Citation Codes

Equivalent Citations

citation codes

Case Number

Income-tax Case No. 123 of 1976

Judges

A. Sambasiva Rao
A.C.J
K. Amareswari, J.

Acts

SECTION 254 INCOME TAX ACT
Section 256(2) of the Income-tax Act, 1961,
Section 32( I )(iii) of the Income-tax Act.
Section 32(1)(iii) of the Income-tax Act.
Section 256(1) of the Income-tax Act
Section 254(2) of the Income-tax Act
Section 256(2) of the Income-tax Act,
Section 254(1) of the Income-tax Act
Section 31(1) of the Income-tax Act,
Sub-section (2) of Section 254,

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Smart Summary

Structured Summary of the Opinion

Factual and Procedural Background

This is an income-tax case filed under Section 256(2) of the Income-tax Act, 1961, seeking a direction that the Income-tax Appellate Tribunal (ITAT) state a case and refer two questions of law to the High Court. The two questions related to (1) whether the assessee was entitled to obsolescence allowance for an old kiln for assessment year 1970-71 in the absence of evidence that the obsolescence was actually written off in the books (as required by the proviso to Section 32(1)(iii)), and (2) whether the Appellate Tribunal was justified in holding that the reference application was not maintainable.

Relevant facts: For assessment year 1970-71 the assessee claimed Rs. 56,604 as current repairs to a kiln. The ITO treated that amount as capital expenditure (investment in building a new kiln after destroying the old) and disallowed the deduction. The AAC allowed the claim as current repairs under Section 31(1). On departmental appeal, the Appellate Tribunal (by order dated October 9, 1973) held that the amount was capital expenditure (thus agreeing with the ITO on that point) but directed that obsolescence allowance in respect of the old kiln should be granted under Section 32(1)(iii).

Following the Tribunal's direction, the ITO inspected the assessee's books and found no entry showing that the obsolescence was actually written off. The revenue filed a miscellaneous petition (March 16, 1974) before the Tribunal pointing out that the proviso to Section 32(1)(iii) requires an actual write-off in the books, and therefore obsolescence allowance should not be granted. The Tribunal rejected that miscellaneous petition by order dated February 26, 1975, reasoning that if the old kiln was treated as obsolescent and the assessee claimed repairs, it must be treated as having written off the outstanding as scrap — a fact the Tribunal considered inherent in its October 9, 1973 order.

Thereafter the revenue applied to the Tribunal to refer the question (about entitlement to obsolescence allowance absent a book write-off) to the High Court. The Tribunal rejected the reference application as not maintainable on the grounds that the question did not arise out of the order dated February 26, 1975 (the order on the miscellaneous petition) and also observed that an order refusing amendment was not an order under Section 254 of the Act. The present petition challenges that refusal to refer.

Legal Issues Presented

Whether, on the facts and in the absence of any evidence that the obsolescence allowance was actually written off in the books of the assessee as required by the proviso to Section 32(1)(iii) of the Income-tax Act, the assessee was entitled to the obsolescence allowance in respect of the old kiln for the assessment year 1970-71?
Whether, on the facts and circumstances of the case, the Appellate Tribunal was justified in holding that the reference application was not maintainable?

Arguments of the Parties

Revenue's (Appellant's) Arguments

The Appellate Tribunal erred in holding that the reference application under Section 256(1) was not maintainable on the ground that the question did not arise from an order under Section 254. The revenue contended the question did arise from the Tribunal's order, and thus the reference was maintainable.
The miscellaneous application was filed under Section 254(2) (rectification/amendment of the Tribunal's order) and, whether the order was one allowing amendment or refusing amendment, it was an order within the meaning of Section 254(2); therefore a reference could properly be sought in respect of that order.
The second question (about whether the Tribunal was justified in holding the reference application not maintainable) was a question of jurisdiction and sufficiently wide to include the first question; the High Court could direct the Tribunal to state the case under Section 256(2), even if the second question had not been the subject-matter of the reference application before the Tribunal.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
CIT v. Kotrika Venkataswamy and Sons [1971] 79 ITR 499 (501)	The High Court cannot call for a statement of case on a question which the Tribunal was never asked to submit; the High Court may direct a statement only where it is satisfied that the Tribunal's refusal to state a case on a question submitted to it is incorrect.	The court relied on this authority to conclude that the second question could not be directed to be referred to the High Court because that question had not been the subject-matter of any reference application before the Tribunal; consequently the High Court could not intervene to call for a statement of case on that question.

