Commissioner of Income Tax vs Maharaja Shree Umaid Mills Ltd.

Jainendra Kumar Ranka, J.—These three income tax references, in between the same parties, being interconnected and arising out of the one single asst. yr. 1973-74, are being decided by this common order for the sake of convenience. The questions in all the three Ref. Nos. 24 of 1986, 8 of 2003 and 1 of 2005 are reproduced here as under:

Questions in DB IT Ref No. 24 of 1986:

"(1) Whether the Tribunal was Justified in holding that the AAC was competent to decide the appeal of the assessee against the original order of assessment dt. 11th March, 1974 even after that order had been set aside for being made afresh by the CIT''s order under s. 263 dt. 19th Feb., 1975?

(2) Whether the Tribunal was justified in holding that the assessee was entitled to deduction under s. 40A(7) of the IT Act in respect of provision for gratuity pertained to earlier years but was provided in the accounts in the year relevant to asst. yr. 1973-74 ?"

Questions in DB IT Ref. No. 8 of 2003:

"(1) Whether on the facts and circumstances of the case the Tribunal was justified in holding that the AAC was competent to decide the appeal of the assessee against the original order of assessment dt. 11th March, 1974, even though the same has been set aside under s. 263 of the IT Act, 1961 for making the fresh assessment ?

(2) Whether on the facts and the circumstances of the case the Tribunal was justified in holding that the assessee was entitled to deduction under s. 40A(7) of the Act in respect of the provisions for granting liability amounting to Rs. 35,40.328 which pertains to earlier years was provided in the accounts in the relevant years ?

(3) Whether on the facts and the circumstances of the case the Tribunal was justified in holding that the assessee was entitled to deduction under s. 40A(7) of the IT Act 1961 in respect of the full amount of provision for gratuity liability amounting to Rs. 51,18,074 standing in the accounts of the assessee as on the last day of the relevant accounting year out of which an amount of Rs. 48,17,760 only had been provided during the relevant accounting year and had been claimed in the return of income, the balance having been provided in the preceding accounting year ?

(4) Whether on the facts and the circumstances of the case the Tribunal was Justified in holding that the AAC was right in allowing the deduction of Rs. 38,844 representing the accrued gratuity liability in respect of temporary workers which had neither been provided in the accounts by way of provision nor claimed before the ITO ?

(5) Whether on the facts and the circumstances of the case the Tribunal was Justified in holding that the AAC was right in allowing the deduction for Rs. 12,843 representing the gratuity actually paid during the year, which had not been disallowed by the ITO in the assessment year at all."

Questions in DB IT Ref. No. 1 of 2005:

"Whether on facts and in the circumstances of the case, the Tribunal was Justified in upholding the order of the AAC allowing extra claim of Rs. 1,28,622 on account of gratuity liability in the year under consideration ?"

Though by three references, the matter has been referred to this Court for answering the questions as aforesaid but in our view, the question revolves as to claim made by the assessee about an amount of Rs. 48,19,425 which was the liability for gratuity as the assessee maintains books of account on mercantile basis. It made provision in view of the "Payment of Gratuity Act, 1972" which came into force w.e.f. 15th Sept., 1972 and during the course of disposal of the appeals, s. 40A(7) was brought in by the Finance Act, 1975 with retrospective effect from 1st April, 1973. Out of Rs. 48,19,425 it was claimed by the assessee that Rs. 12,77,432 pertained to gratuity liability of the previous year relevant to the asst. yr. 1973-74 while the claim of liability to the extent of Rs. 35,41,993 was a provision made of the past liability as per Payment of Gratuity Act, 1972 and later on as per s. 40A(7) effective from 1st April, 1973. The AO vide order dt. 11th March, 1974 allowed an amount of Rs. 12,77,432 but disallowed and added back the amount of Rs. 35,41,993 by holding that since it was a provision only, relatable to earlier years and thus not allowable.

Aggrieved by the said disallowance, an appeal came to be preferred before the AAC where the assessee challenged the order whereby the said amount of Rs. 35,41,993 was disallowed. The AAC passed order on 26th April, 1978 which will be adverted a little later.

The CIT-2, Jaipur, in the meanwhile, by invoking provisions of s. 263 at his command vide order dt. 19th Feb., 1975, after analyzing the facts and circumstances, set aside the order of the AO passed on 11th March, 1974 after holding the same to be erroneous insofar as it was prejudicial to the interest of the Revenue and directed for making a fresh assessment.

