Succinctly, the appellants are engaged in the manufacture and
sale of beer and other alcoholic beverages. Certain
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
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
