S.P.G.C. Metal Industries (P.) Ltd. vs Commissioner of Income Tax

Ratnam, J.—The petitioner-assessee, in these petitions, is a private limited company. While finalising the assessment for the assessment year

1982-83, the Income Tax officer disallowed a sum of Rs. 8,431 representing part of the interest paid to the directors on their credit balances in the

current account u/s 40A(8) of the Income Tax Act, 1961 (hereinafter referred to as ""the Act""), and added that amount to the total income of the

petitioner-assessee. Considering the claim of the assessee for depreciation, the Income Tax Officer disallowed normal depreciation to the extent of

Rs. 16,860 and additional depreciation to the extent of Rs. 6,225 by reducing the cost of the assets by the amount of the Central subsidy received

by the assessee through SIPCOT. The claim of the assessee for investment allowance in a sum of Rs. 20,750 was also disallowed. Similarly for the

assessment year 1983-84, u/s 40A of the Act, the Income Tax Officer disallowed interest in a sum of Rs. 10,544 and also depreciation claimed in

a sum of Rs. 32,321. On the appeal to the Commissioner of Income Tax (Appeals), the disallowance of Rs. 8,431 and Rs. 10,544 u/s 40A(8) of

the Act was deleted and the claim for depreciation as made by the assessee was accepted. On further appeal to the Tribunal, it restored the

disallowance u/s 40A(8) of the Act and the order of the Income Tax Officer in that regard. However, the order of the Commissioner of Income

Tax (Appeals), regarding depreciation was confirmed by the Tribunal. The Tribunal passed the orders as aforesaid on March 21, 1985. It is not in

dispute that notice of the order of the Tribunal u/s 254 of the Act was served on the petitioner-assessee on May 15, 1986, and that the last day for

filing a reference application u/s 256(1) of the Act was July 14, 1985. Admittedly, the petitioner-assessee field the reference applications u/s

256(1) of the Act out of time and sought condonation of the delay in the filing of those applications by attempting to explain the reason for the

delay. Eventually, the Tribunal, by its order dated January 6, 1987, rejected the reference applications field by the petitioner as time-barred.

Against that, the petitioner has filed these petitions purporting to be u/s 256(2) of the Act praying that a direction should be issued to the Tribunal

to state a case referring the two questions of law set out in the reference applications.

Learned counsel for the Revenue, inviting attention to section 66(1) to (3) of the Indian Income Tax Act, 1922, and section 256(1)(3) to of the

Act, contended that under the Act, there is no provision corresponding to section 66(3) of the Indian Income Tax Act, 1922, and that, in this case,

the Appellate Tribunal had not refused to state a case on the ground that no question of law arises, but had rejected the applications as time-barred

and therefore, the reference applications filed by the petitioner are not maintainable and deserve dismissal. Reliance in this connection was also

placed by learned counsel for the Revenue upon the decisions in S.P. Jaiswal Vs. Commissioner of Income Tax, , Govind Singh Bhagwan Singh

Vs. Income Tax Officer I(VI), Now District Ward C, and Prem Narain Khurana Vs. Commissioner of Income Tax, .

In order to maintain an application u/s 256(2) of the Act, an application u/s 256(1) of the Act should have been made either by the assessee or

by the Commissioner. As the case may be, after fulfilling the requirements of that provision and on such an application, the Tribunal should have

declined to state a case on the ground that no question of law arises. We find in this case that though the petitioner purported to make applications

u/s 256(1) of the Act before the Tribunal, the Tribunal has refrained from passing any order on the merits of the claim for references and the

question whether a case should be stated or not stated, has not been gone into. Besides, the tribunal has also not stated that the questions sought to

be referred by the petitioner are not questions of law. On the other hand, the Tribunal merely proceeded to reject the reference applications filed

by the petitioner on the ground that they were of the Act as time-barred. Though the rejection of the applications u/s 256(1) of the Act as time-

barred may result in the Tribunal not stating a case, yet, that cannot be construed to be a refusal on the ground that no question of law arose, which

is a fundamental requirement to maintain an application u/s 256(2) of the Act, we may also in this context refer to section 66(2) of the Indian

Income Tax Act, 1922. Thereunder, a specific provision was made to the effect that if an application made u/s 66(1) of the Indian Income Tax

Act, 1922, was rejected on the ground that it was time-barred, the assessee or the Commissioner, as the case may be, may, within two months

from the date of service of notice of rejection, apply to the High Court and the High Court, if it is not satisfied with the correctness of the Appellate

Tribunal''s decision, may require the Appellate Tribunal to treat the application as made within the time allowed under sub-section (1) of section 66

of the Indian Income Tax Act, 1922. There is no corresponding provision in the Act and the absence of such a provision in indicative not only of a

deliberate departure from the comparable provisions of the Indian Income Tax Act, 1922, but also that an application u/s 256(2) of the Act to the

High court is contemplated only in cases where there is a refusal on the part of the Tribunal to state a case on the ground that no question of law

arose and not in cases where the rejection of the reference application by the Tribunal is on the ground that it is time-barred.

We may bow make a brief reference to the decisions to which our attention was drawn. In S.P. Jaiswal Vs. Commissioner of Income Tax, it

was laid down that a person aggrieved by an order of the Tribunal refusing to make a reference on any ground other than the one to the effect that

no question of law arises in the case has certainly no right to invoke section 66(2) of the Indian Income Tax Act. 1922, or section 256(2) of the

Act. In Govind Singh Bhagwan Singh Vs. Income Tax Officer I(VI), Now District Ward C, , the reference applications filed by the assessee u/s

256(1) of the Act were rejected as barred by time and while dealing with the maintainability of the reference applications u/s 256(2) of the Act, the

court held that the applications u/s 256(2) of the Act were not maintainable as there was no refusal on the part of the Appellate tribunal to state a

case on the ground that no question of law arose. To similar effect is the decision reported in Prem Narain Khurana Vs. Commissioner of Income

Tax, where it was pointed out, after referring to section 66 of the Indian Income Tax Act, 1922, and section 256 of the Act, that section 256(2) of

the Act contemplates an application only in such cases where in an application made u/s 256(1) of the Act, the tribunal declined to state a case on

the ground that no question of law arose and that section 66(1) and (2) of the Indian Income Tax Act, 1922, are in pari material with section

256(1) and (2) of the Act with a very vital and material distinction in that while section 66(3) of the Indian Income Tax Act, 1922, contemplated an

application to the High court even in those cases where the Appellate Tribunal had rejected an application u/s 66(1) of the Indian Income Tax Act,

1922, on the ground that it was barred by time, there was not corresponding provision incorporated or included in section 256 of the Act, and that

clearly is a pointer that an application u/s 256(2) of the Act to the High Court was contemplated only in such cases where there was a refusal on

the part of the Tribunal to state a case on the ground that no question of law arose and not in cases where the Tribunal rejected the application on

the ground that it was barred by time. The view we have expressed in the earlier portion of this order is fully fortified by the decisions referred to

above. We, therefore, hold that the applications for references field by the petitioner-assessee u/s 256(2) of the Act are not competent and

maintainable and deserve dismissal. The reference applications are, therefore, dismissed with costs, one set. Counsel''s fee Rs. 250.