The assessee aggrieved by the said order filed an appeal before the Tribunal challenging the order under s. 263 of the Act. The Tribunal vide order dt. 16th Oct., 1976 in ITA No. 73/JP/1975-76 sustained the order passed by the CIT under s. 263 of the Act.

The AO initiated proceedings again under s. 143(3) in the light of the order of the CIT under s. 263 dt. 19th Feb., 1975 wherein he allowed a deduction of Rs. 11,48,810 only under s. 40A(7) by coming to a conclusion that as per actuarial valuation made by the actuary, the liability of the assessee for the financial year relevant to the asst. yr. 1973-74 amounted to Rs. 11,48,810 and the assessee having deposited the said amount before 31st March, 1977 in the gratuity fund, was entitled to the claim and thus allowed Rs. 11,48,810 but disallowed the amount of Rs. 1,28.622.

The AAC before whom an appeal was filed assailing the order passed by the ITO on 11th March, 1974 wherein gratuity was disallowed to the extent of Rs. 35,41,993 was challenged and by then the amended provision of s. 40A(7) having been introduced by the Finance Act, 1975, decided the appeal on 26th April, 1978 in the light of the newly inserted s. 40A(7) and observed that the claim could be allowed if the following conditions were satisfied:

"(a) The liability has accrued during this year.

(b) The liability is ascertained through actuarial valuation.

(c) A provision is being made, and

(d) An irrevocable trust fund has been made for the purpose of payment of gratuity and the same is recognized by the CIT, and payment has been made to the said fund as stipulated in the section."

He held that all the aforesaid conditions had been fulfilled by the assessee and accordingly directed to allow the entire amount of gratuity of Rs. 48,17,760.

Both the Revenue as well as the assessee, being aggrieved by the aforesaid order, challenged the matter in appeal before the Tribunal, While the Revenue challenged the deduction/allowance of Rs. 48,17,760, the assessee challenged on some points where the AAC had not decided the issues on merits.

The Tribunal in the order dt. 29th Sept., 1979 in ITA No. 325/JP/1978-79 and ITA No. 465/JP/1978-79 came to a categorical finding that (1) trust fund has been set up by the assessee; (2) the said trust fund has been recognized by the CIT and (3) even the payment as stipulated under the provisions of s. 40A(7) has been made of the said fund and the assessee having complied with all the requirements as provided under s. 40A(7) of the Act read with Gratuity Act, 1972 came to the conclusion that liability being statutory, the whole amount towards payment of gratuity which fell due became payable and therefore, it was proper on the part of the assessee to have made a provision and accordingly upheld the order passed by the AAC where he allowed the claim of Rs. 48,17.760.

An order came to be passed by the CIT(A) dt. 28th March, 1980 for this very asst. yr. 1973-74 where the assessee challenged the disallowance of Rs. 1,28,622 and according to the assessee, while he was entitled to a claim of Rs. 12.77,432 but the AO allowed only an amount of Rs. 11,48.810. By this order, the CIT(A) further allowed the balance amount of Rs. 1,28,622. The Revenue carried the matter in further appeal before the Tribunal with reference to the aforesaid amount of Rs. 1,28,622, however, the Tribunal vide order dt. 21st May, 1981 dismissed the appeal of the Revenue and upheld the order of the CIT(A).

Thus, on an application moved by the Revenue, the Tribunal has referred different questions of law to be answered by this Court and the controversy as aforesaid revolves solely on the amount of Rs. 48,17,760.

Counsel for the Revenue contended that in the appeal preferred by the assessee under s. 263 of the Act before the Tribunal, the Tribunal passed an order dt. 16th Oct., 1976 observing as under:

"We have carefully examined the rival submissions. The grievance of the assessee that CIT was wrong in initiating the proceedings under s. 263 against it is, in our opinion, not justified in view of the amendment to the IT Act, 1961 brought about by the Finance Act, 1975, which introduced sub-s. (7) of s. 40A of the IT Act, 1961 with retrospective effect from 1st April, 1973. Due to the aforesaid retrospectivity of the Act, we will have to proceed on the assumption that the law has all along since 1st April, 1973 what is been in accordance with the provisions of sub-s. (7) of s. 40A. It prohibits any allowance for gratuity unless it is by way of contribution to approved gratuity fund, and in as much as, such approved gratuity fund did not exist during the accounting period corresponding to asst. yr. 1973-74, the allowance of Rs. 12,77,432 made by the ITO on account of provision for gratuity was patently wrong and prejudicial to the interest of Revenue. CIT''s order, therefore, directing the ITO to reconsider this matter de novo in accordance with law is correct and we refuse to interfere with this part of his order."

