Commissioner of Income Tax vs Dharamsi Morarji Chemicals Co. Ltd.

S.C. Dharmadhikari, J.—This appeal of the Revenue challenges the order of the Income-tax Appellate Tribunal, Mumbai Bench, dated October 6, 1999. The assessment years in this case are 1986-87 and 1987-88. This court, while admitting the appeal, did not formulate any substantial question of law. The law mandates such formulation and independent of what has been termed as a substantial question by the parties. This court has passed the order recording that the questions at pages 4, 5 and 6 are treated as substantial questions of law.

Those questions are reproduced here in below:

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in directing the Assessing Officer to compute the disallowance as per rule 3 in respect of ascertaining the perquisite value on account of motor car?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in directing the Assessing Officer not to exclude from the profits and gains items of other income while working out the deduction under section 80-I?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in confirming the order of the Commissioner of Income-tax (Appeals) that the expenditure incurred by the assessee is not in the nature of advertisement and no disallowance under rule 6B can be made?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in confirming the order of the Commissioner of Income-tax (Appeals) that the premium of group insurance policy should not be considered as salary or perquisite for disallowance under section 40A(5)?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in confirming the order of the Commissioner of Income-tax (Appeals) allowing the assessee''s claim for production incentives?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in confirming the order of the Commissioner of Income-tax (Appeals) of deleting the addition made by the Assessing Officer on account of ex gratia payments made to the retiring employees?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in confirming the order of the Commissioner of Income-tax (Appeals) directing the Assessing Officer not to include depreciation on guest house while computing the disallowance under section 37(4)?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in confirming the order of the Commissioner of Income-tax (Appeals) directing the Assessing Officer to allow investment allowance under section 32A in respect of the 10 items though the same were not used directly for manufacturing activities?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in confirming the order of the Commissioner of Income-tax (Appeals) allowing the higher rate of investment allowance of 35 per cent on machineries installed for the purpose of manufacturing sulphuric acid?"

The matter is pretty old and has a chequered history. Very few facts are required to be noted so as to dispose of this appeal. The assessee before us is the manufacturer of chemicals. A return of income was filed showing the income of Rs. 26,58,080. That was filed on the 31st July, 1987. The Assessing Officer sought revised computation and after requisite notices were issued proceeded to scrutinize the return. He made several additions and disallowances. Being aggrieved, the assessee approached the Commissioner in appeal and the Commissioner of Income-tax passed a detailed order partly allowing the appeal. That order of the Commissioner delivered on August 8, 1991, came to be challenged by the assessee as also the Revenue before the Tribunal. The Tribunal''s detailed order thus covered the nine questions which we have reproduced above.

We are not required to go into the detailed facts simply because it is admitted that the recording thereof in the orders passed by the authorities is accurate and correct. We could not have proceeded otherwise. The paper books are not prepared in appeals and which have been filed as long as 14 years back. We are not aware whether the Tribunal has in any manner preserved the old records so as to enable preparation of paper books by the Registry. In these circumstances we have not allowed the parties to controvert the factual conclusions reached in the impugned orders.

The compilation tendered by Ms. Vasanti Patel, appearing for the respondent, is taken on record.

As far as the first question and which we have reproduced above, it is fairly conceded by Mrs. Vasanti Patel, appearing on behalf of the assessee, that there is a judgment in the field, namely, of Commissioner of Income Tax, Bombay City-III, Bombay Vs. British Bank of Middle East, AIR 2001 SC 3343 : (2001) 170 CTR 1 : (2001) 251 ITR 217 : (2001) 7 JT 88 : (2001) 5 SCALE 592 : (2001) 8 SCC 214 : (2001) 118 TAXMAN 461 : (2001) AIRSCW 3188 : (2001) 6 Supreme 532 . That is the judgment of the hon''ble Supreme Court and directly on the point. Since that covers the issue or question against the assessee and in favour of the Revenue, we hold accordingly.

