Commissioner of Income Tax vs J.K. Synthetics

Sanjay Kishan Kaul, J.—The captioned reference pertains to the assessment year 1982-83. The reference has been made at the behest of the revenue. By virtue of the captioned reference we have been called upon to adjudicate upon the following questions of law:

Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that expenditure of Rs. 1,86,348/- incurred by the Assessee on making gifts of articles like suit lengths, shirts, tape recorders, etc. to persons with whom it had business dealings was not of the nature of entertainment and was not disallowable u/s 37(2A) of the Income Tax Act, 1961?

Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that expenditure of Rs. 60,897/- incurred by the Assessee on providing board and lodging to its customers was not in the nature of entertainment and was allowable as deduction?

Whether on the facts and in the circumstances of the case, the Tribunal was correct in holding that the liability of the Assessee towards excise duty payable to self generation of electricity was statutory in nature and the Assessee was to be allowed deduction for the liability even though it was disputing the same before the High Court?

Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that expenditure incurred by the Assessee on providing food and beverages to its employees in a guest house was not expenditure of the nature covered u/s 37(4) of the Income Tax Act, 1961?

Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the Assessee was entitled to deduction u/s 35 in respect of expenditure incurred on the acquisition of assets for scientific research on the year in which such asset were used although they were acquired in the preceding year?

In so far as question No. 1 is concerned, we are informed by learned Counsels for revenue and the Assessee that the said issue is covered in favour of the Assessee by virtue of a decision rendered in the Assessee''s own case in ITR Nos. 263-264/1986. The decision was passed by a Division Bench of this Court on 19.9.2007. Following the judgment passed in the aforementioned case the said issue is answered in favour of the Assessee.

As regards question No. 2, the Tribunal has relied upon the orders passed in the earlier assessment years, where the Tribunal has decided in favour of the Assessee. We are not informed as to whether the revenue has approached this Court by way of an appeal or reference. We take it that there is no challenge to the order of the Tribunal for the earlier assessment years. Accordingly this question is also decided in favour of the Assessee.

As regards question No. 3, it is agreed by both the counsels for the revenue and the Assessee that a similar question has been decided on 7.1.2008, in Assessee''s own case, in ITR No. 286/1987 by this Court. While passing the order in favour of the Assessee, the Tribunal has relied upon the judgment of the Supreme Court in The Kedarnath Jute Mfg. Co. Ltd. Vs. The Commissioner of Income Tax, (Central), Calcutta, We are in agreement with the view taken in ITR No. 286/1987. Accordingly, the question of law is decided in favour of the Assessee.

In so far as question No. 4 is concerned, we have taken a view in Assessee''s own case in ITR No. 367/1992. Question No. 3 in ITR No. 367/1992 is identical to question No. 4 in the captioned reference. Since a view has been taken in favour of the Assessee in ITR No. 367/1992, this question will follow the same course of action. Accordingly, the question of law is decided in favour of the Assessee and against the revenue.

In so far as question No. 5 is concerned, it is identical to question No. 2 in ITR No. 367/1992. The view taken by us in ITR No. 367/1992, in sum and substance, is that the matter would have to be remanded to the Assessing Officer for a de novo determination. In particular, the Assessing Officer is required to examine the impact of Section 35(2)(ia) of the Income Tax Act, 1961. We are of the view that the same course of action be followed in respect of this question as well. Accordingly, as regards this question, we direct the Assessing Officer to examine the matter afresh.

The reference is disposed of in terms of the observations made hereinabove.