He contended that when the Tribunal had affirmed the order of the CIT under s. 263, then, insofar as the amount of Rs. 12,77,432, which was originally allowed by the AO, is concerned, should not have been deleted by the Tribunal or by the CIT(A) in the subsequent proceedings and further contended that the learned CIT in its order under s. 263 dt. 19th Feb., 1975 had set aside the assessment to make a fresh assessment in accordance with law and keeping in view the observations made. Therefore, it was wide open and available with the AO to consider the matter afresh as a whole. He further contended that against the order passed by the AO, wherein the amount of Rs. 35,41,993 was disallowed, an appeal came to be filed before the AAC who, despite of the order of the Tribunal having been passed earlier, by deciding the appeal on 26th April, 1978, deleted the entire addition of Rs. 48,17,760 which per se was illegal as the AAC was ceased of the matter only relating to a disallowance to the extent of Rs. 35,41,993 and not Rs. 45,17,760 which he came to allow. He further contended that in the order dt. 29th Sept., 1979, though the Tribunal affirmed the order of the CIT(A) who had deleted the entire addition of Rs. 48,17,760 without looking into the facts that the issue before the CIT was only to the extent of Rs. 35,41,993 but the Tribunal also went on to consider the entire amount of Rs. 48,17,760. He further contended that the AAC, while passing order on 26th April, 1978, had no occasion to sit over the order of the CIT under s. 263 a higher authority as also the Tribunal who had passed order by then sustaining order under s. 263. He further contended that the AAC, being a subordinate authority to the CIT under s. 263 of the Act, ought to have followed the directions of the CIT under s. 263. He further contended that the Tribunal not only in the order dt. 29th Sept., 1979 allowed the entire amount of Rs. 48,17,760 but also allowed the balance amount which was not even allowable under the provisions of the Gratuity Act, 1972 in order dt. 21st May, 1981 so also the later order dt. 6th Jan., 1986. He further contended that though the gratuity, actually relating/pertaining to a particular assessment year, may be allowable but not the provision made by the assessee for Rs. 35.41,993 was not proper and therefore, the AO had rightly disallowed the same. He further contended that prior to insertion of s. 40A(7), the assessees were entitled to claim deduction of actual gratuity paid/payable under s. 37(1) of the Act and the assessee must have been claiming the same over the years and by making a provision of Rs. 35,41,993, it cannot be said that it pertained to the earlier years when the assessee, being a limited company, certainly must have been claiming gratuity on year to year basis under the provisions of s. 37(1). However, he conceded that the Revenue is unable to place any material on record as to whether what amounts were being claimed by the assessee over the years and stood allowed under s. 37(1) of the Act.

He further contended that the claim made by the assessee being unjust, questions of law deserve to be answered in favour of the Revenue and against the assessee. Counsel for the Revenue relied upon Judgment of Allahabad High Court, in the case of Ramesh Beekay and Co. Vs. Commissioner of Income Tax,

Per contra, learned counsel for the assessee submitted that in the assessment order dt. 11th March, 1974, which was passed by the AO initially, had specifically disallowed an amount of Rs. 35,41,993 and even the AO was satisfied about the claim of Rs. 12,77,432 which he allowed. He contended that against disallowance of Rs. 35,41,993, the assessee preferred an appeal before the AAC and the same came to be disposed of on 26th April, 1978 and by that time s. 40A(7) came to be inserted w.e.f. 1st April, 1973, He contended that all the aforesaid conditions stood fulfilled by the assessee. The AAC as also the Tribunal holding that the aforesaid conditions has been fulfilled, went on to decide the matter on merits and once the claim has been allowed on merits, then the submission of counsel for the Revenue about upholding of order under s. 263 and other legal submissions, looses its significance.

