Commissioner of Income Tax vs Jay Engineering Works Ltd.

D.K. Kapur, J.—The Tribunal has made a reference u/s 266(1) of the Income Tax Act, 1961, but the Commissioner of Income Tax had applied for a reference regarding four questions of which three have been disallowed. The questions which have been disallowed are as follows :

"(i) Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the sum of Rs. 93,818 is not ''entertainment expenditure'' disallowable u/s 37(2B) ?

(ii) Whether, on the facts and in the circumstances of the case, the Tribunal is legally correct in holding that interest u/s 216 could not be charged, without their giving a finding whether there was any reasonable cause on the part of the assessed in underestimating the advance tax payable by it and thereby reducing the amount payable in either of the first two Installments ?

(iii) Whether on a correct interpretation of section 216, it can be said that, without establishing that the estimate of advance tax, by which the first two installments were underestimated, was untrue, interest u/s 216 could not be charged ?"

As far as question No. 1 so concerned, the Tribunal had refused to state the same on the ground that the same equation had been raised by the Department in four previous assessment years relating to the same assessed, viz., 1964-65, 1965-66, 1970-71 and 1971-72. It was also stated that the High Court had rejected the application u/s 256(2) relating to the same question and hence the question could not be referred. Learned counsel for the Department urged that this was entertainment expenditure which could not be allowed. The expenditure was actually incurred at the head office and four factory sites according to the Tribunal''s order. It appears that the amounts was allowed by the Tribunal as having been incurred in office hours to provide tea, coffee, cool drinks and other refreshment to members of the office and customers during office hours. Keeping in view the fact that this expenditure has not been treated as entertainment expenditure in the past, we would refuse to call for a reference concerning the same.

Turning now to questions Nos. 2 and 3, the Tribunal refused to refer the two questions on the ground that interest u/s 216 could be claimed only if it was established that the underestimate was deliberate. As there was no material on record leading to the inference that the assessed deliberately underestimated the income for the purpose of paying advance tax the Tribunal refused to refer the question on the ground that no question of law arose. We agree with the Tribunal that this was a pure question of act and questions Nos. 2 and 3 cannot also be referred.

In the circumstances, we would reject the application leaving the parties to bear their own costs.