COMMISSIONER OF INCOME-TAX VS UPPER INDIA STEEL MANUFACTURING AND ENGINEERING CO. (P.) LTD.
1999 P T D 2190
[227 I T R 255]
[Punjab and Haryana High Court (India)]
Before Ashok Bhan and T. H. B. Chalapathi, JJ
COMMISSIONER OF INCOME-TAX
Versus
UPPER INDIA STEEL MANUFACTURING AND ENGINEERING CO. (P.) LTD.,
I. T. C. No. 186 of 1994, decided on 01/05/1996.
(a) Income-tax---
----Reference---Special deduction---New industrial undertaking---Whether Tribunal right in allowing deduction ignoring manipulation of values of inter-unit transfers---Question of law---Indian Income Tax Act, 1961; Ss.80-1 & 256(2).
(b) Income-tax---
----Investment deposit account---"Eligible business or profession" ---Whether expression means entire business and not restricted to unit put to operation in the year---Question of law---Indian Income Tax Act, 1961, Ss.32AB(2) & 256(2).
The assessee carried on the business of manufacture and sale of alloy steel and had four divisions. The ingots/billets produced by it were mainly used in its own rolling mills. It also made certain additions to plant and machinery during the year. The Tribunal followed its earlier order, allowed the claims of the assessee under sections 80-I and 32AB(2) of the Income Tax Act, 1961, and declined reference. On a petition under section 256(2) of the Income Tax Act, 1961, seeking a direction to make a reference:
Held, that whether the Tribunal was right (1) in allowing deduction under section 80-I ignoring manipulation of the values of inter-unit transfers; and (2) in holding that section 32AB(2) does not restrict it to the unit put into operation or started in the year but "eligible business" means the entire business carried on by the assessee were referable questions of law.
The fact that the Revenue did not claim reference in earlier years did not debar it from claiming reference if a question of law arose.
Interpretation of a provision of the Act would be a question of law.
R. P. Sawhney, Senior Advocate and Sanjay Goel for Petitioner.
A. K. Mittal for Respondent.
JUDGMENT
This petition under section 256(2) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), has been filed by the Commissioner of Income-tax (Central), Ludhiana (hereinafter referred to as "the Revenue"), for issuance of a mandamus directing the Income-tax Appellate Tribunal, Chandigarh (hereinafter referred to as "the Tribunal"), to refer the following questions of law which arise from the order of the Tribunal for the opinion of this Court:
"(i) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is legally correct in applying its decision for the assessment year 1983-84 on the question of deduction under section 80-I of the Income-tax Act when the facts in the year under consideration are different from those in the assessment year 1983-84?
(ii) Whether on the facts and in the circumstances of the case, the Income-taxAppellate Tribunal was right in law in allowing deduction under section 80-I as claimed by the assessee ignoring the fact that by manipulating the values of inter-unit transfers, the assessee had inflated the profits of the units eligible for deduction under section 80-I of the Income-tax Act?
(iii) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that subsection (2) of section 32AB which defines 'eligible business or profession' does not restrict it to be the unit put to operation or started in the year but means the entire business carried on by the assessee?"
Shortly stated, the facts are:
The respondent-assessee (hereinafter referred to as the assessee) is engaged in the business of manufacture and sale of alloy steel of various sizes and quality. The assessee filed its return for the assessment year 1987-88 on October 30, 1987, showing a total income of Rs.50,49,330. The assessee company bas the following division/units:
"(i) Unit No. I having 2 are furnaces of 5 ton each and 3 rolling mills.
(ii) Unit No. II having one furnace of 5 ton capacity and one rolling mills.
(iii) Special steel division having:
(a) 'S' furnace with 15 ton capacity.
(b) 'T' furnace with 15 ton capacity.
(iv) Industrial gases division. It produces oxygen gas."
The assessee's main product in open market sale in such as flats and bars. The ingots/billets produced by the furnaces are primarily used by the assessee in its own rolling mills. It is clear from the following sales figures of the assessee during the year:---
| "Item of sale | Total quantity | Value | Rate per ton (Rs.) |
| Steel ingots/billets | 321.845 | 16,54,213 | 5,140 |
| Flats, rounds, etc. | 34,959 | 2764,01,249 | 7.90 |
The assessee maintained separate account books for each unit. The assessee claimed deduction under section 80-1 at Rs.31,84,420 as per details given below:
| | Name of unit | Gross income | Deduction |
| i | Unit No.II | 41,73,720 | 10,43,430 |
| ii | Industrial gases division | 4,55,880 | 1,13,970 |
| iii | Special steel division (furnace'S' and concast) | 81,08,080 | 20,27,020 |
| iv | Special steel division (furnace 'T') | Loss | Nil. |
During the course of assessment proceedings it was seen that the assessee has arranged the valuation of its inter-unit transfer in such a manner that more than 80 per cent of the- profits have been shown to accrue in the production of ingots/billets only and less than 20 per cent of the profits have been shown accruing to its rolling activities. Further examination of books of account revealed that the assessee was showing the stock transfer of ingots/billets from its "S" and "T" furnace to these rolling mills unit at the rate of Rs.6,102 per ton and Rs.6,157 per ton, respectively, as against the sale of 322 ton of ingots/billets in the local market at the rate of Rs.5,140 per ton only. The Assessing Officer held that the assessee was manipulating the value of inter-unit stock transfer with a view to showing excess profit in its furnaces, as these were the units in which it was mainly claiming deduction under section 80-1 of the Act. After detailed discussion and by invoking the provisions of section 80-I(9), the deduction was allowed at Rs.10,66,176 as against Rs.31,84,420 claimed by the assessee by re-computing the profits in respect of the units eligible for such deduction.