It has been further contended that even the AO, in an order passed on 29th Aug., 1977 in pursuance to the order of the CIT under s. 263, even allowed gratuity to the extent of Rs. 11,48,810 and when the AO was satisfied despite of the order under s. 263, then the order was fair and reasonable. Counsel for the assessee further contended that the Tribunal, in all the three orders, has repeatedly held in favour of the assesses after recording finding of fact on merits. He also relied upon judgments rendered in the cases of Metal Box Company of India Ltd. Vs. Their Workmen, Shree Sajjan Mills Ltd. Vs. Commissioner of Income Tax, M.P., Bhopal and Another, Commissioner of Income Tax Vs. Kelvinator of India Ltd., Commissioner of Income Tax Vs. Sri Krishna Tiles and Potteries (P.) Ltd.,

Counsel for the assessee further submitted that a circular has been issued by the CBDT dt. 21st Sept., 1970, hearing Circular No. 47 [(1970) 78 ITR (St) 13] which clarified certain doubts.

We have considered the arguments advanced by learned counsel for the parties and perused the impugned orders as also the judgments cited at the Bar.

As has been stated herein above, the assessee is a limited company. By virtue of the Gratuity Act of 1972, gratuity was deductible in three cases (i) where it is paid or has become payable during the accounting year: (ii) where a contribution is made towards an approved gratuity fund or provision is made for such contribution and (iii) where a contribution is made towards an unapproved gratuity fund and under a trust. At the time of furnishing of the return of income by the assessee herein i.e. 16th Aug., 1973, the assessee made provision of the Gratuity in accordance with the Gratuity Act, 1972 and a claim was made to the tune of Rs. 48,19,425, However, the AO allowed claim to the assessee only to the extent of Rs. 12,77,432 which was actually paid/payable by the assessee relating to year under consideration.

As pointed out herein above, the CIT, while invoking s. 263, was of the opinion that the claim allowed by the AO to the extent of Rs. 12,77,432 was not proper, by holding that admittedly by that time the assessee did not have the gratuity fund nor did it apply to the CIT for approval in terms of s. 36(1)(v) of the IT Act and accordingly set aside the order of the AO framed on 11th Aug., 1974 and directed to make a fresh assessment, it may be pointed out that when the CIT passed order under s. 263 on 19th Feb., 1975 provisions of s. 40A(7) had not been introduced. This was challenged by the assessee before the Tribunal which also upheld the order under s. 263 passed by the CIT by order dt. 16th Oct., 1976 by observing as referred to supra.

The AO while passing order in pursuance to the order of CIT was of the view that the assessee is entitled to a deduction of Rs. 11,48,810 under s. 40A(7) the AO allowed accordingly. In the meanwhile, the AAC before whom an appeal was preferred by the assessee against the disallowance of gratuity to the extent of Rs. 35,41,993, came up for consideration and the AAC came to the conclusion that the assessee is entitled to deduction of entire amount of Rs. 48,17,760 which was the claim originally made and he decided the issue in view of the newly inserted s. 40A(7) of the IT Act. The relevant portion of the order is reproduced here under:

"Having regarding to the facts mentioned by the learned counsel, I am inclined to agree with him. In my opinion, all the terms and conditions mentioned for allowing the provision of gratuity as per provisions of s. 40A(7) are fulfilled in the case of the appellant company. Accordingly, the appellant company is entitled to deduction of full amount of Rs. 48,17,760. The ITO is hereby directed to allow the relief to the appellant accordingly."

The Tribunal by order dt. 29th Sept., 1979 dismissed the Departmental appeal by observing that the assessee was perfectly justified in claiming the deduction to the extent of Rs. 48,17,760. The Tribunal was satisfied that the assessee has complied with all the terms and conditions laid down under s. 40A(7) of the IT Act.

In the light of the above factual backdrop, the issue bolls down to the claim of the assessee to the extent of Rs. 48,17,760.

We will advert to the question No. 2 in DB IT Ref. No. 24 of 1986.

While introducing s. 40A(7) by the Finance Act, 1975, an explanatory provision came to be issued which reads as under:

"28. With a view to mitigating hardship in cases where the provisions have been made by the assessees in their accounts for the previous years relevant to the asst. yrs. 1973-74 to 1975-76 on the basis of their understanding of the law and the clarification given by the Board in 1970, the new s. 40A(7) has made a savings provision. Under this provision the prohibition regarding allowance of provisions for gratuity will not apply in relation to such amount of the provision as does not exceed an amount calculated @ 81/2 per cent of the salary as defined in r. 2(h) of Part A of the Fourth Schedule of each employee entitled to the payment of gratuity for each year of service in respect of which the provision is made, if certain conditions are fulfilled. These conditions are as follows:

(i) The provision in the accounts for the relevant previous year is made in accordance with an actuarial valuation of the ascertainable liability of the assessee for payment of gratuity to his employees on their retirement or on termination of their employment for any reason.

