2002 (4) TMI 20 - HC - Income Tax

The question sought to be raised in this petition is as to whether such a modification in the draft statement amounts to a review and whether the same is permissible in law. - Tribunal can certainly alter the questions raised earlier in the draft statement and in fact that is the purpose of preparing a draft statement. The draft statement prepared at the intermediate stage is not the final statement of the case and the final statement modifying the draft statement cannot be construed as a review of the order preparing the draft statement. This is because the statement prepared at the intermediate stage has no finality, it is only a stage in the process of preparing the final statement of case. - we do not find any infirmity in the addition of questions by the Tribunal when the final statement was drawn.

Issues Involved:
1. Whether the modification of the draft statement of the case by the Income-tax Appellate Tribunal amounts to a review and whether it is permissible in law.
2. The correctness of the Tribunal's decision on various substantive tax issues, including the application of sections 145, 44C, and 40A(5) of the Income-tax Act, 1961.

Detailed Analysis:

Issue 1: Modification of the Draft Statement of the Case
The primary issue in this petition was whether the modification of the draft statement of the case by the Income-tax Appellate Tribunal, by adding four additional questions, amounts to a review and whether such a modification is permissible under the law.

Arguments by Petitioners:
- The petitioners contended that the Tribunal had no power to review its earlier decision, which had initially proposed only two questions for reference to the High Court.
- It was argued that once a draft statement of the case is prepared, it should be considered final unless specifically challenged or modified through a formal application.

Court's Analysis:
- The court examined the procedural aspects of section 256 of the Income-tax Act, 1961, which governs the drawing of the statement of the case by the Tribunal.
- The court noted that the practice of preparing a draft statement is an intermediate step and not final. The Tribunal can modify the draft statement after considering suggestions from the parties.
- The court referred to the judgment of the Gujarat High Court in CWT v. Sayaji Mills Ltd. [1971] 82 ITR 662, which held that the draft statement is tentative and can be altered before finalization.
- The court concluded that the final statement modifying the draft statement does not constitute a review but is part of the process of finalizing the statement of the case.

Conclusion:
The court held that the Tribunal's addition of four questions to the draft statement did not amount to an impermissible review. The draft statement is not final, and the Tribunal is within its rights to make modifications before finalizing it.

Issue 2: Substantive Tax Issues
The petition also involved the correctness of the Tribunal's decisions on various substantive tax issues, which were referred to the High Court for consideration.

Questions Referred:
1. Section 145 Application: Whether the Tribunal was right in holding that section 145 could not be applied in computing income from interest on securities.
2. Bifurcation of Purchase Price: Whether the purchase price of securities should be bifurcated into interest accrued up to the date of purchase and the balance of the price, and whether such interest should be allowed as revenue expenditure.
3. Past Assessments and Departmental Practice: Whether the Tribunal was right in holding that past assessments allowing interest on securities as revenue expenditure should continue despite a contrary view by the Karnataka High Court.
4. Interest on Broken Period: Whether the Tribunal was right in holding that interest received on the broken period of securities sold should not be considered part of chargeable income.
5. Interest on Sticky Loans: Whether the assessee is not liable to be taxed on interest on sticky loans credited to the interest suspense account.
6. Section 44C Application: Whether the Tribunal was right in holding that section 44C applies only to expenses incurred after June 1, 1976.
7. Section 40A(5) Application to Section 20 Expenses: Whether the Tribunal was right in holding that section 40A(5) does not apply to expenses deductible under section 20 for computing income from interest on securities.
8. Club Membership Fees: Whether the Tribunal was right in holding that section 40A(5) does not apply to disallowance of club membership fees paid for employees.

Court's Analysis:
- The court reviewed the Tribunal's reasoning for each of the substantive tax issues and found that the Tribunal had provided adequate reasons for its conclusions.
- The court noted that the Tribunal had followed judicial precedents and departmental practices in arriving at its decisions.

Conclusion:
The court upheld the Tribunal's decisions on the substantive tax issues and found no infirmity in the addition of questions to the draft statement.

Final Judgment:
The petition challenging the addition of four questions to the draft statement of the case by the Income-tax Appellate Tribunal was dismissed. The court held that the modification of the draft statement was permissible and did not constitute a review. The Tribunal's decisions on the substantive tax issues were upheld. There was no order as to costs.

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