Hindustan Electro Graphites Ltd. vs Commissioner of Income Tax

G.G. Sohani, J.—By this application u/s 256(2) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), the applicant has prayed that the Tribunal be directed to state the case and to refer the following questions of law to this court for its opinion :

"(1) Whether, on the facts and in the circumstances of the case, the expenditure of Rs. 22,650 incurred on plantations in the factory premises and residential quarters of the company is allowable as deduction in terms of Sub-section (1) of Section 37 of the Income Tax Act, 1961 ?

(2) Whether, on the facts and in the circumstances of the case, the expenditure of Rs. 22,650 incurred on plantations in the factory premises and residential quarters of the company forms part of the ''actual cost'' of the assets to the assessee for the purpose of grant of depreciation allowance u/s 32 of the Income Tax Act, 1961 ?"

The material facts giving rise to this application, briefly, are as follows :

The applicant is a public limited company registered under the Companies Act, 1956, and carries on the business of manufacturing graphite electrodes, graphite anodes and other allied products. In the course of its assessment under the Act for the assessment year 1979-80, the applicant claimed deduction in respect of an amount of Rs. 22,643 being expenditure on plantations as business expense. The Income Tax Officer disallowed that claim on the ground that the expenditure was in the nature of capital expenditure. On appeal, the finding of the Income Tax Officer was affirmed. Further appeal preferred by the assessee before the Tribunal was also dismissed. An application filed by the assessee u/s 256(1) of the Act was rejected. Hence, the applicant has filed this application.

Having heard learned counsel for the parties, we have come to the conclusion that the question as to whether, on the facts and in the circumstances of the case, the expenditure amounting to Rs. 22,643 was or was not allowable u/s 37(1) of the Act, would be a question of law. However, the other question (question No. 2) raised by the assessee does not arise out of the order passed by the Tribunal and hence the Tribunal cannot be directed to refer that question.

For all these reasons, this application is partly allowed. The Tribunal is directed to state the case and to refer the following question of law to this court for its opinion :

"Whether, on the facts and in the circumstances of the case, the expenditure of Rs. 22,650 incurred by the assessee on plantations in the factory premises and residential quarters of the company was allowable as deduction in terms of Sub-section (1) of Section 37 of the Income Tax Act, 1961 ?"

Parties shall bear their own costs of this application.