Commissioner of Income Tax vs Mahesh Munjal (HUF)

G.S. Singhvi, J.—This is a petition u/s 256(2) of the Income Tax Act, 1961, for reference of the following question of law to this court :

"Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that interest u/s 215 of the Income Tax Act was chargeable on the basis of assessed income but excluding enhanced share of the assessee determined in the case of the firm where he is a partner ?"

The facts which are necessary for determination of this application are that the assessee filed a return of income for the assessment year 1984-85 in the status of the Hindu undivided family (specified) declaring a net income of Rs. 42,810. The source of income was shown as share from the firm, dividend and interest. The assessing authority held that the income shown by the assessee is actually assessable in his individual hand and not in the status of the Hindu undivided family. The assessing authority passed an order dated March 12, 1987, and directed the issue of penalty notice. The respondent filed an appeal against the order of assessment, which was accepted by the Deputy Commissioner of Income Tax (Appeals), Ludhiana Range, Ludhiana. The appellate authority held that there was no wilful attempt on the part of the appellant to lower his income. The appellate authority directed the Income Tax Officer to see whether any interest u/s 215 of the Income Tax Act is still chargeable even after excluding the addition made in the share income. The Revenue filed appeal before the Income Tax Appellate Tribunal against the order of the appellate authority. The Tribunal dismissed the same vide order dated July 10, 1991. Thereafter, the Revenue filed an application u/s 256(1) of the Income Tax Act, 1961, for reference of the following two questions of law :

"1. Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that the assessment framed on protective basis in the absence of any male coparcener be made on substantive basis in the status of the Hindu undivided family ?

Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that interest u/s 215 is not chargeable on the basis of assessed income but excluding enhanced share of the assessee determined in the case of the firm where he is a partner ?"

Vide its order dated November 8, 1995, the Tribunal held that the first question of law deserves to be referred to the High Court. Accordingly, it referred the aforesaid question to the High Court along with the statement of the case, but declined to refer the second question by holding that the matter entirely depends on the facts of the case whether the assessee had paid advance tax on the basis of the share income intimated to him by the firm and if the income of the firm was subject to the enhancement on account of certain additions, the assessee could not be said to have knowledge of such enhancement at the time of payment of advance tax.

Shri Sawhney, learned counsel for the petitioner, argued that after having held that question No. 1 deserves to be referred to the High Court for adjudication, the Tribunal ought to have referred the second question regarding interest for adjudication by the High Court. Learned counsel submitted that it was not open to the Tribunal to make an adjudication on the merits of the issue. Learned counsel invited our attention to the decisions of this court in Commissioner of Income Tax Vs. Oswal Woollen Mills Ltd., ; Commissioner of Income Tax Vs. Punjab Business and Supply Co. Pvt. Ltd., and of the Delhi High Court in Commissioner of Income Tax Vs. J.K. Synthetics Ltd. (No. 1), .

Shri Mahajan, learned counsel for the assessee, placed reliance on the decision of this court in CIT v. Gurkartar Steels Pvt. Ltd, [1994] 209 ITR 634 and argued that the question relating to levy of interest is not a question of law which deserves to be referred to the High Court,

We have thoughtfully considered the rival contentions and gone through the judgments cited by learned counsel for the parties and, in our opinion, question No. 2 raised by the Revenue is a question of law which requires adjudication by this court, While taking this view, we are quite conscious of the settled legal position that in order to decide whether a question of law arises or not, this court is not required to examine as to whether the question will ultimately be decided in favour of the party seeking reference. It is not within the domain of this court to make an adjudication on the merits of the question while deciding the application u/s 256(2).

In err v. Oswal Woollen Mills Ltd. [1987] 163 ITR 831 and in Commissioner of Income Tax Vs. J.K. Synthetics Ltd. (No. 1), this court as well as the Delhi High Court have treated a similar question to be a question of law. We respectfully agree with that view.

Accordingly, the petition is allowed and the Income tax Appellate Tribunal, Chandigarh Bench, Chandigarh, is directed to refer the following question of law ;

"Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that interest u/s 215 of the Income tax Act was chargeable on the basis of assessed income but excluding enhanced share of the assessee determined in the case of the firm where he is a partner ?"

and send the aforesaid question along with the statement of case and record of the case to this court.