J.A. Trivedi and Brothers vs Commissioner of Income Tax

G.L. Oza, Actg. C.J.

This is a reference made by the income tax Appellate Tribunal for answering the following question:

Whether, under the facts and circumstances of the case, the Tribunal was justified in law in sending back the case to the income tax Officer?

The facts as stated in the reference are that the assessee''s three coal mines at Barkuhi East, Barkuhi West and Ghorawari and Hirdagarh were taken over by the Government under the Coal Mines Nationalisation Act, 1973. A compensation of Rs. 5,67,000 was determined payable by the Commissioner of Claims appointed u/s 17 of the said, Act It appeared that in addition to some assets of the assessee, the assets of the contractor employed by the assessee for exploitation of the mines, were lying on the mines. u/s 26, sub-section (5) of the Coal Mines Nationalisation Act, where any machinery or equipment or other property in the coal mine had vested in the Central Government or a Government Company under the Act, but such machinery, equipment or other property, did not belong to the owner of such coal mine, the amount of compensation would, on a reference made to it by the Commissioner of Claims, be apportioned by the District Court between the owner of such coal mine and the owner of such machinery, equipment or other property, having due regard to the value of such machinery, equipment or other property on the date of take over.

The income tax Officer, however, proceeded to determine the profits u/s 41 (2) of the income tax Act at Rs. 36,228 as if the entire amount of Rs. 5,67,000 was receivable by the assessee who was the owner of the mines. The Commissioner of income tax (Appeals) held that the income tax Officer had committed a basic error in assuming that the entire compensation would be receivable by the assessee itself. Relying on the Supreme Court''s decision in the case of Calcutta Company Ltd. Vs. The Commissioner of Income Tax, West Bengal, , the Commissioner of income tax (Appeals) held that since the liability to the contractor whose machinery was lying on the coal mines was a definite liability and since the assessee had indicated the quantum of such liability on a rational and scientific basis, and if that position was accepted, the assessee had suffered a loss u/s 32 (i) (iii) of the income tax Act and not earned any profit u/s 41 (2) as determined by the income tax Officer. He, therefore, vacated the addition of of Rs. 36,228 made by the income tax Officer u/s 41 (2) and allowed the loss of Rs. 2,65,772 u/s 32 (i) (iii). On appeal against this order of the Commissioner of income tax (Appeals), the Tribunal held that the Commissioner of Claims has to make a reference to the District Court u/s 26(5) of the Coal Mines Nationalisation Act, 1973, and as the Court has not yet made an award of apportionment of compensation between the assessee and the contractor, the fact whether the assessee would be entitled to terminal loss u/s 32 (i) (iii) or assessable to profit u/s 43 (2) would become clear only after the District Court passes the award apportioning the compensation between the assessee and the contractor. The Tribunal therefore set aside the order of the Appellate Commissioner and also of the income tax Officer and sent the case back to the income tax Officer to pass order after the award of the District Court is obtained on the question of apportionment of compensation. At the request of the assessee the Tribunal has made this reference for answering the question quoted above.

