERNMENT

OF THE PUNJAB

versus

FEDERATION OF.PAKISTAN through Commissioner of Income-tax, Zone 'B'

and 2 others

Writ Petition No.2991 of 1988, heard on 25th November, 1999.

Income Tax Ordinance (XXXI of 1979)---

----S.65---Gift Tax Act, (XIV of 1963)---Constitution of Pakistan (1973), Art. 199---Constitutional petition- --Additional assessment---Rental income of gifted property ---Assessee gifted property in favour of his wife and gift tax determined by the department was duly paid---Rental income of the gifted property was continuously declared by the wife of the assessee as her personal income which was duly processed and assessed by the department--­Subsequently, case of the assessee (husband) was re-opened under S.65 of Income Tax Ordinance, 1979 and rental income of gifted property was included as property income of the assessee---Validity---Department could not re-open the matter to nullify the effect of the proceedings held and finally concluded under the Gift Tax Act, 1963---Gift tax having been duly paid by the assessee once the proceeding under Gift Tax Act, 1963 had been finally concluded by the department, the matter could not be re-opened under S.65 of the Income Tax Ordinance, 1979---Order of Assessing Officer was declared to be without jurisdiction, arbitrary and beyond the scope of S.65, Income Tax Ordinance, 1979---Order was set aside by High Court.

Shaikh Zaheer Ahmad for Petitioner.

Mian Subah Sadiq Klasson for Respondents.

Date of hearing: 25th November, 1999.

2000 P T D 374

[Lahore High Court]

Before Mian Allah Nawaz and Nasim Sikandar, JJ

COMMISSIONER OF INCOME-TAX/WEALTH TAX, COMPANIES ZONE II, LAWRENCE ROAD, LAHORE

versus

SARFARAZ ALI SHEIKH

I.T.A. No.223 of 1999, decided on 5th July, 1999.

Income Tax Ordinance (XXXI of 1979)---

----Ss.13(1)(d) & 136---Income Tax Rules, 1982, 8.207-A---Addition--­Appeal to High Court---Question of law---Addition made by Assessing Officer was reduced by First Appellate Authority which was .deleted by Appellate Tribunal on the ground that declared value was in accordance with the value settled by the District Collector for purpose of stamp duty--­Department contended that question of law had arisen out of Tribunal's order as to whether Appellate Authorities were justified to reduce/delete the addition---Validity---Direction of Appellate Tribunal to accept the declared value in accordance with prescribed rate by the District Collector being supported by Rule 207-A, Income Tax Rules, 1982, question framed, therefore, could not be described as one of law or raising a legal controversy---Appeal was dismissed it; limine by High Court in circumstances.

Gulbai Jehangir Sukhia v. Controller of Estate Duty 1967 PTD 200 rel.

Mian Subah Sadiq Klasson for Appellant.

2000 P T D 399

[Lahore High Court]

Before Malik Muhammad Qayyum, J

SUPERIOR TEXTILE MILLS LTD.

versus

FEDERATION OF PAKISTAN through Secretary, Ministry of Finance, Islamabad and 5 others

Writ Petition No.20602 of 1999, decided on 22nd November, 1999, (a) Sales Tax Act (VII of 1990)---

----S.3(3-A)---Sales tax---Person receiving the supply of goods---Liability to pay sales tax---Liability to pay sales tax is that of a person making taxable supplies, subject to the exception that where the Federal Government issues notification under S.3(3-A) of Sales Tax Act, 1990 notifying certain goods with regard to which the recipients have been made liable to pay such tax, only then the person receiving the supply would have to pay such tax.

(b) Sales Tax Act (VII of 1990)---

----S.3(3-A)---Special Procedure for Ginning Industries Rules, 1996, Rr.5 & 6---Sales tax---Recovery of sales tax from recipients of goods---Absence of any Notification for recovery of sales tax from the recipient---Contention. by department was that Notification, notifying the Special Procedure for Ginning Industries Rules, 1996, be construed as a Notification regarding applicability of S.3(3-A) of Sales Tax Act, 1990---Validity---Provision of subsection (3-A) of S.3, Sales Tax Act, 1990 was not on the statute book when the Special Procedure for Ginning Industries Rules, .1996 was notified and on no principle of law such Notification be treated as notification under S.3(3-A) of Sales Tax Act, 1990.

(c) Sales Tax Act (VII of 1990)--

--S.3(3-A)---Sales tax---Person receiving the supplies liable to pay such tax---Provision of S.3(3-A) of Sales Tax Act, 1990, is prospective in nature and the same requires the Federal Government to specify the goods in respect of which the liability to pay sales tax shall be on the person receiving the supplies.

