Commissioner of Income Tax vs J.K. Synthetics Ltd. (No. 1)

B.N. Kirpal, J.—The Commissioner of Income Tax, in this petition u/s 256(2) of the Income Tax Act, 1961, is seeking an order of this court for directing the Tribunal to state the case and refer the following six questions to this court :

"(1) Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was correct in law in allowing development rebate at higher rate on machinery for manufacture of Nylon-6 yarn u/s 33(1)(b)(B)(1) of the Income Tax Act ?

(2) Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was correct in law in confirming the order of the Commissioner of Income Tax (Appeals) and allowing 50% of depreciation on the machinery installed at the premises of J. K. S. M. and P. P. Ltd. ?

(3) Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was correct in law in directing the Income Tax Officer to compute the deficiency relating to the assessment years 1973-74 and 1974-75 which is to be carried forward and set off u/s 80J(3) of the Income Tax Act even though the Hon''ble Supreme Court has stayed the assessment proceedings for these years ?

(4) Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was correct in law in confirming the order of Commissioner of Income Tax (Appeals) and deleting the amounts of Rs. 1,00,590. being interest u/s 216 levied by the Income Tax Officer ?

(5) Whether, on the facts land in the circumstances of the case, the Income Tax Appellate Tribunal was correct in law in confirming the order of the Commissioner of Income Tax (Appeals) and arriving at the conclusion that the amounts received by the assessed-company as security deposit for cops were not an integral part of the transaction of sale of yarn ?

(6) Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was correct in law in deleting the addition of Rs. 70,50,000 made by the Income Tax Officer on account of excessive waste of yarn ?"

With regard to question No. 1, we find that though the same may have been regarded as a question of law, the Supreme Court in Commissioner of Income Tax, Bombay Vs. Nirlon Synthetics Fibres and Chemicals Ltd., and J.K. Synthetics Ltd. Vs. Commissioner of Income Tax, Kanpur, has come to the conclusion that in a case like the present, the assessed would be entitled to development rebate at a higher rate as the product in question is petroChemical. In view of the aforesaid decisions, the answer to this question becomes academic and, Therefore, need not be called for.

With regard to the second question, we find that in respect of an earlier year, namely, for the assessment year 1971-72, a similar question was sought to be referred on a petition being filed by the petitioner herein before the Allahabad High Court. By judgment dated February 8, 1985, in Income Tax Application No. 242 of 1983 ( Commissioner of Income Tax Vs. J.K. Synthetics Limited, ) the Allahabad High Court did not call for a reference as, in its opinion, the said question was a question of fact. We are in respectful agreement with the said view and, Therefore, no reference is called for on this point.

In respect of the years 1973-74 and 1974-75, the assessment proceedings have been stayed by the Supreme Court. The question which arose in the present case in respect of the assessment year 1975-76 was regarding computation of deficiency with regard to section 80J(3) of the Act. The Income Tax Appellate Tribunal has held that the said computation will be made only after the assessments for the years 1973-74 and 1974-75 have been completed. This being so, there can be no grievance on behalf of the Commissioner of Income Tax. No direction is, Therefore, being issued directing the Tribunal to refer question No. 3.

The respondent had filed an estimate of advance tax which was lower than the income which was assessed. The Income Tax Officer passed an order levying interest u/s 216 of the Act. The assessed contended that the underestimate was not for any mala fide reason. The Tribunal accepted this contention of the assessed and held that no interest u/s 216 could be levied. The Department is seeking orders from this court to direct the Tribunal to refer the aforesaid question No. 4.

It is contended by Shri Jain that the Supreme Court in Central Provinces Manganese Ore Co. Ltd. Vs. Commissioner of Income Tax, has dealt with the interpretation of sections 215 and 217 and section 273 of the Act. Learned counsel submits that like section 215 and section 217, the provisions of section 216 also deal with the levy of interest and the ratio of the decision of the Supreme Court in the aforesaid case would apply. On the other hand, learned course of the respondent submits that this court in ITC No. 157 of 1980 in the case of Commissioner of Income Tax Vs. Jay Engineering Works Ltd., came to the conclusion that such a question is a question of fact and should not be referred.

In our opinion, the Tribunal was wrong in coming to the conclusion that the aforesaid question should not be referred. The question as to whether the underestimation was deliberate would, undoubtedly, be a question of fact. In Commissioner of Income Tax Vs. Jay Engineering Works Ltd., , the question of law which was sought to be referred was whether the Tribunal was right in coming to the conclusion that the underestimation of the income was deliberate or not. Assuming that the estimate was made bona fide, the question would still arise that if there is a shortfall between the income assessed and the estimate filed, whether the provisions of section 216 will apply or not. The] question involves the interpretation of section 216 to a given set of facts. The interpretation will turn essentially on the meaning to be given to the word "may" in section 216. It will have to be decided whether the word "may" is to be interpreted as "shall" or not. In our opinion, the said question should be referred.

With regard to the fifth question also, we find that the Tribunal was wrong in coming to the conclusion that no question of law arose Counsel for the Department had cited a number of decisions before the Tribunal which have not been dealt with by the Tribunal and the Tribunal had merely founded its decision on the basis of the treatment which was given to the said receipt in the accounts of the assessed. We would not like to go into the merits of this contention raised on behalf of the Department. But, we are of the firm opinion that the aforesaid question sought by the petitioner is a question of law.

The sixth question which was sought to be referred relates to an addition which had been made by the Income Tax Officer on account of excess wastage of yarn. It is contended by learned counsel for the petitioner that a similar question has been referred at the instance of the Allahabad High Court. We, however, find that the Income Tax Appellate Tribunal, in his particular case, has referred to the wastage in the earlier years land has found as a fact that the wastage in this year is not excessive. This finding is essentially a finding of fact and no principle of law is involved in this. We do not find any ground for calling for a reference of this question.

For the aforesaid reasons, the petition is partly allowed. The Income Tax Appellate Tribunal is directed to state the case and refer to this court the following two questions of law :

"Whether, on the facts and in the circumstances o the case, the Income Tax Appellate Tribunal was correct in law on confirming the order of the Commissioner of Income Tax (Appeals) and deleting the amount of Rs. 1,00,590 being interest u/s 216 levied by the Income Tax Officer ? and

Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was correct in law in confirming the order of the Commissioner of Income Tax (Appeals) and arriving at the conclusion that the amounts received by the assessed-company as security deposit for cops were not an integral part of the transaction of sale of yarn ?"

The petition is disposed of. There will be no order as to costs.