Madhya Pradesh High Court
Commissioner Of Income-Tax vs Perfect Pottery Co. Ltd. on 27 January, 1986
Equivalent citations: [1989]175ITR562(MP)
Author: J.S. Verma
Bench: J.S. Verma
JUDGMENT
J.S. Verma, Actg. C.J.
1. This is a reference under Section 256(1) of the Income-tax Act, 1961, at the instance of the Revenue for decision of the following questions of law, namely :
"(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in law in upholding the order of the Commissioner of Income-tax (Appeals) directing the Income-tax Officer not to exclude the borrowed capital while computing the capital employed for allowing relief under Section 80J of the Income-tax Act, 1961 ?
(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in following the decisions of the various High Courts, wherein Rule 19A of Income-tax Rules, 1962, has been declared ultra vires the Constitution of India ?
(3) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that there was no violation of the provisions of Section 40A(7)(b) of the Income-tax Act, 1961, in allowing the relief of Rs. 8,29,000 being provision for gratuity?
(4) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in upholding that the assessee-company was not liable to pay any interest under Section 215 of the Income-tax Act, 1961 ?"
2. The assessee is a limited company deriving its income from the business of manufacture of stoneware pipes, etc. In the return filed for the assessment year 1973-74, the assessee claimed certain deductions under Section 80J of the Income-tax Act, 1961. The Income-tax Officer rejected the claim. The Income-tax Officer also noted that the assessee had made provision for a sum of Rs. 8,29,000 as provision for gratuity payable to its employees and claimed that as a deduction. The Income-tax Officer held that the provision had been made towards an unapproved gratuity fund and under Section 40A(7), as inserted by the Finance Act, 1975, no such deduction could be allowed. As a consequence thereof, the assessee became liable for payment of interest in accordance with Sub-section (1) of Section 215 of the Act and this was also levied. The assessee preferred an appeal to the Commissioner of Income-tax (Appeals) who held that the borrowed capital has to be included while computing the capital employed for the purpose of Section 80J of the Act. He further upheld the additions made by the Income-tax Officer on account of the provision made for gratuity as also his direction for levy of interest. Cross-appeals were filed to the Tribunal by the Revenue and the assessee. The appeal of the Revenue was dismissed while that of the assessee was partly allowed. The Tribunal upheld the order of the Commissioner in respect of the claim for relief under Section 80J and dismissed the Revenue's appeal. It reversed the finding of the Commissioner and held that the assessee was entitled to claim deduction of the provision made for gratuity without any violation of Section 40A(7) of the Act. The imposition of interest under Section 215 of the Act was set aside. Aggrieved by the Tribunal's decision, the Revenue applied for a reference which has been made by the Tribunal under Section 256(1) of the Act for decision of the above-quoted questions of law.
3. There is no controversy that the above-quoted first three questions have to be decided in favour of the Revenue in view of the settled law resulting from the decisions in CIT v. K. N. Oil Industries [1982] 134 ITR 651 (MP), Jiwajirao Sugar Co. Ltd. v. CIT [1983] 144 ITR 729 (MP), CIT v. Lalit Prasad Rohini Kumar [1979] 117 ITR 603 (Cal), Lohia Machines Ltd. v. Union of India [1985] 152 ITR 308 (SC) and Shree Sajjan Mills Ltd. v. CIT [1985] 156 ITR 585 (SC). No elaborate discussion is, therefore, necessary on these points and the first three questions have to be answered accordingly in favour of the Revenue:
4. The only controversy before us is in respect of the above-quoted question No. 4 relating to payment of interest under Section 215 of the Income-Act, 1961. Learned counsel for the assessee contended that even though Sub-section (1) of Section 215 makes the assessee liable to pay interest in accordance with that provision as a result of the first three questions being decided against it, yet it was incumbent upon the Income-tax Officer to consider the question of reduction or waiver of interest payable by the assessee in accordance with Sub-section (4) of Section 215 of the Act. It was contended that the decision on the question of interest without recording a clear finding that no case for reduction or waiver was made out is contrary to law. On the other hand, learned counsel for the Revenue contended that this question does not arise for decision out of the Tribunal's order inasmuch as this point was never urged at any stage before the Tribunal and that, therefore, the same need not be considered by us. Learned counsel for the Revenue further contended that it was also unnecessary to go into this question for the simple reason that the assessee has the remedy available to apply for waiver or reduction of interest to the Income-tax Officer or the Commissioner in accordance with law when the question would be considered and duly decided. In our opinion, the availability of this remedy to the assessee to have the question of waiver or reduction of interest considered and decided even now in accordance with law is sufficient for us to decline to examine the correctness of the contention advanced by learned counsel for the assessee. We prefer to adopt this course for the reason that the facts necessary to decide this question relating to reduction or waiver of interest do not appear from the statement of case. In view of the fact that this question has to be decided hereafter by the competent authority under the Act, at the instance of the assessee, if so advised, we do not consider it appropriate to say.anything further in the matter except to observe that we have no doubt that the concerned authority will consider and decide the question of waiver or reduction of interest in accordance with law after taking into account all the relevant facts and circumstances of the case.
5. Consequently, the reference is answered as under :
"1. The Tribunal was not justified in upholding the order of the Commissioner of Income-tax (Appeals) directing the Income-tax Officer not to exclude the borrowed capital while computing the capital employed for allowing relief under Section 80J of the Income-tax Act, 1961.
2. The Tribunal was not justified in treating Rule 19A of the Income-tax Rules, 1962, as ultra vires.
3. The Tribunal was not justified in holding that there was no violation of the provisions of Section 40A(7) of the Income-tax Act, 1961, in allowing relief of Rs. 8,29,000 being provision for gratuity.
4. The Tribunal should have held that the assessee is liable to pay interest in accordance with Sub-section (2) of Section 215 of the Income-tax Act, 1961, subject to its waiver or reduction under Sub-section (4) thereof in an appropriate proceeding taken by the assessee hereafter."
6. There shall be no order as to costs of this reference.