Commissioner of Income Tax vs Doongaji and Co.

B.A. Khan, J.—Revenue has filed this application u/s 256(2) of income tax Act for calling the statement of case from the Tribunal, Indore, on the following questions : 1. Whether, on the facts and in the circumstance of the case, the Tribunal was justified in treating the bottle used in liquor business as plant?

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in treating the assessee as owner of the bottles used in its business though the ultimate ownership of bottles rest with the Government of MP?

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in treating surplus in bottle deposit account as belonging to the customers and is not taxable income of the assessee?

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in allowing the claim of retrenchment compensation though there was no retrenchment of workers or closure of business?

The assessee is engaged in manufacturing of liquor. It was granted manufacturing licence from 1-4-1975 to 31-3-1979. Prior to the expiry of its licence period it issued a notice of retrenchment to its employees on 1-12-1977, and informed them that their employment term was coming to an end by 31-3-1978, and that they could claim the retrenchment compensation by 30-3-1978. It, accordingly, claimed retrenchment compensation of Rs. 48,941 for the assessment year 1978-79. But meanwhile assessee''s licence was extended on 28-3-1978, up to 31-3-1981, and resultantly its employees continued in employment after 31-3-1978. Noticing this, the Assessing Officer disallowed its claim. In appeal, the Commissioner (Appeals) concurred with the Assessing Officer by placing reliance on a Supreme Court judgment in Commissioner of Income Tax, Kerala Vs. Gemini Cashew Sales Corporation, Quilon, Revenue took appeal to Tribunal and succeeded. The Tribunal drew support from the Punjab & Haryana High Court judgment in Ambala Cantt. Electric Supply Corporation Ltd. Vs. Commissioner of Income Tax, and held that such retrenchment notices served on the employees created a liability for the assessee and allowed the claim.

Assessee also claimed allowance of Rs. 72,990 as profit from surplus in bottle deposit account and also 100 per cent depreciation on bottles purchased during the relevant assessment year. While the Commissioner (Appeals) rejected the claim, the Tribunal allowed these by placing reliance on Commissioner of Income Tax, Lucknow Vs. Bazpur Co-operative Sugar Factory Limited, and judgment of the Andhra Pradesh High Court in Commissioner of Income Tax Vs. Sri Krishna Bottlers Pvt. Ltd., .

The revenue felt dissatisfied and asked for a reference on the stated questions of law extracted hereinabove, but the Tribunal rejected the application. That is how we are seized of the present application u/s 256(2).

It was submitted by the revenue''s counsel that a mere retrenchment notice would not entitle the assessee to any deduction allowance in the circumstances when services of employees were in fact not terminated, or the business closed. Similarly, any security deposit received in lieu of the liquor bottles from the retailers could not be treated as income at the hands of such retailers merely because they were required to return such bottles and to take back their money. On hearing the learned counsels for parties and after going through the various judgments cited, it transpires that question Nos. 1 and 2, being covered by judgments of various High Courts do not give rise to any new question of law and are not required to be referred to this Court. The other two questions ( Nos. 3 and 4) are, however, referable in view of the distinction drawn by the Tribunal in the Supreme Court judgments on points in issue. We, accordingly, deem it appropriate to require the Tribunal to draw the statement of the case on these two questions and refer them to this Court for opinion. The application is allowed to that extent.