Commissioner of Income Tax vs Mahavir Plantations Ltd.

T.L. Viswanatha Iyer, J.—These petitions concern the assessments made on the assessee for five different assessment years 1978-79, 1979-80, 1980-81, 1981-82 and 1987-88. Various questions were raised on some of which the two members who heard the appeals originally differed and the matter was referred to a third member, who called for a report from the Income Tax Officer on some points in controversy. Eventually the Tribunal passed the order annexure ''C-2'' covering the points on which there was difference between the two members originally. Some questions arise out of the concurring order of the first two members and some out of the final order passed after the receipt of the remand report. Many of the questions are common to more than one year. We are of the opinion that some of the questions raised are questions of law arising out of the order of the Tribunal and they are liable to be referred. At the same time some questions raised are either questions of fact or covered against the Revenue by anterior decisions of this court and therefore not liable to be referred. We shall deal with those questions which are not liable to be referred first and thereafter direct reference of those questions which we feel are liable to be referred.

Question No. 2 raised in R. A. No. 238 of 1987 relating to the year 1978-79 relates to the allowance of Rs. 2,351 u/s 40A(5) of the Income Tax Act. This point stands covered against the Revenue by the decision of this court in Commissioner of Income Tax Vs. Toshiba Anand Lamps Limited, and therefore is not liable to be referred. The same question arises in the year 1979-80 also being question No. 1 in R. A. No. 240 of 1987 though the figure of disallowance is Rs. 28,446. We decline to refer this question arising for the years 1978-79 and 1979-80.

Question No. 2 in R. A. No. 239 of 1987 relating to the year 1978- 79 is the same as the second question raised in R. A. Nos. 241 and 243 of 1987. A decision on this question has been rendered by this court in COMMISSIONER OF Income Tax Vs. N. C. JOHN AND SONS LTD. (AND VICE VERSA)., against the Revenue. In view of the said decision we are not inclined to refer this question.

Question No. 3 in R. A. No. 239 of 1987 is the same as the third question in R. A. No. 241 of 1987, question No. 9 in R. A. No. 243 and question No. 5 in R. A. No. 245 of 1987. The question relates to the deductibility or otherwise of the replanting expenditure. The Tribunal has allowed the expenses relying on Rule 8(2) of the Income Tax Rules, 1962, and remitted the matter back for consideration relating to certain points mentioned. A perusal of Rule 8(2) shows that if the expenditure has been incurred for replacement of bushes that have died or become permanently useless in an area, if the area has not previously been abandoned, the expenditure is allowable. That is what precisely the Tribunal has given in this case. We do not find any substance for the question raised as the answer is self-evident. We, therefore, decline to refer this question arising in the reference application mentioned earlier.

Questions Nos. 5 and 10 in Reference Application No. 243 of 1987 relate to the question whether the assessee carrying on processing of tea is an industrial company and as to whether the blending of tea amounts to processing activity. A Bench of this court has declined to refer this question after due consideration thereof in Original Petition No. 1148 of 1994. Following the said decision, we decline to refer questions Nos. 5 and 10 in Reference Application No. 243 of 1987. Question No. 4 in Reference Application No. 245 of 1987 is also covered by the above decision. It is also therefore declined to be referred.

The first question raised in Reference Applications Nos. 239, 241, 243 and 245 of 1987, and the sole question in Reference Application No. 30 of 1993 relate to the consultancy fee paid by the assessee to one Nonsuch Tea Estate of Rs. 90,000 per quarter for the first ten years after the estate was purchased from Nonsuch Tea Estate. The contention raised by the Revenue was that this amount was really part of the consideration for the purchase and that it was not really consultancy fee liable to be allowed as revenue expenditure. The Tribunal dealt with the matter at length in its order and demonstrated how this amount could not be treated as part of the consideration for the purchase. Really the payment was made for the services rendered by the seller Nonsuch Tea Estate to the assessee during the early years for the operation of the estate. We are in agreement with the Tribunal. The Tribunal has discussed the matter from all its aspects and come to a finding of fact that the amount did not constitute part of the purchase price, but was in reality consultancy fee paid for the services rendered by Nonsuch Tea Estate. The question is essentially one of fact on which no reference is called for since the finding of the Tribunal is based on materials available on record. We decline to refer this question.

Questions Nos. 6, 7 and 8 in Reference Application No, 243 of 1987 relate to the deductibility or otherwise of the amount of Rs. 5,05,808 which was paid pursuant to the award passed by the Industrial Tribunal on January 29, 1979. This amount was claimed as business expenditure for the year 1980-81. The amount related to the bonus due from the sellers of the estate in the year 1975-76. The agreement between the seller and the assessee was that the assessee will pay whatever liabilities that were due from the seller. The amount of bonus to be paid by the seller for 1975-76 has been crystallised by the award dated January 29, 1979, and, accordingly, the payment was made. Since the amount became crystallised only during the relevant accounting period, and since the amount was one payable pursuant to the agreement between the parties, the assessee was entitled to deduct the amount as business expenditure during the year 1980-81. The Tribunal has therefore rightly found that the expenditure was liable to be allowed in 1980-81 overruling the claim of the Revenue that it ought, in any case, to be allowed only in 1975-76 and that the payment was in excess of the limits allowed u/s 36(1)(ii). The reasoning of the Tribunal is valid and it does not call for any interference. No referable question of law arises in relation to this matter.

