Commissioner Of Income Tax vs Jyotsna Holdings (P) Ltd.
1994 Latest Caselaw 363 Del

ORDER

D.K. Jain, J.

1. By this application under s. 256(2) of the IT Act, 1961 (for short the Act), the Revenue seeks a direction to the Tribunal to state a case and refer to this Court as many as 33 following questions, stated to be questions of law, arising out of a common order of the Tribunal in ITA Nos. 1950-52 (Del) of 1990, pertaining to asst. yrs. 1985-86 to 1987-88 :

"1. Whether the Tribunal was legally correct in entertaining and adjudicating upon the assessed's plea that the consultancy fee accrued to it on 11th Sept., 1987, i.e., in the previous year relevant for asst. yr. 1988-89, whereas the CIT in the exercise of his jurisdiction under s. 263 had examined the assessment records of the assessed for asst. yrs. 1985-86, 1986-87 and 1987-88 and came to the conclusion that the assessment orders passed therein were erroneous and prejudicial to the interest of Revenue ?

2. Whether the Tribunal acted within its jurisdiction when it entertained the assessed's ground that consultancy fee had accrued to the assessed only in asst. yr. 1988-89 when the CIT in para 10.1 of his order had held that the new stand taken by the assessed resiling from the earlier stand did not relate to the proceedings under s. 263 of the IT Act and that the submission made in that behalf were extraneous to the proceedings under s. 263 which related to asst. yrs. 1985-86, 1986-87 and 1987-88 ?

3. Whether, while deciding the appeals of asst. yrs. 1985-86, 1986-87 and 1987-88 against the orders made under s. 263, setting aside the assessment made in those years to be made afresh in accordance with law, the Tribunal had jurisdiction to hold that the assessed's income from consultancy fee (which has been voluntarily offered by the assessed for assessment in those years and whose assessments were not erroneous and prejudicial to the interest of Revenue) was assessable in the asst. yr. 1988-89 which was not a subject-matter of appeal before the Tribunal.

4. Whether the Tribunal was legally correct in holding that consultancy fee income did not accrue to the assessed or did not constitute income of constructive receipt of income by the assessed in the said three assessment years when those were remitted to Eljay's London Bank account as per terms of agreements which were the source of income ?

5. Whether, on the facts and in the circumstances of case, the Tribunal was correct in law and on facts in observing that the accrual of consultancy income did not take place in the asst. yrs. 1985-86, 1986-87 and 1987-88.

6. Whether the Tribunal was legally correct in holding that the consultation fee accrued only on 11th Sept., 1987, i.e., on the date of repatriation to India and not on the dates of remittances of the fee by Sumitomo Corporation to Eljay's London Bank A/c between 31st July, 1985 to 24th Oct., 1986, when Japanese Yens were remitted under agreement dt. 30th Aug., 1984 and between 3rd Dec., 1984 to 18th June, 1985 when U.S. dollars were remitted under agreement dt. 5th Nov., 1984 ?

7. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the letters dt. 9th Feb., 1987, 15th Aug., 1987, 1st Sept., 1987, 4th Aug., 1988 and 7th Oct., 1988 exchanged between the assessed-company and its associates were not self-serving and procured documents when it itself admitted the legal position in para 7.2 of its order that the agreement dt. 30th Aug., 1984 and 5th Nov., 1984 set forth the entire agreement of parties and which superceded any prior agreement and understanding to the contrary as contained in letters dt. 4th June, 1984 and 23rd July, 1984 ?

8. Whether the Tribunal had any justification in law in giving the sanctity that it gave to the aforementioned procured letters exchanged, after the end of the assessment years under reference between the assessed and its associates under the two agreements dt. 30th Aug., 1984 and 4th Nov., 1984 set forth the entire terms and conditions and when each one of those clearly provided that "no amendment or edition to this agreement shall be effective unless agreed upon the parties hereto in writing?"

