The Commissioner Of Income Taxpanaji, Goa v. M/S Rajaram Bandekar (Sirigao) Mines Pvt. Ltd., Vasco-Da-Gama

IN THE HIGH COURT OF BOMBAY AT GOA REFERENCE UNDER INCOME TAX ACT NO.2/2004 The Commissioner of Income TaxPanaji, Goa. .......... Applicant. Versus M/s Rajaram Bandekar (Sirigao) Mines Pvt. Ltd., Vasco-da-Gama. ......... Respondent. Mr. S. R. Rivonkar, Advocate for the applicant. Mr. A. F. Diniz, Advocate for the respondent. CORAM : S.C. DHARMADHIKARI & SANTOSH BORA, JJ. Date : 12[th] August, 2008. ORAL JUDGMENT : (Per DHARMADHIKARI, J.) 1.This is a reference under Section 256(1) of the Income Tax Act, 1961, referring the following questions for opinion of this Court : 1. Whether on the facts and in the circumstances of the case the ITAT was right in law in holding that the provisions of Section 40(c) are not applicable where the wife of a director used the assessee's building for her own benefit and the interest paid on the borrowed funds for the construction of the building was unreasonable ? 2. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the sum of Rs.3,22,992/- being the amount spent by the assessee on the construction of the tenements is a revenue expenditure when it had no obligation to incur the same ? the case, the Tribunal was right in law in holding that the sum of Rs.3,22,992/- being the amount spent by the assessee on the construction of the tenements is a revenue expenditure when it had no obligation to incur the same ? 2.The background facts in which these questions were framed are that the Asseessee is a company which had constructed a building on a Leased property out of borrowed funds. It used the building for its business purposes for sometime and subsequently let it out on a nominal monthly rent of Rs.5,000/-. The assessee spent in all Rs.37.00 lakhs being costs towards construction and furnishing it. During the assessment years 1985-86, and 1986-87 the assessee paid to the Goa Urban Co-operative Bank Ltd. sums of Rs.2,40,764/-, Rs.2,51,078 and Rs.2,51,078/- towards interest and claimed a Deduction. The Assessing Officer disallowed the claim of the asseessee by applying the provisions of Section 40(c)(ii) of the Income Tax Act. In appeal, the Commissioner of Income Tax (Appeals) followed his order for the assessment year 1982-83 and deleted the disallowance. In other words, the claim was allowed by the Commissioner of Income Tax (Appeals). The Revenue appealed to the Income Tax Appellate Tribunal, Bangalore Bench `A' and by an order dated 25[th] October, 2002, the above questions have been referred. 3.We have heard Shri Rivonkar for the Revenue and Shri Diniz for the assessee. 4.The Commissioner of Income Tax (Appeals) by order dated 23.11.1989 while allowing the appeal, has referred to the reasons in CIT(A)'s Order ITA No. 38/MRG/85-86, dated 23.7.86 and agreed with the said reasoning. 5.The learned Counsel appearing for the assessee contends before us that the reference is not maintainable. It is contended that the reference does not raise any question of law, which arises for consideration and rendering of any opinion by this Court. The entire dispute was factual. In facts of the present case, the Commissioner of Income Tax (Appeals) allowed the claim with regard to the deduction. It is contended that the decision by Commissioner (Appeals) is rendered in the peculiar facts of this case. In such circumstances, the case forwarded for opinion before this Court should be answered as being not maintainable. In other words, no question of law arises for determination or opinion of this Court. The reference be answered accordingly. 5.The learned Counsel appearing for the assessee contends before us that the reference is not maintainable. It is contended that the reference does not raise any question of law, which arises for consideration and rendering of any opinion by this Court. The entire dispute was factual. In facts of the present case, the Commissioner of Income Tax (Appeals) allowed the claim with regard to the deduction. It is contended that the decision by Commissioner (Appeals) is rendered in the peculiar facts of this case. In such circumstances, the case forwarded for opinion before this Court should be answered as being not maintainable. In other words, no question of law arises for determination or opinion of this Court. The reference be answered accordingly. 6.Shri Rivonkar, on the other hand, contends that the Reference is by the Tribunal after it concluded that in law no benefit, either directly or indirectly accrued to the Director by renting out building and, therefore, provisions of Section 40 of the Act are not applicable. In such circumstances, this is a matter where the Questions of Law arise which must be answered and opinion expressed thereon by this Court. 7.We have given anxious consideration to the submissions and perused with the assistance of the Counsel appearing for the Revenue and the Assessee, the judgments rendered by the Tribunal, so also the Appellate Authority. In the present case, the Tribunal itself has observed that a similar issue came up for consideration before it in the case of same assessee for the assessment year 1982-83 and by order dated 3.8.94, the Tribunal held that by renting out building, no benefit directly or indirectly accrued to the director. This order was delivered by the Tribunal by relying upon Section 40 of the Income Tax Act, 1961. It is this reasoning which has been followed. The reasoning in this order shows that the Tribunal upheld the order of the Commissioner (Appeals) and dismissed the appeal of the Revenue. 8.For the subsequent assessment year i.e. 1984-85, the assessee debited under “Cess quarters expenses” a sum of Rs. 3,22,992/- and claimed it as “Revenue Expenditure”. This was claimed as staff welfare expenses. Reliance was placed on a decision of Pune Bench of the Income Tax Appellate Tribunal in the case of M/s. Chowgule & Co. P. Ltd. There also the Assessing Office disallowed the claim and in appeal, the Commissioner (Appeals) followed the decision of the Tribunal referred to above and directed allowance of the above expenditure. 9.To our mind, the decisions which are relied upon to answer the issue in favour of the assessee and against the Revenue are rendered by the Authorities under the Income Tax Act. Considering the peculiar facts of the case, which have been noted by us above, when consistently benefit has been claimed and has been granted for the previous assessment years, we see no reason rendered as to how the Tribunal differed with its earlier view and has entertained the appeal at the instance of the Revenue. The facts were before the Authorities and the Authorities having satisfied, concluded that the claim was allowable. In the peculiar facts, we see no question of law which could be forwarded for opinion of this Court. The entire backdrop in which the Appellate Authority rendered its decision is factual and peculiar to the case of the present assessee. In such circumstances, the reference is not maintainable. It is answered accordingly. In other words, the conclusion drawn on facts in favour of the assessee need not be disturbed, as there is no question of law in this case. Reference returned. S.C. DHARMADHIKARI, J. ssm. SANTOSH BORA, J.