Godavari Sugar Mills Ltd. vs Commissioner of Income Tax

T.D. Sugla, J.—In this reference by the assessee relating to its assessment for the assessment year 1963-64, the Income Tax Appellate Tribunal has referred to this court only one question of law u/s 256(1) of the Income Tax Act, 1961. That question is :

"Whether, on the facts and circumstances of the case, the Tribunal erred in law in valuing the sugarcane purchased by the applicants at its agricultural farms and crushed at its Sakarwadi and Laxmiwadi at Rs. 53.10 per tonne and Rs. 52.20 per tonne instead of Rs. 54.10 per tonne and Rs. 53.20 per tonne, respectively, claimed by the applicants ?"

The assessee had thereafter taken out a notice of motion, being No. 155 of 1977 dated February 27, 1977. By order dated March 3, 1982, the notice of motion was made absolute as regards questions Nos. 2,3 and 6 only in terms of prayer clause (c). This resulted in the reference of the following three further questions of law. However, the Tribunal was not directed to drawn up a supplementary statement of the case as these questions, it was felt, could be answered on the basis of the statement of facts already drawn up by the Tribunal. These question are :

"1. Whether, on the facts and circumstances of the case, the Tribunal erred in law in not allowing Rs. 7,525 being fees paid for issue of bonus shares as expenditure incurred wholly for the purpose of the business ?

Whether, on the facts and circumstances of the case, the Tribunal erred in law in disallowing 25 per cent. of advertisement expenses amounting to Rs. 10,026 for advertisement given by the applicants in souvenirs ?

Whether, on the facts and circumstances of the case, the Tribunal erred in law in not allowing the additional ground raised for allowing the applicants Rs. 42,443 as revenue loss u/s 32(1)(iii) of the Income Tax Act, 1961, incurred due to destruction of the sugar godown because of cyclones during the relevant assessment year ?"

The question referred to this court by the Tribunal, it is common ground, requires to be answered in the affirmative and in favour of the assessee in view of our court''s decision in the assessee''s own case for the earlier year reported in Godavari Sugar Mills Limited Vs. Commissioner of Income Tax, Bombay City-I, . For the sake of convenience, question Nos. 1, 2 and 3, directed to be referred under order on notice of motion, shall be numbered as question Nos. 2, 3 and 4. Question No. 2 so numbered is also to be answered in the affirmatives and in favour of the assessee in view of our court''s Judgment in the case of Bombay Burmah Trading Corporation Ltd. Vs. Commissioner of Income Tax, Bombay City-IV, .

The renumbered third question pertains to advertisement expenses. The Income Tax Officer has referred to the details of advertisement expenses in the assessment order. He disallowed the claim in entirety observing that the expenses were not in the nature of advertisement at all. The Appellate Assistant Commissioner, on the other hand, held that the advertisements given in various souvenirs required to be treated as advertisement-cum-donation Observing further that the payments did not bring in a commensurate return by way of advertisement, he held that the entire amount spent on advertisement could not be allowed as deduction. In his view, it would be in order if 50 per cent. of the same was allowed. The Tribunal dealt with this issue in paragraphs 17 and 18 of its order. On a perusal of the names of the souvenirs in which the advertisement was brought out, the Tribunal agreed with the Appellate Assistant Commissioner that an element of charity was involved in the said advertisements. However, it reduced the disallowance from 50 per cent. to 25 per cent of the expenditure.

It is submitted by Shri Dastur, learned counsel for the assessee, that once the expenditure on advertisement is found to have been incurred for the purpose of the business, the fact that it also has an element of charity is of no consequence. In support of his submission, he relied on the Supreme Court judgment in the case of Sassoon J. David and Sassoon J. David and Co. Pvt. Ltd., Bombay Vs. Commissioner of Income Tax , Bombay, . Dr. Balasubramaniam, for the Revenue, on the other hand, reiterated that the souvenirs referred to by the Income Tax Officer in the assessment order were not of any advertisement value to the assessee. Most of the advertisements were in the souvenirs brought out by charitable institutions. They had negligible circulation. In any event, the view taken by the Tribunal is not perverse and could not, therefore, be interfered with. In reply, Shri Dastur invited our attention to the circulars issued by the Central Board of Direct Taxes No. 200 dated June 28, 1976 [1976] 104 ITR 50 and No. 203 dated July 16, 1976 [1976] 104 ITR 52 for the purpose of showing that the Board had itself taken the view that if the expenditure on advertisement was in fact incurred and if the conditions laid down in rule 6B of the Income Tax Rules were satisfied, the expenditure should be allowed as deduction.

