Taylor Instrument Company ... vs Commissioner Of Income Tax
2001 Latest Caselaw 1087 Del

JUDGMENT

Arijit Pasayat C. J.

1. The following questions have been referred for the opinion of this court under Section 256(1) of the Income-tax Act, 1961 (in short "the Act"), by the Income-tax Appellate Tribunal, Delhi Bench "D", Delhi (in short "the Tribunal"):

"(1) Whether, on the facts and in the circumstances of the case, the provisions of Section 144B are applicable and, if so, whether assessment was made beyond the period prescribed by law and as such invalid ?

(2) Whether, on the facts and in the circumstances of the case, the liability towards gratuity amounting to Rs. 2,02,181 is allowable as an expenditure ?

(3) Whether, on the facts and in the circumstances of the case, the development rebate is allowable in respect of loose tools where individual items of loose tools cost less than Rs. 750 and was allowed as a revenue expenditure ?

(4) Whether, on the facts and in the circumstances of the case, the commission receipts of Rs. 88,950 should be treated as profits and gains attributable to priority industry carried on by the company, for the purpose of Section 80I of the Income-tax Act, 1961 ?

(5) Whether, on the facts and in the circumstances of the case, the surtax liability under the Companies (Profits) Surtax Act, 1964, is an allowable deduction in the computation of total income under the Income-tax Act, 1961 ?"

2. The dispute relates to the assessment year 1972-73.

3. The factual position in a nutshell is as follows :

The assessed a public limited company was, at the relevant point of time, engaged in the manufacture of process control instruments. It filed its return on July 31, 1972, on an estimate basis. The return was revised on September 1, 1972, and was further revised on January 21, 1975. The assessment was completed ex parte under Section 144 on November 29, 1975. The ex parte assessment was cancelled and reopened under Section 146 by order dated December 15, 1975. A draft assessment order was made on March 30, 1977, and the same was sent to the Inspecting Assistant Commissioner (in short "the IAC"), under Section 144B. The said authority gave instructions on September 25, 1977, and the assessment was completed on September 26, 1977. The assessed challenged the validity of the assessment on the ground that the provisions of Section 144B would not be applicable to an assessment made on reopening of the ex parte assessment and as a consequence the period of limitation prescribed was over. The Income-tax Officer as well as the first appellate authority, i.e., Commissioner of Income-tax (Appeals) (in short "the CIT(A)"), rejected the assessed's plea. The matter was carried before the Tribunal which also rejected the assessed's plea. Before the Tribunal also there was a ground taken regarding allowance of gratuity liability in terms of Section 40A(7) of the Act. On that aspect the Commissioner of Income-tax (Appeals) observed that there was no statutory liability in the assessment year in question to pay gratuity to the employees. The assessed's stand was that on the basis of contractual liability the amount was payable. The Commissioner of Income-tax (Appeals) required the assessed to substantiate the stand by production of (a) gratuity scheme,

(b) terms and conditions under which the employees were engaged by the assessed, (c) particulars of the scale of gratuity on the basis of which the contractual liability, if any, was undertaken and the scale on the basis of which a provision was made, and (d) actuarial valuation of the incremental gratuity liability relating to the year. The assessed did not submit any particulars. The Commissioner of Income-tax (Appeals) noticed that the assessed itself had written back to the revenue account the provisions in the years ended on March 31, 1974 and March 31, 1975. The Commissioner of Income-tax (Appeals) therefore held that the claim was really not based on any legally enforceable contractual liability. The matter was carried before the Tribunal. Before the Tribunal no material could be placed to substantiate the claim and accordingly the Tribunal upheld the disallowance. One of the disputes raised before the Tribunal was whether development rebate could be granted in respect of loose tools where the individual item costs less than Rs. 750. The assessed contended that though loose tools were individually valued at less than Rs. 750 it was entitled to development rebate. This contention was rejected by the authorities on the ground that the expenditure had been allowed as repairs and consequentially it was revenue expenditure. Therefore, the question of allowing development rebate did not arise. Another question which was raised related to surtax liability. The assessed claimed surtax liability as deduction while computing the total income. The assessed's stand was not accepted and it was held that the surtax liability was not an allowable deduction while computing the total income. Another question which was raised before the Tribunal related to the computation for the purpose of deduction under Section 80I of the Act. The assessed's stand was that commission receipts of Rs. 88,950 were to be treated as profits and gains attributable to priority industry. Here again the Tribunal held that the commission was not to be treated as profits and gains attributable to priority industry, and therefore, was not to be taken into account for the purpose of working out benefit under Section 80I of the Act. On being moved for reference, the questions as set out above have been referred for the opinion of this court.

4. We have heard learned counsel for the Revenue. There is no appearance on behalf of the assessed in spite of notice.

5. According to learned counsel for the Revenue all the questions have been determined factually keeping in view the relevant provisions in law and therefore the questions have to be answered in favor of the Revenue.

6. So far as the first question is concerned, the view expressed by the apex court in R. Dalmia v. CIT [1999] 236 ITR 480, is dearly applicable to the facts of the case. In view of the said decision, the answer to the question is in the affirmative, in favor of the Revenue and against the assessed. So far as the second question is concerned, in view of the factual findings recorded by the Tribunal to which we have referred above, the conclusions are essentially

factual giving rise to no question of law. Therefore, we decline to answer the question. So far as the third question is concerned, the conclusions of the Tribunal are in order. The cost was allowed as revenue expenditure. In that view of the matter, no question of law arises. Therefore, we decline to answer the question. So far as the fourth question is concerned, in view of the decision of this court in Taylor Instrument Co. (India) Lid. v. CIT [1992] 198 ITR 1, in the assessed's own case for the assessment year 1969-70, the answer to the question is in the negative, in favor of the Revenue and against the assessed. So far as the fifth question is concerned, the same is covered by the decision of the apex court in Smith Kline and French (India) Ltd. v. CIT [1996] 219 ITR 581. The answer to the question is in the negative, in favor of the Revenue and against the assessed.

7. Reference is disposed of accordingly.