Commissioner of Income Tax vs Blaze Advertising (Delhi) (P) Ltd.

S.B. Sinha. J.

Income Tax Appellate Tribunal (hereinafter referred to as the Tribunal) has referred the following question of law for the opinion of this court :

"Whether, on the facts and in the circumstances of the case, the Tribunal is legally correct in allowing the expenditure of Rs. 18,823 incurred prior to the accounting period relevant to the assessment year 1974-75 in computing taxable income for assessment year 1974-75 ?

Mr. Aggarwal, learned counsel appearing on behalf of the assessed, raised two preliminary objections in the matter. Learned counsel would contend that in the absence of the order of the Tribunal, passed u/s 254 of the Income Tax Act, 1961, the court cannot effectively answer the question. In support of the said contention reliance has been placed on Commissioner of Income Tax, Bombay City-V Vs. Bombay Master Printers Association, , Mar Thoma Rubber Co. Ltd. v. CIT (1992) 64 Taxman 160 (Ker) and COMMISSIONER OF Income Tax Vs. Income Tax APPELLATE TRIBUNAL AND ANOTHER.,

He would next contend that in any event, as the amount of tax, in the event the question being answered in favor of the assessed, would only be about Rs. 13,000 and the matter has been pending for more than twenty years, in terms of the circular issued by the Board of Direct Taxes (hereinafter referred to as the Board), the matter ought not have been referred to his court for its opinion at all. In support of the said contention the learned counsel relied upon the decision of Mathew M. Thomas and Ors Vs. Commissioner of Income Tax, and Commissioner of Income Tax, Bombay Vs. Imperial Surgical Co. (Pvt.) Ltd.,

Mr. Sanjiv Khanna, appearing on behalf of the revenue, on the other hand, would submit that there does not exist any circular of the Board in terms whereof the Tribunal can be said to be refrained from making any reference for opinion of this court in exercise of its jurisdiction u/s 256(1) of the Income Tax Act (hereafter referred to as the Act). Learned counsel would contend that circulars which do not have any statutory flavour are not enforceable. Strong reliance has been placed on a decision in Janta Metal Works Vs. Income Tax Officer and Others, and a judgment in Commissioner of Income Tax, Mumbai Vs. Anjum M.H. Ghaswala and Others, .

The fact of the matter is as follows :

The assessed-company was incorporated on 22-4-1972 and closed its accounting period on 30-6-1973. It claimed Rs. 18,823 as expenses, which were not allowed by the assessing officer being not relevant to the accounting period because the accounting period of the assessed ended on 30-6-1973. The assessed went in appeal but the Appellate Assistant Commissioner confirmed the disallowance. The assessed preferred an appeal before the Tribunal who allowed the claim of the assessed. When being moved for a reference to this court, the Tribunal declined to refer the matter. The revenue moved this court on the question of law as set out above which was eventually referred for the opinion of this court.

It is not in dispute that the order of the Tribunal has not been annexed to the paper book. It is also not otherwise available on record. In the absence of the order passed by the Tribunal, which is a basic document, in our opinion, the first preliminary objection raised by Mr. Aggarwal should be upheld. The order of the Tribunal is a basic document. The questions of law which are required to be answered must be on the basis of the finding of fact arrived at finally by the Tribunal. The question which has been referred to this court for its opinion is to be, answered in the facts and circumstances of this case. For an effective answer to the said question, it is essential to know the findings of the Tribunal. This court in respect of a question of this nature must have before it all the basic materials so as to enable it to arrive at a decision as to whether the Tribunal is right or wrong in passing its order u/s 254 of the Act.

