1986 PLP 649 (PTD)

RANGANATHAN, J.‑‑These applications under section 256(2) of the Income‑tax Act, 1961 are by the Commissioner of Income‑tax. They relate to the assessment years 1966‑67 to 1969‑

70. The Commissioner of Income‑tax seeks by these applications a direction that the following three questions be referred to this Court under section 256(2) the first two being common for all the four years while the third question is relevant only for 1967‑68: (1) Whether on the facts and in the circumstances of the case tile Tribunal was justified in holding that the income from interest receivable by the assessee company for each of the previous years relevant to the assessment years 1966‑67 to 1969‑70 did not accrue and arise and was not assessable in the respective years? (2) Whether on the facts and in the circumstances of the case the Tribunal was justified in holding that the company carried on business in India and the expenses as well as the Managing Agency Commission were admissible deductions under the head "Income from business" for each of the four years? (3) Whether the Tribunal was justified on the facts and in the circumstances of the case in allowing deduction of Rs.88,873 for sales tax pertaining to the years relevant to the assessment years 1961‑62 and 1962‑63 in the assessment year for 1967‑68 assessment year?"

2. So far as the first question is concerned it is common ground that the same question arose for the consideration of the Tribunal in relation to the assessment years 1970‑71 to 1972‑

73. The Tribunal had answered the question by saying that the interest income was not assessable in those assessment years. The Commissioner of Income‑tax dissatisfied with that decision of the Tribunal, applied to this Court for directions under section 256(2) for the reference of the issue for the determination of this Court These applications (Nos. I. T. C. 34 to 36/ 76) were heard by a Division Bench of this Court and were dismissed in limine on 10th February, 1976. The order of this Court, dated 10th February, 1976 contains a brief narration of the facts and circumstances and came to the conclusion that the finding .of the Tribunal that the contract (on the basis of which the interest, according to the department, was payable) had become impossible of performance on account of the declaration of war between India and Pakistan and has become frustrated was clearly the correct view from which no reference was called for. The department preferred special petitions for leave to Supreme Court (being S.L.P. (civil) Nos. 2318 to 2320 of 1976) against the order of this Court, dated 10th February, 1976 but these were dismissed by the Supreme Court on 14th March, 1978.

3. While disposing of the appeals for 1970‑71 to 1972‑73 the Tribunal followed its earlier orders for the assessment years 1966‑67 to 1969‑70 (which form the subject‑matter of the present applications). It is contended on behalf of the respondent that the facts and question for consideration being the same in regard to both sets of years we should, following our earlier order in I. T. Cs, Nos. 34 to 36/76 as confirmed by the Supreme Court by the dismissal of the S. L. Ps. referred to above, decline to direct a reference of the first question sought to be raised in these applications.

4. On the other hand, on behalf of the department it is submitted that while disposing of I. T. Cs. 34 to 36 of 1976, this Court did not have the benefit of the orders of the Tribunal fog the assessment years presently in question. It is also submitted that the Tribunal itself has taken a different view regarding the assess ability of interest income in question while disposing of a similar appeal of the assessee for the assessment year 1973‑74 and that at the instance of the assessee a reference has been made to this Court as 1 T R 326/81 on the question of the assess ability of the interest income in question so far as that assessment year is concerned. Shri Wazir Singh submits that the view of the Tribunal that the contract in pursuance of which interest had become payable to the assessee had got frustrated by Indo‑Pak war was not correct and that in fact the assessee has been able, in the course of subsequent arbitration, to obtain an award regarding interest payable to him for the amounts due under the contract. He, therefore, submits that we should direct a reference of this question for the assessment years 1966‑67 to 1970‑71 and should also direct that this matter should be heard alongwith I T R 326/81.

5. Wes are unable to accept the contentions of the departmental counsel. As stated earlier, we are concerned with the assessment years 1966‑67 to 1969‑

70. The order of the Tribunal for these years has been followed in the assessment years 1970‑71 to 1972‑73 and that order has become final in view of the proceedings referred to above. It will be anomalous for us, after having dismissed I.T.Cs. 34 to 36/76 which related to assessment years 1970‑71 to 1972‑73, to direct a reference on the same issue in relation to the earlier assessment years 1966‑67 to 1969‑70 particularly when the Supreme Court has dismissed a S.L.P. against the order of this Court dismissing those I.T.Cs. The grounds on which the departmental counsel seek to get over the earlier decision are not tenable. A perusal of the order of this Court, dated 10th February, 1976 shows that while it is no doubt true that the appellate order in respect of assessment years 1966‑67 to 1969‑70 was not before this Court the entire facts and discussion relevant thereto were repeated in the order of the Tribunal on the applications under section 256(1) filed for the assessment years .1970‑71 to 1972‑

