Commissioner of Income Tax vs Madhya Pradesh Tyres Co.

A.M. Sapre, J.—This is an appeal, filed by the revenue u/s 260A of the Income Tax Act against an order dated 24-8-2005, passed by Income Tax Appellate Tribunal (for short called ''Tribunal'') in ITA No. 454/Ind./1999. This appeal was admitted for final hearing on following two substantial questions of law:

In absence of any discussion much less finding rendered by the Tribunal, whether Tribunal was justified in upholding the view taken by the Commissioner (Appeals) on the issue involved?

Whether interpretation made by the authorities of the circular issued by CBDT for working out the liability of the partners in relation to Section 40(b)(v) of the Act is legally sustainable so as to give benefit to the assessee of Section 40(b)(v)?

Heard Shri R.L. Jain, learned senior Counsel with Ku. V. Mandlik, learned Counsel for the revenue and Shri S.C. Bagadia, learned senior Counsel with Shri D.K. Chhabra, learned Counsel for the assessee.

In order to answer question No. 1 framed supra, it is necessary to quote in verbatim, the manner in which the appeal filed by revenue came to be dismissed by the Tribunal. This is what was held in para 3 of the impugned order by the Tribunal:

Para 3 - After hearing the rival contention and going through the Board''s Circular, we find that it is mentioned in the Circular that for assessment years 1993-94 to 1996-97 deduction for remuneration to a working partner may be allowed on the basis of the clauses of the type mentioned at para 1(i) which says that where the partners have agreed that the remuneration to a working partner will be the amount of remuneration allowable under the provisions of Section 40(b)(v) of the Income Tax Act. However in para 3 of the said Circular, it is mentioned that in cases where neither the amount has been quantified nor even the limit of total remuneration has been specified but the same has been left to be determined by the partners at the end of the accounting period, in such cases payment of remuneration to partners cannot be allowed as deduction in the computation of firm''s income. In the instant case, as per clause 8 of the partnership deed the working partners were authorized to draw salary and the quantum of salary would be in accordance to the profit sharing ratio. Further the profit or loss as the case may be was stated in clause No. 6 of the partnership deed. We further noted that the year under consideration is assessment year 1995-96 and as per Board''s Circular referred above, it has been mentioned 1993-94 to 1996-97 deduction for remuneration to a working partner may be allowed on the basis of clauses of the type mentioned. It is also contended before us that the payment of salary was not exceeding the limit prescribed u/s 40(b) of the Income Tax Act. In view of the above facts and circumstances of the case, we uphold the findings of the Commissioner(Appeals). This issue has abo been decided by this Bench in favour of the assessee in the assessee''s own case in ITA No. 436/lnd./1999 for assessment year 1994-95. The appeal of the revenue is dismissed.

(Emphasis intalicised in print supplied)

We have purposefully quoted in extensio and in verbatim the manner in which issue urged before Tribunal by revenue came to be ''judicially decided'' by the Tribunal. We are at a loss to know as to what the Tribunal actually decided in this case. We can only know the submission of parties and conclusion of their decision ''against the revenue'' but not the reasons for coming to such conclusion at least in its real judicial sence. Reasons are not there because they are somewhere else and probably in the order passed by Tribunal in earlier year case. In such situation, how do we know those reasons for examining them on merits as an appellate court as to whether those ''so-called reasons'' exists or not and secondly whether they are legally sustainable, or not and whether those reasons influenced the Tribunal to dismiss the appeal.

If the Tribunal felt and may be rightly that they have already decided the issue on merits one way or other in detail by assigning reasons in some earlier case as in this case when they made reference to one appeal being ITA No. 436/lnd./1999 for assessment year 1994-95 then certainly they arc not required to again repeat the exercise of deciding the same issue on merits in the subsequent years cases involving the same point. But certainly, the Tribunal is under legal obligation to formulate in short the question involved (which alone they have done in this case) and then quote their reasoning already arrived at in their main leading order in extensio in case if the Tribunal does not wish to add any more reasoning in their earlier order. In this case the Tribunal has simply mentioned the number of appeal but has not even mentioned as to on what date, the order was passed in that appeal and what was their view which led for dismissal of the appeal filed by revenue? In substance, what we mean to say is that those so-called reasoning which the Tribunal claims to have, recorded in detail in their earlier order must be made available to us for examination as an appellate court for their sustaining or setting them aside. The only proper place for mentioning such reasoning is in the impugned order itself in verbatim in one paragraph. It can be as observed supra, either by way of their reproduction in the impugned order in extensio and in verbatim or it can be by mentioning their substance. In either case, mentioning of reasoning in the impugned order is mandatory. Since, the orders of Tribunal are not published in legal journals, the High Court is not able to trace them for reading from any legal journal else we would not have even taken pains to follow that also. It is also unfortunate that even the revenue has made no effort to file copy of the so-called orders passed by Tribunal in the case of this very assessee in ITA No. 436/Ind./99 in this appeal for our perusal.

Be that as it may, we have now two options open in such eventuality. First is to discover the reasoning by asking the parties to file the certified copy of the order referred to by the Tribunal which according to them contain the reasoning and then take that order on record for perusal and then decide the appeal on merits. Second is to set aside the impugned order on the ground of it being ''totally unreasoned'' and remand the case to Tribunal for deciding the appeal filed by revenue afresh keeping in view the observations made by this court supra.

After giving our thoughtful consideration to the whole scenario, we are inclined to follow the second option, as in our opinion, it is more appropriate in the facts of this case. It is also to avoid such recurrence in future.

We are thus constrained to allow the appeal and set aside the impugned order insofar as it relates to aforementioned two issues involved in this appeal and which arise out of an appeal filed by revenue i.e., ITA No. 454/Ind./99 for the assessment year 1995-96 and remand the case to Tribunal for deciding the appeal filed by revenue being ITA No. 454/Ind./99 afresh on merits. Since, we are remanding the case; we do not wish to apply our mind to the factual/legal issues involved in the appeal though argued by learned Counsel for the parties at length. It is now for them to make all their submissions in appeal before Tribunal. We hope that Tribunal will decide the appeal keeping in view the latest judicial pronouncement, narration of facts necessary for the disposal of appeal, the legal submissions urged by the respective parties in support of their respective case and their eventual conclusion as explained by this court in yet another case having resemblance of this nature decided on 3-1-2005 being ITR No. 20 of 1998 CIT v. Abhay Kumar Jain (2005) 147 Taxman 383 (MP). Let this be done within three months as an outer limit from the date of production of this order by the parties. It will be done by appellant within three weeks from today.

In view of aforesaid discussion, the appeal succeeds and is allowed. Impugned order is set aside.

No costs.