(d) Special Procedure for Ginning Industries Rules, 1996---

----Rr.5 & 6r--Sales Tax Act (VII of 1990), S.3(3-A) ---Constitution of Pakistan (1973), Art.199---Constitutional petition---Recovery of sales tax from recipients of goods---Such recovery was demanded by the Department under Rr.5 & 6 of Special Procedure for Ginning Industries Rules, 1996--­Validity---Where Rules were in conflict with the parent Act, the former must yield to the latter and the Rules to the extent of inconsistency would be void---Provisions of Rr.5 & 6 of Special Procedure for Ginning Industries Rules, 1996 being inconsistent with S.3(3-A) of Sales Tax Act, 1990, the two could not stand together---Rules being ultra vires to the Sales Tax Act, 1990, were of no legal effect.

(e) Interpretation of statutes---

---- Where Rules were in conflict with the parent Act, the former must yield to the latter and the Rules to the extent of inconsistency would be void.

Ali Sibtain Fazli for Petitioner.

A. Karim Malik for Respondents.

Date of hearing: 16th November, 1999.

2000 P T D 478

[Lahore High Court]

Before Ch. Ijaz Ahmad, J

MUHAMMAD ANSAR and 2 others

versus

ADMINISTRATOR, TOWN COMMITTEE, KABIRWALA, DISTRICT

KHANEWAL and 4 others

Writ Petition No.2789 of 1998, decided on 22nd February, 1999.

(a) Arbitration Act (X of 1940)---

----Ss. 8 & 20---Constitution of Pakistan (1973), Art. 199---Constitutional petition---Maintainability---Contractual liability---Arbitration clause being present in the agreement, Constitutional petition was not maintainable.

1994 SCMR 1484; 1990 CLC 1639 and Project Director, Balochistan Mineral Irrigation's case 1999 SCMR 121 rel.

(b) Arbitration Act (X of 1940)---

----Ss. 8 & 20---Constitution of Pakistan (1973), Art. 199---Constitutional petition---Maintainability---Contractual liability---Arbitration clause in agreement---Principle of approbate and reprobate---Applicability---Where petitioners voluntarily executed an agreement having an arbitration clause, petitioners were estopped to challenge the same in Constitutional jurisdiction on the principle of approbate and reprobate---Contractual obligations would not be enforced through Constitutional petition---Petitioners having alternate remedies of civil suit Constitutional petition was not maintainable.

Haji Ghulam Rasool's case PLD 1971 SC 376; Shameer's case PLD 1981 SC 604; Pakistan Mineral Development Corporation's case PLD 1986 Quetta 181;PLD 1958 SC 387 and PLD 1962 SC 108 rel.

(c) Constitution of Pakistan (1973)---

----Art. 185 (3)---Grant of leave to appeal by Supreme Court is not a judgment and does not lay down a rule of law to be followed, like a judgment of the Supreme Court deciding finally any matter.

Khair Ullah's case 1997 SCMR 906 fol.

(d) Income Tax Ordinance (XXXI of 1979)--

----S. 50(7-A)---Constitution of Pakistan (1973), Arts. 199 & 270-A--­ Constitutional petition---Advance income-tax, payment of ---Vires of Income Tax Ordinance, 1979, S.50(7-A)---Provision of S.50(7-A), Income Tax Ordinance, 1979 being protected and validated by virtue of Art.270-A of Constitution of Pakistan (1973) was a valid piece of legislation.

Miss Benzair Bhutto's case PLD 1988 SC 416 and Ghulam Mustafa Khar's case PLD 1989 SC 26 fol.

(e) Constitution of Pakistan (1973)---

----Art. 199---Income Tax Ordinance (XXXI of 1979), S.50(7-A)--­Constitutional petition---Advance income-tax, payment of---Lease agreement for the collection of octroi was made by the petitioner/contractor with the respondent/Committee having arbitration clause in it---Where more than one remedies were available to the petitioner/contractor,. Constitutional petition was not maintainable---High Court had advised the petitioner/contractor to avail the remedy of arbitration or agitate the matter before Appellate forum--­Petition was disposed of accordingly.

PLD 1992 Lah. 68; PLD 1969 Lah. 633; PLD 1987 Lah. 262; PLD 1983 Lah. 47; 1978 SCMR 367; 1982 CLC 1477; Muhammad Younis Khilji's case 1998 'SCMR 1058; Bismillah & Company's case 1997 PTD 74'7; 1998 PTD 2557 Rehman Corporation's case 1985 PTD 787: Trustees of the Port of Karachi's case 1989 PTD 1048; 1995 PTD 493: Muhammad Younis's case PLD 1984 Lah. 345 and 1997 PTD 70 rel.

