COMMISSIONER OF INCOME TAX, JABALPUR vs. M/S MAHAVIR CONSTRUCTION CO., DHAMTARI

PDF · subscribers
ITR/3/2001HC ChhattisgarhCGHC01001228200108 May 2011Bench: HON'BLE SHRI JUSTICE I.M. QUDDUSI ,HON'BLE SHRI JUSTICE NAWAL KISHORE AGARWAL10 pages
AI SummaryPartly Allowed

What did the High Court hold?

The High Court held that the Circular No. 1979 dated 27-3-2000, which revised the monetary limits for filing appeals and references, is prospective in nature and has no application to proceedings initiated before its effective date of 1st April, 2000. Since the applicant's application under Section 256(2) was filed on 27-10-1997, which is much prior to the circular's effective date, the circular does not affect the maintainability of the reference. Regarding the merits, the Court referred to the Supreme Court decision in CIT v. N.C. Budharaja, which held that sub-clause (iii) of Clause (b) of sub-section (2) of Section 32-A does not cover construction of dams, bridges, buildings, roads, canals, and similar constructions. Therefore, machinery used for excavating power channels does not qualify for deduction under Section 32-A. The reference was answered in the negative, holding that the Tribunal was not justified in allowing the deduction. I.T.R. No. 52/2000 was answered in favour of the Revenue, and I.T.R. No. 3/2001 was disposed of accordingly.

What were the facts?

The assessee, M/s Mahavir Constructions, an irrigation contractor, claimed investment allowance under Section 32-A of the Income Tax Act, 1961, amounting to Rs. 2,04,838/- on machinery valued at Rs. 8,19,350/- used for excavating power channels. The Assessing Officer allowed this claim. The Commissioner of Income Tax, however, found the order erroneous and prejudicial to the revenue, setting aside the assessment. The assessee appealed to the Tribunal, which set aside the CIT's order. Subsequently, the Assessing Officer made a reassessment based on the CIT's order. The CIT (Appeals) allowed the assessee's appeal, holding that the reassessment was unsustainable as the CIT's order had been cancelled by the Tribunal. The department appealed to the Tribunal, which dismissed the appeal, noting that a reference application by the department had already been rejected. The department then filed a reference application to the High Court.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in dismissing the appeal filed by the department by their order in I.T.A. No. 232/Nag/89? (Question of law) 2. Whether, on the facts and in the circumstances of the case, the assessee was entitled to deduction under Section 32-A on the machinery used in the excavation of power channels of different projects in the execution of its contract? (Question of mixed law and fact) Assessee's Arguments (Revenue's arguments in the High Court reference): - The Circular No. 1979 dated 27-3-2000, which fixed the monetary limit for filing appeals/references in the High Court at Rs. 2 lacs, is applicable to pending cases. Therefore, the present reference, where the tax effect is less than Rs. 2 lacs, is not maintainable. Reliance was placed on decisions of the Bombay High Court in CIT v. Madhukar K. Inamdar (HUF), Delhi High Court in CIT v. P.S. Jain and Co. and CIT v. Delhi Race Club Ltd., and M.P. High Court in CIT v. Ashok Kumar Manibhai Patel and Co. - The reference application was filed after the circular dated 27-3-2000 came into force. - The matter is covered by the Supreme Court decision in CIT, Orissa v. N.C. Budharaja and Company. Revenue's Arguments (Assessee's arguments in the High Court reference): - The Circular No. 1979 dated 27-3-2000 explicitly states that it will apply to appeals/references filed on or after 1st April, 2000. Appeals/references filed before this date are governed by the instructions operative at the time of filing. The reference application was filed long before the circular came into force, hence it is maintainable.

Which sections of the Income-tax Act were involved?

