Commissioner of Income Tax vs Freeman Sales (P) Ltd.

Jawahar Lal Gupta, J.—The Revenue has filed this petition under s. 256(2) of the IT Act, 1961, with a prayer that the Tribunal be directed to draw up a statement of the case and to refer the following question for the opinion of this Court :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the company could not be classified as trading company or financial company ?"

A few facts may be noticed.

M/s Freeman Sales (P) Ltd., Ludhiana, is a company. The assessee filed its IT Returns for the asst. yrs. 1987-88 and 1988-89. The AO treated the assessee as a trading company and levied tax @ 60 per cent. The assessee appealed. The CIT held that the assessee was not a trading or a financial company. Thus, it was liable to pay tax only @ 55 per cent. The Revenue appealed. The assessee maintained that it was not dealing in goods but its main source of income was commission. The Tribunal after consideration of the matter held that "the assessee was neither a trading company nor a financial company. The major source of the assessee''s income was commission income from a sister-concern. The company was not a dealer in goods in its own right and hence could not be classified as a trading company". The Revenue filed petitions under s. 256(1) with the prayer that a reference be made to the High Court in respect of both the years of assessment. The Tribunal having dismissed the petitions, the Revenue has approached this Court under s. 256(2) of the Act.

Mr. R. P. Sawhney, learned counsel for the Revenue, contended that the Tribunal has erred in refusing to state the case for the consideration of this Court. Is it so ?

The Finance Act, 1987 defines a ''trading company'' to mean "a company whose business consists mainly in dealing in goods or merchandise ...". Thus, a company should be dealing in goods or merchandise before it can be treated as a trading company. The company should be buying and selling goods. Learned counsel was unable to refer to any material on the record which may even remotely indicate that the respondent-assessee was buying or selling any goods. Mr. Sawhney submitted that at this stage, the Court is not concerned with the ultimate decision. It is possible that the Revenue would ultimately lose. The Court should direct the Tribunal to draw-up the statement of the case and refer the question of law to this Court in view of the fact that the proposed issue arises for consideration.

This contention cannot be accepted. When an application is made under s. 256(2), this Court is not expected to act mechanically and ask the Tribunal to state the case and make a reference. The Court has to examine the facts and the material on record. It has to consider the decision of the Tribunal. It is only when the Court is "not satisfied with the correctness of the decision of the Tribunal" that it can ask the Tribunal to state the case and to refer it to this Court. In the present case, the CIT(A) had found that the assessee was not a trading company. The Tribunal affirmed that decision. It recorded a finding of fact that "the company was not a dealer in goods in its own right and that its main source of income was commission". It was a pure finding of fact based on an appreciation of the evidence. The Tribunal rightly rejected the application of the Revenue under s. 256(1) and we find no reason to doubt the correctness of the view taken by it.

Consequently, the petition filed by the Revenue is dismissed. Since no one has put in appearance on behalf of the assessee, we make no order as to costs.