(f) Judgment---

---- Grant of leave to appeal by Supreme Court is not a judgment, since it does not lay down a law to be framed like a judgment of the Supreme Court deciding finally any matter.

Khair Ullah's case 1997 SCMR 906 fol.

Mian Arshad Latif and Khalid Alvi for Petitioners.

Ch. Sagheer Ahmad, Standing Counsel for Respondents Nos. 3 to 5.

Khadim Nadeem Malik, Addl. A.-G.

Date of hearing: 22nd February, 1999.

2000 P T D 485

[Lahore High Court]

Before Nasim Sikandar, J

Messrs RIAZ BOTTLERS (PVT.) LTD.

versus

FEDERATION OF PAKISTAN through Ministry of Finance, Revenue & Economic

Affairs, Islamabad and 3 others

Writ Petition No.25915 of 1998, decided on 17th November, 1999.

(a) Sales Tax Act (III of 1951)---

----[AS amended by Sales Tax Act (VII of 1990)], Ss.3(1-A) & 13(i)--­Additional tax---Levy of---Further tax on unregistered persons ---Exemption-­Levy of additional tax under S.3(1-A) of Sales Tax Act, 1990 shall not be applicable to supplies which were exempted from tax in view of presence of non obsente cl. (i) in S. 13(l) of Sales Tax Act, 1990, providing for exemptions.

(b) Sales Tax Act (VII of 1990)---

----Ss:3(1-A), 13 & 22---Scope of tax---Further tax on unregistered persons-­Keeping of record---No contradiction existed between S.3(1-A) and S.13 of the Sales Tax Act, 1990---Word "further" used in S.3(1-A) of the Act could be interpreted both ways as extension of sales tax or something over and above the sales tax---Suppliers even registered persons were not required to keep records as provided in S.22 of Sales Tax Act, 1990 in case of exempted goods---In absence of accounts no purpose will be served by asking the suppliers to collect further tax on supplies to non-registered persons.

(c) Sales Tax Act (VII of 1990)---

----Ss.2(34), 3(1-A) & 13---Scope of tax---Exemption---While granting exemption the Central Board of Revenue could make a reservation that notwithstanding the grant of exemption under S.13, Sales Tax Act, 1990, the supplies of exempted goods made to non-registered persons shall be subject to the provision of S.3(1-A) of Sales Tax Act, 1990---Such condition would be competent because of the definition of tax as given in S.2(34) of the Sales Tax Act, 1990, providing for all the stated concepts alongwith any sum "payable" as tax.

(d) Sales Tax Act (VII of 1990)---

----Ss.3(1-A) & 33---Scope of tax---Further tax ---Penalty---Assessee/ petitioner contended that S.3(1-A) and S.33 were contradictory as further tax imposed under S.3(1-A). of Sales Tax Act; 1990, on unregistered persons was in the nature of penalty and S.33 provides adequate penalty against avoidance of registration and evasion---Validity-,-Contention that Ss.22 & 33 of Sales Tax Act, 1990, provide adequate penalty against avoidance of registration was not relevant---Intention or motive of Legislature could not be questioned nor would it be proper to suggest that a particular legislation was in fact required or not---Section 3(1-A) in fact was a mean to an end which was documentation---Revenue was to look for the ways and means by which it could protect its interest and it was not for the assessee to sit in judgment as to which mode should or should not be adopted for the purpose.

(e) Sales Tax Act (VII of 1990)---

----Ss.3(1-A), 2(25), 13, 14 & 18---Scope of tax---Requirement of registration---Voluntary registration---Assessee contended that inclusion of both registered and liable to be registered in the concept of registered persons under S.2(25) had made S.3(1-A) of Sales Tax Act, 1990, redundant and nugatory as S.14 of Sales Tax Act, 1990, provides that every person was not required to be registered, and Legislature by way of S.3(1-A) had provided penalty in the form of further tax without first creating a liability to register---Validity---Contradictions pointed out in the said provisions and provisions of Ss. 13, 14 & 18 of Sales Tax Act,. 1990, were not good reason to declare them to be against law---No contradiction of the kind could be brought home by the assessee/petitioner which could render any provision of Sales Tax Act, 1990, as redundant or nugatory ---Co-existence of such provisions in the statute was neither impossible nor incapable of reconciliation.

(f) Interpretation of Constitution---

---- Constitutional instruments, particularly legislative list, could not be construed narrowly.

