Commissioner of Income Tax vs Northern India Iron and Steel Co. Ltd.

Kirpal, J.—This is an application u/s 256(2) of the Income Tax Act filed by the Commissioner of Income Tax praying for a direction being issued to the Income Tax Appellate Tribunal to refer 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 legally correct in deleting the addition of Rs. 5,01,246 by taking into consideration a letter from G. B. Industrial Works which was not produced before the Inspecting Assistant Commissioner (Assessment) ?"

Briefly stated, the facts are that the respondent has a sister concern called Northern Steel Co. (hereinafter referred to as the "sister concern"). The respondent paid some rolling charges to the sister concern for the relevant year 1981-82. The Inspecting Assistant Commissioner applied the provisions of Section 40A of the Act and came to the conclusion that the charges which were paid to the sister concern by the respondent were excessive. The Inspecting Assistant Commissioner came to the conclusion that though the respondent had paid charges at the rate of Rs. 500 per metric tonne, the reasonable charge should have been only Rs. 450 per metric tonne. The difference amounting to Rs. 5,01,426 was disallowed u/s 40A(2) of the Act.

An appeal was filed before the Commissioner of Income Tax (Appeals) but without success. The respondent then filed a second appeal before the Income Tax Appellate Tribunal. The Income Tax Appellate Tribunal, vide its order dated July 30, 1986, came to the conclusion that the rates paid by the respondent to the sister concern could not be said to be excessive or unreasonable. An additional reason which is given by the Tribunal is that the sister concern was paying Rs. 3,60,000 to the respondent as lease money and this factor was not taken into consideration by the assessing authority.

The petitioner thereafter applied to the Tribunal u/s 256(1) of the Act for referring the aforesaid question of law to this court. The Tribunal, vide its order dated December 15, 1986, came to the conclusion that no question of law arose from its order.

It is contended by learned counsel for the petitioner that the question of law sought to be raised did arise and the Tribunal was wrong in coming to the contrary conclusion.

In our opinion, there is no merit in this petition. Firstly, the question of law which is sought to be raised is not clearly understandable. It proceeds on the basis that a letter from G.B. Industrial Works had not been produced before the Inspecting Assistant Commissioner (Assessment) and that was taken into consideration by the Tribunal for the first time From the order of the Commissioner of Income Tax, we find that this letter had, in fact, been produced by the respondent before the assessing authority and, Therefore, this question has been framed on a factual misconception. That apart, it has been held by the Supreme Court in Upper India Publishing House (P) Ltd. Vs. Commissioner of Income Tax, Lucknow, , that the question as to whether an expenditure which has been incurred, where the provisions of Section 40A are applicable, is excessive or not is a pure question of fact and no question of law arises. The question as to whether Northern Steel Co. was a sister concern or not might have been a question of law requiring the interpretation of Section 40A. There is, however, no dispute on this point. The dispute is whether the amount paid by the respondent to the sister concern is excessive or not. This is a pure question of fact and the Tribunal was right in coming to this conclusion.

For the aforesaid reasons, the petition is dismissed.