During the year under consideration, the assessee-company had made additions to plant and machinery amounting to Rs.1,13,46,600 which was on account of erection and installation of a new furnace, namely, "T" furnace. Deduction under section 32AB was claimed by the assessee on account of installation of new machinery at Rs.36,61,952. This claim was worked out at the rate of 20 per cent. of the aggregate profits of all the units shown at Rs.1,83,07,958. It was held that according to section 32AB the deduction is available to the assessee having income from eligible business or profession and as there was no income from the eligible business in which new machinery was installed, the assessee's claim under section 32AB was disallowed.
Aggrieved against the order of the Assistant Commissioner of Income-tax, the assessee filed an appeal before the Commissioner of Income-tax (Appeals), Ludhiana, who vide its order, dated January 15, 1991, allowed, as agreed to by. the assessee, deduction under section 80-I at Rs.26,64,937 as against Rs.10,66,176 allowed by the Assessing Officer and Rs.31,84,420 claimed by the assessee. The Commissioner of Income-tax (Appeals) further allowed deduction under section 32AB as claimed by the assessee holding that eligible business has to be seen as a whole and it does not mean the newly started unit only.
The Revenue not being satisfied with the order of the Commissioner of Income-tax (Appeals) filed a second appeal before the Income-tax Appellate Tribunal. The assessee-company also filed its cross-objections. The Tribunal, while dismissing the Departmental appeal, held that the assessee's claim under section 80-I was covered by the Tribunal's order dated March 5, 1992, in the assessee's own case for the assessment year 1983-84. The Tribunal observed that right from the assessment years 1976-77 to 1984-85, the assessee had been allowed relief under section 80-I(6B) on the basis of a certain formula which was the choice of the Revenue. It was noted that the provisions of section 80-I(6B) were in pari materia with the provisions of section 80-I(8) and so the relief could not be less than what was allowed in the earlier years. After examination of the provisions of section 32AB the assessee was found entitled to the relief claimed and the Tribunal upheld the finding recorded by the Commissioner of Income-tax (Appeals). The Revenue being aggrieved against the order passed by the Tribunal filed a petition under section 256(1) of the Act requesting the Tribunal to refer the questions of law reproduced in the earlier part of this judgment to this Court for its opinion. The Tribunal refused to refer questions Nos.(i) and (ii) by holding that the matter had been decided by the Tribunal on the basis of the Tribunal's order for the earlier years against which no reference application had been filed and that the matter had been decided on the basis of a formula accepted by the Revenue in the past. Question No. (iii) was declined by holding that the decision of the Tribunal was based on a correct interpretation of law.
Counsel for the parties have been heard.
In our considered view, the Tribunal has clearly erred in its approach. Simply because the Revenue did not claim reference for the earlier years would not debar the Revenue from claiming the reference if a question of law arises from the order of the Tribunal. The Revenue in the earlier years may not have claimed reference for a variety of reasons including that the tax effect for that year was very little. The question of law may be claimed for the subsequently years because of a later interpretation put by another High Court on the same or similar provisions of law. The Tribunal has not held that the question of law does not arise from the order of the Tribunal. There is no judgment of either the apex Court or the jurisdictional High Court in this matter. Questions Nos. (i) and (ii) overlap and counsel for the parties stated that only question No. (ii) be sent for as the said question will cover question No.(i) as well.
So far as question No. (iii) is concerned, the Tribunal itself has found that its decision was based on a correct interpretation of law. In a way the Tribunal has conceded that question No. (iii) is a question of law but refused to refer the question on the ground that the decision of the Tribunal was based on the correct interpretation of law. Question No. (iii) is on the. interpretation of subsection (2) of section 32AB. The interpretation of a provision of the Act would be a question of law there being no authoritative pronouncement on this point of this Court or of the Supreme Court of India. The Tribunal has wrongly declined to refer the same to this Court for its opinion.
In our opinion, questions Nos.(ii) and (iii) arise from the order of the Tribunal and we accordingly direct the Tribunal to refer questions Nos.(ii) and (iii) reproduced in the earlier part of this judgment to this Court alongwith the statement of case for its opinion. No costs.
M.B.A./2054/FC Order accordingly