(g) Sales Tax Act (VII of 1990)---

----Ss.3(1-A) & 2(34)---Constitution of Pakistan (1973), Fourth Sched., Item No.49---Scope of tax---Further tax ---Assessee contended that levy in the garb of sales tax under S.3(1-A) of Sales Tax Act, 1990, was actually a penalty for non-registration which fell outside the domain of Federal Legislative List particularly Entry No.49---Validity---Item No.49 in Federal Legislative List provided for framing .of laws to impose taxes on sales and purchases of good--Such power included the power to legislate the charging, machinery, recovery as well as penalty provisions---Item No.49 of the list when read with items Nos.58 & 59 of Federal Legislative List made it otherwise clear that the Legislature was competent to legislate not only on a particular subject but also on matters incidental or ancillary to those enumerated in the list---Provisions of further tax, therefore, were neither penalty nor in the nature of penalty provisions---Registered persons had: a choice not to supply to an unregistered person---Further tax provided for might, at best, be a disincentive both for registered person as well as for an unregistered person---To call the provision as a penalty would not be legal when the definition clause S.2(34) described same to be a part of sales tax.

Pakistan Industrial Development Corporation v. Pakistan through the Secretary, Ministry of Finance 1992 SCMR 891 rel.

(h) Interpretation of Constitution---

---- Federal Legislative list---Power of taxation---Interpretation---Items in the Federal Legislative - List in respect of which power of taxation could be exercised should not be interpreted in a restricted and pedantic manner.

Pakistan Industrial Development Corporation y. Pakistan. through the Secretary, Ministry of Finance 1992 SCMR 891 rel.

(i) Sales Tax Act (VII of 1990)--

----S.3(1-A)---Constitution of Pakistan (1973), Arts.4, 18, 24, 25 & 199--­Scope of tax---Further .tax---Fundamental rights ---Assessees/petitioners challenged .that further tax levied under S.3(1-A) of Sales Tax Act, 1990, contending that same was violative of Arts.4, 18 & 24 of Constitution of Pakistan (1.973), which guarantee free trade, business and protection of property and was also violative of Art.25 of the Constitution being discriminatory---Validity---Petitioners failed to explain as to how they had not been dealt with in accordance with law or that any restriction was placed upon them in respect of their trade, business or profession or as to how they had been discriminated against---Fact, on the other hand, was that the petitioners were fighting for an unidentified class whom they would like to protect and whose identity they would not like to disclose---Zeal of petitioners to shield the unregistered persons was meant to protect-those with whom they operated in order to suppress volume of supplies and avoid faithful maintenance of accounts---Petitioners in the face of these facts did not appear to have approached High Court with clean hands, as such they were otherwise not entitled to relief from a Court of equity.

Messrs Elahi Cotton Mills Ltd. and others v. Federation of Pakistan PLD 1997 SC 582 and V. M. Syed Muhammad & Co. v. State of Andhra AIR -1954 SC 314 rel.

Muhammad lqbal Khan Niazi v. Vice-Chancellor, University of Punjab and others PLD 1979 SC 1; The State of Andhra Pradesh and another v. Nalla Raja Reddy and others AIR 1967 SC 1458 and Icc Textiles Ltd. v. Federation of Pakistan PLD 1999 Lah. 251 ref.

Ali Sibtain Fazli for Petitioners.

Kh. Saeeduz Zafar, Dy. A.-G. for Respondent No. 1.

A. Karim Malik for Respondents Nos.2 to 4.

Dates of hearing: 14th, 15th and 16th September, 1999.

2000 P T D 497

[Lahore High Court]

Before Mian Allah Nawaz and Syed Zahid Hussain, JJ

COMMISSIONER OF INCOME-TAX/ WEALTH TAX, COMPANIES ZONE, FAISALABAD

versus

Rana ASIF TAUSEEF CIO RANA HOSIERY & TEXTILE MILLS (PVT.) LTD., FAISALABAD

I.T.A. No.557 of 1998, heard on 27th September, 1999.

(a) Interpretation of statutes--

---- Fiscal statutes are to be construed strictly and a cities is to be taxed within the letter arid spirit of a charging statute---Imposition of tax must be affected by plain words of Legislature.

Ormond Investment Co. v. Betts (1928) AC 143, 162; Revzan v. Nudelman (370) III.180 -18 N.E. (2) 219 and Bank of Commerce v. Tennessee 161 US 134, 145, 16 S. Ct. 456, 40 L. Ed. 645 rel.

(b) Interpretation of statutes--

---- Where the fiscal legislation embodies provisions for exemption/deduction the same are construed strictly and against assessee.

Iram Ghee Mills Ltd. v. Income-tax Appellate Tribunal 1998 PTD 3835 rel.

(c) Interpretation of statutes-

---- Provisions of exemption/deduction should be construed by liberal approach with an eye on the underlying purpose of the provisions---If the language of the provision is doubtful, same should be resolved in favour of assessee on the touchstone of the intention of Legislature.

