Kerala H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was right in law and in fact in finding that the liability to pay the kist and interest is not at all obliterated by the Kerala High Court judgment ?

Section 256(2)

Asst. Year 1982-83

Counsel Appeared

Ravindranatha Menon & N.R.K. Nair, for the Revenue : P. Balachandran, for the Assessee

S. PARIPOORNAN, J. :

The Revenue is the petitioner herein. The respondent assessee is a firm. It is an abkari contractor. The matter relates to the asst. yr. 1982-83. Amounts of Rs. 13,65,487 and Rs. 1,14,321 were debited in the P & L a/c, being the kist payable and the interest thereon, respectively, for the asst. yr. 1982-83. The full amount of kist was not paid by the assessee. There were litigations regarding the amount of kist, interest and the process of recovery proceedings. The matter came up before this Court in Issac vs. Assistant Excise Commissioner (1984) KLT 88. The ITO disallowed the amount of kist and interest mentioned above and added back the same to the total income of the assessee. In appeal, the CIT (A) held that at least the sums of Rs. 6,83,250 and Rs. 1,12,990 towards kist and interest would be admissible deductions. In further appeal, by the respondent/assessee, the Tribunal held that the entire amount of Rs. 14,79,808 would be allowed as deduction. Thereafter, the Revenue filed an application under s. 256(1) of the IT Act for referring the questions of law formulated in para 7 of the original petition, for the decision of this Court. It was declined by the Tribunal by its order dated April 30, 1987. Thereafter, the Revenue has filed this original petition, under s. 256(2) of the Act, praying that the Tribunal may be directed to refer the questions of law formulated in para 7 of the original petition for the decision of this Court. The questions are as follows :

“(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law and in fact in finding that the liability to pay the kist and interest is not at all obliterated by the Kerala High Court judgment ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law and in fact in reversing the order of CIT (A) and in holding that the assessee should be allowed deduction of the entire amount of Rs. 14,79,808 ?

(3) Is the Tribunal right in holding that the CIT (A) is not correct in saying that the decision of the Hon’ble High Court delivered on November 14, 1983, has to be considered to be in force as on March 31, 1982 ?”

We heard counsel for the Revenue as also counsel for the respondent assessee. The Tribunal has adverted to the decision of this Court in Issac’s case (supra) as also the decision of the Supreme Court in Kedarnath Jute Manufacturing Co. Ltd. vs. CIT (1971) 82 ITR 363 (SC) and the decision of the Bombay High Court in CIT vs. Babulal Narottamdas (1976) 105 ITR 721 (Bom). According to the Tribunal, the effect of the decision in Issac’s case (supra) is only to restrain the Government from taking any coercive steps for recovering the kist amount and interest alleged to be due from the assessee till the quantum thereon is properly determined on a reasonable and fair basis and the liability to pay the kist and interest is not at all obliterated and wiped out by the judgment of this Court in Issac’s case (supra). It was further stated that the decision of the Supreme Court in Kedarnath Jute Manufacturing Co.’s case (supra), governs the matter and the liability to pay the balance of kist and interest was very much there on March 31, 1982, relevant for the asst. yr. 1982-83. It is on this basis that the entire amount of Rs. 14,79,808 was held to be an allowable deduction.

The fundamental question that will arise in this case is regarding the system of accounting followed by the assessee. There is no whisper either in the assessment order or in the order passed by the CIT (A) or in the order of the Tribunal stating that the system of accounting followed by the assessee is “mercantile”. Only on an express finding on that score, the further question regarding the applicability of the decision of the Supreme Court in Kedarnath Jute Manufacturing Co.’s case (supra) will arise. The impact of the decision of this Court in Issac’s case (supra) also arises for consideration as to whether the liability, if any, accrued on the hypothesis that the system of accounting is “mercantile”, has been wiped out or obliterated or stood adjourned or postponed. These aspects have not been examined in proper manner. We are of the view that on a reading of the appellate order passed by the Tribunal dated March 30, 1987, as a whole, questions Nos. 1 and 2, formulated in para 7 of the original petition and extracted hereinabove, do arise out of the appellate order of the Tribunal. Accordingly, we direct the Tribunal to refer questions Nos. 1 and 2, formulated in para 7 of the original petition and extracted herein above, for the decision of this Court along with the statement of the case and other materials within three months from the date of receipt of a copy of this judgment. Question No. 3, formulated in para 3 of the original petition, is purely a hypothetical and legal one. The scope of a legal decision is well settled. legal decision declares the law. We do not think that question No. 3 formulated in para 7 of the original petition is a referable question of law.

5. The original petition is allowed to the extent indicated hereinabove.

[Citation : 177 ITR 436]