High Court Of Gauhati
CIT vs. India Carbon Ltd.
Asst. Year 1985-86
Brijesh Kumar, C.J. & D.N. Chowdhury, J.
Tax Ref. No. 13 of 1998
9th June, 2000
K.P. Sarma & D. Sur, for the Revenue : Dr. A.K. Saraf, K.K. Gupta, R.K. Agarwalla & S.K. Agarwalla, for the Assessee
D.N. CHOWDHURY, J. :
The present proceeding is initiated at the instance of the Revenue on an application under s. 256 (2) of the IT Act, 1961, requiring the Tribunal to state the case and refer the two questions of law enumerated in their application under s. 256(1) before the Tribunal, Gauhati Bench, which was finally turned down by the Tribunal. The application relates to the asst. yr. 1985-86. The original assessment order was passed by the AO on 28th Jan., 1988, and Rs. 15,24,434 was disallowed out of the total interest claimed by the assessee at Rs. 1,41,08,898. The assessee went on appeal upto the CIT(A), hereinafter referred as (“the CIT(A)”), about the disallowance. The CIT(A) set aside the order of the assessment and directed the AO to adjudicate the claim of interest for revenue deduction in the light of the directions passed in its order. A fresh assessment was made thereafter by the AO. The assessee claimed for revenue deduction on the interest before the AO. The assessee in the relevant accounting year advanced loans to two of its subsidiary companies, namely, to C and C Investment Ltd. and Him Containers Ltd. The assessee claimed that the loans were advanced for the purpose of the business of the assessee-company and that the assessee had sufficient funds at its disposal in the form of capital, reserve, accumulated depreciation and profit of the year for the purpose of advancing loans to the subsidiary companies. The assessee also claimed that the borrowings of the assessee-company decreased from Rs. 6,12,00,000 (approximately) in the preceding year to about Rs. 3,35,49,777 at the end of the assessment year in question. The AO, however, took the view that the loans advanced to the subsidiary companies by the assessee-company did not mean that the loans were for the purpose of the business of the holding company unless it was proved by supporting evidence. It was also held that the subsidiary companies were separate entitles under the IT Act. Therefore, when the loans were advanced to the subsidiary companies it could not be accepted to be for the purpose of the holding company. The AO also noted that the loans were directly advanced out of a cash credit account with the State Bank of India and out of a current account with the United Commercial Bank. The source of money in the current account was deposit from the public on which interest was paid by the assesseecompany. The AO, therefore, concluded that there was direct nexus between the borrowings on which interest had been paid and the loans advanced to the subsidiary companies on which no interest had been charged and accordingly turned down the plea of the assessee. The assessee preferred appeal before the CIT(A). It was inter alia, contended before the CIT(A) that the advances to the subsidiary companies were meant for the business of the assessee. The CIT(A) did not accept the contention of the assessee that the advances were made for the purpose of the business of the assessee. The CIT(A), however, held that sufficient funds were available for the purpose of the business of the subsidiary companies on various dates and no disallowance ought to have been made out of the interest paid to the bank. The CIT(A) did not accept the plea of the assessee in dealing with the view of the AO about the nexus between the interest-bearing borrowed fund and non-interest bearing advances and that the money advanced came out of a cash credit account and current account. The appellate authority pointed out that the AO failed to take into account the share capital of the company, depreciation reserve, other reserves and profit generated during the previous year relevant to the assessment year in question prior to the allowance of depreciation. The appellate authority took note of a number of judicial decisions cited and relied on by the assessee and accordingly held that the material facts did not lead to the inference that the borrowed interest bearing funds were utilised for interest free advances and that the Revenue failed to establish the nexus between the two and accordingly deleted Rs. 8,50,000. The Revenue preferred an appeal before the Tribunal, Gauhati Bench. The Revenue on appeal supported the assessment order passed by the AO. The Revenue contended that the advances made by the assessee to the two subsidiary companies were not for business purposes and that was accepted both by the AO as well as the CIT(A). The moneys advanced to the two subsidiary companies of the assessee-company were also through cash credit and current accounts. The Revenue pointed out that the moneys advanced to the two subsidiary companies of the assesseecompany were through cash credit and current accounts and it is also contended on behalf of the Revenue that there was no dispute that the assessee paid (interest on) cash credit account and the money available for the current account was from the public on which interest was paid by the assessee-company. Merely because the liabilities came down substantially in the year in question from that of the earlier year and that the various reserves, etc., had increased in the year did not ipso facto lead to the conclusion that the assessee did not explain that the assessee advanced interest free loans to its subsidiary companies. The assessee supported the view of the CIT(A) and accordingly prayed for rejection of the appeal. The Tribunal by its judgment and order, dt. 12th Nov., 1996, in C.O. No. (Gau) of 1991 in ITA No. 265 (Gau) of 1991, dismissed the appeal of the Revenue and upheld the order of the CIT(A). In deciding the appeal, the Tribunal observed that the CIT(A) after examining the claim of the assessee as to the availability of funds for advancing loans to be subsidiary companies of the assessee-company has found that the assessee had sufficient funds available and that the AO failed to establish a nexus between the funds withdrawn from the cash credit and current account and the funds advanced as loans to the subsidiary companies. The Tribunal held that the findings of the CIT(A) were not controverted with evidence by the Revenue. On the other hand, the Tribunal held that the assessee had at its disposal available funds and that the findings of the CIT(A) were supported by the books of account of the assessee-company. In the circumstances, the Tribunal held that it cannot be said that interest free loans advanced to the subsidiary companies were out of interest bearing funds from the bank merely because the loans advanced passed through the cash credit and current account of the assessee-company. The appellate authority also noted that there was no dispute as to the fact that the funds of the assessee-company were deposited with the bankers and the loans advanced to the subsidiary companies were also given by cheques. The appellate authority accordingly upheld the order of the CIT(A) to the effect that the interest free loans advanced to the subsidiary companies were not from interest bearing funds from the bankers but from their own funds that were available with the assessee.
