Sri Krishna Mohan Enterprises vs Commissioner of Income Tax, Visakhapatnam

S.V. Maruthi, J.

The Tribunal at the instance of the assessee referred the following question;

"Whether on the facts and in the circumstances of the case, the Appellate Tribunal is right in holding that the cost of roofing and foundations were not included in the Valuation Officer''s Report?"

The facts in brief are as fellows:

The Assessee is a registered firm of 19 partners. One K.V. Reddy was the Managing Partner. They have purcliased 75 cents or 3830 square yards of land in Sy.No.409/4 for Rs. 15,000/-. They have also taken on long lease from the Government an adjoining area measuring 445.56 sq.mts. The assesses firm began constructing a cinema theatre in the said site which is subsequently named as Sri Laxmi Theatre. According to the assesscc the book value of the cost of the construction of the cinema house was Rs.6,45,392/-. The asscssce filed the return, accordingly, along with the approved valuer''s report. The ITO found that the cost of construction adopted by the registered valuer was very low and no proper basis has been given to such estimation for arriving at its cost of construction. Therefore, he referred the matter of valuation to the Departmental valuer. The Departmental valuer estimated the cost of construction at Rs.9,98,000/-. On receipt of the objections filed by the assessee and on consideration of the same the ITO arrived at an addition of Rs.4,48,835/- as unexplained investment. Accordingly, the ITO finalised the assessment. On appeal the Commissioner of Income tax (Appeals) gave relief of Rs.69,233/- or Rs.70,000/- and fixed the cost of construction on the theatre building at Rs.7,70,000/- and directed the addition to be modified accordingly. He dismissed the claim of the assessee for deduction on account of economies observed by the assessee in purchasing the material and for the personal care, supervision, minimum wages etc., for which the assessee claimed at 10% of the book value. Against the said order the assesscc filed an appeal before the Tribunal. The Tribunal held that even conceding the assessee is entitled to 5% more towards self-supervision charges and 10% for economy observed towards purchase of material, the value of the two major items highlighted, namely, foundations and roof adequately take care of the total relief now prayed for in this appeal. Therefore, the assesses is not entitled for any relief. In other-words, according to the Tribunal the valuation report of the approved valuer did not include the value of two items namely, foundation and roof and therefore the claim of the assesses for a deduction of 5% for self-supervision and 10% for economy observed towards the purchase of material is compensated by not including the value of those two items. The assessee filed before the Tribunal a petition seeking a reference of four questions. However, the Tribunal refused to refer three questions and referred only the question as set out in the earlier paragraph.

The main argument of the learned Counsel for the assessee is that it was not the case of either Department or the assessee that the cost of roofing and foundation were not included in the valuation officer''s report. Therefore the question referred by the Tribunal does not arise out of the facts before the Tribunal. On the other hand the question that actually arose for consideration is Question No.2, namely, whether on the facts on the and in the circumstances of the case, the Appellate Tribunal is competent to touch upon the issues which were neither contested by the assessee nor by the Department in any of the proceedings? Therefore, the real issue before this Court is ''whether the Tribunal is competent to touch upon the issues which were neither contested by the assessee nor by the Department in any of the proceedings?'' and not the question that was actually referred for the opinion of this Court.

We agree with the contention of the learned Counsel for the assessee that apart from the fact that the question that was referred is a question of fact. It did not arose out of the facts before the Tribunal.

However, the Counsel for the assessee contended even though the question that was referred is not the real question, it is open to this Court to frame the real question that arises from out of the facts mentioned in the statement of case. Therefore, this Court should reframe the question stating that whether on the facts and in the circumstances of the case the appellate Tribunal is competent to touch upon the issues which were neither contested by the assessec nor by the Department in any of the proceedings? In support of his contention that it is open to this Court to reframc the question, the learned Counsel relied on the judgment of this Court in Commissioner of Income Tax, Hyderabad Vs. G.M. Chennabasappa, . wherein it was held that:

"In our opinion, the power to recast or reframe questions is implied in this subsection, although it docs not specifically invest the Court with such a power. The only condition is that questions of law should be raised by the reference. The High Court has not only the power but it is its duty to rcframe the questions in such a way as to bring out the real dispute between the parties. The Court is not confined to the questions which the Tribunal was directed to submit.

