CIT v. Vippy Solvex Products Ltd. ()

INCOME TAX

--Investment allowance----CONDITION PRECEDENTFactual finding of Tribunal not challenged--Assessee-company claimed that they had installed a new solvent extraction plant of 200 MT per day capacity during the period April, 1987, to January, 1988. According to assessee, production in the plant began from 9-3-1988. The assessee claimed benefit of investment allowance under section 32A(8B) on the said plant. The assessing officer, however, denied the benefit. This was maintained by CIT(A) in the appeal filed by the assessee. However, in further appeal to Tribunal, the allowance was granted to the assessee. Held: As the factual findings of the Tribunal that assessee had fulfilled the condition precedent under section 32A(8B) had not been challenged, the order of the Tribunal was binding on the court and the assessee had to be held entitled to benefit of investment allowance.

Income Tax Act, 1961 s.32A

INCOME TAX

--Reference----FINDING OF FACTInterference by High Court-- Held: Under section 256 the High Court cannot examine the factual aspect of the case which has a bearing over the question.

Income Tax Act, 1961 s.256

CIT v. Vippy Solvex Products Ltd.

In the Madrya Pradesh High Court, Indore Bench A.M Sapre & Ashok Kumar Tiwari, JJ.

IT Ref. No. 4 of 1997 3rd January 2005

Counsel : R.L. Jain with Ku. V. Mandlik, for the Revenue S.C. Goyal, for the Assessee

ORDER

AM Sapre, J.

This is an income-tax reference made by the Tribunal under section 256(1) of the Income Tax Act at the instance of revenue (CIT) in RA No. 99/Ind/1993, which arises out of ITA No. 897/Ind/1992, decided by Tribunal on 20-5-1993, to answer following question of law said to arise out of the (order of the Tribunal) :

'Whether, on the facts and in the circumstances of the case, Tribunal was justified in law in holding that assessee was entitled for investment allowance under section 32A(8B) amounting to Rs. 36,18,035 on the new solvent extraction plant ?'

2. The assessee (respondent herein) is a limited company. The question involved in this reference relates to assessment year 1989-90 of which the previous year is from 1-1-1988 to 31-3-1989, i.e., 15 months. The assessee claimed that they have installed a new solvent extraction plant of 200 MT per day capacity during the period April, 1987, to January, 1988. According to assessee, production in the plant began from 9-3-1988.

3. The assessee claimed benefit of what is called investment allowance (Rs. 36,18,035) under section 32A(8B) in the said plant. The assessing officer, however, denied the benefit. It was maintained by CIT(A) in an appeal filed by the assessee. However, in further appeal to Tribunal, the same was granted to the assessee. In other words, in the opinion of Tribunal, the assessee is entitled to claim the benefit of investment allowance. This is what the Tribunal held in para 22 of the order passed by Tribunal :

'Para 22-Thus, taking into account the totality of the facts and circumstances obtaining in this case, there is no manner of doubt that the contract was entered into by the assessee with M/s Servotech for purchase of the plant and machinery in April, 1986. The assessee is, therefore, entitled to investment allowance.

4. The revenue having felt aggrieved by the grant of aforementioned benefit to assessee, prayed for reference to this court. The Tribunal having acceded to the prayer so made, has referred the aforesaid question to this court for answer.

5. Heard Shri R.L. Jain, learned senior counsel, with Ku. V. Mandlik, learned counsel for the revenue, and Shri S.C. Goyal, learned counsel for the assessee.

6. Having heard learned counsel for the parties and having examined the record of the case, we are of the view that the question referred has to be answered against the revenue and in favour of assessee.

7. As rightly urged by learned counsel for the assessee, we cannot examine the factual aspect of the case which has a bearing over the question. It is for the reason that no question on that issue is framed or prayed by the revenue or referred to this court for answer. In other words, the manner in which the question is referred to us for answer, it has to be answered in favour of assessee and against the revenue. It is for the reason that the question referred does not entitle or/and empower this court to even examine the factual finding returned by the Tribunal in favour of assessee. As a matter of fact, the question, whether assessee is entitled to claim the benefit of investment allowance or not was dependent upon the basic question whether assessee has fulfilled the criteria evolved/prescribed under the Act in setting up the plant, or whether material produced by the assessee in support of their case that they have set up the plant as per the requirement of section 32A(8B) is adequate or not. It is essentially this question which was gone into before the Tribunal on facts, and finding of fact though opposed by revenue, was returned in favour of assessee. It is on the basis of this factual finding, the Tribunal held by upsetting the orders of assessing officer and CIT(A) that assessee is entitled to claim the benefit of investment allowance. The revenue has not prayed for any question on this factual issue by seeking to challenge the finding of Tribunal.

8. Their Lordships of the Supreme Court in a case India Cement Ltd. v. CIT (1966) 60 ITR 52 (SC)) made following pertinent observations in regard to the powers of this court while hearing the income-tax reference under section 66(1)256(1) ibid

'Before we conclude, we must deal with the point raised by Mr. Sastri that the High Court erred in law in preferring the findings of the Income Tax Officer to that of the Tribunal. It is not necessary to decide this question, but it seems to us that, in a reference, the High Court must accept the findings of fact made by the Tribunal and it is for the person who has applied for a reference to challenge those findings first, by an application under section 66(1). If he has failed to file an application under section 66(1) expressly raising the question about the validity of the findings of fact, he is not entitled to urge before the High Court that the findings are vitiated for one reason or the other.'