Section 32-A,Section 256(1),Section 256(2),Section 263,Section 268-A

AI-generated summary — verify with the full judgment below

"% 'a ^'.r^r^ I '. ^r^^. ^ '""—"•"•;^^ -%y :i HIGH COURT OF CHHATTISGARH AT BILASPUR I.T.R. No. 52/2000 And I.T.R. No. 3/2001 ORDER For consideration N. K. Agarwal HON'BLE SHRI I.M. QUDDUSI, J ^ "—&-^^_ Sd/- S.M.Quddusi Judge Postfor: 5 -5-2011 -;-3:^"^ 's's

HIGH COURT OF CHHAmSGARH AT BILASPUR I.T.R. No. 52/2000 And I.T.R. No. 3/2001 Between APPLICANT Commissioner of Income Tax, Jabalpur Versus RESPONDENT M/s Mahavir Constructions, Dhamtari DB:- HON'BLE SHRI I.M. QUDDUSI AND HON'BLE SHRI N.K. AGARWAL, J PRESENT:- Shri Rajeev Shrivastava, Advocate, for the applicant. Shri Manoj Kumar Sinha, Advocate the respondent. ORDER {S -5-2011) PER N.K. AGARWAL, J 1. This order shall govern disposal of I.T.R. No. 52/2000 and I.T.R. No. 3/2001 as common questions are involved in both the case. 2. The High Court of M.P. vide its order passed in M.C.C. No. 488/1993 dated 27-10-1997 has directed the Tribunal to refer the following questions for their opinion: i. Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in dismissing the appeal filed by the departraent by their order in I.T.A. No. 232/Nag/89 ? ii. Whether on the facts and in the circumstances of the case, the assessee was entitled to deduction under Section 32-A on the machinery used in the excavation of power

^sx;. ..^sl&s,l •^s-s^ j •%< ?s's "•^aasoc^ channels of different projects in the execution of its -^l contract ? The facts of the case in brief are as under:- The assessee is an irrigation contractor. The works executed by the assessee during the accounting year relevant to the assessment year 1982-83, used machineries of the following value for the execution of the contract work:- ^ (a) Jack haranier (b) Com.pressors (c) Helco Machines CostRs. 26,171/- Cost Rs. 6,73,946/- CostRs. 1,19,233/- Rs. 8,19,350 Thus the assessee derived income from civil contract business. He claimed investment allowance under Section 32-A of the Income Tax Act, 1961 (briefly, the Act') at Rs. 2,04,838/- on the machineries used in the excavation of power channels for different projects. The value of such machinery was shown at Rs. 8,19,350/-. The assessees claira of investment allowance was allowed by the Assessing Offlcer in his order dated 28-9-1983. On examination of the case, the Commissioner of Income Tax found that the order of the Assessing Officer was erroneous and prejudicial to the interest of the revenue so far as it relates to assessees claim of investment allowance on the machinery used for excavation of power channels for different projects in his contract business was not admissible. After hearing the arguments of the assessee and citations the assessment was set aside by the order dated 23-3-1985. The assessee filed appeal against the order of the C.I.T. under Section 263 to the Tribunal. By order dated 31-8-1988, the Tribunal held that the order of the C.I.T. under Section 263 was not sustainable and was set aside. Reference application filed

'?:^..;^;' ..^ under Section 256(1) against the order of the Tribunal in I.T.A. No. 329/Nag/85 dated 31-8-1988 was dismissed. ii. In the meantime, the Assessing Officer made reassessment vide his order dated 6-6-85 in view of the directions contained in the order of the C.I.T. under Section 263. Assessee's appeal against this re-assessment order was allowed by the C.I.T. (Appeals) in appeal No. Dmt6/85-86 dated 9-2-89 holding therein that the order of the Commissioner of Income Tax under Section 263 was cancelled by the Tribunal by their order in I.T.A. No. 329/Nag/1985 and therefore, the assessment framed in pursuance of order under Section 263 cannot be sustained. Against this order of the C.I.T. (Appeals), the department filed appeal to the Tribunal. iii. The Tribunal vide their order in I.T.A. No. 232/Nag/89 dated 13-8-1992 dismissed the departmental appeal holding therein that the reference application filed by the department in R.A. No. 226/Nag/88 arising out of the Order in ITOI No. 329/Nag/ 1985 for this very assessment was rejected and therefore, there was no force in the departmental appeal. iv. The department filed reference application before fhe Tribunal and the same was also rejected by the Tribunal vide its order in R.A. No. 328/Nag/92 dated 1-4-93 following the order already passed in R.A. No. 226/Nag/SS. 4. Shri Manoj Kumar Sinha, learned counsel for the respondent submitted that as per Board's instruction No. 1979 dated 27-3-2000 indisputably tax effect involved in this reference is less than the monitory limits fixed by the Central Government Board of Direct Taxes (for short, the Board). According to instruction dated 27-3-2000,