2. The Revenue accordingly preferred an application before the Tribunal under s. 256(1) of the Act requiring the Tribunal to refer to the High Court the following two questions of law : “1. Whether, on the facts and circumstances of the case, the Tribunal is justified in holding that there is no nexus between the advance made by the assessee-company to subsidiaries and borrowings of the assessee-company in the form of public deposits when such advance was made from the same current account to which the public deposits are also made.” 2. Whether, on the facts and circumstances of the case, the Tribunal was justified in deleting the disallowance of interest amounting to Rs. 8,50,000 made by the AO ?”
3. The Revenue contended that the aforesaid question were pure questions of law and accordingly prayed before the Tribunal to draw up a statement and refer the case before the High Court. The assessee opposed the application. The learned Tribunal upon hearing the parties rejected the application holding that the questions referred to above were not questions of law arising out of such order and accordingly rejected and application. Hence this application.
4. Mr. K.P. Sarma, learned senior counsel appearing on behalf of the Revenue, submitted that the two questions referred to above arose out of the order of the Tribunal and are/were pure questions of law but the Tribunal erroneously refused to refer the same in a most illegal fashion. Learned counsel strenuously argued that the two questions mentioned above not only arose out of the order of the Tribunal but those are questions of law requiring interpretation from this Court. Learned counsel referring to the decision-making process of the Tribunal submitted that the questions raised were of law and, therefore, it was a case in which the Tribunal ought to have referred the aforesaid two questions for full consideration of the matter by this Court in exercise of its power under s. 256(1) requiring the Tribunal to state the case and refer to the High Court according to law. Mr. K.P. Sarma, learned counsel, in support of his case referred to a number of case amongst which the following ceases may be mentioned : Woolcombers of India Ltd. vs. CIT (1981) 23 CTR (Cal) 204 : (1982) 134 ITR 219 (Cal) : TC 56R.316, CIT vs. Sujani Textiles (P) Ltd. (1985) 151 ITR 653 (Mad) : TC 15R.1164, 41R.615 and Indian Metals & Ferro Alloys Ltd. vs. CIT (1992) 193 ITR 344 (Orissa) : TC 15R.1119.
5. Dr. A.K. Saraf, learned senior counsel appearing on behalf of the assessee, on the other hand, submitted that no question of law arose out or the order of the Tribunal and the Tribunal rightly dismissed the application under s. 256(1). Dr. Saraf, in support of his argument, relied upon the following decisions of the Supreme Court : Aluminium Corporation of India Ltd. vs. CIT (1972) 86 ITR 11 (SC) : TC 54R.339 : (1972) 234 ITR 132 (SC) (sic) and CIT vs. Modipon Ltd. (No. 1) (1994) 122 CTR (Del) 119 : (1995) 212 ITR 420 (Del) : TC 13PS.144, 54R.810.
6. We have heard learned counsel for the parties at length and also perused the order of the learned Tribunal. The learned Tribunal on reaching its conclusion took into consideration the factual materials available from the record. The Tribunal considered the order of the AO wherein the AO held that there is a nexus between the interest- bearing borrowed funds and the non-interest bearing advances on the ground that the advances were made from the cash credit and current accounts. The Tribunal when evaluating the aforesaid finding pointedly referred to the finding of the appellate authority as to the availability of sufficient funds in the hands of the assessee. Whether a nexus was there between the borrowed interest bearing fund and interest free advances to the two subsidiary companies ? Whether the borrowed interest bearing funds were utilised for interest free advances ? The CIT(A) on appraising the assertion of the assessee as to the adequate funds on hand at the disposal of the assessee and the Revenue failed to establish any correlation between the funds withdrawn from the cash credit and current account and the funds advanced to the subsidiary companies. The Tribunal concurred with the findings and reasoning of the CIT(A). The Tribunal also opined that the findings made by the CIT(A) were not rebutted by the Revenue with any contrary evidence. The Tribunal, on the other hand, held that the pleas of the assessee was supported by the books of account of the assessee-company. The Tribunal accepted the findings of the CIT(A) that there was no nexus between the funds withdrawn from the cash credit and current accounts and funds advanced as loans to the subsidiary companies. It held that the findings made by the CIT(A) were not controverted with evidence by the Revenue. On evaluation of the evidence on record, the Tribunal accepted the view of the CIT(A). The conclusions arrived at by the Tribunal are drawn from pure inference of facts. If the inference of fact is based on some materials on which conclusion can be drawn, no question of law arises. The findings of the Tribunal also cannot be held to be perverse or based on no evidence. The Tribunal took note of the material evidence and reached its own conclusion. If there is material to support the conclusion, the fact that another body or the Court might have arrived at a contrary conclusion is not relevant. The findings of the Tribunal are pure findings of fact and, therefore, no question of law arises. If in arriving at its conclusion of a fact, the Tribunal has not faltered in employing any rule of law nor has overlooked any material fact or circumstances, no question of law arises. The pure question of fact cannot be turned into a question of law by asking the Tribunal to state a case as to whether the Tribunal reached a correct conclusion of fact as a matter of law.
In the circumstances we do not find any merit in this application and, accordingly, the same is dismissed. There shall, however, be no order as to costs.
[Citation : 247 ITR 510]