M/S LIBERTY GROUP MARKETING DI vs. THE CIT(CENTRAL) LUDHIANA

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ITC/33/1999HC Punjab & HaryanaPHHC01038449199919 July 2007Author: MR. JUSTICE AJAY KUMAR MITTAL,MR. JUSTICE M.M. KUMAR3 pages
AI SummaryAllowed

What did the High Court hold?

The High Court considered the submissions of both parties and was of the view that the question sought by the assessee deserved to be determined by the Court, particularly in the absence of any pronouncement from the Supreme Court or the jurisdictional High Court. The Court noted the conflict of opinion among various High Courts regarding whether an assessee who gets its goods manufactured by an outside agency qualifies as an industrial undertaking for the purpose of Section 80-I. The revenue's counsel could not dispute this conflict or the absence of a definitive ruling from higher authorities. Therefore, the Court found merit in the assessee's plea for a reference. The petitions were allowed, and the Tribunal was directed to draw a statement of the case and refer the noted question of law to the High Court.

What were the facts?

The assessee, M/s Liberty Group Marketing Division, Karnal, filed petitions under Section 256(2) of the Income-tax Act, 1961, seeking a direction to the Income Tax Appellate Tribunal (ITAT) to frame a statement of case and refer a question of law. The assessment years in question are 1986-87 and 1987-88. The Assistant Commissioner of Income-tax had denied the assessee's claim for deduction under Section 80-I, holding that the assessee was not an industrial undertaking. The assessee is engaged in the business of manufacturing and selling shoes, getting them manufactured by cobblers on a piece-rate basis, who were not employees. The ITAT had declined the assessee's application under Section 256(1) for reference.

What were the issues?

1. Whether, in the facts and circumstances of the case, the Tribunal erred in law by not accepting the claim under Section 80-I, despite the assessee fulfilling all requisite conditions of being an industrial undertaking? (Question of law) Assessee's Contentions: - The Tribunal erred by relying on Madras High Court judgments in Commissioner of Wealth-tax v. S. Venkatachalam Pillai and Commissioner of Wealth-tax v. V.O. Ramalingam, which held that an assessee getting goods manufactured by an outside agency is not an industrial undertaking for Section 80-I. - Contrary views favouring the assessee have been expressed by other High Courts, including Commissioner of Income-tax v. Penwalt India Ltd. (Bom.), Commissioner of Income-tax v. Talwar Khuller (P.) Ltd. (All.), Commissioner of Income-tax v. Prabhudas Kishordas Tobacco Products P. Ltd. (Guj.), Commissioner of Income-tax v. Taj Fire Works Industries (Mad.), and Commissioner of Income-tax v. Prithviraj Bhoorchand (Guj.). - There is no judgment from the Supreme Court or the jurisdictional High Court on this specific question of law. Revenue's Contentions: - The revenue's counsel could not controvert the existence of conflicting opinions among High Courts. - The counsel also could not dispute the absence of a Supreme Court or jurisdictional High Court view. - However, the counsel pointed out that the contrary views from other High Courts were expressed after the Tribunal had declined the assessee's application under Section 256(1).

Which sections of the Income-tax Act were involved?

Section 256(2),Section 256(1),Section 80-I

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH DATE OF DECISION: 19.7.2007 M/s Liberty Group Marketing Division, Karnal …Petitioner Versus The Commissioner of Income-tax (Central), Ludhiana. …Respondent CORAM: HON’BLE MR. JUSTICE M.M. KUMAR HON’BLE MR. JUSTICE AJAY KUMAR MITTAL Present: Mr. Sanjay Bansal, Senior Advocate, with Mr. Parvesh Saini, Advocate, for the petitioner-assessee. Mr. Sanjiv Bansal, Advocate, for the respondent-revenue. M.M. KUMAR, J. This order shall dispose of I.T.C. Nos. 33 and 34 of 1999. The prayer made by the assessee in both the petitions filed under Section 256(2) of the Income-tax Act, 1961 (for brevity, ‘the Act’), is for issuance of direction to the Income Tax Appellate Tribunal, Delhi Bench, New Delhi (for brevity, ‘the Tribunal’) to frame the statement of the case and refer question of law which is claimed to have emerged from the orders dated 18.2.1998, passed in I.T.A. No. 7147/D/90, in respect of Assessment Year 1986-87 and I.T.A. No. 7148/D/90, in respect of Assessment Year 1987-

88.

