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Wednesday, March 11, 2015

Sec.37 of Income tax Act - claiming exemption from paying income tax on commission payments made to Commission Agents as part of business developments - Since the Assessee failed to discharge his burden , his claim was disallowed except by Tribunal - High court set aside the order of Tribunal - whether the High Court could have reframed the questions after the conclusion of the arguments and that too without giving an opportunity to the assessee. -the jurisdiction of the High Court to set aside the order of the Tribunal in the exercise of its Reference Jurisdiction.- Apex court held that Undoubtedly, in the exercise of its Reference Jurisdiction the High Court was not right in setting aside the order of the Tribunal. However, reading the ultimate paragraph of the order of the High Court we find that the error is one of form and not of substance inasmuch as the question arising in the Reference has been specifically answered in the following manner. "We therefore set aside the order of the Tribunal and uphold that of the Commissioner (Appeals) and answer the questions in favour of the Revenue by holding that the assessee had not discharged the burden that it is entitled to deductions under Section 37 of the Income Tax Act. Reference is answered accordingly." In performing the said exercise the High Court did not disturb or reverse the primary facts as found by the learned Tribunal. Rather, the exercise performed is one of the correct legal inferences that should be drawn on the facts already recorded by the learned Tribunal. The questions reframed were to the said effect. The legal inference that should be drawn from the primary facts, as consistently held by this Court, is eminently a question of law. No question of perversity was required to be framed or gone into to answer the issues arising. In fact, as already held by us, the questions relatable to perversity were consciously discarded by the High Court. We, therefore, cannot find any fault with the questions reframed by the High Court or the answers provided. For the aforesaid reasons, Civil Appeal No. 1569 of 2007 has to fail and it is accordingly dismissed. = 2015 S.C.msklawreports




Succinctly, the appellants are engaged in  the  manufacture  and
      sale of beer and  other  alcoholic  beverages.   Certain  States  like
      Kerala and Tamil Nadu had  established  marketing  corporations  which
      were  the  exclusive  wholesalers  of  alcoholic  beverages  for   the
      concerned State whereby all manufacturers  had  to  compulsorily  sell
      their products to the State Corporations which, in  turn,  would  sell
      the liquor so purchased, to the  retailers.   It  is  pleaded  by  the
      appellants that manufacturers of beverages containing alcohol have  to
      engage services of agents who would co-ordinate with the retailers and
      State Corporations to ensure continuous flow/supply of  goods  to  the
      ultimate consumers.  And on that ground they  sought  deduction  under
      Section 37 of the Act.
The claim made by the assessee in  the  facts  noted  above  was
      disallowed by the Assessing Officer by order  dated  29.01.1993.   The
      said order of the Assessing Officer was confirmed by the  Commissioner
      of Income Tax (Appeals) by order dated 29.10.1993.  The  assessee  had
      moved the learned Income Tax Appellate Tribunal, Cochin Bench  against
      the aforesaid orders.  The learned Tribunal took  the  view  that  the
      assessee was entitled to claim for deduction.  The said  view  of  the
      learned Tribunal has been reversed by the High Court in the  Reference
      made to it under Section 256 (2) of the Act.
Eventually,  in  the  ultimate
      paragraph of its order the High Court after recording  the  conclusion
      that the "Tribunal  has  committed  a  grave  error  in  not  properly
      understanding the transaction entered into between  the  assessee  and
      others" set aside the order of the Tribunal and upheld  the  order  of
      the Commissioner (Appeals) and answered the questions in favour of the
      revenue by holding that the assessee had not discharged the burden  so
      as to entitle it to deduction under Section 37 of the Act.  Aggrieved,
      this appeal has been filed by the assessee.

    Three propositions have been advanced before us on behalf of the
      contesting parties.
The first is
whether the  High  Court  could  have
      reframed the questions after the conclusion of the arguments and  that
      too without giving an opportunity to the assessee. 
The answer  to  the
      above question, according to the appellant,  is  to  be  found  in  M.
      Janardhana Rao vs. Joint Commissioner of Income  Tax[1]  wherein  this
      Court has held that questions  of  law  arising  in  an  appeal  under
      Section 260-A of the Act must be framed at the time of  admission  and
      should not be formulated after conclusion of the arguments. Though the
      decision in M. Janardhana Rao (supra) is in the context of Section 260-
      A of the Act, it is urged that the same principles would apply to  the
      exercise of jurisdiction under Section 256 of  the  Act  (as  it  then
      existed) particularly as the jurisdiction under Section  256  is  more
      constricted than under Section 260-A of the Act.

       
The second issue raised is 
the jurisdiction of the  High  Court
      to set aside the  order  of  the  Tribunal  in  the  exercise  of  its
      Reference Jurisdiction.
The point is no longer res integra having been
      settled in C.P. Sarathy  Mudaliar  vs.  Commissioner  of  Income  Tax,
      Andhra Pradesh[2] wherein this Court has taken the view  that  setting
      aside  the  order  of  the  Tribunal  in  exercise  of  the  Reference
      Jurisdiction of the  High  Court  is  inappropriate.  This  Court  had
      observed that while hearing a Reference under the Income Tax Act,  the
      High Court exercises advisory jurisdiction and does not sit in  appeal
      over the judgment of the Tribunal. It has been further held  that  the
      High Court has no power to set aside the order of the Tribunal even if
      it is of the view that the conclusion recorded by the Tribunal is  not
      correct.
The third question that has been posed for an answer  before  us
      is with regard to  the  correctness  of  the  manner  of  exercise  of
      jurisdiction by the High Court in the present  case. 
   In the present case, the High Court while hearing the  Reference
      made under Section 256 (2) of the Act had set aside the order  of  the
      Tribunal. 
 Undoubtedly, in the exercise of its Reference  Jurisdiction
      the High Court was not  right  in  setting  aside  the  order  of  the
      Tribunal.  
However, reading the ultimate paragraph of the order of the
      High Court we find that the error is one of form and not of  substance
      inasmuch  as  the  question  arising  in  the   Reference   has   been
      specifically answered in the following manner.
           "We therefore set aside the order of  the  Tribunal  and  uphold
           that of the Commissioner (Appeals) and answer the  questions  in
           favour of the Revenue by  holding  that  the  assessee  had  not
           discharged the burden that it is entitled  to  deductions  under
           Section  37  of  the  Income  Tax  Act.  Reference  is  answered
           accordingly."
In performing the said exercise the High Court
      did not disturb or reverse the primary facts as found by  the  learned
      Tribunal.  Rather, the exercise performed is one of the correct  legal
      inferences that should be drawn on the facts already recorded  by  the
      learned Tribunal.  The questions reframed were  to  the  said  effect.
      The legal inference that should be drawn from the  primary  facts,  as
      consistently held by this Court, is eminently a question of  law.   No
      question of perversity was required to  be  framed  or  gone  into  to
      answer the issues arising.  In  fact,  as  already  held  by  us,  the
      questions relatable to perversity were consciously  discarded  by  the
      High Court.  We, therefore, cannot find any fault with  the  questions
      reframed by the High Court or the answers provided.

      For the aforesaid reasons, Civil Appeal No. 1569 of 2007 has  to
      fail and it is accordingly dismissed. = 2015 S.C.msklawreports

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