9. Whether the Tribunal was justified in law in interpreting the two agreements dt. 30th Aug., 1984 and 5th Nov., 1984 in the manner it did by taking aid of procured and self-serving evidence and by ignoring the above mandatory terms of the two agreements which forbade any amendment or addition to the agreement unless agreed upon by the parties in writing (as was done by them when they, just for making a minor change in the agreement, executed an addendum to the agreements on 24th June, 1985) ?

10. Whether, when the Tribunal had itself held that the matter contained in letters dt. 4th June, 1984 and 23rd July, 1984 stood superseded, was it justified in law in saying that letters subsequent to the dates of agreements could be considered even though those went against the tenor of the agreements dt. 30th Aug., 1984 and 5th Nov., 1984 which were self-contained codes incorporating all the terms of the agreement between the assessed and Sumitomo Corporation ?

11. Whether, when the agreement dt. 30th Aug., 1984 and 5th Nov., 1984 were between the assessed and Sumitomo Corporation only and when Eljay was not a party to the agreements, was the Tribunal justified in law in saying that the correspondence which passed between the assessed on one hand and Eljay on the other hand were relevant for interpreting the agreement, dt. 30th Aug., 1984 and 5th Nov., 1984 ?

12. Whether the Tribunal was legally correct in holding that the consultation fee accrued as income as on the date of repatriation, i.e., on 11th Sept., 1987 as against the dates of accrual mentioned in the aforesaid agreements ?

13. Whether, when the assessed had in its returns of income filed on solemn affirmation, shown the commission income in the asst. yrs. 1985-86, 1986-87 and 1987-88 and when on the basis of those returns the assessed had obtained benefit of remission of interest and penalty, etc., by moving petitions under s. 273A before the CIT (which petitions had been accepted by the CIT) the Tribunal was justified in law in holding that those incomes did not accrue in those assessment years but accrued in asst. yr. 1988-89 which was not a subject-matter of appeal filed by the assessed relating to asst. yrs. 1985-86, 1986- 87 and 1987-88 ?

14. Whether the Tribunal was legally correct in superimposing its observations over the observations of the CIT which were strictly in keeping with the law laid down by the Delhi High Court in Gee Vee Enterprises vs. Addl. CIT ( ?

15. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in observing that the accrual of consultancy income took place in the asst. yr. 1988-89, thereby reducing the total income for the asst. yrs. 1985-86, 1986-87 and 1987-88 to a figure lower than the returned income, which could not have been done in an order under s. 263 which was the subject of appeal ?

16. Whether, when the CIT had not given any positive findings that any particular amounts were to be added by the Assessing Officer in the reassessments and when the CIT had merely set aside the assessments with the direction that those be reframed de novo in accordance with law after making proper enquiries in the light of facts and circumstances of the case, the Tribunal was justified in law in prejudging the issues which had to be decided only by the Assessing Officer at the time of making fresh assessments and which had not in fact been decided by the CIT in his order under s. 263 ?

17. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in modifying the observations of CIT and foreclosing the enquiry by the Assessing Officer even in respect of issues where lack of enquiries on the part of the Assessing Officer had rendered the order erroneous and prejudicial to the interest of Revenue ?

18. Whether the order of the Tribunal was not perverse in law and contrary to law laid down by jurisdictional High Court in the case of Gee Vee Enterprises (supra) ?

19. Whether the Tribunal was justified in law in ignoring or not considering in proper perspective the submission of Revenue at the time of hearing of appeals that the assessed had resiled from its stand that commission income was assessable in the asst. yrs. 1985-86, 1986-87 and 1987-88 on Realizing that while the provisions of s. 104 of the IT Act, 1961 and the provisions of Companies (Profits) Surtax Act, were applicable in those assessment years, those will not be applicable in the asst. yr. 1988-89, having been deleted w.e.f. 1st April, 1988 ?

20. Whether the Tribunal was justified in law in ignoring the apparent motive of the assessed of resiling from its mercantile system of accounting only on receiving notices under s. 104 of the IT Act and under Companies (Profits) Surtax Act ?

