High Court Of Delhi
CIT vs. Orissa Cement Ltd.
Sections 256(2), 37(1), 40A(2), 80J, 69
Asst. Year 1974-75
S. Ranganathan & P.K. Bahri, JJ.
IT Case No. 300 of 1983
24th July, 1987
Counsel Appeared
Wazir Singh & R.C. Pandey, for the Revenue : S.T. Desai with him B. Lal & Miss Geetanjali Mohan, for the Assessee
RANGANATHAN, J.:
The petitioner (CIT) had required the Tribunal to refer for the decision of this Court as many as ten questions of law said to arise out of the orders of the Tribunal in the case of M/s Orissa Cement Ltd., New Delhi, for the asst. yr. 1974-75. The Tribunal has submitted a statement of the case in regard to one of them, but declined to refer the other nine questions. By this application, the petitioner seeks a reference of those nine questions also to this Court.
2. However, we are of the opinion that no further questions of law arise out of the order of the Tribunal and that this application has to be dismissed. We state our reasons in brief.
3. The first question of which reference is sought runs as follows : ” Whether, on the facts and in the circumstances of the case, the Tribunal was correct both on facts and in law in confirming the order of the CIT (Appeals) with regard to the deletion of Rs. 3,10,000 being payment made to Mange Lal Bhikam Chand under the Voluntary Retirement Scheme although there was no agreement for such payment ? “
4. The Tribunal has found that though certain workers were employed by Mange Lal Bhikam Chand for carrying out the work of mining in the assessee’s mines, they are in law the employees of the assessee as decided by the Supreme Court in the decision in Hussainbhai vs. Alath Factory Tozhilali Union, AIR 1978 SC 1410, (1978) 53 FJR 278. That being so, the assessee had a liability to pay compensation to the workmen and since Mange Lal Bhikam Chand had made this payment, the assessee compensated Mange Lal Bhikam Chand by paying him a like amount. In view of this, the question of a specific agreement between Mange Lal Bhikam Chand and the assessee does not arise and the Tribunal’s conclusion that the assessee is entitled to the deduction of the payment made is concluded by the decision of the Supreme Court referred to above and calls for no further reference.
5. The second question posed by the petitioner reads as follows:
” Whether, on the facts and in the circumstances of the case, the Tribunal was correct both on facts and in law in upholding the finding of the CIT (Appeals) regarding payment of penalty of Rs. 30,828 ? “
6. The facts have been considered by the Tribunal and it has been pointed out that the sum of Rs. 30,828 was not in the nature of a penalty at all. The assessee had not committed any infraction of law or illegality nor was the payment a penalty under any specific statute or agreement or otherwise. In these circumstances, no question of inadmissibility of the deduction of payment arises. The Tribunal’s view is the only view that could be taken and no question of law arises in regard to this aspect of the matter.
7. The third question runs as follows:
” Whether, on the facts and in the circumstances of the case, the Tribunal was correct both on facts and in law in confirming the order of the CIT (Appeals) with regard to the payment of commission of Rs. 1,30,904 to M/s Mani Ram Enterprises, although it was made under a collusive arrangement? “
8. The question whether the payment made to this agency was wholly and exclusively for the purpose of the business is a question of fact. The Tribunal has pointed out that there is no evidence to show that this was a collusive arrangement. The firm has been functioning as the agent of the assessee for several years and the payments have been allowed in the earlier years. The Tribunal as well as the CIT have also held that services were rendered by the said firm. The conclusion of the Tribunal was, therefore, one of fact and no question of law arises.
9. The fourth question on which reference is sought reads as follows: ” Whether, on the facts and in the circumstances of the case, the Tribunal was correct both on facts and in law in confirming the order of the CIT (Appeals) regarding the deduction of Rs. 1,00,015 on account of commission to M/s S. G. Supply Agency, although the same had accrued prior to August 31, 1971, in the asst. yr. 1973-74 to which it never related ? “
10. The question proceeds on the assumption that the commission payable to this agency had accrued prior to August 31, 1971. The Tribunal has pointed out that this is not so. Both the CIT as well as the Tribunal have pointed out that the agency commission has been paid in respect of the contracts concluded before August 31, 1971, but in respect of which the execution took place subsequently during the accounting year. The orders of the CIT extracted in paragraph 3 of the Tribunal’s order as well as the conclusion of the Tribunal set out in paragraph 37 make it clear beyond all doubt that the commission in question had accrued to the agent only during the accounting year in question as it related only to sales made during the accounting year. There is, therefore, no question of law which calls for reference on this aspect.
11. Question No. 5 runs as follows:
” Whether, on the facts and in the circumstances of the case, the Tribunal was correct both on facts and in law in confirming the order of the CIT (Appeals) that the commission of Rs. 2,03,259 at 1per cent was paid to M/s Ceramic Sales for genuine business needs and as such was an allowable deduction under s. 37 ? “
12. Here also, the Tribunal has clearly found that the agency in question had rendered services and was entitled to the payment of commission under the terms of the agreement with it. The mere fact that M/s S. G. Supply Agency was also entitled to a commission in respect of these sales under an agreement entered into with them on August 31, 1971, cannot disentitle the agent to the commission which accrued to it under the sole selling agency agreement. The finding that during the year under consideration, M/s Ceramic Sales also rendered services and they were entitled to the commission under the agreement are questions of fact out of which no question of law arises.