Learned Counsel for the assessee contended that the Commissioner of income tax (Appeals) following the decision of the Supreme Court in Calcutta Company Ltd. v. Commissioner of income tax came to the conclusion that as the question of apportionment was a definite affair and the assessee has given the value of the property of the contractor lying on the coal mines, he estimated the apportionment and came to the conclusion that the income tax Officer was not right in adding Rs. 36,228 as profit u/s 41(2) but he allowed Rs. 2,65,772 as a loss u/s 31(1)) of the Income Tax Act. It was contended by the Learned Counsel that as the estimates and the value of the property left by the contractor are ascertainable and have been stated by the assessee in a scientific manner, there was nothing which remained in doubt and therefore the Tribunal was not right in setting aside the order of the Commissioner of income tax (Appeals) and sending the case for its disposal after the District Court''s award. It was contended that u/s 153 the question of limitation will arise and the matter may take long time for the District Court to dispose of the apportionment of compensation and pass an award and therefore the assessment cannot be finalised within the time as contemplated u/s 153. Learned Counsel, apart from the decision in Calcutta Company''s case (supra), placed reliance on MAHARANI KANAK KUMARI SAHIBA Vs. COMMISSIONER OF Income Tax, BIHAR AND ORISSA., and United Commercial Bank Vs. Commissioner of Income Tax, . Learned Counsel for the revenue, on the other hand, contended that the Tribunal''s order in no way disposes of the matter finally. It was contended that u/s 26(5) of the Coal Mines Nationalisation Act jurisdiction is conferred on the District Court for apportionment of the compensation and it is only after the award of the District Court that it could finally be determined as to what amount of compensation will be available to the assessee and, therefore, on that basis it could be worked out as to whether there will be profit taxable u/s 41(2) or loss u/s 31(1) of the Income Tax Act. It was contended that in view of the language of section 26(5) of the Coal Mines Nationalisation Act it could not be disputed that the matter will only be final when the District Court disposes of the reference and gives its award. It was contended that even the award may be more beneficial to the assessee as the quantum of compensation available to the assessee may even be reduced. It was also frankly admitted by the Learned Counsel for the assessee that ultimately the award may be more beneficial to the assessee or may not be but he contended that when the facts are ascertainable and certain, it is not necessary to keep the matter pending. As regards the question of limitation, Learned Counsel for the revenue contended that this question was not before the Tribunal and was not raised and, therefore, that does not form part of the question referred to this Court and, therefore, it was not necessary to be considered, whereas according to the Learned Counsel for the assessee when the matter is sent back to the income tax Officer for consideration of assessment after the award of the District Court is received, it is inherent that question of limitation u/s 153 may arise.

It is not in dispute that the compensation fixed for this coal mine will have to be apportioned in view of the property and assets of the contractor lying on the coal mine apart from the property and assets of the owner of the coal mine and it is also not disputed that even before this apportionment if there are other claims, the Commissioner of Claims will determine them and it is only after payment of all other claims what remains will be apportioned between the owner and the contractor in the light of the property and assets which the contractor may have lost on the coal mines. The only controversy is that according to the Learned Counsel for the assessee these are matters which could be ascertained by taking the price of articles lying on the coal mines and applying a scientific basis for assessment of it. It was contended that the contractor''s claim for loss was accepted by the Tribunal as it was before a different Tribunal whereas the estimate of the assessee, the owner of the coal mines, based on the same basis has not been accepted by the Tribunal where this case was heard.

Calcutta Company Ltd. v. Commissioner of income tax, on which reliance was placed by the learned Commissioner (Appeals), lays down that the difficulty in the estimation thereof did not convert the accrued liability into a conditional one, because it was always open to the income tax authorities con arrive at a proper estimate thereof of having regard to all the circumstances of the case. What was held in this case was that where the fact''s are ascertainable they could be ascertained and it was contended that the assesses had given the estimates on the basis of the price of the property estimated on scientific basis. It is clear that Calcutta Company''s case (Supra) was not a case of the kind where the question of apportionment of the quantum of compensation was subject to the Jurisdiction of a competent Court. In the present case it could not be disputed that the Commissioner of Claims has to ascertain various claims and after giving credit for these claims find out the balance of compensation which is payable and out of this for apportionment of the compensation between the owner and the contractor the Commissioner has to make a reference-to the District Court and u/s 26 (5) of the Coal Mines Nationalisation Act the award of the District Judge wilt finally settle as to what will be available to an owner and what will be available to a contractor. In view of the language of section 26 (5) it appears that the Tribunal felt that the matter should be kept open till the order is passed by the District court apportioning the compensation as that will be the filial order deciding as to what amount of compensation will be payable to the assessee and, therefore, the Tribunal fell that it is only then that it could be found out whether these will be profit available for taxation u/s 41(2) of loss to be considered u/s 32(1) (iii) of the income tax. Act. It is, therefore, not a case where the income tax Officer''s assessment would be final until the District Court passes its award and it is in view of the matter it appears that the Tribunal reopened the case and sent it back to the income tax Officer to decide after the award of the District Court. It is, no doubt, true that the question of limitation whether will cause any impediment or not, it does not appear to be a question raised in this order of reference nor that question is referred to us and in that view of the matter it is not necessary for us to go into that question. As the Tribunal has not finally disposed of the matter but only remanded it for decision after the matter is finally settled by the District Court about apportionment of compensation, in our opinion, no question of law arises which needs a reference. In this view of the matter, therefore, our answer to the question referred to us is in the affirmative saying that the Tribunal was justified in law in sending the case back to the income tax Officer.

The reference is answered accordingly. In the circumstances, parties ate directed to bear their own costs.