21. Was the Tribunal justified in law in ignoring the submissions made on behalf of the Department that income accrues when it becomes due and postponement of payment does not suspend accrual and thereby ignoring the decision of Hon'ble Supreme Court in the case of Morvi Industries vs. CIT ?

22. Whether the Tribunal was correct both on fact and law in holding that r. 115 of the IT Rules was not applicable when the remittances were made by Sumitomo Corporation to Eljay in the London bank account designated by the assessed ?

23. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law and on facts in holding that r. 115 does not apply for the asst. yrs. 1986-87 and 1987-88 for the conversion of foreign currency consultancy income into Indian rupees ?

24. Whether the interpretation of the provisions of r. 115 made by the Tribunal was justified in law ?

25. Whether, when in almost similar circumstances another concern of the Suri Group had earned interest income on remittances which remained deposited in London bank and when no such interest income had been shown by the assessed in respect of deposits in London bank and when the Assessing Officer had not made any enquiry in that regard, was the Tribunal justified in law in holding that CIT was not right in acting under s. 263 and in directing that aspect of the matter should be looked into when the fresh assessments were made ?

26. Whether the Tribunal was legally correct in holding that the CIT was not right in coming to the conclusion that the facts of the case ought to have provoked enquiry on the point of accrual of interest on amounts, which during the concerned period, remained deposited in the specified account of London bank ?

27. Whether the Tribunal was correct both in facts and in law in holding that the CIT was not right in holding that due enquiry was not made on the share application money of Rs. 1,98,68,081.75 as stated to have been received from Eljay Consultants Inc. ?

28. Whether the Tribunal was correct in law in holding that the CIT was not right in his observations that the receipt of assessed-company on 31st Jan., 1985 from Eljay Consultants Inc. which had a very paltry capital of its own, had not been enquired or looked into by the Assessing Officer and that for that reason the order of that assessment year was erroneous and prejudicial to Revenue ?

29. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law and on fact in observing that the source of source cannot be expected to be enquired into from the assessed by ignoring the fact that even the factual position as to whether the amount of Rs. 1,98,68,081.75 was share application money or loan is not clear.

30. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law and on facts in observing that the source of source cannot be expected to be enquired into by ignoring the decision of the Bombay High Court in the case of Orient Trading Co. Ltd. vs. CIT and the facts that the veracity and genuineness of the transaction itself is doubtful and that Eljay is a front company of the assessed ?

31. Whether the Tribunal was legally correct in giving contradictory findings when on the one hand it held that the jurisdiction under s. 263 could be validly assumed by the CIT and the assessments set aside to be made afresh on the other hand held that the prima facie view expressed by the CIT has to be taken by the Assessing Officer as modified by its observations regarding accrual of income, interest, share application money and IT r. 115 ?

32. Whether, the findings of the Tribunal as contained in para 7.8 of its order were in consonance with provisions of s. 263(1) r/w Expln. (b) of that section ?

33. Whether and when the Tribunal had agreed that the CIT was justified in law in assuming jurisdiction under s. 263 it was legally correct in eliminating the various observations of the CIT which were the basis of his coming to the conclusion that orders framed by the Assessing Officer in three assessment years had not been properly framed and were erroneous and prejudicial to interests of Revenue and which observations were in keeping with the law laid down by the Delhi High Court in the case of Gee Vee Enterprises (supra) ?''

