1981 (4) TMI 7 - SC - Income Tax

Priority Industry - development rebate - In the view taken by us, the finding of the Appellate Tribunal that Nylon-6 is a petrochemical acquires finality, and, therefore, the question whether the Additional Commissioner had jurisdiction to interfere under S. 263 of the Act is academic and does not call for a reference.

Summary

Issues:
1. Interpretation of provisions under the Income Tax Act regarding development rebate and deduction for a priority industry.
2. Jurisdiction of the Commissioner under section 263 of the Income Tax Act.
3. Classification of Nylon-6 as a "petrochemical" for tax purposes.

Analysis:
The appellant, a limited company manufacturing Nylon-6 yarn, claimed development rebate and deduction under specific provisions of the Income Tax Act for the assessment year 1968-69. The claim was initially allowed by the Income Tax Officer (ITO). However, during the assessment for the year 1970-71, the ITO took a different view and referred the case to the Additional Commissioner under section 263 of the Act. The Additional Commissioner, despite evidentiary material, rejected the claim, stating that Nylon-6 was not covered by the relevant entry. The Appellate Tribunal later found that Nylon-6 produced by the appellant qualified as a "petrochemical." The Commissioner's request for a reference to the High Court was rejected by the Tribunal, leading to the Commissioner applying directly to the High Court under section 256(2) of the Act.

The High Court called for a statement of the case, highlighting two questions of law: whether the Tribunal was correct in holding that the assessment order was not erroneous or prejudicial to revenue, and whether Nylon-6 could be classified as a petrochemical under the relevant entry. The appellant then sought special leave to appeal to the Supreme Court. The Supreme Court granted special leave and examined the issue. The Court determined that the classification of Nylon-6 as a "petrochemical" was a question of fact, not law, based on a review of the record and the Appellate Tribunal's order. The Court referred to a previous judgment on a similar issue and concluded that the Tribunal's finding on Nylon-6 being a petrochemical was final.

Given the factual nature of the classification, the Court held that the Additional Commissioner's jurisdiction under section 263 was not relevant. Consequently, the Court allowed the appeal, set aside the High Court's judgment, dismissed the reference application, and awarded costs to the appellant. This judgment clarifies the distinction between questions of fact and law in tax classifications, emphasizing the finality of factual determinations by specialized tribunals like the Appellate Tribunal in such matters.