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Commissioner Of Income-Tax vs Ram Bahadur Thakur Ltd.

High Court Of Kerala|28 October, 1998

JUDGMENT / ORDER

Om Prakash, C.J. 1. As directed by this court under Section 256(2) of the Income-tax Act, 1961, (briefly, the "Act"), the Income-tax Appellate Tribunal referred the following questions, relating to the assessment year 1985-86, for the opinion of this court :
"1. Whether, on the facts and in the circumstances of the case, the order of the Tribunal under Section 254(2) of the Income-tax Act is valid and with jurisdiction ?
2. Whether, on the facts and in the circumstances of the case--
(i) is not the order of the Tribunal finding that 'the tenancy arrangement was a genuine one' as against the earlier finding of tenancy 'on a hypothetical basis' one amounting to review and hence against law ?
(ii) is not the order against the decision reported in CIT v. Gokul Chand Agarwal [1993] 202 ITR 14 (Cal) and CIT v. Ramesh Electric and Trading Co. [1993] 203 ITR 497 (Bom) ?
3. Whether, on the facts and in the circumstances of the case, the Tribunal which fixed the quantum at Rs. 15 lakhs and 'in fixing this quantum has proceeded on a hypothetical basis that there existed a tenancy between two parties......' in its earlier order is right in law and fact and had materials and is with jurisdiction in finding :
'We hold that the tenancy arrangement was a genuine one and the payment of Rs, 10 lakhs was incurred wholly and exclusively in connection with the sale of impugned property' and are not the above findings, such as, 'a genuine one' 'the payment of Rs. 30 lakhs was incurred wholly and exclusively in connection with the sale' wrong, unreasonable, inconsistent, without materials and based on surmises and conjunctures ?
4. Whether, on the facts and in the circumstances of the case, the Tribunal which on the basis of the materials and evidence available at the time of its first order dated December 23, 1992, could find the existence of tenancy between parties only 'on a hypothetical basis' could on the basis of the very same material, and evidence find, 'the tenancy agreement' 'a genuine one' and are not the inconsistent finding based on the same material/no material, militating against each other, illogical, unreasonable and hence both the order vitiated and void ?"
2. The facts, as found by the Appellate Tribunal, are that the assessee-company had an office apartment in Maker Towers, Bombay, which was leased out to another company, called Thakur Shipping Co. Ltd. (T. S. Co. for short). The assessee sold the office apartment and gave vacant possession to the buyer after getting the apartment vacated from T. S. Co. The asses-see claimed to have paid Rs. 30 lakhs to T. S. Co., for vacating the apartment. In computing the capital gains on the sale of the apartment, the assessee deducted Rs. 30 lakhs under Section 48(1)(a)(i) of the Act claiming that the said expenditure was wholly and exclusively in connection with the transfer. The Assessing Officer, however, allowed deduction only up to Rs. 16 lakhs. The assessee appealed against the disallowance of the balance amount. During the pendency of the appeal, the Commissioner of Income-
tax passed an order under Section 263 of the Act setting aside the assessment order and directing the Assessing Officer to reconsider the admissibility of the amount deducted by the assessee. The Assessing Officer framed the assessment pursuant to the order passed under Section 263 and disallowed the entire claim of Rs. 30 lakhs holding that T.S. Co., had no tenancy or right of possession over the property. He also observed that it was not mentioned in the sale deed that T. S. Co., was a tenant in the apartment. It was, therefore, held that deduction of Rs. 30 lakhs was simply an attempt to avoid tax. The assessee again appealed to the Commissioner of the Income-tax (Appeals), who affirmed the order of the Assessing Officer.
3. The assessee went in further appeal before the Appellate Tribunal. The Tribunal, in so far as material, held as under :
"We having regard to all the facts before us, hold that it would be reasonable on a liberal scale to consider a sum of Rs. 15,00,000 as reasonable and this is the only amount that could be claimed as a deduction while computing the capital gains, exigible to tax. We, in fixing this quantum, have proceeded on a hypothetical basis that there existed a tenancy between the two parties and the amount that the landlord would have to pay to the tenant to get vacant possession."
4. The assessee then made an application for rectification to the Appellate Tribunal. The Tribunal, purporting to act under Section 254(2) of the Act, found as under :