P.A. Likunju, Cashew Industries v. Commissioner of Income-tax (1986) 166 ITR 804; Commissioner of Income-tax, Lucknow v. U.P. Cooperative Federation Ltd. (1989) 176 ITR 435; Collector of Central Excise, Bombay-I and another v. Parle Export (P.) Ltd. (1990) 183 ITR 624; Heartland v. Damon's Estate 103 V. 519, 156, At1.518 and Kimball v. Potter N.H. 196 Ad. 272 rel.

(d) Income Tax Rules, 1982---

----R.3(2)(c)---Employee---Expression "employ" in R.3(2)(c), Income Tax Rules, 1982, had been used as a fiction to cover a director of a company--­Rule 3(2)(c) did not provide that a person should not be director of more than one companies.

(e) Income Tax Ordinance (XXXI of 1979)-

----Ss.16 & 136(1)---Income Tax Rules, 1982, Rr.3(2)(a)(b), (c) & 4--­Salary---Director of more than one companies---House rent/conveyance allowance ---Exemption---Assessee derived income from salary and allowances from only one company and served as director in other companies as honorary ---Assessee claimed exemption of house rent/conveyance allowances accordingly to Rules---Assessing Officer rejected the claim of assessee on the ground that director of more than one companies was not entitled to claim exemption as he was not working whole time for one company---Validity---Person who was director of more than one companies received rental allowance/perquisites from one company only and not from any other company, was entitled to claim deductions/exemptions/relief under Rr.3(2>(a0), (c) & 4 Income Tax Rules, 1982.

1998 PTD(Trib.) 3195 and 1990 PTD (Trib.) 321 rel.

Commissioner of Income-tax, Central Zone-A v. S. Mazhar Hussain 1988 PTD 563 ref.

Shafqat Mahmood Chohan for Appellant.

Syed Ibrar Hussain Naqvi for Respondent.

Date of hearing: 27th September, 1999.

2000 P T D 811

[Lahore High Court]

Before Malik Muhammad Qayyum, J

NATIONAL COOPERATIVE SUPPLY CORPORATION LTD. through Mr. Islam

Madni, General Manager

versus

FEDERATION OF PAKISTAN through Secretary Finance, Islamabad and 3 others

Writ Petition No. 10030 of 1996, decided on 2nd June, 1999.

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss. 2(16), 2(17). 138 & 156---Constitution of Pakistan (1973), Art. 199--­Constitutional petition---Changing of status for the purpose of income-tax--­Petitioner being a Cooperative Society had been assessed as an Association of Persons since 1968-69---Authorities. in the year 1991-92 changed such status of the Society to a private limited company---Application of the Society under B.156 of Income Tax Ordinance, 1979 for the correction of such status as well as revision under 5.138,. Income Tax Ordinance, 1979, was dismissed by the Authorities---Validity---Cooperative Society under S.2(17) of Income Tax Ordinance, 1979, had been separately defined as such the law itself had treated a company as different and distinct from Cooperative Society, otherwise there was no occasion, for a separate definition---Where the petitioner was previously being treated as Association of Persons since 1968-69, Authorities could not deviate from such practice---Authorities could not change the status of the petitioners from Cooperative Society to a Private Limited Company---Such order of the Authorities was without any lawful authority and of no legal effect and the same was set aside accordingly.

S.M. Zakir v. Commissioner of Income-tax (East), Karachi and another PLD 1976 Kar. 1022 and Jullundur Cooperative Transport Society Ltd. v. Income-tax Officer 1997 PTD 288 ref.

(b) Income Tax Ordinance (XXXI of 1979)

----Ss. 2(17) & 2(32)---Term "person"---Definition---Term "person" not only included an individual but also an Association of Persons, a company and every certified juristic person---If a company was to be equated with Cooperative Society, then there was no need of separately defining the Cooperative Society under S.2(17) of Income Tax Ordinance, 1979.

Zia Ullah Kiyani and Talat Farooq Sheikh for Petitioner.

Shafqat Mahmood Chauhan for Respondent.

Date of hearing: 2nd June, 1999.

2000 P T D 815

[Lahore High Court]

Before Faqir Muhammad Khokhar, J

Messrs PAKISTAN ENGINEERING CONGRESS (PUT.) LIMITED

versus

SPECIAL OFFICER OF INCOME-TAX/WEALTH TAX

Writ Petition No. 10060 of 1999, decided on 20th August, 1999.