In Bombay Master Printers Association''s case (supra) a Division Bench of Bombay High Court, lamented the apathy on the part of the revenue in making the matter ready for hearing by the Tax Bench in the following terms :

"Time and again it has been pointed out by us to the learned counsel for the revenue that no attention is being paid by the department or whoever is concerned with the conduct of these references to the fact as to whether the assesses have been served and whether books have been supplied to the counsel for the assesses. Needless to say that more than 80 per cent of the Income Tax references are made at the instance of the revenue. We are now dealing with the references of 1974. They have been notified sufficiently in advance to enable proper arrangements to be made on behalf of the revenue to ensure that service has been effected on the assesses and books have been supplied to the assesses. There have been a large number of cases in which we could have declined to proceed with the matter because either the assesses are not served or books have not been supplied to the assesses. It must be said to the credit of the counsel for the assesses, who normally appear before the Tax Bench that they have tried to accommodate the revenue by taking part in the hearing at a considerable short notice and sometimes the books have been made available on the same day or on the previous day. We have, however, now reached a stage where it is impossible to show any further indulgence to the department. The only conclusion that we can reach is either that the revenue is not interested in the conduct of case proceedings in references or that no adequate arrangements have been made by the department concerned. The obvious result is that in many cases the revenue stands to suffer for which the blame must squarely fall on that part of the law department which is entrusted with the conduct of these proceedings."

Yet again in Mar Thoma Rubber Co''s case (supra) K.S. Paripoornan, J. (as His Lordship then was) observed :

"6. In question No. (e) the poser is this : When is the sale completed Ordinarily it depends upon the intention of the parties. Admittedly, there was an agreement, entered into between the parties, which would decide the issue. That is not a part of the paper book before us and we are not in a position to advert to the nature of the agreement, entered into between the parties and as to when the sale has taken place according to the intention of the parties. No material is placed before us to decide whether question No. (e) mentioned in para 8 of the Original Petition is a referable question of law. So the five questions formulated as question (a) to (e) in para. 8 of the Original Petition which alone were specified in the application filed before the Tribunal u/s 256(1) of the Act are not referable question of law."

In Karnani Properties Ltd. Vs. The Commissioner of Income Tax, West Bengal, , it was held :

"The question as to the correctness of the facts found by the Tribunal was not before the High Court nor is it before us. When the question referred to the High Court speaks of "on the facts and in the circumstances of the case," means on the facts and circumstances found by the Tribunal and not about the facts and circumstances that may be found by the High Court. We have earlier referred to the facts found and the circumstances relied on by the Tribunal, the final fact-finding authority. It is for the Tribunal to find facts and it is for the High Court and this court to lay down the law applicable to the facts found. Neither the High Court nor this court has jurisdiction to go behind or to question the statements of fact made by the Tribunal. The statement of the case is binding on the parties and they are not entitled to go behind the facts found by the Tribunal in the statement [See Kshetra Mohan Sannyasi Charan Sadhukhar v. CEPT."]

Having regard to the fact that the basic document is not before this court, we are of the opinion that it is not possible for this court to answer the reference. We, however, do not intend to lay down a law that in no case this court in a situation of this nature would decline to answer the question referred to it for its opinion. It will depend upon the fact situation obtaining in a particular case. It may, in some cases, show greater indulgence to the revenue. However, in this case not only the amount involved is small, the assessment year in question being of 1974-75, the time lag has also to be taken into account. The question now referred to this court is also not of much importance. Opinion of this court on the said question would largely depend upon the fact involved herein.

So far as the second preliminary question raised by M. Aggarwal is concerned, we are of the opinion that the same has no force.

In Imperial Surgical Co.''s case (supra), the Apex Court referred to a circular of the Central Board dated 4-3-1972. We have perused the circular dated 4-3-1972, which related to benefits and amenities or perquisites allowed by companies vis-a-vis the restriction imposed by section 40(a)(v) is substituted by section 40A(5) of the Act. The said circular has nothing to do with the power of the Tribunal to refer a question. The Apex Court therein was dealing with a question where the High Court had refused to direct the Tribunal to send statement of facts on a question, of law sent by it, inter alia, on the ground that the amount of tax involved therein was to be about Rs. 20,000 and the order of the Tribunal was based on the aforementioned circular. The court noticed that by the time judgment was rendered twenty years had elapsed and even if a direction is issued to refer the question of law the same would take several more years for getting an answer thereof, In the aforementioned situation, the court declined to exercise its jurisdiction.

