Income-tax---

----Reference---Revision---Income---Construction of hotel---Tribunal whether-correct in holding that assessee was original promoter of hotel---Amounts received by assessee whether advances for assigning commercial spaces to' customers---Tribunal whether justified in cancelling order of revision-- Questions of law---Indian Income Tax Act, 1961, Ss.256 & 263.

Held, that the questions whether the Tribunal was correct in observing that the assessee was an original promoter of the hotel project and the -director of the assessee-company; whether the amounts received were mere advances in consideration of the accommodation agreed to be given to the customers and not as mere deposit and whether the Tribunal was justified in cancelling the revision order of the Commissioner of Income-tax under section 263 of the Income Tax Act, 1961, were questions of law.

CIT v. Bazpur Cooperative Sugar Factory Ltd. (1988) 172 ITR 321 (SC) ref.

Sanjiv Khanna for the Commissioner.

B.B. Ahuja for the Assessee.

JUDGMENT

Heard finally.

This is a petition under section 256(2) of the Income-tax Act, 1961, seeking a mandamus to the Income-tax Appellate Tribunal to draw up a statement of case and refer the following questions of law (referable to the assessment year 1983-84) for the opinion of the High Court:

"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is correct both on facts and in law in:

(a) Cancelling the order, dared March 25, 1988, passed by the Commissioner of Income-tax under section 263 of the Income Tax Act, 1961, by holding that the amounts received by the assessee to the extent of 2.5 percent. of the deposits made by the customers did not have the character of income to be assessable under the Income Tax Act, 1961, during the relevant accounting period and were merely the 'deposits' received under an. executory contract, while the facts and circumstances of the case show---

(i) The real nature of the receipts was not that of deposit;

(ii) That the amounts to the extent of 25 percent. of the deposits were received by the assessee by virtue of and in terns of its agreement, dated June 18, 1981, with Bharat Hotels Ltd. and the receipts had no relation, whatsoever, with the said executory contract between assessee and the prospective customers of the commercial space being built by Bharat Hotels Ltd. The fact remains that the assessee received such amounts at 25 percent. of the deposits from Bharat Hotels Ltd. as per the agreement with them even in respect of deposits directly collected by Bharat Hotels Ltd.;

(iii) That the assessee had no licence or any other rights in the proposed building site, it having assigned the licence rights to Bharat Hotels Ltd. It neither was authorised nor it constructed any building' and, hence, the amounts collected by it were not in the nature of advance for meeting the cost of construction as held. by the Income-tax Appellate Tribunal. The fact remains that the assessee received as consideration for purchase of shops space for and on behalf of Bharat Hotels Ltd. out of which it got 25 percent. thereof;

(iv) That the finding of the Income-tax Appellate Tribunal in para. 22.0 of the order is in contradiction to its observations in paras.13 to 17 of the order, where the receipts were held to be mere advances in consideration of the accommodation agreed to be given to the customers and not as mere deposit. In any case, in the facts and circumstances of the case, these. amounts were not deposits as defined by the Supreme Court in the case of CIT v. Bazpur Co operative Sugar Factory Ltd. (1988) 172 ITR 321;

(v) That the Income-tax Appellate Tribunal is incorrect on facts in observing in para. 21 of its order that the assessee is an original promoter of the hotel project and the director of the assessee-company promoted and are substantially interested. in Bharat Hotels Ltd. and its decision is based on perverse findings of, facts;

(vi) That the subsequent event of refund of these amounts by the assessee-company to Bharat Hotels Ltd., as relied on by the Income tax Appellate Tribunal in para. 14 of its order was not relevant or material to decide the issue of accrual and arising of income and its taxability in the previous year under consideration."

Learned counsel for the Revenue pointed out that similar questions arising for decision in a connected matter relevant to the assessee, Bharat Hotels Ltd., have been referred by the Tribunal for the opinion of the High Court. A copy of the order, dated March 20, 1996 (passed in R.A. 498/DEC/95 in I.T.A. 5403/DEL/94) (assessment year 1987-88), have been made available for the perusal of the Court. '

The application has been opposed by learned counsel for the respondent-assessee submitting that the petition does not lie. Having heard learned counsel for the parties at length we are satisfied that the questions which are sought to be referred by the Revenue do arise as questions of law and from the order of the Tribunal. The Tribunal was not correct in rejecting the departmental prayer made under section 256(1) of the Act. The petition is allowed. The Tribunal shall draw up a statement of case and refer the questions stated hereinabove for the opinion of the High Court.

M.B.A./136/FCPetition allowed.