Wealth Tax Act (XV of 1963)---

----S. 5(1)(i), Second Sched., Part 1, cls.22 & 23---Constitution of Pakistan (1973), Art. 199---Constitutional petition ---Maintainability---Exemption--­Property held under trust or other legal obligation for any public purpose of a charitable or religious nature ---Taxability---Assessee was a Society registered under the Societies Registration Act, 1860 having the object of promotion of science, profession and practice of engineering ---Assessee rented out its building to a private person---Assessing Officer assessed the said building under Wealth Tax Act, 1963---Assessee contended that it was entitled to exemption under S.5(I)(i) read with c1.22, Second Sched. of the Wealth Tax Act, 1963 as the assessee was a charitable institution---First Appellate Authority set aside the assessment and case was remanded for de novo decision ---Assessee challenging order in Constitutional petition before High Court---Propriety---Assessee did not produce any material on record before the High Court to show that the building of the assessee was held under trust or other legal obligation for any public purpose of a charitable or religious nature---Question as to whether the property/assets of the assessee rented out would enjoy the immunity from pay-ability of tax by considering the same to be for a public purpose of charitable nature was a question of fact ---Assessee was to show the Appellate Authority by producing necessary evidence/material that as a matter of fact the building and the income derived from same were held under trust or for any other legal obligation for a public purpose of a charitable nature---High Court under its Constitutional jurisdiction under Art. 199 of the Constitution was not expected to undertake such an exercise in the ordinary course of things---Constitutional petition was dismissed in limine in circumstances leaving the assessee to avail the alternate remedies.

Samaritan Society v. Commissioner of Income-tax 1998 PTD 104, Thiargarajar Charities v. Additional Commissioner of Income-tax and another 1998 PTD 131; Commissioner of Income-tax v. Orissa Hauseware Trading Corporation 1995 PTD Note 10 at p. 12; Edu1ji Dinshaw Limited v­ Income-tax Officer PLD 1990 SC 399; Naseer A. Sheikh and 4 others v. The Commissioner of Income-tax (Investigation), Lahore and others PLD 1992 SC 276; Fauji Foundation v. Central Board of Revenue and others 1987 MLD 106; Sindh Employees' Social Security Institution v. Dr. Mumtaz Ali Taj and another PLD 1975 SC 450; Messrs S.A. Haroon and others v. The Collector of Customs, and another PLD 1959 SC 177; Lt.-Col. Nawabzada Muhammad Amir Khan v. The Controller of Estate Duty and others PLD 1961 SC 119; The Murree Brewery Co. Ltd. v. Pakistan through the Secretary to Government of Pakistan and 2 others PLD 1972 SC 279; Nagina Dal Factory v. Income-tax Officer and another (1968) 18 Tax 1 (SC), Raja Habib Ahmad Khan v. Income-tax Officer 1972 SCMR 96 and Al-­Ahram Builders (Pvt.) Ltd. v. Income-tax Appellate Tribunal 1993 SCMR 29 ref.

Garton (Industries) Limited v. Government of Pakistan and others 1999 SCMR 1072; Collector of Customs, Customs House, Lahore and ' others v. Messrs S.M. Ahmad & Company (Pvt.) Limited, Islamabad 1999 SCMR 138 and Messrs Julian Hoshang Dinshaw Trust and others v. Income­ Tax Officer, Circle XVIII, South Zone, Karachi and others 1992 SCMR 250 eel.

A. K. Dogar for Petitioner.

Shafaqat Mehmood Chohan for Respondent., Date of hearing: 20th August, 1999.

2000 P T D 860

[Lahore High Court]

Before Sheikh Abdur Razzaq, J

M. A. NASEER

versus

MEMBER (JUDICIAL INCOME-TAX), CENTRAL BOARD OF REVENUE, ISLAMABAD

Writ Petition No. 684 of 1999, heard on 29th September, 1999.

Income Tax Ordinance (XXXI of 1979)---

----Ss.156 & 136---Constitution of Pakistan (1973), Art. 199---Constitutional petition---Rectification of mistake---Application under S.156, Income Tax Ordinance, 1979 for rectification of mistakes in order passed by the Member (Judicial Income-tax), Central Board of Revenue in a revision petition was dismissed ---Assessee/petitioner challenged such dismissal in Constitutional petition on the ground that said order was not a speaking order as it did not contain any reason for dismissal and opportunity of hearing was also not provided---Department contended that Constitutional petition was not maintainable as the petitioner/assessee was required to file a Reference under S.136 of Income Tax Ordinance, 1979 against the order or in the alternative he could file an appeal under S. 129 of Income Tax Ordinance , 1979 and since the order passed by the Member (Judicial Income-tax) was maintained, there was no need of affording an opportunity of being heard--­Validity---Section 156 of Income Tax Ordinance, 1979 did not lay down that if the assessment was to be maintained then it was not incumbent upon the Authorities to provide an opportunity of being heard ---Assessee/petitioner had to be given an opportunity of being heard---Contention of department that reference under S.136 of Income Tax. Ordinance, 1979 should have been filed or an appeal under S.129 of Income Tax Ordinance, 1979 could be filed, had no force as Reference under 5.136 could only be filed against order under S.135 and appeal under 5.129 could be filed if the impugned order had been passed by the Assessing Officer---Order passed under S.156 of Income Tax Ordinance, 1979 by the Member (Judicial Income-tax) was set aside and matter was remanded by the High Court with the direction to afford an opportunity of hearing to the assessee/petitioner and then dispose of application made under S.156 of Income Tax Ordinance, 1979.