9. While approving the aforesaid principle of law, their Lordships in a later decision in Hazarat Pirmahomed Shah v. CIT (1967) 63 ITR 490 (SC) made following observations on the powers of this court :

'It was pointed out by this court in India Cements Ltd. v. CIT (1966) 60 ITR 52 (SC) that in a reference under section 66 of the Act the High Court must accept the findings of fact made by the Tribunal, and it is not open to the High Court to reopen the findings of fact unless the party concerned has applied for a reference to challenge those findings first, by an application under section 66(1) of the Act. If he has failed to file an application expressly raising the question about the validity of the findings of fact, he is not entitled to urge before the High Court that the findings are vitiated for one reason or another. Similarly, in another case, CIT v. M. Ganapathi Mudahar (1964) 53 ITR 623 (SC), it has been pointed out that, even if the question referred to the High Court is regarding the existence of material to support a finding of fact arrived at by the Tribunal, the High Court should not act as an appellate court and consider whether the finding was justified or not.'

10. Yet, in one of the latest decision of the Supreme Court in K. Ravindranathan Nair v. CIT (2001) 247 ITR 178 (SC), their Lordships reiterated the aforesaid principle, though without referring to the aforesaid earlier view on the subject, in following words :

'The High Court overlooked the cardinal principle that it is the Tribunal which is the final fact-finding authority. A decision, on facts, of the Tribunal can be gone into by the High Court only if a question has been referred to it which says that the finding of the Tribunal on facts is perverse, in the sense that it is such as could not reasonably have been arrived at on the material placed before the Tribunal. In this case, there was no such question before the High Court. Unless and until a finding of fact reached by the Tribunal is canvassed before the High Court in the manner set out above, the High Court is obliged to proceed upon the findings of fact reached by the Tribunal and give an answer in law to the question of law that is before it.

'The only jurisdiction of the High Court in a reference application is to answer the questions of law that are placed before it. It is only when a finding of the Tribunal, on fact, is challenged as being perverse, in the sense set out above, that a question of law can be said to arise.'

11. In the light of the aforementioned settled principle of law, we cannot, rather, we are not permitted to examine the factual finding recorded by the Tribunal in favour of assessee holding that they have satisfied the factual conditions required for setting up the plant so as to entitle them to claim the benefit of section 32A(8B) ibid. This inquiry, as observed supra, cannot be undertaken by us in the question referred to this court. In the words of their Lordships quoted supra, it was obligatory upon the revenue to have sought a specific question as to whether factual finding recorded by Tribunal that assessee has fulfilled the requirement in setting up the plant, is legally sustainable or they are perverse on facts. It is only then, this court would have been able to examine the correctness of the factual finding returned by the Tribunal in favour of assessee on merits. Such does not appear to be a case.

12. Submission of learned counsel for the revenue was that the question referred does include within its sweep even the question in regard to factual finding and hence, invest this court a power to examine the factual finding is not acceptable to us. Indeed, this submission is expressly negatived by the Supreme Court in the aforementioned three cases relied on by us. In our opinion, the revenue should have been careful while praying for a question under section 256(1) of the Act before the Tribunal as to which questions are material and how they should be worded so as to entitle the court to examine the whole controversy which was being debated before the Tribunal inter se parties. In other words, the jurisdiction of the High Court and its extent to decide the reference under section 256(1) of the Act emanates from the question referred and its wording.

13. Coming to the facts of this case, we have to proceed on the basis that factual finding recorded by the Tribunal is binding on us because it is not challenged in this reference by the revenue. It is noticed that Tribunal has in clear terms recorded a factual finding that assessee has fulfilled the necessary requirements for claiming the benefit of investment allowance. In this view of the matter, the only necessary consequence that flows is that assessee has to be held entitled to claim the benefit of investment allowance within the meaning of section 32A(8B). Indeed, once on facts it is held that assessee has fulfilled the required criteria, then consequential benefits have to be granted as a logical conclusion flowing from such finding.

14. Learned counsel for the revenue, placing reliance on a decision rendered by this court in IT Ref. No. 22 of 1997, decided on 5-10-2004, contended that this court should answer the question in favour of revenue. We do not agree. In that case which related to this very assessee, the question of law was framed on facts and hence this court assumed the jurisdiction to examine the facts brought on record by way of statement of case to answer the question in favour of revenue. In other words, this court answered the reference in favour of revenue due to peculiar and pointed question referred to this court ;for answer. It is essentially on the strength of the question and its specific wording this court went into the question of fact in the context of the requirement of notification and answered the reference in favour of revenue. As observed supra, in this case also, if the revenue had persuaded on the Tribunal for referring the question on facts, this court too would have been able to go into that aspect of the case also and answered the same one way or other. This has not been done and hence, the decision though rendered in this very case in favour of revenue, cannot be of any help so far as this case is concerned.

15. In view of aforesaid discussion, we answer the question referred to this court in favour of assessee and against the revenue. No costs.

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