Court's Reasoning and Analysis

The court began by identifying the character of the orders before it. It set out the relevant statutory scheme: Section 254(1) permits the Appellate Tribunal to pass such orders as it thinks fit after hearing parties; Section 254(2) permits the Tribunal, within four years, to amend any order under subsection (1) to rectify a mistake apparent from the record when the mistake is brought to its notice by the assessee or the ITO (subject to safeguards where amendment would increase liability).

Applying these provisions to the facts, the court observed that the Tribunal's principal order of October 9, 1973 (directing obsolescence allowance) was an order passed under Section 254(1). The revenue's miscellaneous application sought rectification of that order under Section 254(2). The Tribunal's order dated February 26, 1975 dismissed the miscellaneous application; the legal effect of that dismissal was that the original October 9, 1973 order "remains intact" because the Tribunal declined to amend its original order.

Because the February 26, 1975 order left the original order untouched, the court reasoned that the legal question which the revenue sought to have referred to the High Court did not "arise out of" the subsequent order on the miscellaneous petition. In other words, the question of entitlement to obsolescence allowance (which arose from the main order) could not be framed as arising out of the order dismissing the rectification request. For that reason, the court agreed with the Tribunal's conclusion that the reference application was not maintainable insofar as it purported to arise from the order on the miscellaneous petition.

Regarding the second question (whether the Tribunal was justified in holding the reference application not maintainable), the court noted that this question was not put before the Tribunal in the reference application. The court relied on the Supreme Court decision (CIT v. Kotrika Venkataswamy and Sons) to hold that the High Court cannot call for a statement of case on a question which was never submitted to the Tribunal for a statement of case. Consequently, the High Court could not be satisfied that the Tribunal's refusal to state a case on that question was incorrect when the Tribunal was never asked to submit on it. Therefore, the second question could not be directed for reference.

Summarising its reasoning, the court concluded: (a) the question the revenue sought to refer did not arise out of the order disposing of the miscellaneous petition (Feb 26, 1975), and (b) the second, broader question was not the subject of any reference before the Tribunal and hence could not be directed to be referred by the High Court.

Holding and Implications

HOLDING: The income-tax case is DISMISSED.

Direct consequences for the parties: The court upheld the Appellate Tribunal's refusal to refer the question(s) to the High Court — the Tribunal correctly treated the reference application as not maintainable because the question did not arise out of the order on the miscellaneous petition, and the second question was not a question that had been presented to the Tribunal for referral. The dismissal was ordered without costs.

Broader implications: The opinion confines itself to the application of statutory provisions governing references and rectification under Sections 254 and 256 of the Income-tax Act and reliance on established authority (CIT v. Kotrika Venkataswamy and Sons). The court did not announce any new legal principle; its decision applies the existing statutory framework and precedent to the procedural facts of this case.

Order dated in the opinion: the income-tax case is dismissed without costs.

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Commissioner Of Income-Tax, A.P v. N.J Dadabai

1. This income-tax case is filed under Section 256(2) of the Income-tax Act, 1961, to direct the Income-tax Appellate Tribunal to state a case and refer to the opinion of the High Court two questions of law :

(1) Whether, on the facts and in the circumstances of the case and in the absence of any evidence to show that the obsolescence allowance was actually written off in the books of the assessee as required under the proviso to Section 32(1)(iii) of the Act, the assessee was entitled to the obsolescence allowance in respect of the old kiln for the assessment year 1970-71 ? and (2) Whether, on the facts and circumstances of the case, the Appellate Tribunal is justified in holding that the reference application is not maintainable ?

2. It may be straightaway mentioned here that it is only the first of these two questions that was the subject-matter of reference before the Tribunal under Section 256(1) of the Income-tax Act, the refusal of which has given rise to the above petition. The second question was not agitated before the Tribunal and in fact it arises out of the order refusing to refer the first question.