Muhammad Ali Hasnain for Petitioner.

Khalil ur Rehman Abbasi on behalf of Mansoor Ahmad, Dy. A.-G. for Respondent.

Date of hearing: 29th September, 1999.

2000 P T D 864

[Lahore High Court]

Before Ch. Ijaz Ahmad, J

Mst. ANWAR BEGUM

versus

COMMISSIONER OF INCOME-TAX/WEALTH TAX, ZONE-B, LAHORE

and another

Writ Petition No. 14714 of 1999, heard on 2nd December, 1999.

(a) Wealth Tax Act (XV of 1963)---

----Ss.17, 16, 14 & 25---Constitution of Pakistan (1973), Art.199--­- Constitutional petition---Wealth escaping assessment---Notices under S.17 of Wealth Tax Act, 1963 were issued for submission of wealth tax returns which we not complied with---Notices under Ss.14(2), 16(4), 16(2) and show-cause notice under S.16(3) of Wealth Tax Act, 1963 were later on else issued ---Assessee attended the office and sought adjournment which was granted ---Assessee, on adjourned date again sought adjournment which was not granted by the Assessing Officer and assessments were finalized under S.16(5) of Wealth Tax Act, 1963---Relief was granted by the Commissioner of Wealth Tax on revision---Assessee filed Constitutional petition and contended that assessment order was passed without providing personal hearing as adjournment was not granted ---Assessee also challenged the service of notice under S.14, jurisdiction of Assistant Commissioner and issuance of show-cause notice under S.16(3) instead of 164) of Wealth Tax Act, 1963---Validity---Assessee appeared before Assessing officer but 'I'd not file reply of show-cause notice and request was made for another adjournment which was not granted, assessee, thus, failed to file reply of the show-cause notice within time in spite of providing opportunity-- -Nobody should be allowed to get benefit of his own misdeeds---Petition was dismissed in circumstances.

1990 PTD 389; 1995 PTD 393 and 14 ITR 548 ref.

Raja Muhammad Fazal's case PLD 1975 SC 331; Wali Muhammad's case PLD 1974 SC 106; Tufail Muhammad's case PLD 1965 SC 269; Sardar Pritam Singh's case (1985) 154 ITR 133; Rama Waters' case 1991 PTD 272; Muhammad Afzal's case PLD 1995 Quetta 50 and Sayed Muhammad Arif Ali's case 1969 SCMR 239 rel.

(b) Constitution of Pakistan (1973)---

----Art.199---Constitutional jurisdiction of High Court---Scope---High Court had no jurisdiction to substitute its own decision in place of the decision of the Tribunal below.

Mussaduq's case PLD 1973 Lah. 600 rel.

(c) Wealth Tax Act (XV of 1963)---

----Ss.l7, 16 & 25---Constitution of Pakistan (1973), Art.199--­Constitutiotial petition---Wealth escaping assessment---Revision---Assesses, did not attach grounds of revision alongwith Constitutional petition--­Contention of revenue was that assessee failed to attach grounds of revision alongwith the Constitutional petition and the revisional order revealed that assessee did not raise all those grounds which were raised before the High Court ---Validity---Assessee having not raised such grounds before revisional authority, concealed the material facts from the High Court---High Court declined to exercise discretionary jurisdiction under Art.199 of the Constitution in favour of assessee on the basis of principle that he who seeks equity must come with clean hands.

1969 SCMR 141; PLD 1973 SC 236; 1998 SCMR 1462; 1990 CLC 1783 and 1983 SCMR 196 rel.

M. Shahid Abbas and Amir Umer Khan for Appellant.

Shafqat Mahmood Chohan for Respondent.

Date of hearing: 2nd December, 1999.

2000 P T D 903

[Lahore High Court]

Before Syed Najam-ul-Hassan Kazmi, J

CRESCENT SUGAR MILL

versus

INCOME-TAX OFFICER

Writ Petition No. 1895 of 1996, decided on 28th April, 1998.