As far as the second ground is concerned, what we have noted from the Tribunal''s order and equally from the Commissioner''s order is that the same pertains to the exclusion from the profits and gains items of other income while working out the deduction under 80-I of the Income-tax Act, 1961. Mr. Pinto placed reliance upon the judgment of the hon''ble Supreme Court in Commissioner of Income Tax, Karnataka Vs. Sterling Foods, Mangalore, AIR 1999 SC 2036 : (1999) ECR 481 : (1999) 108 ELT 3 : (1999) 237 ITR 579 : (1999) 3 JT 227 : (1999) 2 SCALE 678 : (1999) 4 SCC 98 : (1999) 2 SCR 699 : (1999) AIRSCW 1746 : (1999) 4 Supreme 172 . He would submit that the Tribunal has failed to note that under section 80-I deduction is permissible only if the profits and gains are derived from the industrial undertaking. Therefore, it is required and in all such cases to establish as to how the same are derived from the industrial undertaking. In the present case, the Tribunal made no reference, save and except to the items and details, namely, income from scrap sales. However, other items or details, namely, despatch money and excess provision for the earlier years is not something derived from the industrial undertaking and its profits or gains and that has not been elaborated in the Tribunal''s order.

We are unable to agree with Mr. Pinto for more than one reason. In paragraph 10 of the order of the Tribunal there is a reference to the assessee''s argument. The details of the amounts under the head "details of miscellaneous income" are shown in the profit and loss account placed in the appeal paper book of the Tribunal at page 6. From these details, the Tribunal found that the Assessing Officer has for the purpose of working out deduction under section 80-I in the next assessment year has granted the benefit. The assessee''s advocate, therefore, may have argued on, what we find is ground No. 5 of the assessee''s appeal, for the assessment year 1986-87 but that is with regard to the Commissioner upholding the action of the Assessing Officer in not considering the items "Other income" as a part of profits for the purpose of computing the deduction under section 80-I of the Income-tax Act. In the circumstances, for the relevant assessment year, namely, 1987-88 with which we are concerned, if the benefit was granted by the Tribunal relying on the Assessing Officer''s order but eventually what it has held is that though the amounts are termed "miscellaneous income", "other income" are derived from two industrial units situated at Ambernath and Kumbari. The same has nexus with the industrial activity of the assessee. In the circumstances the Assessing Officer was directed to consider these items under the head "Other incomes" and not exclude them for the purpose of deduction under section 80-I of the Income-tax Act. Thus, we are concerned for the year 1987-88 but the ground in the present memo of appeal is framed in such a manner that it is difficult to ascertain whether the Revenue is really aggrieved by what is done by the Assessing Officer for the year 1986-87 or that the Assessing Officer will have to follow the direction in paragraph 11 of the order of the Tribunal. We are of the opinion, that once the Assessing Officer has worked out details on the basis of items disclosed in the profit and loss account, then the directions given to him and issued in terms of paragraph 11 of the Tribunal''s order do not raise any substantial question of law.

As far as the third question is concerned, we are of the view that the Tribunal has followed the judgment of this court in the case of the Commissioner of Income Tax Vs. Allana Sons Pvt. Ltd., (1993) 114 CTR 448 : (1995) 216 ITR 690 : (1993) 70 TAXMAN 288 . If that is how the matter has been approached and equally the Tribunal found that the facts and circumstances in the case of Allana Sons, are identical to the assessee before us then even this question cannot be answered, otherwise but in favour of the assessee. Relying on the judgment, this is not substantial question of law at all because the answer to it has been given by this court in the judgment reported prior to the impugned order. Hence, the said question will have to be answered in favour of the assessee.

As far as disallowance and which has been made pertaining to the premium to group insurance policy, the Tribunal held that the premium of group insurance should not be considered as salary or perquisites for disallowance under section 40A(5) of the Income-tax Act is the conclusion reached by the Commissioner of Income-tax (Appeals). However, this point or question has been repeatedly raised but stands covered against the Revenue and in favour of the assessee by the orders of the Tribunal itself. The Tribunal has referred to one such order in paragraph 23 of the paper book. If the Tribunal has found that the earlier decisions and orders rendered in the case of the very assessee are applicable on facts and deserved to be followed, then, even this question cannot be termed as substantial question of law.

As far as the assessee''s claim for production incentives is concerned, once again the Tribunal in paragraph 24 of its order refers to its own observations in the case of this very assessee for the assessment years 1982-83 and 1983-84. The Tribunal held that once the Revenue could not establish that the nature of production of incentive payments for the assessment year 1987-88 are different from earlier years, then, the Tribunal''s view for the earlier assessment year on facts would bind the Revenue. We do not know how such view can give rise to any substantial question of law. In any event, in two decisions to which our attention has been invited by the counsel for the assessee the view taken by the Delhi High Court in the case of the CIT v. Kelvinator India Ltd. [1988] 171 ITR 256 (Delhi) and CIT v. Central Provinces Manganese Ore Co. Ltd. [1995] 79 Taxman 350 (Bom.), has been the subject matter of challenge before the hon''ble Supreme Court. The hon''ble Supreme Court has dismissed the special leave petition against this order of the Delhi High Court. In the circumstances even this question will have to be answered in favour of the assessee and against the Revenue by relying on the earlier orders of the Tribunal itself.