(ii) The assessee sets up a gratuity fund for the exclusive benefit of his employees under an irrevocable trust before 1st Jan., 1976 and files an application to the CIT for the approval thereof before that date.

(iii) A sum equal to at least 50 per cent of the admissible amount (i.e. an amount calculated @ 81/2 per cent of the salary of each employee entitled to the payment of gratuity for each year of service in respect of which the provision is made) is paid by the assesses by way of contribution to the approved gratuity fund before 1st April 1976 and the balance of the admissible amount is so paid before 1st April. 1977. Where any amount has been utilized out of the provision made in any previous year for the purpose of the payment of any gratuity before the creation of the approved gratuity fund, the amount to he paid to the approved gratuity fund will be calculated with reference to the admissible amount as reduced by the actual payment made before the date of creation of the approved gratuity fund.

For the removal of doubts, it has been specifically provided that where any provision made by the assessee in his accounts for the payment of gratuity to his employees has been allowed as a deduction in any previous year, any sum paid out of such provision by way of contribution to an approved gratuity fund or by way of gratuity to any employee will not be allowed as a deduction in computing the income of the assessee of the later previous year in which the sum is so paid."

By this explanatory note, the circular issued by the Board on 21st Sept., 1972, bearing No. 47, stood withdrawn.

In the light of the above facts and the explanatory note and on perusal of the facts on record, it is a finding of fact that a report came to be issued by Shri P.K. Ghosh, M.Sc., Fellow of the Institute of the Actuaries, Calcutta, dt. 13th May, 1972, and subsequent report dt. 1st June, 1973 in which he opined that "the liability for gratuity in respect of the employees of the said company as on 31st Dec., 1972 was Rs. 51,18,074" and further observed that "the assessee company is entitled to relief of an amount of Rs. 48,19,425". Thus, the assesses claimed the said amount on actuarial basis. In terms of provisions of s. 40A(7) a trust deed came to be executed on 24th Dec., 1975 which was duly registered with the District Registration Officer, Pali. The assessee also moved an application before the CIT for granting approval of the gratuity fund and the CIT granted approval on 30th March, 1976 but made it effective from 29th Dec., 1975. It is also an admitted fact by the AAC/CIT(A) so also the Tribunal that the assessee deposited the entire amount based on actuarial valuation in the trust fund on or before 31st March, 1977, the extended period.

The Hon''ble apex Court, in the case of Shree Sajjan Mills Ltd. vs. CIT & Anr. (supra), had an occasion to consider the newly inserted s. 40A(7) of the IT Act and observed as under:

"On a plain construction of cl. (a) of sub-s. (7) of s. 40A of the Act, what it means is that whatever is provided for future use by the assessee out of the gross profits of the year of account for payment of gratuity to employees on their retirement or on the termination of their services would not be allowed as deduction in the computation of profits and gains of the year of account. The provision of cl. (a) was made subject to cl. (b). The embargo is on deductions of amounts provided for future use in the year of account for meeting the ultimate liability to payment of gratuity, Clause (b)(i) excludes from the operation of cl. (a) contribution to an approved gratuity fund and amount provided for or set apart for payment of gratuity which would be payable during the year of account. Clause (b)(ii) deals with a situation that the assesses might provide by the spread-over method and provides that such provision would be excluded from the operation of cl. (a) provided the three conditions laid down by the sub-clause are satisfied.

The submission of the assessee is that if no provision is made by the assessee for gratuity, still the same will be deductible and s. 40A(7) will have no application, would defeat the very purpose and object of s. 40A(7) and render it nugatory. The interpretation as suggested by the assessee would entitle the assessee who made no provision to claim deduction whereas an assessee who made a provision would not get deduction unless the requirements laid down in the subsection are fulfilled. This interpretation, if accepted, will lead to a curious result, and if one may venture to say an absurd result, and even where the assessee has not chosen to adopt the spread-over method and has not provided for the present value of the contingent liability attributable to the year of account by charging it on the profits of the year, the assessee would still be entitled to claim as deduction from the gross profits of the year the said estimated liability which he could have provided for but he has not chosen to do so."

