Commissioner Of Income-Tax vs Orissa Cement Limited
1987 Latest Caselaw 199 Del

JUDGMENT

Ranganathan, J.

1. The petitioner (Commissioner of Income-tax) had required the Tribunal to refer for the decision of this court as many as ten questions of law said to arise out of the orders of the Tribunal in the case of M/s. Orissa Cement Ltd., New Delhi, for the assessment year 1974-75. The Tribunal has submitted a statement of the case in regard to one of them, but declined to refer the other nine questions. By this application the petitioner seeks reference of those nine question also to this court.

2. However, we are of the opinion that no further questions of law arise out of the order of the Tribunal and that this application has to be dismissed. We state our reasons in brief.

3. The first question of which reference is sought runs as follows :

"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was corrected both on facts and in law in confirming the order of the Commissioner of Income-tax (Appeals) with regard to deletion of Rs. 3,10,000 being payment made to Mange Lal Bhikam Chand under the Voluntary Retirement Scheme although there was no agreement for such Payment ?

4. The Tribunal has found that though certain workers were employed by Mange Lal Bhikam Chand for carrying out the work of mining in the assessed's mines, they are in law the employees of the assessed as decided by the Supreme Court in decision in Hussainbhai v. Alath Factory Tozhilali Union, AIR [1978] 53 FJR 278. That being so that the assessed had a liability to pay compensation to the workmen and since Mange Lal Bhikam Chand had made this payment, the assessed compensated Mange Lal Bhikam Chand by paying him a like amount. In view of this, the question of a specific agreement between Mange Lal Bhikam Chand and the assessed does not arise and the Tribunal's conclusion that the assessed is entitled to deduction of the payment made is concluded by the decision of the Supreme Court referred above and calls for no further references.

5. The second question posed by the petitioner reads as follows.

"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate was correct both in facts and in law in upholding the finding if the Commissioner of Income-tax (Apples) regarding payment of penalty of Rs. 30,828 ?"

6. The facts have been considered by the Tribunal and it has been pointed out that the sum of Rs. 30,828 was not in the nature of a penalty at all. The assessed had not committed any infraction of law or illegality nor was the payment a penalty under any specific statute or agreement or otherwise. In this circumstances, no question of inadmissibility of deduction of payment arises. The Tribunal's view is the only view that could be taken and no question of law arises in regard to this aspect of the matter.

7. The third question runs as follows :

"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct both on facts and in law in confirming the order of the commissioner of Income-tax (Appeals) with regard to the payment of commission of Rs. 1,30,904 to M/s. Mani Ram Enterprises, although it was made under a collusive arrangement ?"

8. The question whether the payment made to this agency was wholly and exclusively for the purpose of the business is a question of fact. The Tribunal has pointed out that there is no evidence to show that this was a collusive arrangement. The firm has been functioning as the agent of the assessed for several years and the payments have been allowed in the earlier years. The Tribunal as well as the commissioner of Income-tax have also held that the services were rendered by the said firm. The conclusion of the Tribunal was, therefore, one of fact and no question of law arises.

9. The fourth question on which reference is sought reads as follows :

"Whether, on the facts and in the circumstances of the case the Income-tax Appellate Tribunal was correct both on the facts and in law in confirming the order of the Commissioner of the Income-tax (Appeals) regarding the deductions of Rs. 1,00,015 on account of commission to M/s. S. G. Supply Agency, although the same had accrued prior to August 31, 1971, in the assessment year 1973-74 to which it never related ?"

10. The question proceeds on the assumption that the commission payable to this agency had accrued prior to August 31, 1971. The Tribunal has pointed out that this is so. Both Commissioner of Income-tax as well as the Tribunal have pointed out that the agency commission has been paid in respect of the contracts concluded before August 31, 1971, but in respect of which the execution took place subsequently during the accounting year. The orders of the Commissioner of Income-tax extracted in paragraph 3 of the Income-tax Appellate Tribunal's order as well as the conclusion of the Income-tax Appellate Tribunal set out in paragraph 37 make it clear beyond doubt that the commission in question had accrued to the agent only during the accounting year in question as it related only to the sakes made during the accounting year. There is, therefore,no question of law which calls for reference on this aspect.

11. Question No. 5 runs as follows :

"Whether, on the facts and in the circumstances of the case the Income-tax Appellate Tribunal was correct both on facts and in law in confirming the order of the commissioner of Income-tax (Appeals) that the commission of Rs. 2,03,259 at 1% was paid to M/s Ceramic Sales for genuine business needs and as such was allowable deduction under section 37 ?"

12. Here also, the Income-tax Appellate Tribunal has clearly found that the agency in question had rendered services and was entitled to the payment of commission under the terms of the agreement with it. The mere fact that M/s. S. G. Supply Agency was also entitled to a commission in respect of these sales under an agreement entered into them on August 31, 1971, cannot disentitle the agent to the commission which accrued to it under the sole selling agency agreement. The finding that during the year under consideration, M/s. Ceramics Sales also rendered services and they were entitled to the commission under the agreement are question of fact of which no question of law arises.