3. The facts leading up to this petition are as follows :

4. For the assessment year 1970-71, the assessee had claimed a deduction of Rs. 56,604 by way of expenses of a kiln building repairs as in the nature, of current repairs. This claim was negatived by the ITO on the ground that the amount was invested in building a new kiln after destroying the old one and that it represented capital expenditure which is not allowable as current repairs and added the same to the total income of the assessee. On appeal, the AAC came to the conclusion that the expenditure incurred is in the nature of current repairs and is allowable under Section 31(1) of the Income-tax Act, In that view the amount of Rs. 56,604 was deleted by the AAC. On an appeal by the department, the Appellate Tribunal by its order dated October 9, 1973, upheld the view of the ITO treating the sum of Rs. 56,604 as capital expenditure. But at the same time the Tribunal directed that obsolescence allowance in respect of the old kiln should be granted under Section 32( I )(iii) of the Income-tax Act. Since the Appellate. Tribunal observed that the assessee is entitled to obsolescence allowance on the old kiln, the ITO examined the assessee's books of account with a view to find out whether the assessee had actually written off the amount in his books so as to become entitled to the reliefs envisaged under Section 32(1)(iii) of the Act which was directed to be allowed by the Tribunal. According to the ITO, he found that the assessee had not written off any amount towards the value of the asset in question, which is a condition precedent for granting obsolescence allowance under Section 32(1)(iii) of the Act. Hence, a miscellaneous petition was filed on March 16, 1974, bringing it to the notice of the Appellate Tribunal that the assessee is not entitled to the obsolescence allowance as the deficiency was not actually written off in the books of the assessee as required by the proviso to Section 32(1)(iii) of the Income-tax Act. The Appellate Tribunal rejected the miscellaneous petition by its order No. 40/ Hyderabad/73-74 dated February 26, 1975, observing that when the assessee has claimed a sum of Rs. 56,604 by way of repairs, if the old kiln is treated as obsolescent, he should be clearly treated as having written off the entire outstanding as scrap and that this fact is inherent in its order in I.T.A. No. 632/Hyderabad/72-73 dated October 9, 1973.

5. Consequent on the dismissal of the miscellaneous petition by the Tribunal, by its order dated Febuary 26, 1975, the revenue filed an application to refer the following question of law arising out of its order dated February 26, 1975, for opinion of the High Court :

" Whether, on the facts and circumstances of the case and in the absence of any evidence to show that the obsolescence allowance was actually written off in the books of the assessee as required by the proviso to Section 32(.l)(iii) of the Act, the assessee is entitled to the obsolescence allowance in respect of the old kiln for the assessment year 1970-71 ?"

6. The Appellate Tribunal rejected the reference application as not maintainable on the ground that the said question of law does not arise from out of the order of the Tribunal dated February 26, 1975, passed on the miscellaneous petition. It is further observed by the Appellate Tribunal that the order refusing amendment is not an order under Section 254 of the Income-tax Act and hence the reference application is not maintainable for this reason also. It is in these circumstances the present income-tax case is filed to direct the Income-tax Appellate Tribunal to state the case and refer the above narrated two questions of law for its opinion to the High Court.

7. The learned counsel for the revenue, Mr. Holavarapu Rama Rao, contended that the Appellate Tribunal was in error in holding that the reference application filed under Section 256(1) of the Income-tax Act was not maintainable on the ground that the question sought for does not arise from an order under Section 254 and, secondly, he contended that the first question that is sought to be referred arises out of the order of the Tribunal dated February 26, 1975. He submits that the order passed on the miscellaneous application is an order passed within the meaning of Section 254(2) of the Income-tax Act as the said pfovision enables him to file an application for rectification or amendment of the order passed under Sub-section (1). In other words, his contention is whether it is an order allowing amendment or refusing amendment, it is an order under Section 254(2) of the Income-tax Act. He, therefore, contended that the Appellate Tribunal was in error in rejecting the application on the ground that a reference application does not lie against an order passed on a miscellaneous petition. He further submits that the second question being a question of jurisdiction and wide in its nature so as to include the first question, can be sought for reference under Section 256(2) of the Income-tax Act, even though the same was not the subject-matter of reference application before the Appellate Tribunal. In order to appreciate these contentions we may refer to the relevant provisions of the Income-tax Act. Section 254 of the Income-tax Act is as follows :

" 254. (1) The Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon, as it thinks fit. .

