J.K. Synthetics Ltd. vs Commissioner Of Income Tax
1997 Latest Caselaw 178 Del

JUDGMENT

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 1983-84 : "WHETHER,on the facts and in the circumstances of the case, the learned It at was correct in law in, 1. holding that the expenditure of Rs. 2,74,787.00 under the head 'Charges General', is in the nature of entertainment expenditure? 2. holding that the expenditure of Rs. 77,333.00 under the head 'Charges General', is not admissible, when the details of the same were furnished before the lower authorities? 3. holding that expenses of Rs. 5,000.00 on project report, project which was finally abandoned, is a capital expenditure? 4. holding that expenditure of Rs. 14,14,533.00 incurred for prospecting of mines for raw material to manufacture cement, is a capital expenditure? 5. holding that fees amounting to Rs. l,50,000.00 paid to Registrar of Companies, for increase in Authorised Capital of the company, is capital expenditure? 6. upholding the disallowance of Rs. l,27,431.00 out of rates and taxes? 7. upholding the disallowance of Rs. 40,03,000.00 being provision on account of rebates and discounts on sales of the year under consideration on the ground that the same is a contingent liability? 8. confirming the disallowance of Rs. I lac out of mess expenses?"

(2) We have examined the questions proposed and also heard the 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 passed by the Tribunal out of which the aforesaid questions of law are stated to have arisen.

(3) Question No. 1 relates to expenditure of Rs. 2,74,787.00 under the head 'Charges General'. The Tribunal while disposing of the appeal has held that most of the aforesaid expenditure is for boarding and lodging in the Guest Houses. The Tribunal gave a categorical finding that the aforesaid expenses are in the nature of entertainment expenditure. In our considered opinion, the aforesaid finding of the Tribunal is a finding of fact and no question of law arises therefrom.

(4) Question No. 2 relates to expenditure of Rs. 77,333.00 under the head 'Charges General'. The Tribunal held that in absence of details of this expenditure, it was difficult to hold that they are really eligible for deduction of the aforesaid amount. In view of the aforesaid finding recorded by the Tribunal, it is also not possible for us to hold that any question of law arises therefrom.

(5) In respect of Question No. 3, the assessee assailed the findings of the Tribunal to the effect that expenses of Rs. 5,000.00 on project report in respect of the project which was finally abandoned is a capital expenditure. The question, therefore, that arises is whether the aforesaid expenditure incurred by the assessee on a project report was in the nature of a capital expenditure or revenue expenditure. In our considered opinion, whether the present expenditure was capital or revenue in nature itself gives rise to a referable question. Accordingly, we direct that the aforesaid question may be referred to this Court for its opinion.

(6) Question No. 4 raised by the assessee relates to expenditure incurred by the assessee amounting Rs. 14,14,533 .00 for prospecting of mines for obtaining raw- materials to manufacture cement. The findings of the Tribunal in respect of the same is that the said expenditure is a capital expenditure. On the other hand, according to the assessee, the said expenditure is in the nature of revenue expenditure. Whether a particular expenditure is a revenue expenditure or capital expenditure is a question of law and, therefore, we hold that the aforesaid question also gives rise to a referable question. The same accordingly, may also be referred to this Court for its opinion.

(7) According to the Counsel for the assessee, question No. 5 is also a pure question of law. The said question relates to fees amounting to Rs. l,50,000.00 paid to the Registrar of Companies for increase in authorised capital of the Company, which was held to be a capital expenditure by the Tribunal. The aforesaid question appears to be covered by the decision of this Court in the case of Bharat Carbon and Ribbon Mfg. Co. Ltd. v. Cit reported in 127 Itr 239, wherein, it was held that the assessee is not eligible to treat this as a revenue expenditure. In view of the aforesaid decision, we do not consider that this question gives rise to any question of law.

(8) Question No. 6 relates to disallowance of Rs. 1,27,431.00 out of rates and taxes. On careful perusal of the order of the Tribunal, we find that no referable question of law arises from the order of the Tribunal and we decline to refer the same.

(9) Question No. 7 relates to disallowance of Rs. 40,03,000.00 being provisions on account of rebates and discounts on sales of the year under consideration on the ground that the same is a contingent liability. The Tribunal has held that the rebates and discounts were not granted in the year under consideration. The aforesaid finding of Tribunal is purely a finding of fact in our opinion, no question of law arises therefrom.

(10) 10. In respect of Question No. 8 similar question raised by the assessee in Itc 157/1992 was rejected by this Court as question of fact. We see no reason to take a different view from the aforesaid view taken by this Court in Itc No. 157/1992 and in our opinion, the same is a question of fact and no question of law arises therefrom.

(11) In the result, we direct the Tribunal to refer question Nos. 3 and 4 to this Court along with a statement of case for its opinion. The petition stands allowed to the extent indicated above.