1970 (8) TMI 3 - SC - Income Tax

Whether the Tribunal was justified in upholding the addition of Rs. 1,60,000 on account of excessive shortage - High Court was in error in holding that no question of law arose on which a statement of case could be directed - Tribunal ought to refer question of law to High Court

Summary

Issues:
1. Disallowance of amounts claimed for "shortage" in factories.
2. Allocation of loss suffered by a branch in computing income.
3. Rejection of application under section 66(1) of the Income-tax Act by the Tribunal.
4. Refusal of the High Court to direct the Tribunal to state a case on certain questions of law.

Analysis:

1. Disallowed Amounts for "Shortage":
The Income-tax Officer disallowed amounts claimed for "shortage" in the Gwalior and Hyderabad factories during the assessment for the year 1954-55. The Appellate Assistant Commissioner corrected the disallowed amounts, reducing them to Rs. 1,60,000 in Gwalior and maintaining Rs. 35,000 in Hyderabad. The Tribunal found the corrections to be fair and reasonable based on the evidence presented. The High Court upheld the Tribunal's decision, stating that no question of law arose regarding the disallowed amounts.

2. Allocation of Loss:
The dispute arose regarding the allocation of the loss suffered by Khanchand Lachmandas (K.L.), a financial organization of the assessees, in computing income. The Income-tax Officer had allocated a portion of K.L.'s loss to the Gwalior factory, which was exempt from tax. The Tribunal upheld this allocation based on the proportion of capital invested in the Gwalior factory to the total capital invested by K.L. The High Court initially refused to direct the Tribunal to state a case on this issue, but the Supreme Court disagreed. It held that a question of law arose concerning the allocation of K.L.'s loss between the Gwalior factory and other ventures of the assessees.

3. Rejection of Application under Section 66(1):
The assessees' application under section 66(1) of the Income-tax Act to refer certain questions to the High Court was rejected by the Tribunal. The High Court agreed with the Tribunal's decision, stating that the questions did not raise any legal issues warranting a reference to the High Court.

4. Refusal to Direct Tribunal to State a Case:
The High Court declined to direct the Tribunal to state a case on certain questions raised by the assessees, as they were deemed to be factual conclusions based on evidence. However, the Supreme Court disagreed with the High Court's decision on the allocation of K.L.'s loss, stating that it raised a question of law. The Supreme Court directed the Tribunal to submit a statement of case to the High Court on this specific issue.

In conclusion, the Supreme Court set aside the High Court's order and directed the Tribunal to submit a statement of case on the allocation of K.L.'s loss between the Gwalior factory and other ventures of the assessees for the assessment year 1954-55.