"Undoubtedly the case of the Revenue was that the whole arrangement leading to the payment of Rs. 30 lakhs was a device or an attempt to avoid tax. This was the issue before the Tribunal. No doubt, the learned Departmental Representative had described the payment of Rs. 30 lakhs as unreasonable, but that was in the context and setting that the whole transaction is a device or a sham. Therefore, we hold that the reasonableness of the amount paid was not an issue in itself before the Tribunal. Further, in this case, deduction was claimed under Section 48(1)(a)(i) of the Income-tax Act under which the expenditure incurred wholly and exclusively in connection with the transfer is to be allowed. There is force in the submission made on behalf of the assessee that the language employed, namely 'expenditure incurred wholly and exclusively' does not permit any authority to go into the question whether such expenditure was necessary or reasonable,"
5. This is how the Tribunal allowed the miscellaneous application purporting to have been made under Section 254(2) allowing the entire deduction of Rs. 30 lakhs, as claimed by the assessee.
6. The pivotal question for consideration is whether, on the facts and in the circumstances of the case, the Tribunal was right in exercising jurisdiction under Section 254(2). From the order of the Tribunal, it is amply clear that it was of the view that there was no scope under Section 48(1)(a)(i) to go into the reasonableness of the expenditure claimed in connection with the transfer. The Tribunal found so, relying on Sassoon J. David and Co. P. Ltd. v. CIT [1979] 118 ITR 261 (SC). In this authority, the Tribunal referred, under Section 66(1) of the Indian Income-tax Act, 1922, the following question for the consecutive assessment years 1958-59, 1959-60 and 1960-61 in respect of the annuity paid to one Mr. A. E. Joseph (page 268) :
"Whether, in computing the assessee's business income of the accounting years 1957, 1958, and 1959 relevant for the assessment years 1958-59, 1959-60 and 1960-61, the sum of Rs. 16,885 is an admissible deduction under Section 10(2)(xv) of the Act ?"
7. Section 10(2)(xv) of the Act of 1922 is analogous to Section 37(1) of the Act and not to Section 48(1)(a)(i). The only similarity between Section 57(1) and Section 48(1)(a)(i) is that in both, the phrase "wholly and exclusively" is used. From the question referred to the Bombay High Court in Sassoon J. David and Co. P. Ltd.'s case [1979] 118 ITR 261 (SC), under Section 66(1) of the old Act, it is clear that the Supreme Court was not required to go into the question of reasonableness of the expenditure under Section 10(2)(xv), analogous to Section 37(1) and, therefore, Sassoon J. David and Co. P. Ltd.'s case [1979] 118 ITR 261 (SC), cannot be an authority on the proposition : whether the Tribunal could go into the reasonableness of the expenditure under Section 10(2)(xv). We are, therefore, of the considered view that no conclusion could have been drawn by the Tribunal on the basis of Sassoon J. David and Co. P. Ltd.'s case [1979] 118 ITR 261 (SC), that there was a mistake apparent from the record. Assuming, but not accepting, that Sassoon J. David and Co. P. Ltd.'s case [1979] 118 ITR 261 (SC), was an authority on the point that reasonableness of the expenditure could not be gone into under Section 66(1) or Section 37(1), it still remains debatable whether the said authority could be used for the purpose of Section 48(1)(a)(i). What was held for the purpose of Section 10(2)(xv) holds good for the purpose of Section 48(1)(a)(i)--this question is not free from debate and, therefore, on the facts and in the circumstances of the instant case, recourse could not have been had to Section 254(2).
8. From the order of the Tribunal, it is mainfest that the Departmental Representative had urged that payment of Rs. 30 lakhs was unreasonable. The Tribunal, however, found that such plea "was in the context and setting that the whole transaction is a device or sham". Whether the Departmental Representative raised the plea of unreasonableness in the context and setting that the whole transaction is a device or sham or in some other context--this question is also not free from debate.
9. We are, therefore, of the view that the Tribunal was not right in having reviewed its earlier order exercising power under Section 254(2) of the Act. Section 254(2) cannot be resorted to rectify every mistake, but that can be taken recourse only to rectify a mistake apparent from the record. Entering into reasonableness of the expenditue claimed by the assessee in connection with the transfer cannot be said to be a mistake apparent from record.
10. We, therefore, answer all the questions in favour of the Revenue, and against the assessee.
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Title

Commissioner Of Income-Tax vs Ram Bahadur Thakur Ltd.

Court

High Court Of Kerala

JudgmentDate
28 October, 1998
Judges
  • O Prakash
  • J Koshy