There is abundant authority for this proposition. In (1937) 5 ITR 464 , the Punjab High Court has ruled that the High Court is not confined to the decision of the question of law as formulated by the Commissioner or the Court issuing the mandamus. On the other hand, that Section (Section 66) confers upon the High Court full powers to decide the question of law in the from it actually arises from the statement of the case made by the Commissioner. This decision follows the judgment of the Allahabad High Court in Shiva Prasad Gupta Vs. Commissioner of Income Tax, , which has laid down that the High Court is entitled to resettle issues as it were and to decide them. A Bench of this Court in Raja Rameshwara Rao Bahadur Vs. Commissioner of Income Tax, , has observed that if the question was in an ambiguous form, the Court was certainly entitled to reframc it or amend it in such a way as to bring out the real dispute between the parties, and that the power to rcframe or amend the question was implied in sub-section (5) of Section 66 of the Act."

The Counsel for the assessee also submitted that the question as framed by the Tribunal involves the question that actually arises from out of the facts and therefore even without refraining the question this Court is competent to answer the question that actually arises for consideration,

At the out set we reject the argument of the learned Counsel that the question referred impledty includes the question that actually arose for consideration. The question referred by the Tribunal is a pure question of fact, namely, whether the cost of roofing and foundation were not included in the Valuation Officer''s Report? It is difficult to hold that this includes the question that whether the Appellate Tribunal is competent to touch upon the issues which were neither contested by the assessee nor by the Department in any of the proceedings?

Regarding the question that it is open to this Court to reframe the question taking into account the facts stated in the statement of the case, the Supreme Court in Commissioner of Income Tax, West Bengal, Calcutta Vs. Smt. Anusuya Devi, , considered the power of the High Court to frame questions and held as follows:

"The High Court may answer only those questions which are referred to it. New questions which have not been referred to cannot be raised and answered by the High Court. If the Tribunal refuses to refer a case u/s 66(1) which arises out of its order, the proper course is for the aggrieved party to move the High Court to require the Tribunal u/s 66(2) to refer the same. The question whether Rs.5,84,000/- represented income of the year of account, 1944-45, was not submitted by the Tribunal to the High Court. Even if it be assumed that the High Court was moved to direct the Tribunal to state a case on the sixth question, which was set out in the application filed before the Tribunal u/s 66(1), the application must be deemed to have been rejected and the order of rejection has become final. We have no power, without an appeal by the assesses, to set aside the order of the High Court and to direct the Tribunal to state a case on that question."

From the above it follows that it is not open to this Court to frame questions afresh on the basis of the statement of case. The only power of this Court is to answer the questions referred by the Tribunal.

The contention of the learned counsel for assesscc that since the Tribunal has not stated anything expressly rejecting his claim for a reference of Question No.2 it is deemed to have been impliedly referred, it is difficult to accept the contention of the learned Counsel. The very fact, that when he requested the Tribunal to frame 4 questions and the Tribunal referred question No. 1 indicated that Question No. 1 is different from Question No.2. Further when Question No.1 was referred by the Tribunal and Question No, 2 was not referred it amounts to impliedly refusing to refer Question No.2.

Under those circumstances it is difficult to accept the argument of the learned Counsel for the assessee. As pointed out by the Supreme Court in Commissioner of Income-lax v. Anusuya Devi (supra) the assessee when the Tribunal refused to refer Question No.2 ought to have approached this Court by way of a petition u/s 256(2) of the Income Tax Act.

It follows from the above, since the question referred by the Tribunal is a pure question of fact we declined to answer the same.

The RC is, accordingly, disposed of. No costs.