5.

monetary limit for filing appeal or reference in. the Higl/ L/\ Court has been fixed as Rs. 2 lacs. Relying upon the decision of the Bombay High Court in the matter of Commissioner of Income Tax -v- Madhukar K. Inamdar (HUF) [(2009) 318 ITR 149 (Bom)], decision of Delhi High Court in the case of Comraissioner of Income Tax, Delhi III -v- M/s P.S. Jain and Co (ITA No. 179/1991 decided on 2nd August, 2010, and in the case of Commissioner of Income Tax -v- Delhi Race Club Ltd. (ITA No. 128/2008decided on 3-3-2011, decision of M.P. High Court in the case of Commissioner of Income Tax -v- Ashok Kumar Manibhai Patel and Co. ([(2009) 317 ITR 386 (MP)], it was argued that Circular dated 27-3-2000 would be applicable to pending cases also requiring the department to withdraw the case where tax effect is less than the prescribed monetary limit and the above circular would be applicable to the cases pending before the Court either for admission or for Bnal disposal and it is binding on the reference. It was further argued that in compliance of High Court's order dated 27-10-97 under Section 256(2) of the Act, learned Tribunal has referred the questions on a date subsequent to coming into force of circular dated 27-3- 2000 and in this view of the matter also, the present reference is not maintainable. On the other hand, Shri Rajeev Shrivastava, learned counsel appearing for the applicant/revenue would argue that the Board issues instructions from time to time to the revenue authorities fixing monetary limits for preferring appeal/reference before the Tribunal, High Court and the Supreme Court. The Board vide its instruction No. 1979 dated 27-3-2000 superseding its earlier instruction No. 1903 dated 28th Oct, 92 and instruction No. 1777 dated 4th Nov. 1987, fixed monetary limit for filing

6.

7. appeal/reference before the Tribunal, High Court and Supreme Court at one lac, two lacs and 5 lacs respectively. However, Clause 7 of the above instruction clearly and specifically envisages that the instructions will apply to the appeals/references filed on or after 1st April, 2000. Where the appeals/references have been filed before 1-4-2000, they shall be covered by the instructions on the subject as operative at the time when such appeal/reference was filed. In the instant case, the revenue had filed reference before High Court of M.P. under Section 256(2) of the Act long before coming into force of the instruction No. 1979 dated 27-3-2000 therefore, instruction dated 27-3-2000 has no application in the present case and the reference is not hit by the above circular and is maintainable. He would further submit so far as merit of the case are concerned, the matter is squarely covered by the decision of Hon'ble Supreme Court in the case of Cominissioner of Income Tax, Orissa -v- M/s N.C. Budharaja and Company and others (1994 Supp (1) SCC 280). We have heard learned counsel for the parties and perused the record and order of forums below as also the order of reference and statement of the case. The Board vide its instruction dated 27-3-2000 revised the monetary limits. Para 2 to 7 of the above circumstance reads as under: "2. In super session of the above instruction it has now been decided by the Board that appeals will be filed only in cases where the tax effect exceeds the revised monetary limits given hereunder: (i) Appeal before the Appellate Tribunal Rs. 1,00,000 (in Income tax matters) (ii) Appeal under S. 260A/reference under: S. 256(2) before the High Court Rs. 2,00,000

'ftsy i^&f^ l*. <T. 'iA^^S^ ^;,- -::y (iii) Appeal in the Supreme Court Rs. 5,00,000 The new monetary limits would apply with reference to each case taken singly. In other words, in group cases, each case should individually satisfy the new monetary limits. The working out of monetary liraits will therefore, not take into consideration the cumulative revenue effect as envisaged Board's earlier instruction referred to above. 8. 7. This instruction will come into effect from 1st April, 2000." Section 268-A of the Income Tax Act reads as under: 268-A. Filing of appeal or application for reference by income tax authority.—(1)The Board may, from time to time, issue orders, instructions or directions to other income tax authorities, fixing such monetary limits as it may deem fit, for the purpose of regulating filing of appeal or application for reference by any income tax authority under the provisions of this chapter. (2) Where, in pursuance of the orders, instructions or directions issued under sub-section (1), an income tax authority has not filed any appeal or application for reference on any issue in the case of an assessee for any assessment year, it shall not preclude such authority from filing an appeal or application for reference on the same issue in the case of— (a) the same assessee for any other assessment year; or any other assessee for the same or any other assessment year. (3) Notwithstanding that no appeal or application for reference has been filed by an income tax authority pursuant to the orders or instructions or directions issued under sub-section (1), it shall not be lawful for an assessee, being a party in any appeal or reference, to contend that the income tax authority has acquiesced in the decision on the disputed issue by not filing an appeal or application for reference in any case. (4) The Appellate Tribunal or Court, hearing such appeal or reference, shall have regard to the orders, instructions or directions issued under sub-section (1) and the circumstances under