We decline to refer question No. 3 in Reference Application No. 238 of 1987 which is the same as questions Nos. 2 and 1 in Reference Applications Nos. 240 and 242 of 1987 inasmuch as we are of the opinion that the assessee is entitled to weighted deduction in respect of the items mentioned.

We have dealt with those points on which no reference is called for inasmuch as the findings are either findings of fact or because the answer to the question is self-evident. However, we feel that the following questions do arise out of the order of the Tribunal and that they are liable to be referred to this court :

1978-79 :

"(1) Whether, on the facts and in the circumstances of the case, the bank guarantee commission of Rs. 51,883 is revenue expenditure liable to be allowed as deduction ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in allowing weighted deduction u/s 35B of 75 per cent. of the expenditure on salary and bonus and 50 per cent. of the other expenditure and motor car expenses ?

(3) Whether, on the facts and in the circumstances of the case, the assessee is entitled to weighted deduction on the interest paid on the shipping loan and in respect of a portion of the banking charges as expenditure incurred in India ?

(4) Whether, on the facts and in the circumstances of the case, the assessee is entitled to weighted deduction on the expenditure incurred on packing materials and printing and if weighted deduction is allowable whether the Tribunal was justified in allowing it on 50 per cent. on the expenses ?

(5) Whether, on the facts and in the circumstances of the case, the assessee is entitled to weighted deduction in respect of the items relating to prospect estate and warehousing charges, and that too fully in respect of warehousing charges ?

(6) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee was entitled to claim deduction of the commission paid to Tara Agencies ?"

1979-80 :

"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in allowing weighted deduction u/s 35B of 75 per cent. of the expenditure on salary and bonus and 50 per cent. of the other expenditure and motor car expenses ?

(2) Whether, on the facts and in the circumstances of the case, the assessee is entitled to weighted deduction on the interest paid on shipping loan and in respect of a portion of the banking charges as expenditure incurred in India ?

(3) Whether, on the facts and in the circumstances of the case, the assessee is entitled to weighted deduction on the expenditure incurred on packing materials and printing and if weighted deduction is allowable whether the Tribunal was justified in allowing it on 50 per cent. of the expenses ?

(4) Whether, on the facts and in the circumstances of the case, the assessee is entitled to claim deduction u/s 35B in respect of any portion of the godown rent ?

(5) Whether, on the facts and in the circumstances of the case, the assessee is entitled to claim deduction of the commission paid to Messrs. Tara Agencies and Messrs. Bhansali Brothers ?"

1980-81 :

"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in allowing weighted deduction u/s 35B of 75 per cent. of the expenditure on salary and bonus and 50 per cent. of the other expenditure and motor car expenses ?

(2) Whether, on the facts and in the circumstances of the case, the assessee is entitled to weighted deduction on the interest paid on the shipping loan and in respect of a portion of the banking charges as expenditure incurred in India ?

(3) Whether, on the facts and in the circumstances of the case, the assessee is entitled to weighted deduction on the expenditure incurred on packing materials and printing and if weighted deduction is allowable, whether the Tribunal was justified in allowing it on 50 per cent. of the expenses ?

(4) Whether, on the facts and in the circumstances of the case, the assessee is entitled to claim deduction u/s 35B in respect of any portion of the godown rent ?

(5) Whether, on the facts and in the circumstances of the case, the assessee is entitled to weighted deduction u/s 35B in respect of special chest and that too on 50 per cent. of the expenditure incurred ?

(6) Whether, on the facts and in the circumstances of the case, the assessee is entitled to claim deduction of the bonus payment in excess of the limits specified in Section 36(1)(ii) ?"

1981-82 :

"(1) Whether, on the facts and in the circumstances of the case, the assessee is entitled to weighted deduction on the commission paid by it abroad ?

(2) Whether, on the facts and in the circumstances of the case, the assessee is entitled to claim deduction of the bonus payment in excess of the limits specified in Section 36(1)(ii) ?"

The Income Tax Appellate Tribunal, Cochin Bench, shall state a case and refer the aforesaid questions of law relating to the various years for the opinion of this court u/s 256(2) of the Income Tax Act, 1961.

The prayer for reference of the other questions, which are discussed earlier is declined.

Communicate a copy of this judgment under the seal of this court and the signature of the Registrar to the Income Tax Appellate Tribunal, Cochin Bench, for information.