2006-VIL-23-SC-DT

Supreme Court of India

CIVIL APPEAL NO. 1544 OF 2006, WITH CIVIL APPEAL NOS. 1527/2006, 1535/2006, 1542/2006, 5748/2007, 4513/2007 & 5822/2007

Date: 26.08.2006

COMMISSIONER OF INCOME TAX, BOMBAY

Vs

DEUTSCHE BANK A.G.

For Appellant (s) Mr. Parag Tripathi, ASG Ms. Arti Gupta, Adv. Mr. Rahul Kaushik, Adv.  Mr. K.C. Pandey, Adv.for Mr. B.V.Balaram Das, Adv./ Mr. B. Krishna Prasad, Adv. 
For Respondent (s) Mr. J.D. Mistry, Adv. With Mr. B.D. Damodar, Adv. and Mr. Rustom B.Hathikhanawala, Adv. Mr. N.Venkatraman, Sr. Adv. Mr. S. Nanda Kumar, Adv.for Mr. V.N. Raghupathy, Adv.

BENCH

MR. ASHOK BHAN & MR. V.S. SIRPURKAR JJ.

JUDGMENT

This Order shall dispose of the aforesaid three appeals as the questions of law involved are the same. Revenue has filed the present appeals against the same assessee relating to different assessment years i.e. 1982-83 to 1985-86.

For the sake of brevity, the facts are taken from Civil Appeal No. 1535 of 2006.  

At the instance of the revenue the following two questions were referred to the High Court for its opinion under Section 256(1) of the Income Tax Act, 1961 (for short, 'the Act'), said to be arising from the order of the Tribunal:  

"1. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that each portion of salary and perquisite as is allowable under the head "interest on securities" u/s. 20 of the Act should be reduced from the computation of disallowance u/s. 40A(5) of the Act?  

2. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the whole of head office expenditure of Rs. 21,07,796 is allowable u/s. 37(1) as provisions of Sec. 44C of I.T.Act is not applicable in the assessee's case?  

Before us, in the present case, revenue has claimed the different questions of law than what were claimed before the High Court. Facts:

The assessee is a Foreign Bank. On 23-07-1984, the assessee filed its return of income for Rs. 1.61 crores. This return was revised on 27 th October, 1986 and the income was reduced to Rs. 1.47 crores. The reason for revising the return was the claim of the assessee for deduction of the full amount of head office expenses debited to the profit and loss account to the extent of Rs. 21.07 lacs on the ground that Section 44C of the Act was not applicable as one of the three parameters mentioned in clauses (a), (b) and © of Section 44C was not attracted. According to the assessee, when one of the three parameters failed, the entire section 44C could not be applied. That, when one of the three parameters failed, the entire computation of deduction would collapse and, therefore, the ceiling on expenditure contemplated by Section 44C would not be attracted and, therefore, the assessee was entitled to debit total HO expenditure of Rs. 21.07 lacs to the profit and loss account under Section 37(1) of the Act.  

This position of the assessee was accepted by the Tribunal. Thereafter, on a petition filed by the department, the Tribunal referred the aforesaid two questions to the High Court for its opinion.

Learned counsel appearing for the assessee has contended that the department cannot be permitted to revise the questions of law other than what were referred to the High Court. We agree with this contention and proceed with the aforesaid two questions which were referred to the High Court.

Insofar as question No.1 is concerned, this question is concluded against the revenue and in favour of the assessee by our order dated 12th August, 2008 passed in Civil Appeal No.1533 and 1537 of 2006.

Framing of question No.2 shows as if the revenue has accepted the decision of the Tribunal that Section 44C is not applicable to the facts of the present case. Mr. Parag Tripathi, learned Additional Solicitor General appearing for the revenue strenuously argued that in fact the entire case argued before the High Court was regarding the applicability of Section 44C of the Act. The Tribunal, after following the decision of the Calcutta High Court in the case of Rupenjuli Tea Co. Ltd. vs. Commissioner of Income-tax reported in 186 ITR 301, held that Section 44C was not applicable. Admittedly, revenue has not filed any appeal against the decision of the Calcutta High Court in the case of Rupenjuli Tea Co. Ltd.(supra). Learned counsel appearing for the revenue contended that Revenue has not filed any appeal against the aforesaid judgment in Rupenjuli Tea Co. Ltd.(supra) because the revenue involved was meagre. That this fact has been mentioned in one of the Civil Appeals i.e. Civil Appeal No.5822 of 2007, which is being dealt with by us today separately, that the department has accepted the decision in Rupenjuli Tea Co. Ltd.(supra) because the revenue involved was meagre i.e. a sum of Rs. 12,000/-. In support of his contention, he has placed a recent three Judge Bench decision of this Court in the case of C.K.Gangadharan & Another vs. Commissioner of Income Tax, Cochin reported in 2008 (10) SCALE 426, which has held that the revenue is not precluded from filing an appeal merely because no appeal was filed by the revenue against the earlier similar orders for justifiable reasons which have been spelt out in the judgment in paras 11 to 13, which are reproduced below:  

"11. The order of reference would go to show that same was necessary because of certain observations in Berger Paints India Ltd. v. Commissioner of Income Tax, Calcutta (2004 (12) SCC 42). The decision in Union of India and Ors. v. Kaumudini Narayan Dalal & Anr. (2001 (10) SCC 231) was explained in Himalatha Gargya v. Commissioner of Income Tax, A.P. and Anr. (2003 (9) SCC 510) at para 14. It has been stated in the said case that the fact that different High Courts have taken different views and some of the High Courts are in favour of the revenue constituted "just cause" for the revenue to prefer an appeal. This Court took the view that having not assailed the correctness of the order in one case, it would normally not be permissible to do so in another case on the logic that the revenue cannot pick and choose. There is also another aspect which is the certainty in law.  

12. If the assessee takes the stand that the revenue acted mala fide in not preferring appeal in one case and filing the appeal in other case, it has to establish mala fides. As a matter of fact, as rightly contended by the learned counsel for the revenue, there may be certain cases where because of the small amount of revenue involved, no appeal is filed. Policy decisions have been taken not to prefer appeal where the revenue involved is below a certain amount. Similarly, where the effect of decision is revenue neutral there may not be any need for preferring the appeal. All these certainly provide the foundation for making a departure.  

13. In answering the reference, we hold that merely because in some cases the revenue has not preferred appeal that does not operate as a bar for the revenue to prefer an appeal in another case where there is just cause for doing so or it is in public interest to do so or for a pronouncement by the higher court when divergent views are expressed by the Tribunals or the High Courts."  

We had asked learned counsel appearing for the revenue to produce the original file to show that the revenue has taken a conscious decision not to file the appeal as the revenue involved was meagre. In response to our query, Mr. Tripathi has placed a letter stating that the original file is not traceable for the reasons that case is quite old, pertaining to the years 1974-77. In the absence of the original file showing that the revenue did not file any appeal by taking a conscious decision against the decision of the Calcutta High Court in the case of Rupenjuli Tea Co. Ltd.(supra), we assume that the revenue had accepted the ratio of the aforesaid case in Rupenjuli Tea Co. Ltd.(supra) and accordingly answer the question regarding the applicability of Section 44C of the Act against the revenue and in favour of the assessee.

Learned counsel appearing for the revenue does not challenge that in the absence of applicability of Section 44C of the Act, Section 37(1) would apply. Accordingly, we answer question No.2 as well against the revenue and in favour of the assessee regarding the applicability of Section 44C of the Act as well as allow the HO expenditure under Section 37(1) of the Act.

The Appeals are dismissed accordingly.

Parties to bear their own costs. 

 

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