1984 (3) TMI 134 - AT - Income Tax

Summary

Issues Involved:
1. Whether the cost of loom hours purchased by the assessee amounting to Rs. 3,25,309 was capital expenditure or revenue expenditure.
2. Whether the Tribunal has the inherent power to rectify its order beyond the time limit prescribed under Section 254(2) of the Income Tax Act.
3. Whether the later judgment of the Supreme Court in the case of Empire Jute Co. Ltd. vs. CIT (1980) should be applied retrospectively to allow the expenditure as revenue expenditure.

Issue-Wise Detailed Analysis:

1. Capital vs. Revenue Expenditure:
The assessee filed a reference application under Section 256(1) of the Income Tax Act on 31st January 1975, questioning whether the cost of loom hours amounting to Rs. 3,25,309 was capital expenditure. The Tribunal, in its order dated 14th April 1975, rejected the reference application, considering the decision of the Hon'ble Supreme Court in CIT vs. Maheshwari Devi Jute Mills Ltd. (1965) and the Calcutta High Court in CIT vs. Empire Jute Co. Ltd. (1974). The Tribunal concluded that the issue was academic and therefore did not warrant a reference. The assessee accepted this order.

2. Inherent Power to Rectify Beyond Time Limit:
The assessee later filed a miscellaneous application on 16th August 1983, arguing that the Tribunal should exercise its inherent power to rectify the order beyond the four-year limit prescribed under Section 254(2) of the Income Tax Act. The assessee cited the Supreme Court's later judgment in Empire Jute Co. Ltd. vs. CIT (1980), which held that the purchase of loom hours should be treated as revenue expenditure. The assessee argued that the Tribunal has inherent power to rectify its order to prevent injustice, even beyond the statutory time limit. However, the Tribunal noted that Section 254(2) clearly prescribes a four-year limit for rectification of any mistake apparent from the record. The Tribunal found no apparent mistake in its original order dated 14th April 1975 and emphasized that the time limit for rectification had expired.

3. Retrospective Application of Later Judgment:
The assessee contended that the later judgment of the Supreme Court in Empire Jute Co. Ltd. vs. CIT (1980) should be applied retrospectively to allow the expenditure as revenue expenditure. The Tribunal observed that the decision in Empire Jute Co. Ltd. was delivered on 9th May 1980, after the Tribunal had passed its order on 14th April 1975. The Tribunal referred to the Calcutta High Court's decision in Jiyajee Rao Cotton Mills Ltd. vs. ITO & Ors. (1981), which held that the principle of retrospective legislation does not apply to Supreme Court decisions interpreting statutory provisions. The Tribunal also cited the Gauhati High Court's decision in CIT vs. Smt. Eva Raha (1980), which held that rectification applications must be made within the statutory time limit, even if based on retrospective amendments. The Tribunal concluded that the later judgment in Empire Jute Co. Ltd. could not retrospectively alter its earlier decision, especially since the assessee had accepted the Tribunal's order dated 14th April 1975.

Conclusion:
The Tribunal rejected the assessee's miscellaneous application, affirming that there was no apparent mistake in its original order and that the statutory time limit for rectification had expired. The Tribunal also held that the later judgment of the Supreme Court in Empire Jute Co. Ltd. could not be applied retrospectively to alter its earlier decision. The application was dismissed, and the expenditure on loom hours remained classified as capital expenditure.