which such appeal or application for reference was filed or not filed in respect of any case. (5) Every order, instruction or direction which has been issued by the Board fixing monetary limits for filing an appeal or application for reference shall be deemed to have been issued under sub- section (1) and the provisions of sub-sections (2), (3) and (4) shall apply accordingly.] The Division Bench of this Court in case of Commissioner of Income Tax -v- M/s Navbharat Explosives Co. Pvt. Ltd. Raipur (ITR No. 47/98 decided on 14th June, 2010) relying upon the judgment of Madrass High Court in the case of Commissioner of Income Tax -v- Kodananad Tea Estates Co. (2005) 275 ITR 244, and decision of Kerala High Court Commissioner ofWealth Tax -v- John L. Chackola [(2010) 36 DTR (ker) 239], has held in para 24 and 25 of its judgment as under:- "24. The circular dated 5tb Jun3, 2007 which fmds reference in Madhukar K. Inamdar (supra) case has no application, as the same stands superseded by subsequent circular dated 15th May, 2008. It does not appeal to reason that the appeal/reference at the instance of Revenue in the year 1998 remained pending for a period of 12 years till 2010 and thereafter it is dismissed on the ground of tax impact in view of some circular issued in the year 2008. 25. Thus, following the decision of the Madras High Court in the matter of Kodananad Tea Estate (supra) and the decision of Kerala High Court in the case of John L. Chackola, we hold that maintainability of appeals/references at the instance of Revenue is to be considered on the basis of circulars/instructions prevailing at the relevant time when the appeal/reference was made and instruction issued vide circular dated 15th May 2008

is prospective and it has no application whatsoever to any proceedings initiated before 15fh May, 2008 and the same remain undecided and pending after IStbMay, 2008." 10. We are in respectful agreeraent with the above proposition of law and we also hold that the instructions issued vide circular No. 1979 dated 27-3-2000 is prospective and it has no application whatsoever in the proceeding initiated before 27-3-2000. 11. Indisputably, on applicant's application under Section 256(2) of the Act, Hon^le High Court of M.P. vide its order dated 27-10-1997 in M.C.C. No. 488/93 has directed the Tribunal to refer the question for their opinion i.e. much prior to coming into force of circular dated 27-3-2000. therefore, in our opinion, the reference application was filed by the Revenue rauch prior to coming into force of above circular and it has no application whatsoever in the present case. 12. Coming to the merits of the case, the question whether the assessee was entitled to deduction under Section 32-A of the Act on the machinery used in the excavation of power channels of different projects in the execution of its contract, is no longer res intigra, as argued by learned counsel for the applicant and it has been conclusively decided in the case of Commission of Income Tax -v- N.C. Budharaja (supra) wherein it has been held that sub- clause (iii) of Clause (b) of sub-section (2) of Section 32-A does not coinprehend within its ambit construction of a dam, a bridge, a building, a road, a canal and other similar constructions. 13. In view of above, we answer reference in negative and hold that the Tribunal was not justified in holding that the assessee was entitled to deduction under Section under

'^ Section 32-A of the Act on the machinery used in tte excavation of power channels of different projects in the execution of its contract. . 14. As I.T.R. No. 52/2000 is answered in favour of the Revenue, therefore, I.T.R. No. 3/2001 does not require any separate answer and is accordingly is disposed of. Sd/- 1-M.Quddusj Judge Sd/. N. K. Ag, aj Bil

More judgments on Section 256(1)

All 755 judgments and leading authorities on Section 256(1) →

Recent GST High Court judgments

Search GST case law →