13. The sixth question has been posed in the following terms: ” Whether, on the facts and in the circumstances of the case, the Tribunal was correct both on facts and in law in confirming the order of the CIT (Appeals) with regard to the payment of commission of Rs. 6,52,672 being hit by the provisions of s. 40A(2) of the IT Act, 1961 ? “
14. The assessee paid commission to the Cement Distributor Limited at Rs. 1.75 per ton of cement. The ITO allowed commission at the rate of Re. 1 per ton but disallowed the balance as excessive purporting to exercise his powers under s. 40A(2). The CIT and the Tribunal have found that there is no material on record to restrict the allowance of commission to Re. 1 per ton nor has the ITO given any material for restricting it to that figure. In the circumstances, the finding of the Tribunal that the entire commission is allowable is based on appreciation of facts and does not give rise to any question of law.
15. Question No. 7 relates to the valuation of the closing stock which reads as follows: ” Whether, on the facts and in the circumstances of the case, the Tribunal was correct both on facts and in law in confirming the finding of the CIT (Appeals) with regard to the deletion of Rs. 3,42,769 representing the undervaluation of stock which was specifically proved by the ITO ? “
16. The assessee had 3,020 PCC poles in closing stock which it valued at Re. 1 per pole. The ITO found that the cost price of these poles was Rs. 160 per pole. It has also been pointed out by counsel for the petitioner that some of these poles were subsequently sold for as much as at Rs. 175 per pole in the year 1975-76. It is, therefore, contended that the ITO was justified in valuing the pole at Rs. 160 per pole which was the cost price. The contention ignores the fact that the case of the assessee was that these poles had been manufactured in accordance with the specifications prescribed by the Punjab State Electricity Board and that these poles had been rejected by the said Board as unfit. These rejected poles had been stored in heaps and had also developed certain defects. It is claimed that the assessee found them unsaleable and hence valued them at Re. 1 per pole. This explanation of the assessee has not been found against by the ITO and has been accepted by both the CIT and the Tribunal. Once this explanation stands accepted, the valuation at Re. 1 per pole has also to be accepted. If the assessee has sold them at a higher figure, the higher sale price and profits will be reflected in the subsequent years. In the absence of any material to show that the poles were in good condition and that the assessee’s plea that they were without value was not a correct plea, there was no ground to reject the closing stock valuation. The findings of the Tribunal in this regard are findings of fact and do not give rise to any question of law.
17. The eighth question reads as follows: ” Whether, on the facts and in the circumstances of the case, the Tribunal was correct both on facts and in law in confirming the order of the CIT (Appeals) with regard to the payment of sales tax amounting to Rs. 1,62,326 although the liability in this regard had not been ascertained ?”
18. The short question is whether the assessee was entitled to claim deduction of a sum of Rs. 1,62,326 being the payment of sales tax relatable to the freight which the assessee collected as part of the sale proceeds. It is not in dispute that the freight forms part of the turnover. In view of the decision of the Supreme Court in Kedarnath jute Mfg. Co. Ltd. vs. CIT (1971) 82 ITR 363, it is clear that the sales tax liability attributable to the freight expenses have to be allowed as a deduction in this year as the sales took place during the year in question. The decision of the Supreme Court makes it clear that the deductibility does not depend upon the ascertainment of the liability. Counsel for the petitioner contended that the decision in Kedarnath jute Mfg. Co. Ltd. (supra) as well as the decision regarding the leviability of sales tax in regard to freight expenses were rendered by the Supreme Court much later. This, however, does not make any difference because the decisions of the Supreme Court only lay down the law as it always stood. In these circumstances and in view of the decision of the Supreme Court referred to above, the assessee was clearly entitled to the deduction in question and no arguable question of law can arose for reference after the decision of the Supreme Court in the matter. The Tribunal was, therefore, justified in rejecting the petitioner’s request for reference on this question, particularly as the exact amount of which the assessee is entitled to deduction has been left to be verified by the ITO.
19. Question No. 9 reads as follows: ” Whether, on the facts and in the circumstances of the case, the Tribunal was correct both on facts and in law in holding that the retrospective amendment of the provisions of s. 80J are not applicable in this case and thereby restoring the matter back to the file of the ITO for a fresh decision ? “
20. Counsel for the petitioner stated that he does not press this question in view of the decision of the Supreme Court in the case of Lohia Machines Ltd. (1985) 44 CTR (SC) 328 : (1985) 152 ITR 308. This question cannot, therefore, be directed to be referred.
21. To sum up, none of the questions merit any reference to this Court. The application, therefore, fails and is dismissed. In the circumstances of the case, we make no order as to costs.
[Citation : 171 ITR 72]
