Delhi H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in allowing development rebate at higher rate on machinery for manufacture of Nylon-6 yarn under s. 33(1)(b)(B)(1) of the IT Act ?

High Court Of Delhi

CIT vs. J.K. Synthetics Ltd.

Sections 33, 33(1)(b), 256, 32, 145, 216

B.N. Kirpal & C.L. Chaudhary, JJ.

IT Case No. 136 of 1985

12th July, 1989

Counsel Appeared

Jain & R.C. Pandey, Advocate, for the Revenue : P.N. Monga, Advocate, for the Assessee

N. KIRPAL J.:

The CIT, in this petition under s. 256(2) of the IT Act, 1961, is seeking an order of this Court for directing the Tribunal to state the case and refer the following six questions to this Court

“(1) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in allowing development rebate at higher rate on machinery for manufacture of Nylon-6 yarn under s. 33(1)(b)(B)(1) of the IT Act ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in confirming the order of the CIT (A) and allowing 50 per cent of depreciation on the machinery installed at the premises of J. K. S. M. and P. P. Ltd. ?

(3) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in directing the ITO, to compute the deficiency relating to the asst. yr. 1973-74 and 1974-75 which is to be carried forward and set off under s. 80J(3) of the IT Act even though the Hon’ble Supreme Court has stayed the assessment proceedings for these years

(4) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in confirming the order of the CIT (A) and deleting the amount of Rs. 1,00,590 being interest under s. 216 levied by the ITO ?

(5) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in confirming the order of the CIT (A) and arriving at the conclusion that the amounts received by the assessee- company as security deposit for cops were not an integral part of the transaction of sale of yarn ?

(6) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in, deleting the addition of Rs, 70,50,000 made by the ITO on account of excessive waste of yarn?”

With regard to question No. 1, we find that though the same may have been regarded as a question of law, the Supreme Court in CIT vs. Nirlon Synthetic Fibres and Chemicals Ltd. (1981) 130 ITR 14 and J. K. Synthetics Ltd. vs. CIT (1981) 24 CTR (SC) 357 : (1981) 130 ITR 23 has come to the conclusion that in a case like the present, the assessee would be entitled to development rebate at a higher rate as the product in question is petrochemical. In view of the aforesaid decisions, the answer to this question becomes academic and, therefore, need not be called for.

With regard to the second question, we find that in respect of an earlier year, namely, for the asst. yr. l971-72, a similar question was sought to be referred on a petition being filed by the petitioner hereinbefore the Allahabad High Court. By judgment dated February 8, 1985, in IT Application No. 242 of 1983 (CIT vs. J. K. Synthetics Ltd. (1985) 48 CTR (All) 130 : (1988) 169 ITR 267) the Allahabad High Court did not call for a reference as, in its opinion, the said question was a question of fact. We are in respectful agreement with the said view and, therefore, no reference is called for on this point.

In respect of the years 1973-74 and 1974-75, the assessment proceedings have been stayed by the Supreme Court. The question which arose in the present case in respect of the asst. yr. 197576 was regarding computation of deficiency with regard to s. 80J(3) of the Act. The Tribunal has held that the said computation will be made only after the assessments for the years 1973-74 and 1974-75 have been completed. This being so, there can be no grievance on behalf of the CIT. No direction is, therefore, being issued directing the Tribunal to refer question No. 3.

The respondent had filed an estimate of advance tax which was lower than the income which was assessed. The ITO passed an order levying interest under s. 216 of the Act. The assessee contended that the underestimate was not for any mala fide reason. The Tribunal accepted this contention of the assessee and held that no interest under s. 216 could be levied. The Department is seeking orders from this Court to direct the Tribunal to refer the aforesaid question No. 4.

It is contended by Shri Jain that the Supreme Court in Central Provinces Manganese Ore Co. Ltd. vs. CIT (1986) 58 CTR (SC) 112 : (1986) 160 ITR 961 has dealt with the interpretation of ss. 215 and 217 and s. 273 of the Act. Learned counsel submits that like s. 215 and s. 217, the provisions of s. 216 also deal with the levy of interest and the ratio of the decision of the Supreme Court in the aforesaid case would apply. On the other hand, learned counsel for the respondent submits that this Court in ITC No. 157 of 1980 in the case of CIT vs. Jay Engineering Works Ltd. (1990) 181 ITR 510 came to the conclusion that such a question is a question of fact and should not be referred.

In our opinion, the Tribunal was wrong in coming to the conclusion that the aforesaid question should not be referred. The question as to whether the underestimation was deliberate would, undoubtedly, be a question of fact. In Jay Engineering Works’ case (supra), the question of law which was sought to be referred was whether the Tribunal was right incoming to the conclusion that the underestimation of the income was deliberate or not. Assuming that the estimate was made bona fide, the question would still arise that if there is a shortfall between the income assessed and the estimate filed, whether the provisions of s. 216 will apply or not. The question involves the interpretation of s. 216 to a given set of facts. The interpretation will turn essentially on the meaning to be given to the word “may” in s. 216. It will have to be decided whether the word “may” is to be interpreted as “shall” or not. In our opinion, the said question should be referred.

With regard to the fifth question also, we find that the Tribunal was wrong in coming to the conclusion that no question of law arose Counsel for the Department had cited a number of decisions before the Tribunal which have not been dealt with by the Tribunal and the Tribunal has merely founded its decision on the basis of the treatment which was given to the said receipt in the accounts of the assessee. We would not like to go into the merits of this contention raised on behalf of the Department. But, we are of the firm opinion that the aforesaid question sought by the petitioner is a question of law.

9. The sixth question which was sought to be referred relates to an addition which had been made by the ITO on account of excess wastage of yarn. It is contended by learned counsel for the petitioner that a similar question has been referred at the instance of the Allahabad High Court. We, however, find that the Tribunal, in this particular case, has referred to the wastage in the earlier years and has found as a fact that the wastage in this year is not excessive. This finding is essentially a finding of fact and no principle of law is involved in this. We do not find any ground for calling for a reference of this question.

10. For the aforesaid reasons, the petition is partly allowed. The Tribunal is directed to state the case and refer to this Court the following two questions of law:

“Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in confirming the order of the CIT (A) and deleting the amount of Rs. 1,00,590 being interest under s. 216 levied by the ITO ? and

11. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in confirming the order of the CIT (A) and arriving at the conclusion that the amounts received by the assessee-company as security deposit for cops were not an integral part of the transaction of sale of yarn

12. The petition is disposed of There will be no order as to costs.

[Citation :181 ITR 505]

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