2. The respondent assessed, a private limited company, derived income from business of aviation by acquiring aircraft and by leasing the same to Delhi Flying Club. Besides, it also derived income from consultancy from a concern called M/s Sumitomo Corporation, Tokyo. It entered into two agreements dt. 30th Aug., 1984 and 5th Nov., 1984 with the said corporation agreeing to act as its consultants in respect of the tenders floated by Oil & Natural Gas Commission (for short the ONGC) for the supply of Saw Line Pipe and Seamless Casino Pipe to the Gas Authority of India and the ONGC respectively. The mode and time of payment of consultancy fee was prescribed in the said agreements. Originally the entire consultancy fee under the said agreements was included by the assessed in its return for the asst. yr. 1987-88 for which the previous year ended on 31st Jan., 1987. Subsequently the assessed wrote to the CIT requesting that the entire consultancy income be spread over in three years, namely, asst. yrs. 1985-86 to 1987-88 and appropriate immunity from the levies of penal interest and penalty be granted. For the purpose it filed petitions under s. 273A of the Act. The CIT, it appears, agreed for waiver of interest chargeable under ss. 139(8) and 217 of the Act and for dropping the penalty proceedings. Before the said order was passed by the CIT, the assessed filed revised returns for all the said three years, for which the relevant previous years ended on 31st Jan., 1985, 31st Jan., 1986 and 31st Jan., 1987 respectively, spreading the income received from M/s Sumitomo Corporation by taking into account the dates of payment by the said Corporation to one M/s Eljay Consultants, London. Assessments were completed on the basis of the said three returns, as a result whereof certain demands were created.

3. The assessed filed appeals against these assessments and subsequently also moved an application before the CIT(A) for raising an additional ground of appeal to the effect that the entire consultancy income was not assessable in the said three years as spread over but only in the asst. yr. 1988-89, on the plea that the consultancy fee became the income of the assessed only when it was received in India on 11th Sept., 1987 and that the earlier returns based on voluntary agreement with the Department were bad in law. The entire consultancy fee was accordingly offered for assessment in the asst. yr. 1988-89 for which return was filed. Meanwhile, the CIT felt that the aforesaid assessment orders for the said three assessment years were erroneous in so far as they were prejudicial to the interests of the Revenue because : (i) the assessed had claimed depreciation on the aircraft at a higher rate; (ii) no enquiry had been made to determine the amount of interest that had accrued to the assessed on the amounts deposited in a specified account in a London bank; (iii) no enquiry had been made regarding the real identity, creditworthiness and the source of investment of Rs. 1,98,68,081.75 allegedly received from Eljay Consultants Inc., initially as advance/deposit and later shown as share application money and (iv) r. 115 of the IT Rules had not been applied. Accordingly, the CIT issued a show cause notice to the assessed under s. 263 of the Act, to which the assessed filed its reply. Not being satisfied with the assessed's explanation, the CIT set aside the three assessments with a direction to the ITO to frame assessments de novo in accordance with law after making proper and appropriate enquiries.

4. Against the said order of the CIT, the assessed preferred an appeal to the Tribunal, where it reiterated its stand that income from M/s Sumitomo Corpn. accrued to it only on receipt of money in India on 11th Sept., 1987 and, therefore, the whole of it was taxable in India only in the previous year to which the date of receipt related to, viz., asst. yr. 1988-89 and not in the earlier assessment years. It was contended that no prejudice would be caused to the Revenue if the assessment is made in the manner now suggested even though earlier assessments were made on the basis of the returns filed by the assessed in terms of the agreement arrived at with the CIT. The Tribunal vide its common order for the said three assessment years came to the conclusion that : (i) the grant of depreciation on aircraft at 40% was erroneous and to that extent the jurisdiction of the CIT under s. 263 was properly exercised; (ii) the aforesaid agreements clearly provided that consultancy fee was to be remitted by Sumitomo Corpn. to a designated account of Eljay Consultants in the Bank of Credit & Commerce in London and the position of M/s Eljay Consultants was that of a confident of both Sumitomo Corpn. and the assessed and that the right of the assessed to the amount from the Sumitomo Corpn. was inchoate and imperfect till 11th Sept., 1987; various letters exchanged between the assessed and Eljay Consultants, operated as supplements to the contracts and showed that it was only after 11th Sept., 1987 that the assessed's right in respect of the consultancy fee got perfected and the CIT was, therefore, not right in taking the remittances of the consultancy fee by Sumitomo Corpn. to the designated account of Eljay Consultants at London as the dates of accrual of the said income; (3) the question of there being any constructive receipt earlier to the receipt of the money in India did not arise; (4) the share application money of Rs. 1,98,68,081.75, shown by the assessed in its balance sheet as on 31st Jan., 1985 as having been received from Eljay Consultants had been received after necessary approval from the Reserve Bank of India, which information having been furnished to the ITO, the CIT was not right in holding that due enquiry had not been made on this point by the Assessing Officer and (5) since the consultancy fee accrued in India on 11th Sept., 1987 there was no question of underassessment on account of applicability of r. 115 of the said rules as there was no provision for artificial conversion.