73. In both sets of years the case of the department was that certain interest had accrued due to the respondent‑company by virtue of two agreement, dated 24‑7‑1982 and 2‑11‑1962 entered into between the respondent‑company and a certain person in Karachi. The short question for consideration was whether this contract has got frustrated due to the Indo‑Pakistan war thus rendering the interest no longer payable by the Karachi party and no longer recoverable by the respondent‑company. This question was answered in the affirmative by the Tribunal and this Court and as already pointed out has become final between the parties for the subsequent years. So far as the proceedings for the assessment years 1966‑67 to 1969‑70 on the one hand and 1970‑71 to 1972‑73 on the other, there is no distinction in facts, the approach of the departmental authorities or the controversy between the parties. In our opinion, therefore, it is the decision in the assessment years 1970‑71 to 1972‑73 that should govern the present assessment years also.

6. So far as the assessment year 1973‑74 is concerned a perusal of the printed papers in I T R 326/81 to which the counsel for the department has drawn attention clearly shows that the issues were there debated on the basis of certain subsequent arbitration proceedings (to which reference has been made earlier) in which the respondent‑company was successful and in pursuance of which the respondent was able to obtain an award even by way of interest. The question for consideration for the Tribunal was whether the interest awarded by the arbitrator on 1‑3‑‑1971 and 3‑3‑1972 which was subsequently recovered by the assessee from the National Bank of Pakistan constituted income and if so what amount of such income was assessable in the hands of the assessee for the assessment year 1973‑

74. The Tribunal discussed those issues at great length and came to the conclusion that the interest awarded constituted income and also that the assessee was liable to be taxed in respect of a larger amount of interest than the sum of Rs.12,25,922 which had been brought to tax by the department. It may be mentioned that the amount of Rs.12,25,922 had been brought to charge by the Income‑tax Officer in the assessment year 1973‑74 on the same basis as in the years presently under consideration. The Tribunal in view of the totally different approach and scope of discussion before it in relation to that assessment year came to the conclusion that the interest awarded by the arbitrator was taxable and that in respect of assessment year 1973‑74 as well as the earlier assessment years the assessee was liable to be taxed in respect of a larger amount of interest than had been brought to tax by the Income‑tax Officer himself. It appears that these proceedings have been initiated under sections 147 and 148 by the department to give effect to the findings of the Tribunal in the appeal relating to the assessment year 1973‑

74. It is contended that the entire discussion before the Tribunal in the assessment year 1973‑74 on the question of assess ability of interest in the hands of the appellant shows that there is an arguable issue involving certain points of law. But we cannot look at the issue in such a broad manner. The whole controversy between the parties in the years presently under consideration proceeded on a very narrow ground. The scope of the debate before the Tribunal for the assessment years 1966‑67 to 1969‑70 was exactly the same as for the assessment years 1970‑71 to 1972‑

73. That being so and having regard to the facts already mentioned it is difficult for us to direct a reference on the issue of interest as raised in the application presently under consideration merely because for different reasons and on the basis of consideration of facts outside the purview of the proceedings in the years presently under reference the Tribunal came to the contrary conclusion in the assessment years 1973‑74.

7. For the above reasons we decline to direct any reference on the first of the three questions read to above.

8. We have heard the learned counsel for the parties and we and of opinion that the second and third questions posed in the application are questions of law. We, therefore, direct the Tribunal to state a case in relation to the assessment year 1966‑‑67 to 1969‑70 and refer for the decision of this Court the following two questions:‑ "(1) Whether on the facts and in the circumstances of the case the Tribunal was justified in holding that the expenses as well as the Managing Agency commission paid by the assessee were admissible deductions under the head "Income from business" in respect of each of the four years 1966‑67 to 1969‑70? (2) Whether on the facts and in the circumstances of the case the Tribunal was right in allowing a deduction in the assessment year 1967‑68 .for a sum of Rs.88,873 in respect of sales tax pertaining to the accounting years relevant to assessment years 1961‑62 and 1962‑63."

9. The second of the question will as already pointed out be relevant only for the assessment year 1967‑68 while the first question will arise in all the four assessment years. The Tribunal, however, may make a consolidated statement of the case for all the four assessment years. M . B . A. Order accordingly.