(2) The Appellate Tribunal may, at any time within four years from the date of the order, with a view to rectifying any mistake apparent from the record, amend any order passed by it under Sub-section (1), and shall make such amendment if the mistake is brought to its notice by the assessee or the Income-tax Officer.

Provided that an amendment which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee, shall not be made under this sub-section unless the Appellate Tribunal has given notice to the assessee of its intention to do so and has allowed the, assessee a reasonable opportunity of being heard. "

8. On a reading of these provisions it is clear that under Section 254(1) of the Income-tax Act the Appellate Tribunal may pass an order as it thinks fit after giving the parties an opportunity of being heard. Under Sub-section (2) of Section 254, the Appellate Tribunal may amend any order passed.by it under Sub-section (1) within a period of four years, if there is any mistake apparent from the record and if the mistake is brought to its notice; by the assessee or the ITO. In the instant case, the Appellate Tribunal by its order, dated October 9, 1973, in the appeal preferred by the department directed the ITO to grant obsolescence allowance in accordance with Section 32(1)(iii) of the Act. This order was passed under Sub-section (1) of Section 254 of the Income-tax Act. The miscellaneous application filed by the revenue under Section 254(2) of the Income-tax Act for rectification of the order dated October 9, 1973, was rejected by the Appellate Tribunal by its order dated February 26, 1975, the result of which is that the original order remains untouched. The Appellate Tribunal declined to amend its original order. Hence, it cannot be said that the first of the two questions that is now sought to be referred to the High Court and which was refused to be referred by the Appellate Tribunal arises out of the subsequent order of the Tribunal dated February 26, 1975. In this view, it may not be necessary to go into the question whether the subsequent order is an order passed under Sub-section (2) of Section 254 of the Income-tax Act. Suffice it to say, that the question that is sought to be referred does not arise out of the order of the Tribunal dated February 26, 1975, dismissing the application of the revenue for amending the original order dated October 9, 1973. As already stated earlier, the effect of the subsequent order is that the original order remains intact. Hence, we agree with the Appellate Tribunal in holding that the question of law that is sought to be referred does not arise out of the order of the Appellate Tribunal dated February 26, 1975. The reference, if any, can be only in respect of the main order which, if filed, may give rise to many questions like limitation. But the revenue sought for a reference of the question as arising out of the order on the miscellaneous petition, which in our opinion is clearly untenable. We do not see any valid reason to differ from the view taken by the Income-tax Appellate Tribunal in holding that the reference application in the present case was not maintainable as the above question of law that is sought to be referred does not arise out of the order of the Tribunal on the miscellaneous petition.

9. As regards the second question, it may be noticed that this question was not the subject-matter of reference application before the Appellate Tribunal. Under Section 256(2) of the Income-tax Act, the High Court can direct the Appellate Tribunal to state the case in respect of the questions which were refused to be referred by the Appellate Tribunal, if.it is satisfied that a question of law arises. But, in the present case, the second question was not sought for by the revenue to be referred by the Appellate Tribunal. Mr. Rama Rao submits that this question being a question of jurisdiction and wide enough to include the first question, the High Court can direct the Tribunal to state the case and refer to it even though the same was not sought for before the Tribunal. We are unable to agree with this contention. In this connection, we may refer to the decision of the Supreme Court in CIT v. Kotrika. Venkataswamy and Sons [1971] 79 ITR 499, 501, wherein it was observed that

" the appellant could not ask the High Court to call for a statement of case on a question on which the Tribunal was not asked to submit a statement. Under Section 66(2) of the Act, the High Court may call for a statement of case if the High Court is not satisfied about the correctness of the decision of the Tribunal refusing to state a case to the High Court. The High Court cannot obviously be satisfied that the decision of the Tribunal in not submitting a statement on a question is incorrect, when the Tribunal was never asked to submit a statement of case on that question"

10. In view of the above decision, there cannot be any doubt that the secorid question cannot be directed to be referred to the High Court as the same was not the subject-matter of the reference application before the Tribunal.

11. In view of the foregoing discussion, the income-tax case is dismissed but, in the circumstances, without costs.

Commissioner Of Income-Tax, A.P v. N.J Dadabai

Structured Summary of the Opinion

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Revenue's (Appellant's) Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Commissioner Of Income-Tax, A.P v. N.J Dadabai

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