With regard to question No. 6, also we find that deletion of the addition made on account of ex gratia payment to the retiring employee, the Tribunal has upheld the Commissioner''s view. In doing that the Tribunal has referred, in the impugned order at page 65 and paragraph 25 to its findings in its order and pertaining to the same assessee for the assessment year 1982-83. That would bind the Revenue. There are series of orders but the Tribunal for the sake of reference points out its order for the assessment year 1982-83. In the circumstances, we are of the view that there being no distinction on facts and the Tribunal''s consistent view being not questioned successfully because the Departmental application for reference was rejected by the Tribunal itself, then this question is also not substantial question of law. In any event, the authoritative pronouncement by the Division Bench of this court in the decision brought to our notice, namely, the Commissioner of Income Tax Vs. Maina Ore Transport Pvt. Ltd., (2008) 6 BomCR 52 : (2008) 218 CTR 653 : (2010) 324 ITR 100 : (2008) 175 TAXMAN 494 answers the question in favour of the assessee.

On question No. 7 reproduced above, it is fairly conceded by Ms. Patel that the decision of the hon''ble Supreme Court in the case of Britannia Industries Ltd. Vs. Commissioner of Income Tax, West Bengal, Kolkata and Another, AIR 2005 SC 4333 : (2005) 198 CTR 313 : (2005) 278 ITR 546 : (2005) 12 JT 98 : (2005) 8 SCALE 148 : (2006) 1 SCC 646 answers it against the assessee and in favour of the Revenue.

As far as question No. 8 is concerned, once again it has been brought to our notice that in the assessee''s own case pertaining to the disallowance, namely, investment allowance under section 32A, the Tribunal has passed the order in the years 1979-80, 1980-81, 1982-83 and 1983-84. In the first assessment year 1979-80, the Department sought to make a reference of a question of law to this court but that application was rejected by the Income-tax Appellate Tribunal. Thereafter, for the assessment year 1981-82 the Department application to seek reference of the identical question was dismissed by the Income-tax Appellate Tribunal. We find that for some years the Department endeavoured to make an application and sought reference of the question of law to this court for its opinion. However, for some years it did not make such attempt. In the circumstances, the Tribunal was justified in concluding that the view taken by it earlier and pertaining to this assessee continues to bind the Revenue. In any event, there is a judgment of this court in the field and which has been brought to our notice, namely, Associated Bearing Co. Ltd. Vs. Commissioner of Income Tax, (2006) 205 CTR 150 : (2006) 286 ITR 341 . That makes a reference to all prior decisions of this court and equally there are two other judgments which have been referred by Ms. Patel, namely, in the case of the Commissioner of Income Tax Vs. Electronics Research Industries Pvt. Ltd., (1991) 97 CTR 51 : (1991) 192 ITR 20 : (1991) 59 TAXMAN 46 , it is the judgment of the High Court of Karnataka, and in the case of Commissioner of Income Tax, Bombay City-I Vs. I.B.M. World Trade Corporation, (1981) 130 ITR 739 . All these judgments have been compiled and handed over to us by Ms. Patel. Having perused them we do not find that the findings of Tribunal can be termed as perverse or vitiated by an error of law apparent on the face of record. This question is answered in favour of the assessee and against the Revenue.

As far as the last question is concerned, we do not find how it is framed for it does not arise from any of the Tribunal''s findings or grounds. The Tribunal had before it appeals from the Revenue as also the assessee. However, we do not find any reference being made to higher rate of investment allowance of 35 per cent on machinery installed for the purpose of manufacturing sulphuric acid. This question, therefore, could not have arisen and from paragraph 32 of the Tribunal''s order as well. We cannot conclude that such question can be termed as substantial question of law. From the order passed by the Commissioner, we could not discern that any such reference and particularly to the product has been made. In the circumstances, we do not think that question No. 9 can be termed as substantial question of law. As a result of above discussion, this appeal succeeds in part. The questions at serial No. 1 and termed as substantial question of law and serial No. 7 stand answered in favour of the Revenue and against the assessee. All other questions stand answered in favour of the assessee. There will be no order as to costs.