2012 (10) TMI 332 - HC - Income Tax

Purchase of catalyst of Plant & Machinery - Revenue v/s capital - whether Court has right to frame new or additional substantial question of law at the stage of hearing? - Held that - A plain reading of sub-section (3) of Section 260A shows that at the time of hearing for admission of appeal in case High Court is satisfied that a substantial question of law is involved in any case, it shall formulate that question. Sub-section (4) further provides that appeal shall be heard only on the question so formulated and the respondent be allowed to argue the case, be permitted to argue the case that no such substantial question of law is involved. In the present case, language of both substantial question of law framed on 20.4.2010 seems to be different than what has been used by the appellant which reveals that after considering the pleading on record the substantial question of law was formulated by the court itself. The first question relates to capital expenditure incurred in catalyst of enduring nature. However, the appellant during the course of hearing argued that expenditure incurred on catalyst as capital expenditure co-relate with the expenditure of machinery spares etc, which requires consideration under the proviso. Needless to mention that the CIT (Appeal) Lucknow in its order dated 22.3.2007 observed that to quote, Furthermore the extent to which such spares & catalysts were utilized year to year, or were carried forward is unspecified. Yearly consumption and the circumstances leading them to be declared obsolete is not brought on record. Nor the manner in which the inventory is accounted. There is no sound logic for keeping catalysts ammonia etc. for so many years without use/disposal. The entire claim is without evidence. Catalysts & spares are specialized items and the writing off of such items after 18-5 years is irrational. Thus, there is co-relation with the issue pertaining to the catalyst and spares. Now the proposed portion pertaining to spares may be admitted. Argument advanced that power may be exercised during the course of hearing carries weight. As per the proviso of sub-section 4 of Section 260 A High Court has got ample power to frame new or additional substantial question of law during the course of hearing if it is satisfied on its own or on the pointing out of either of the parties for the reasons recorded. The provision contained in sub-section 1,2,3 or sub-section 4 of Section 260 A shall not come in the way of the High Court to exercise power conferred by the proviso of Subsection 4. Thus the objection raised by assessee is overruled and rejected. Court has right to frame new or additional substantial question of law at the stage of hearing in pursuance to power conferred by the proviso of Sub- Section 4 of Section 260 A - list the present appeal immediately after three weeks for further hearing so that after hearing parties and subject to satisfaction and reasons recorded, additional substantial question of law may be framed - against assessee.

Issues Involved:
1. Whether the purchase of catalyst by the respondent is a part of capital expenditure incurred on plant and machinery of enduring nature.
2. Whether the Tribunal committed illegality while allowing interest on refund computed under section 143(1) of the Act, even though no such interest was due under section 244-A of the Act.
3. Whether the cost of machinery spares should be considered as revenue expenditure, even if purchased over several years and capitalized in a single assessment year.
4. Whether the High Court has the authority to frame additional substantial questions of law during the course of hearing under Section 260A of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Capital Expenditure on Catalyst:
The court examined whether the purchase of catalysts by the respondent should be considered as capital expenditure on plant and machinery of enduring nature. The Tribunal's finding was challenged on the basis that such expenditure should be capitalized due to its enduring benefit to the business. The court scrutinized the Tribunal's decision to ensure it aligned with the principles of capital expenditure.

2. Interest on Refund under Section 143(1):
The court analyzed whether the Tribunal erred in allowing interest on refunds computed under section 143(1) of the Income Tax Act, despite no such interest being due under section 244-A. This issue required the court to interpret the relevant sections of the Act and determine if the Tribunal's allowance of interest was legally sustainable.

3. Revenue Expenditure on Machinery Spares:
The appellant argued that the cost of machinery spares, purchased over several years but capitalized in a single assessment year, should be treated as revenue expenditure. The court considered the appellant's submission that the Tribunal's decision to treat these costs as revenue expenditure was justified based on the usage and accounting practices over the years.

4. Authority to Frame Additional Substantial Questions of Law:
The core issue was whether the High Court could frame additional substantial questions of law during the course of hearing under Section 260A of the Income Tax Act. The court examined the provisions of Section 260A, particularly sub-sections (3) and (4), and the proviso to sub-section (4), which allows the court to hear appeals on any other substantial question of law not formulated initially if it is satisfied that the case involves such a question. The court emphasized that the proviso empowers the court to frame additional questions for substantial justice, provided reasons are recorded.

Legal Interpretation and Precedents:
The court discussed the interpretation of statutes, emphasizing that every word and section should be considered in context. It referred to various legal precedents to support the interpretation that the proviso to sub-section (4) of Section 260A allows the court to frame new substantial questions of law during the hearing. The court rejected the argument that framing new questions amounts to a review of earlier orders, clarifying that it is an exercise of judicial discretion to ensure justice.

Conclusion:
The court concluded that it has the authority to frame additional substantial questions of law during the course of hearing under Section 260A of the Income Tax Act. The objections raised by the respondent's counsel were overruled. The court decided to list the appeal for further hearing, allowing time for the respondent to prefer an appeal if desired. The detailed analysis provided clarity on the legal provisions and ensured that substantial justice is served by addressing all relevant questions of law.

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