We have considered the rival contentions. In our judgment, the view taken by the Tribunal cannot be said to be perverse inasmuch as the names of some of the souvenirs do indicate on the face of it that the advertisements therein were more with the motive of charity than that of publicity. However, in view of the Board''s circulars relied upon, the manner in which the departmental authorities as well as the Tribunal have considered the expenditure on advertisement as being one and indivisible sum and in view of the Supreme Court judgment in Sassoon J. David and Sassoon J. David and Co. Pvt. Ltd., Bombay Vs. Commissioner of Income Tax , Bombay, , we would prefer to hold that the disallowance was not justified. After all, the manner in which this item of expenditure has been dealt with by the appellate authorities does indicate that they considered the expenditure to have been incurred for the purpose of business. That being so, the mere fact that the expenditure was also motivated by charity, in our view, does not justify any disallowance.

A question, like the renumbered fourth question, had come up before this court in the case of Ahmedabad Electricity Co.Ltd. Vs. Commissioner of Income Tax, in ITR No. 481 of 1976. By order dated February 19, 1991, we have directed that matter be placed before the Hon''ble the Chief Justice for constituting a large Bench. The question in that case was as regards the jurisdiction of the Income Tax Appellate Tribunal under sections 253 and 254. No doubt, the facts in that case were slightly different from the facts before us in this case. In that case, an altogether new claim was made for deduction before the Tribunal for the first time on the basis of a High Court''s decision in some other case. In the present case, the claim for deduction has been made before the Tribunal for the first time as a consequence of the Tribunal''s order in the assessee''s own case for the immediately proceeding assessment year. In our view, this may constitute a good reason for entertaining the ground, provided the Tribunal has jurisdiction to do so. Jurisdiction and power to admit an altogether new ground are two independent concepts. The Tribunal may have jurisdiction and yet, in appropriate cases, it may not admit the new ground in its judicial discretion.

However, the facts in this regard may be stated in brief. The assessee had constructed a sugar godown during the previous year relevant to the assessment year 1962-63. On the ground that it was a shed and a temporary structure, it claimed the expenditure incurred thereon as revenue expenditure. In view of the stand taken, even though the shed was destroyed in the succeeding previous year, that is, in the previous year under reference, the assessee could not claim deduction u/s 32(1)(iii). The assessee''s stand for the earlier year was not accepted. The Tribunal decided the assessee''s appeal finally for the assessment year 1962-63 some time in 1972 holding that the shed so constructed was not a temporary shed and that the same constituted a capital asset on which depreciation was to be allowed. For the present, we may assume that depreciation for the assessment year 1962-63 was allowed by the Income Tax Officer in pursuance of the Tribunal''s order. For the assessment year 1963-64, depreciation could not have been allowed in view of section 34(2)(ii) as, on July 18, 1961, the shed was destroyed by cyclone. Thus, the question of claiming deduction u/s 32(1)(iii), admittedly, arose as a result of the Tribunal''s order in the assessee''s case for the assessment year 1962-63. In our view, it is a mitigating circumstance to be taken into account. However, the question about the Tribunal''s jurisdiction to entertain a ground for the first time before is still requires to be examined.

We have already given detailed reasons in that order as to the conflict between the judgments of our court in J.S. Parkar Vs. V.B. Palekar and Others, , Ugar Sugar Works Ltd. Vs. Commissioner of Income Tax, Poona, and Controller of Estate Duty Vs. Bipinchandra N. Patel, . Accordingly, we direct that this case may also be placed before the Hon''ble the Chief Justice for referring it to a larger Bench long with Income Tax Reference No. 481 of 1976, Ahmedabad Electricity Co.Ltd. Vs. Commissioner of Income Tax, in so far as the last question is concerned.