The following question of law has been claimed:- “Whether in the facts and circumstances of the assessee’s case, the Tribunal has erred in law while not accepting claim under Section 80-I although assessee fulfilled all requisite conditions of being an industrial undertaking?

The assessee is a registered partnership firm and made an application to the Tribunal under Section 256(1) of the Act claiming the aforementioned question of law for reference to this Court with the pleadings that the aforementioned question emerges out the orders referred above. A perusal of the record shows that the Assistant Commissioner of Income-tax framed the assessment but did not allow the claim of the assessee under Section 80-I of the Act on the ground that the assessee cannot be regarded as an industrial undertaking, which may be covered by the necessary conditions envisaged by Section 80-I of the Act. It is appropriate to mention that the assessee is engaged in the business of manufacture and sale of shoes and in para 6 of the order of the Tribunal there are findings with regard to the role of the assessee in the manufacturing of shoes. The Tribunal has also observed that the shoes were got manufactured wholly from the cobblers on piece rate basis who were not employees of the assessee. Mr. Sanjay Bansal, learned senior counsel has argued that the Tribunal has placed reliance on two judgments of the Madras High Court in the cases of Commissioner of Wealth-tax v. S. Venkatachalam Pillai, (1995) 215 ITR 406 (Mad.) and Commissioner of Wealth-tax v. V.O. Ramalingam, (1995) 216 ITR 566 (Mad.). The aforementioned judgments represent the view that an assessee who gets manufacture its goods from an outside agency would not be regarded as an industrial undertaking within the meaning of Section 80-I of the Act and, therefore, would not qualify to claim deduction. According to the learned counsel, a contrary view has been expressed by other High Courts, which is in favour of the assessee, namely, Commissioner of Income-tax v. Penwalt India Ltd., (1992) 196 ITR 813 (Bom.); Commissioner of Income-tax v. Talwar Khuller (P.) Ltd., (1999) 235 ITR 70 (All.); Commissioner of Income-tax v. Prabhudas Kishordas Tobacco Products P. Ltd., (2006) 282 ITR 568 (Guj); Commissioner of Income-tax v. Taj Fire Works Industries, (2007) 288 ITR 92 (Mad.); and Commissioner of Income-tax v. Prithviraj Bhoorchand, (2006) 280 ITR 94 (Guj.). He has further submitted that there is no judgment of either Hon’ble the Supreme Court or this Court which is juri ictional High Court on the aforementioned question of law. Mr. Sanjiv Bansal, learned counsel appearing for the revenue could not controvert that there is conflict of opinion between various High Courts, as has been submitted by the learned counsel for the assessee. He has also not been able to dispute that on the subject there is no view expressed by Hon’ble the Supreme Court or this Court which is juri ictional High Court. However, he has pointed out that the view contrary to Madras High Court, taken by other High Courts, has been expressed after the Tribunal has declined the application of the assessee filed under Section 256(1) of the Act. We have thoughtfully considered the submissions made by the learned counsel for the parties and are of the view that the question sought by the assessee deserves to be determined by this Court, especially when there is no view expressed either by Hon’ble the Supreme Court or by this Court which is juri ictional High Court. In view of above, these petitions are allowed. The Tribunal is directed to draw statement of the case and refer the above noted question of law along with the statement of the case to this Court. (M.M. KUMAR) JUDGE (AJAY KUMAR MITTAL) July 19, 2007 JUDGE Pkapoor 3

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