In CIT v. ITAT (supra) court was dealing with a case where the Tribunal refused to refer a question, in that situation this court held that the remedy of the revenue would be to move this court under article 226 of the Constitution of India and not u/s 256 of the Act. The said decision has no application to the facts of this case.

On the other hand, in Janta Metal Works v. ITO (supra), Jeewan Readdy, C.J. as his Lordship then was, speaking for the Division Bench of Allahabad High Court, held that advertisement purported to be based on a circular issued by the Board cannot be equated to law and cannot be relied upon by the assessed to deprive the Income Tax Officer of the statutory powers vested in him by law.

In Mathew M. Thomas''s case (supra) the court was dealing with a circular which had been issued by the Board which had the force of law in terms whereof a prohibition was issued in Chapter XX-A of the Act, as introduced'' by Taxation Law (Amendment) Bill, 1971 not to invoke the provisions thereof where the value of the property was less than Rs. 5 lakhs. This is not the situation here.

The question is squarely covered by the decision of the Apex Court in CIT v. Anjum M.H. Ghaswala''s case (supra), wherein it has been held :

"It is true that by this press release the Board had interpreted the provisions of the Act in a particular manner. Be that as it may, we would like to make it clear that every clarificatory note or press release issued by the Board does not have the statutory force like the circulars issued by the Board u/s 119 of the Act. It is only those circulars issued by the Board under the provisions of section 119 of the Act will have the statutory force and will be binding on every Income Tax authorities. Therefore, the press release relied upon by Ramamurti not being a circular issued u/s 119 of the Act will not be of any assistance to the respondents in support of their contentions."

Reference in this connection may also be made to J.R. Raghupaly v. State of A.P. AIR 1988 SC 681, Union of India and Others Vs. S.L. Abbas, . The Allahabad High Court in Janta Metal Works v. ITO (supra) has held that instructions for guidance of officers do not create any legal rights or curtail the statutory powers and cannot be enforced through court. Similar observations have been made by Delhi High Court in the case of Geep Industrial Syndicate Ltd. and another Vs. Central Board of Direct Taxes and others, . Bombay High Court after discussing several judgments has also drawn distinction between procedural clarifications issued by Central Board of Direct Taxes and circulars interpreting provisions of statute (See Shakti Raj Films Distributors Vs. Commissioner of Income Tax,

Circulars issued u/s 119 of the Act stand on a different footing. The Hon''ble Supreme Court in UCO Bank, Calcutta Vs. Commissioner of Income Tax, West Bengal, has held that circulars u/s 119 are meant for ensuring proper administration of the statutes and mitigate rigours of provisions of law. These circulars are binding and enforceable against the revenue. However, when Supreme Court or High Court has declared law on a question, it is not open to the court to direct that a circular should be given effect to and not the decision (See M/s. Hindustan Aeronautics Ltd., Bangalore Vs. Commissioner of Income Tax, Karnataka- I, Bangalore,

This court in CIT v. ITAT (supra) has referred to guideline dated 4-11-1989 (sic-1987). The said guideline is not applicable to the present case as reference in this case was filed in the year 1981. However, in the said case this court did not examine the question whether the instruction dated 4-11-1989, is a circular u/s 119 or merely an internal guideline relating to procedural matter which does not confer or give any statutory right. It is very well settled that observations of the court have to be understood in the light of the questions/issues and the controversy before the court. It is not desirable and proper to pick out a word and read it as laying down a principle of law divorced from the context of subject-matter of controversy (See Commissioner of Income Tax Vs. M/s. Sun Engineering Works (P.) Ltd., .

We are thus of the opinion that there does not any circular which prohibits the Tribunal from making any reference, and, in any event, statutory right of the Tribunal to refer a case to this court for its opinion u/s 256(1) of the Act cannot be taken away by the Board by issuing, a circular or otherwise.

The second primary question raised by Mr. Aggarwal is thus devoid of any merit. However, having regard to our findings aforementioned on the first preliminary objection, we are of the opinion that in the absence of the order of the Tribunal it is not possible to answer the question referred to this court for its opinion.

We, Therefore, decline to answer the question.

The matter is disposed of accordingly.

OPEN