1988 (6) TMI 69 - AT - Income Tax

Issues Involved:
1. Whether the Campa Bottles of the assessee were a 'plant' in contradiction to Coca Cola, Fanta, Soda, and Funday bottles.
2. Whether treating 'Campa' Bottles as a 'plant' and Coca-cola, Fanta, Soda, and Funday bottles as consumable stores is a method of accounting.
3. Whether disallowance under Section 40(c) in respect of perquisite value of interest on interest-free advances to the directors and a relative of directors should be calculated on the debit balances at a percentage of borrowed funds in the total assets of the assessee-company excluding share capital.
4. Whether the reference application filed by the Commissioner was barred by limitation.

Detailed Analysis:

1. Classification of Campa Bottles as 'Plant':
The Tribunal was asked to determine if the Campa Bottles of the assessee could be classified as a 'plant' in contrast to Coca Cola, Fanta, Soda, and Funday bottles. The Tribunal upheld the findings of the CIT (Appeals) that the Campa Bottles were indeed a 'plant'. This classification was significant for the purposes of tax treatment and depreciation.

2. Method of Accounting for Bottles:
The Tribunal also addressed whether treating 'Campa' Bottles as a 'plant' and other bottles like Coca-cola, Fanta, Soda, and Funday as consumable stores constituted a method of accounting. The Tribunal upheld the CIT (Appeals)'s findings that this treatment was a legitimate method of accounting, reflecting the different roles and uses of these assets within the business operations.

3. Calculation of Disallowance under Section 40(c):
The third issue involved the calculation of disallowance under Section 40(c) concerning the perquisite value of interest on interest-free advances to the directors and a relative of directors. The Tribunal confirmed the CIT (Appeals)'s order that this disallowance should be calculated on the debit balances at a percentage of borrowed funds in the total assets of the assessee-company, excluding share capital. This method of calculation was upheld as appropriate and in accordance with the law.

4. Limitation Period for Filing Reference Application:
A significant procedural issue was whether the reference application filed by the Commissioner was barred by limitation. The Commissioner argued that the application was filed within the limitation period, noting that the order of the Tribunal was first served on the Commissioner of Income-tax Officer, Central-I, New Delhi, on 17-11-1986, but was returned to the Assistant Registrar, Income-tax Appellate Tribunal, New Delhi, due to jurisdictional issues. The order was subsequently served on the Commissioner of Income-tax, Patiala, on 5-5-1987, and the reference application was filed on 29-6-1987.

The respondent contended that the service on the Commissioner of Income-tax, Central-I, Delhi, was proper and that the limitation should commence from that date. They argued that the Commissioner's return of the order without informing the Commissioner of Income-tax, Patiala, was improper and that no reasonable cause for the delay was provided.

The Tribunal examined the relevant instructions and legal precedents, including a judgment from the Bombay High Court and instructions from the Central Board of Direct Taxes. The Tribunal concluded that the service of the order on the Commissioner of Income-tax, Central Circle, Delhi, was not valid. The Tribunal noted that the jurisdiction over the case had been transferred to the Commissioner of Income-tax, Patiala, before the Tribunal's order was passed, and this fact had been communicated to the Tribunal. Therefore, the valid service was on the Commissioner of Income-tax, Patiala, on 5-5-1987, and the limitation period commenced from that date. Consequently, the reference application was deemed to be within the limitation period, and the plea of the respondent was rejected.

Conclusion:
The Tribunal upheld the classification of Campa Bottles as a 'plant' and the method of accounting differentiating between 'plant' and consumable stores. It also confirmed the method for calculating disallowance under Section 40(c). Importantly, the Tribunal ruled that the reference application was not barred by limitation, as the valid service of the order was on the Commissioner of Income-tax, Patiala.

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