Income Tax Ordinance (XXXI of 1979)---

----S.136---Constitution of Pakistan (1973), Art. 199---Constitutional petition---Reference---Constitutional petition was filed against order of Income-tax Appellate Tribunal without availing the remedy of reference under S.136 of Income Tax Ordinance, 1979 and at the time of hearing the petition, Reference had also become barred by limitation ---Remedy--­Petitioner/assessee, having once approached the Authority in the hierarchy of jurisdiction was required to exhaust the remedy available at the relevant time under unamended S.136 of the Income Tax Ordinance, 1979 and also apply for condonation of delay on the plea of proceedings with due vigilance in the Constitutional jurisdiction---Constitutional petition was not maintainable in the circumstances.

Zahid Hussain Khan for Petitioner.

Muhammad Ilyas Khan for Respondent.

Date of hearing: 28th April, 1998.

2000 P T D 1296

[Lahore High Court]

Before Malik Muhammad Qayyum and Ghulam Mahmood Qureshi, JJ

Messrs MAPLE LEAF CEMENT FACTORY LTD.

versus

ADDITIONAL COLLECTOR, SALES TAX, FAISALABAD and others

Custom Appeal No.95 of 1999, decided on 7th December, 1999.

(a) Sales Tax Act (VII of 1990)---

----Ss.7 & 47---Non-adjustment of input tax paid by the assessees against output tax---Authorities issued notice for recovery of additional sales tax and refused to adjust input tax against output tax on the ground that the assessee had two separate cement factories and both the factories were separately registered---Validity---Authorities had completely omitted to notice that there was no second registered person in existence at the time when the input tax was paid or when the deduction out of the output tax was made---Effect--­Where import had been made by the assessees which had paid the input tax, assessee was entitled to deduct tax paid from the output tax payable on the cement produced by it---Subsequent registration of second factory (Phase II) was not of any significance---Orders passed by Authorities by not giving benefit of S.7, Sales Tax Act, 1990 to the assessee suffered from non­-consideration of material facts---Orders of the Authorities for the recovery of additional sales tax were set aside in circumstances.

(b) Sales Tax Act (VII of 1990)---

----S.16---Second registration---Requirement---Under the provisions of S.16, Sales Tax Act 1990 and registration is only for those persons who are carrying on business in two are more Collectorates.

Salman Akram Raja for Petitioner.

A. Karim Malik for Respondents.

Date of hearing: 17th November, 1999.

2000 P T D 1450

[Lahore High Court]

Before Ch. Ijaz Ahmad, J

AWAIS SHEIKH

versus

FEDERATION OF PAKISTAN through Chairman, Central Board of Revenue, Islamabad and 2 others

Writ Petition No. 12359 of 1999, heard on 14th January, 2000

Income Tax Rules, 1982---

----Rr. 158, 159, 161 & 162---Constitution of Pakistan (1973) Art. 199--­Constitutional petition---Appointment of Receiver ---Notice to show cause--­Petitioner was appointed as Official Receiver within the meaning of Rr.158, 159 & 161 of the Income Tax Rules, 1982---Defaulter was arrested for non­payment of utility bills---Receiver served the warrant under R.162(2) of the Income Tax Rules, 1982 upon the Superintendent Jail for continued detention of the defaulter till the recovery of income-tax/wealth tax---Defaulter was released by the Income-tax Authority after recovery of Rs.2 crores and further taking Bank guarantee in the sum of Rs.1 crore---Defaulter left the country---Income-tax Authorities refused to pay remuneration to Receiver on the ground that recovery was not effected on account of the efforts of the Receiver but that of the Department itself---Contention of the Department was that Revenue had only authority under 8.158 of the Income Tax Rules, 1982 to initiate proceedings for attachment or arrangement of the business of defaulter and had no authority to take coercive measures against the defaulter such as arrest of detention as per his terms and conditions of appointment--­Validity--Controversy between the parties was a factual controversy which could not be resolved under the Constitutional jurisdiction of the High Court---Matter was sent to Chairman, Central Board of Revenue, by the High Court with direction to constitute high powered committee to initiate proceedings against -the official /officer who provided the facility to the defaulter to leave the country---Such committee shall also complete the process of the subject-matter of remuneration of Revenue and in case the said Committee had come to the conclusion that Receiver's claim was genuine and correct, then the amount shall, be released forthwith.

Muhammad Younas's case 1993 SCMR 618 and Hafiz Muhammad Arif Dar's case PLD 1989 SC 109 rel.

Hamid Khan for Petitioner.

Subah Sadiq Klasoon with Wakil A. Khan, Regional Commissioner for Respondent.

Date of hearing: 14th January, 2000.