COMMISSIONER OF INCOME-TAX VS J.K. SYNTHETICS LTD., 1992 PTD-DELHI-HIGH-COURT-INDIA 1032 (1989)

(a) Income-tax---

----Reference---Business expenditure--- Insurance charges---Insurance charges disallowed in part in earlier year---Entire insurance charges whether allowable in relevant year---Question of law.

The question whether the Tribunal was correct in law and on facts in holding that there was no finding that the machinery installed in the premises of JKCM was not used for the purposes of the business and profession and there by directing the Income-tax Officer to allow full insurance charges on such machinery was question of law.

(b) Income-tax---

----Reference---Business expenditure---Disallowance---Deduction of amount disallowed in particular year---Whether valid---Question of law.

The question whether the Tribunal was correct in law and on facts in reducing the disallowance to 25% of the total expenditure of Rs.43,545 incurred under the head "Kamla Retreat expenses" when in fact the Tribunal itself, on similar facts in earlier years, had upheld the disallowance at 50% of the total expenses was a question of law.

(c) Income-tax---

----Reference---Business expenditure---Estimate of "mess expenses"---Question of fact.

The question regarding estimate of "mess expenses" was a question of fact.

C.I.T. v. J.K. Synthetics Ltd. (No.2) (1990) 181 ITR 537 (Delhi) ref.

D.K. Jain and R.N. Verma for the Commissioner. P.N. Monga for the Assessee.

JUDGMENT

KIRPAL, J.---In this petition under section 256(2) of the Income Tax Act, the Commissioner of Income-tax is seeking reference of the following questions to this Court:

"(i) Whether the Income-tax Appellate Tribunal was correct in law and on facts in holding that there is no fording that the machinery installed in the premises of JKCM was not used for the purpose of the business and profession and thereby directing the Income-tax Officer to allow full insurance charges on such machinery, when in fact the Income-tax Appellate Tribunal itself, on similar facts in earlier years, has upheld such a disallowance at 50% of the total disallowance in assessment year 1975-76?

(ii) Whether the Income-tax Appellate Tribunal was correct in law and on facts in reducing the disallowance to 25% of the total expenditure of Rs.43,545 incurred under the head Kamla Retreat expenses', when in fact the Income -tax Appellate Tribunal itself, on similar facts in earlier years, has upheld the disallowance at 50% of the total expenses?

(iii) Whether the Income-tax Appellate Tribunal was correct in law and on facts in restoring the matter regarding expenses on advertisement and publicity to the file of the Income-tax Officer for examining the matter in the light of relevant provisions of section 37(3) on the basis of the Income-tax Appellate Tribunal's order for the assessment year 1975-76 when the order for 1975-76 has not been accepted by the Department?

(iv) Whether the Income-tax Appellate Tribunal was correct in law and on facts in reducing the disallowance to 25% of the total expenses of Rs.1,68,834 incurred under the head `Mess expenses', when in fact the expenditure was incurred not on employees but through the employees for being expended on customers and outsiders?

(v) Whether the Income-tax Appellate Tribunal was correct in law and on facts in allowing the relief of Rs.27,134 out of expenses incurred on presentation to foreign business associates under the head `General charges', when in fact the assessee has not established the nexus of the said expenditure with the carrying on of its business?

(vi) (a) Whether the Income-tax Appellate Tribunal was correct in law and on facts in placing the responsibility on the Income-tax Officer for applying rules 40 and 117A of the Income Tax Rules, 1962, when the assessee had not made any application for waiver of interest under the said Rules?

(b) Whether the Income-tax Appellate Tribunal was correct in law and on facts in entertaining the ground of appeal on the point of waiver of interest under rules 40 and 117A when no appeal on the applicability or otherwise of these Rules could be entertained by it?

(c) Whether the Income-tax Appellate Tribunal was correct in law and on facts in entertaining the appeal of the assessee on the point of waiver of interest under rules 40 and 117A of the Income Tax Rules, 1962, when it was not the subject-matter of appeal before the Commissioner of Income-tax (Appeals)?"

As regards question No.(i), by our judgment in -Income-tax Case No.107 of 1987 (CIT v. J.K. Synthetics Ltd. (No.2) (1990) 181 ITR 537 (Delhi)), a similar question has been directed to be referred. For the said reason, this question is also to be referred.

Question No.(ii) would ordinarily have been a question of fact, but as the said question postulates the interpretation of an earlier order passed by the Tribunal, in our opinion, the said question should also be referred.

With regard to question No.(iii), learned counsel for the respondent states that the direction which has been issued by the Tribunal is similar to the direction which had been issued for an earlier year, namely, assessment year 1975-76, and as there was no question referred in that year, there should be no similar question referred in this year as well. We are in agreement with learned counsel and in our opinion, the question sought to be raised by the Department does not arise.

Question No.(iv) is also a question of fact and not a question of law. 1 How much expenses are to be incurred and allowed under the head "Mess) expenses" is usually an estimate and any such estimate is always a question of fact. No principle of law is involved in arriving at this estimate.

As regards question No.(v) a similar question was sought to be raised in Income-tax Case No.107 of 1987 (CIT v. J.K. Synthetics Ltd. (No.2) (1990) 181 ITR 537 (Delhi)) but, by a judgment disposing of the said petition, we have declined to refer the said question.

As regards questions Nos. (vi)(a), (b) and (c), learned counsel for the respondent states that the respondent had applied to the Income-tax Officer for waiving interest and that the application was pending at the time when the Tribunal heard the appeal. After the decision of the Tribunal, the Income-tax Officer has passed orders on the said application partly reducing the interest which was sought to be levied. In this view of the matter, these questions now sought to be raised become academic.

For the aforesaid reasons, we direct the Tribunal to state the case and refer the following two questions of law to this Court:

"(i) Whether the Income-tax Appellate Tribunal was correct in law and on facts in holding that there is no finding that the machinery installed in the premises of JKCM was not used for the purposes of the business and profession and thereby directing the Income-tax Officer to allow full insurance charges on such machinery?

(ii) Whether the Income-tax Appellate Tribunal was correct in law and on facts in reducing the disallowance to 25% of the total expenditure of Rs.43,545 incurred under the head `Kamla Retreat expenses' when in fact the Income-tax Appellate. Tribunal itself, on similar facts in earlier years, has upheld the disallowance at 50% of the total expenses?"

M.BA./1593/TReference answered.