Delhi High Court
Commissioner Of Income-Tax vs Basti Sugar Mills Co. Ltd. on 9 December, 1988
Equivalent citations: 1989 178 ITR 216 Delhi
Bench: G Jain, R Pyne
JUDGMENT
1. The commissioner of Income-tax has filed this petition under section 256(2) of the Income-tax Act, 1961, for directing the Tribunal to state a case and refer the following questions to this court for its opinion :
"1. 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 upholding the order of the Commissioner of Income-tax (Appeals) reducing the disallowance of Rs. 1,20,000 representing salary to the managing director to Rs. 48,000 and thereby giving a relief of Rs. 72,000 ?
2. 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 deleting the addition of Rs. 23,95,403 representing the excess sugar price realised by the assessed by following their order for earlier years which has not been accepted by the Department ?
3. 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 deleting an addition of Rs. 5,000 in respect of the Basti Unit and Rs. 83,939 in respect of the Walterganj Unit made by the Income-tax Officer under section 40A(3) of the Income-tax Act, 1961 ?"
2. So far as the first question is concerned, the contention of learned counsel appearing for the petitioner is that the appointment of Shri Dev Raj Narang, managing director, though it was approved by the Company Law Board, the approval was conditional. The condition was not fulfillled and, therefore, in law, there was no approval. The Company law Board approved the appointment of Shri Dev Raj Narang as the managing director of the respondent-company for a period of five years. One of the conditions was the "the managing director shall give an undertaking to the company that he shall not, so long as he functions as such, become interested or otherwise concerned directly or through his wife and/or minor children in any selling agency of the company in suture without the prior approval of the Company Law Board". Learned counsel appearing for the petitioner has pointed out that Shri Dev Raj Narang was a director of Gokul Chand Narang Cosmetics Industries Ltd. which was a sole selling agency of the respondent-company and, therefore, this condition was violated. The Commissioner (Appeals) as well as the Tribunal have found tat he was a director of the said Gokul Chand Narang Cosmetics Industries Ltd. since its incorporation. He did not acquire any interest in the said company after the grant of the approval. The condition barred acquiring any interest in any selling agency of the respondent-company in the future. The wording of the condition is very clear. There is no scope for any other interpretation and, in our view, there is no justification for calling for a reference so far as this question is concerned.
3. As regards question No. 2, learned counsel for the petitioner frankly conceded that this court ad decided this point against the Department and the special leave petition filed against the decision of this court has since been dismissed by the Supreme Court. This question, therefore, does not arise.
4. The third question, in our view, relates to the interpretation of the provisions contained in section 40A(3), Section 40A(3) of the Income-tax Act provides "where the assessed incurs any expenditure in respect of which payment is made, after such date (not being later than the 31st day of March, 1969) as may be specified in this behalf by the Central Government by notification in the Official Gazette, in a sum exceeding two thousand five hundred rupees otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft, such expenditure shall not be allowed as a deduction".
5. In this case, it appears that certain payments were made to some persons on a particular day. According to the entries, each payment was of less than 2,500 rupees but the total amount exceeded 2,500 rupees. The question is whether, in the circumstances, the provisions of section 40A(3) were attracted ? This, in our view, is an important question of law which requires determination by this court.
6. Learned counsel for the assessed has relied upon the decision of the Orissa High Court in CIT v. Aloo Supply Co. [1980] 121 ITR 680 in which it was held that if an assessed makes payments at different times during the day and he has no idea that he has to pay to the same person on more than one occasion, he cannot be subjected to the statutory provision contained in section 40A(3) of the Act, unless any one payment is above Rs. 2,500. Learned counsel for the petitioner contended that the facts of that case are different. If this view is allowed to prevail, then the provisions contained in section 40A(3) would become nugatory.
7. We have examined the question. We are also conscious of the fact that the special leave petition filed before the Supreme court against the order of the Orissa High Court was dismissed by the Supreme Court but the fact remains that it was dismissed in liming.
8. In our considered view, this question is an important question of law and requires consideration. We, consequently, direct the Tribunal to state the case and refer question No. 3 to this court for its opinion.
