Allahabad H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in deleting an addition of Rs. 41,500 in respect of charity included in the purchase price of cotton by payment of Rs. 2 per bale of cotton purchased ?

OM PRAKASH, J.:

This is an application under s. 256(2) of the IT Act, 1961, by the Revenue for asking the Tribunal to make a statement of the case on the following questions : ” (1) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in deleting an addition of Rs. 41,500 in respect of charity included in the purchase price of cotton by payment of Rs. 2 per bale of cotton purchased ? (2) Whether, on the facts and in the circumstances of the case, the income-tax Tribunal was correct in law in deleting the addition of Rs. 1,50,608 representing estimated interest at the rate of 10per cent on the debit balances outstanding in the accounts of 3 dealers of the assessee ? “

2. So far as the first question is concerned, that is fully covered by a decision of the Supreme Court in CIT vs. Bijli Cotton Mills Co. (P.) Ltd. (1979) 8 CTR (SC) 1 : (1979) 116 ITR 60. The ITO brought to tax a receipt of Rs. 41,500 being charity received at the rate of Rs. 2 per bale included in the purchase price of cotton. The Supreme Court has clearly held that charity of this type is not a revenue receipt. Therefore, the question is academic.

3. The facts relating to question No. 2 are that the ITO estimated the interest on notional basis amounting to Rs. 1,50,608 at the rate of 10per cent on the debit balances outstanding in the account of three dealers of the assessee- company. Detailed facts in this regard have been stated by the CIT (Appeals) in his order dated April 4, 1977, in para 70. The view of the ITO was that the assessee gave credit facility to the three dealers for some extra commercial consideration and that was why he calculated interest on notional basis and brought to tax the same. The Commissioner observes: ” I do not find any evidence brought on record by the ITO in support thereof. It is an admitted fact that the three dealers are the major dealers of the assessee and their annual sales turnover runs into several lakhs of rupees. Again, the assessee has pointed out that during the year of appeal, it had huge surplus funds and that it has earned interest of over Rs. 20 lakhs on its bank deposits whereas it has paid only a sum of Rs. 13,020 on its overdraft account with the bank. “

4. The Commissioner further observes : ” Again, it was submitted that had the assessee not allowed credit facilities to the three dealers, either its turnover would have been lower or the price realisation would have been less or both. “

5. Relying on these findings, the Tribunal came to the conclusion that the ITO was not right in estimating the interest income notionally. These are purely findings of fact and no question of law arises therefrom.

6. For the above reasons, we do not agree with the Revenue that question No. 2 is a question of law. The application is, therefore, rejected and the same is dismissed.

[Citation : 171 ITR 658]