5. Being aggrieved, the Revenue filed application under s. 256(1) of the Act seeking reference on the aforesaid questions. While dismissing Revenue's application, the Tribunal held that the aforesaid conclusions reached by it were all findings of fact, based on proper appraisal of evidence and, therefore, no question of law arose. Hence, the present application.

6. The application is vehemently resisted by Mr. P.V. Kapur, Senior counsel for the assessed, who submitted that answers to the proposed questions are either self-evident or stood concluded by two decisions of this Court in CIT vs. A. Gajapathy Naidu (1964) 53 ITR 114 (Del) and Dalmia Dairy Industries Ltd. vs. Union of India & Ors. 2nd (1980) II 1286. We are unable to agree. Apart from the fact that the ratios of the decisions relied upon on behalf of the assessed do not, prima facie, apply to the facts in hand, it also seems difficult for us to say that issues raised in this application stand answered conclusively either by the Supreme Court or this Court. Even otherwise, at this stage, we are not called upon to pronounce upon the correctness or otherwise of the view taken by the Tribunal. What we have to consider is whether a question of law, fit for consideration by this Court, arises from the order of the Tribunal or not. We are constrained to observe that while arriving at the conclusion that the main question whether consultancy fee from M/s Sumitomo Corpn. accrued in the previous years relevant to the asst. yrs. 1985-86 to 1987-88 or asst. yr. 1988-89, was a finding of fact, the Tribunal perhaps lost sight of the fact that this finding was arrived at by it on an interpretation of various clauses of the aforesaid two agreements dt. 30th Aug., 1984 and 5th Nov., 1984 and various other agreements dt. 30th Aug., 1984 and 5th Nov., 1984 and various other letters referred to in its order. In fact, in para 7.4 of its order, the Tribunal has itself observed that "the accrual of income depended upon the interpretation of the contracts". Where the determination of a question involves interpretation of documents, a question of law does arise.

7. We are of the view that the following questions of law, which we have reframed, do arise from the order of the Tribunal:

1. "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the consultancy fee income from Sumitomo Corpn. accrued/arose to the assessed in the previous year ended on 31st March, 1988 (relevant to the ast. yr. 1988-89) and not in the prior previous years ended 31st Jan., 1985, 31st Jan., 1986 and 31st Jan., 1987 (relevant to the asst. yrs. 1985-86 to 1987-88 respectively) ?"

2. "Whether while dealing with the appeals for the asst. yrs. 1985-86 to 1987-88 against the orders made by the CIT under s. 263 of the IT Act, the Tribunal was justified in recording a conclusive finding that the assessed's income from consultancy fee was assessable for the asst. yr. 1988-89 ?"

3. "Whether, on the facts and circumstances of the case and on a correct interpretation of r. 115 of the IT rules the Tribunal was right in holding that the said rule was not applicable when the remittances were made by M/s Sumitomo Corpn. to M/s Eljay Consultants Inc. in the London bank ?"

4. "Whether the Tribunal was justified in holding that while acting under s. 263 of the IT Act the CIT was not right in holding that due enquiry had not been made by the Assessing Officer in the share application money/deposit allegedly received from M/s Eljay Consultants Inc. ?"

5. "Whether the Tribunal was legally correct in holding that the contracts dt. 30th Aug., 1984 and 5th Nov., 1984 r/w various letters were clear and, therefore, the CIT was not justified in holding that enquiry on the point of accrual of interest on the amounts deposited in the specified account of London bank should have been made by the Assessing Officer ?"

8. We would accordingly direct the Tribunal to draw up a statement of the case and refer the aforesaid questions for the opinion of this Court. Revenue will be entitled to costs which we quantify at Rs. 1,000.