13. The sixth question has been posed in the following terms :

"Whether, on the facts and in the circumstances of the case the Income-tax Appellate Tribunal was correct both in fact and in law in confirming the order of the Commissioner of Income-tax (Appeals) with regard to the payment of commission of Rs. 6,52,672 being hit by the provisions of section 40A(2) of the Income-tax Act, 1961 ?"

14. The assessed paid the commission to the Cement Distributor Limited at Rs. 1.75 per ton of cement. The Income-tax Officer allowed commission at the rate of Re. 1 per ton but disallowed the balance as excessive purporting to exercise his powers under section 40A(2). The Commissioner of Income-tax and the Income-tax Appellate Tribunal have found that there is no material on record to restrict the allowance of commission to Re. 1 per ton nor has the Income-tax Officer given any material for restricting it to that figure. In the circumstances, the finding of the Tribunal that the entire commission is allowable is based on appreciation of facts and does not give rise to any question of law.

15. Question No. 7 relates to the valuation of the closing stock which reads as follows :

"Whether, on the facts and in the circumstances of the case the Income-tax Appellate Tribunal was correct both on facts and in law in confirming the finding of the Commissioner of Income-tax (Appeals) with regard to the deletion of Rs. 3,42,769 representing the under valuation of stock which was specifically proved by the Income-tax Officer ?"

16. The assessed had 3,020 PCC poles in closing stock which it valued at Re. 1 per pole. The Income-tax Officer found out that the cost price of these poles was Rs. 160 per pole. It has also been pointed out by the counsel for the petitioner that some poles were subsequently sold for as much as at Rs. 175 per pole in the year 1975-76. It is, therefore, contended that the Income-tax Officer was justified in valuing these poles at Rs. 160 per pole which was the cost price. The contention ignores the fact that the case of the assessed was that these poles had been manufactured in accordance with the specifications prescribed by the Punjab State Electricity Board and that these poles had been rejected by the said board as unfit, These rejected poles had been stored in heaps and had also developed certain defects. It claimed that the assessed found them insoluble and hence valued them at Re. 1 per pole. This explanation of the assessed has not been found against by the Income-tax Officer and has been accepted by both the Commissioner of Income-tax and the Income-tax Appellate Tribunal. Once this explanation stands accepted the valuation at Re. 1 per pole has also been accepted. If the assessed has sold them at a higher figure, the higher sale price and profits will be reflected in the subsequent years. In absence of any material to show that the poles were in good condition and that the assessed's plea that they were without value was not a correct plea, here was no ground to reject the closing stock valuation. The findings of the Income-tax Appellate Tribunal in this regard are findings of facts and do not give rise to any question of law.

17. The eight question reads as follows :

"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct both on fact and in law in confirming the order of the Commissioner of Income-tax (Appeals) with regard to the payment of sales tax amounting to Rs. 1,62,326 although the liability in this regard had not been ascertained ?"

18. The short question is whether the assessed was entitled to claim deduction of a sum of Rs. 1,62,326 being be payment of sales tax relatable to the freight with the assessed collected as part of the sale proceeds. It is not in dispute that the freight forms part of the turnover. In view of the decision of the Supreme court in Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363, it is clear that the sales tax liability attributable to the freight expenses have to be allowed as deduction in this year as the sales took place during the year in question. The decision of the Supreme Court makes it clear that the deductibility does not depend upon the ascertainment of the liability. Counsel for the petitioner contended that the decision in Kedarnath Jute Mfg. Co. Ltd. [1971] 82 ITR 363 (SC) as well as the decision regarding the availability of sales tax in regard to freight expenses were rendered by the Supreme court much later. This however does not make any difference because of the decision of the Supreme Court only lay down the law as it always stood. In these circumstances and in view of the decision of the Supreme Court referred to above, the assessed was clearly entitled to the deduction in question and no arguable question of the law can arose for reference after the decision of the Supreme Court in the matter. The Tribunal was, therefore, justified in rejecting the petitioner's request for reference on this question, particularly as the exact amount of which the assessed is entitled to deduction has been left to be verified by the Income-tax Officer.

19. Question No. 9 reads as follows :

"Whether, on the facts and in the circumstances of the case the Income-tax Appellate Tribunal was correct both in facts and in law in holding that the respective amendment of the provisions of section 80J are not applicable in the case and thereby restoring the matter back to the file of the Income-tax Officer for fresh decision ?"

20. Counsel for the petitioner stated that he does not press this question in view of the decision of the Supreme Court in the case of Lohia Machines Ltd. [1985] 152 ITR 308. This question cannot, therefore, be directed to be referred.

21. To sum up, none of the questions merit any reference to this court. The application, therefore, fails and is dismissed. In the circumstances of the case, we make no order as to costs.