In the aforesaid case, the said assessee had not created any provision and the conditions were not challenged and therefore, the apex Court dismissed the appeal of the assessee by observing that if the claim is required to be made under s. 40A(7) and the amount is required to be deducted. It must fulfil the conditions laid down under s. 40A(7) and the deduction could not be allowed on general, principles under any other section of the Act.

The Delhi High Court, in the case of CIT vs. Kelvinator of India Ltd. (supra), came to the conclusion that when a Gratuity Act is introduced for the first time, the gratuity payable to the existing employees, who have already rendered some years of service and are still in service, shall have to be considered to make a provision because the gratuity payable depends on the entire length of service of an employee.

The Hon''ble apex Court, in the case of Metal Box Company of India Ltd. vs. Their Workmen (supra), held that it is legitimate for a company keeping accounts on the mercantile basis to estimate its liability under a gratuity scheme for its employees on an actuarial valuation and deduct such estimated liability from gross profits in the P&L a/c while working out its net profits. In such a system of mercantile accounting, a liability already accrued, though to be discharged at a future date, would be a proper deduction while working out the profits and gains of the business; it is not as if such deduction is permissible only in the case of amount actually spent. Therefore, while working out the net profits, the trader can provide from the grass receipts, his liability to pay a certain sum for every additional year of service of the employees, if such liability is properly ascertainable and it is possible to arrive at a proper discounted present value.

The Madras High Court, in the case of CIT vs. Sri. Krishna Tiles & Potteries Madras (P) Ltd. (supra), held that s. 40A(7)(b)(ii) of the Act is a special provision. The statutory provision, therefore, enables the assessee to make the provision in any of the assessment years falling between the 1st day of April, 1973, and the 1st day of April, 1976, and the provision made in all these years, if the other conditions of that provision are satisfied, would be eligible for being claimed as a deduction in the year in which the provision was made.

The Gujrat High Court, in the case of Commissioner of Income Tax Vs. Geskets and Radiators Pvt. Ltd., also came to the conclusion that once the assessee fulfils all the criteria laid down, as aforesaid, then the entire amount is allowable.

The Allahabad High Court also, in the case of Swadeshi Cotton Mills Co. Ltd. Vs. Income Tax Officer, "A" Ward, the Gujrat High Court, in the case of Commissioner of Income Tax Vs. Shreno Ltd., and in the case of Commissioner of Income Tax Vs. Shree Digvijay Cement Co. Ltd., and Calcutta High Court, in the case of Commissioner of Income Tax Vs. Remington Rand India Ltd. and Others, took the same view.

After considering s. 40A(7) when the assessee has complied with all the conditions laid down, which have been reproduced herein above, then, in our view, the assessee was certainly entitled to the entire deduction of the gratuity paid/payable or provision made by the assessee. Under the Gratuity Act, 1972, the assessee company is liable to pay gratuity to its employees who have completed five years of service for the total length of their service as provided under the said Act, The assessee company would, therefore, become liable to pay gratuity to its employees for their past services rendered in accordance with the provisions of the Payment of Gratuity Act. On coming into force of the Gratuity Act, the assessee company became liable to provide an amount of Rs. 48,17,760 by way of gratuity to its employees which included current as well as past liability for which provision was made. Therefore, in our view, the liability to pay the said amount of Rs. 48.17,760 is concerned, it arose in the previous year, relevant to the asst. yr. 1973-74 under reference and since admittedly all the conditions laid down in the sub-cl. (ii) of cl. (b) of s. 40A(7) have been fulfilled, in our view, the Tribunal has rightly upheld the said claim. Therefore, in our view, the question No. 2 is to be answered in the affirmative and against the Revenue.

Insofar as question No. 1 is concerned, in our view, when question No. 2 has been answered in the affirmative in favour of the assessee and against the Revenue on merits, as assessee has fulfilled all the criteria hurt down in the Gratuity Act. 1972 and s. 40A(7) then question No. 1 becomes academic in nature and therefore, we need not answer the same.

Insofar as the questions in DB IT Ref. No. 8 of 2003 are concerned, our answer to question No. 2 in DB IT Ref. No. 24 of 1986, referred to supra, also covers question Nos. 2 and 3 and therefore. It is answered in affirmative in favour of the assessee and against the Revenue. In this reference also, when question Nos. 2 and 3 have been answered in affirmative on merits, then question No. 1 remains academic. The question of law in DB IT Ref. No. 1 of 2003 is also covered by question No. 2 of DB IT Ref. No. 24 of 1986. We make no order as to costs.