J.K. Synthetics Ltd. vs Commissioner Of Income-Tax
1995 Latest Caselaw 720 Del

JUDGMENT

Dr. M.K. Sharma, J.

1. The assessee has filed this petition under section 256(2) of the Income-tax Act, 1961 (hereinafter called "the Act"), seeking to refer the following questions stated to be questions of law, to this court for its opinion, relevant to the assessment year 1982-8 :

"Whether, on the facts and in the circumstances of the case, the learned Income-tax Appellate Tribunal was :

(1) correct in law in confirming the disallowance of Rs. 3,65,000 under the provisions of section 40(c) in respect of the payments made to five directors of the company in excess of the limit of Rs. 72,000 prescribed by the provisions of the said section ?

(2) justified in not allowing deduction of Rs. 79,935 from chargeable income being sundry credit balances written back in respect of four parties holding that the assessee had received benefit in respect of the amount and also that there was no cessation of liability ?

(3) justified in upholding the disallowance of Rs. 77,405 out of building repairs being the expenses of Holiday home known as Kamla Castle at Mussoorie for the benefit of the employees going on holidays there ?

(4) correct in confirming the disallowance of Rs. 1 lakh out of mess expenses ?

(5) justified in allowing know-how fee paid at 50 per cent. of the amount at Rs. 33,58,671, holding that the balance of 50 per cent. amount to be of capital nature ?

(6) justified in holding that water charges amount to Rs. 1,97,487 and Rs. 81,816 are not admissible deductions ?"

2. We have examined the questions proposed and also heard learned counsel for the parties and perused the order of the Tribunal rejecting the application under section 256(1) of the Act as well as the appellate order, out of which the aforesaid questions of law are stated to have arisen.

3. Question No. 1 relates to the disallowance of Rs. 3,65,000 paid to five company directors as profit commission in excess of the limit laid down in section 40(c) of the Act. The assessee has stated that as to whether the provisions of section 40(c) of the Act would apply to such type of remuneration payable to the directors or not is question of law. We are told that for the assessment year 1981-82 a similar question has been called by this court in I.T.C. No. 18 of 1991 on a petition filed by the same assessee under section 256(2) of the Act. Accordingly, we are of the opinion that question No. 1 is a question of law and is referable to this court for its opinion.

4. So far as question No. 2 is concerned, the Appellate Tribunal upheld the taxability of the credit balance of four parties amounting to Rs. 79,935, unilaterally written back to the year under consideration holding that the assessee had received the benefit by way of allowance in respect of the said amounts in earlier years and also that there was no cessation of liability. The aforesaid question, in our opinion, gives rise to a referable question and accordingly the said question may be referred to this court for its opinion.

5. Question No. 3 revolves around applicability and interpretation to the provisions of sections 30 and 37 of the Act and to the facts and circumstances of the present case, and in that view of the matter, we feel that a question of law does arise out of the said question and accordingly, the same may also be referred to this court for its opinion.

6. However, so far as question No. 4 is concerned on the face of reading of the said question, it appears to us that the same is a question of fact and, therefore, no question of law arises there from. Learned counsel for the assessee fairly conceded before us that he is not pressing question No. 5 as set out in the petition and, therefore, we are not called upon to examine and decide regarding calling for a reference in respect of question No. 5. The prayer with regard to the said question stands rejected being not pressed.

7. Question No. 6, on the other hand, relates to whether water charges paid to the Rajasthan State Electricity Board are contractual liability or statutory liability. It is brought to our notice that a similar question regarding electricity surcharge payable to the Rajasthan State Electricity Board has already been called for by this court in I.T.C. No. 18 of 1991 relevant to the assessment year 1981-82. Accordingly, in our opinion, the aforesaid question is also a question of law and referable to this court for its opinion.

8. In the result, we direct the Tribunal to refer questions Nos. 1, 2, 3 and 6 to this court along with a statement of case for its opinion. The petition stands allowed to the extent indicated above.