Sh. K. Ravindranathan Nair Vs. Commissioner of Income Tax, Ernakulam
EmailAppeal: Civil Appeals Nos .4475-4476 of 1998
(From the Judgment and Order dated 30.7.84 of the Kerala High Court in I.T.R.Nos .229/79 and 74 of1980)
(From the Judgment and Order dated 30.7.84 of the Kerala High Court in I.T.R.Nos .229/79 and 74 of1980)
Petitioner: Sh. K. Ravindranathan Nair
Respondent: Commissioner of Income Tax, Ernakulam
Apeal: Civil Appeals Nos .4475-4476 of 1998
(From the Judgment and Order dated 30.7.84 of the Kerala High Court in I.T.R.Nos .229/79 and 74 of1980)
(From the Judgment and Order dated 30.7.84 of the Kerala High Court in I.T.R.Nos .229/79 and 74 of1980)
Judges: S.P.BHARUCHA, DORAISWAMY RAJU & RUMA PAL, JJ.
Date of Judgment: Nov 30, 2000
Appearances:
Mr. S.Ganesh, Mr. Pratap Venugopal, Mr. P.S.Sudheer and Mr. K.J.John, Advocates for Appellant.
Mr. K.N Shukla, Senior Advocate, Mr. S.W.A.Qadri, Mr. S.K.Dwive-di, Mr. Bipul Kumar and Ms. Sushma Suri, Advocates with him for the Respondent.
Mr. K.N Shukla, Senior Advocate, Mr. S.W.A.Qadri, Mr. S.K.Dwive-di, Mr. Bipul Kumar and Ms. Sushma Suri, Advocates with him for the Respondent.
Head Note:
INCOME TAX
Income Tax Act, 1961
Section 37 – Deductions – Processing of cashew nuts in 10 units – Four units situated in Kerala – Two out of four owned by assessee and two taken on lease – Due to labour problems in 1969, all four units closed – Two units owned by assessee leased out to private company, whose share holders were the assessee and his wife only – Other two units, taken on lease, surrendered – Settlement arrived at – Assessee agreeing to pay 5 days’ wages in each year of service – Amount of Rs. 4,18,107 paid – If deductible – Tribunal finding all 10 units to be one and allowing deduction – Justification. Held that on facts, expenditure was in regard to business and hence deductible under Section 37.
Income Tax Act, 1961
Section 37 – Deductions – Processing of cashew nuts in 10 units – Four units situated in Kerala – Two out of four owned by assessee and two taken on lease – Due to labour problems in 1969, all four units closed – Two units owned by assessee leased out to private company, whose share holders were the assessee and his wife only – Other two units, taken on lease, surrendered – Settlement arrived at – Assessee agreeing to pay 5 days’ wages in each year of service – Amount of Rs. 4,18,107 paid – If deductible – Tribunal finding all 10 units to be one and allowing deduction – Justification. Held that on facts, expenditure was in regard to business and hence deductible under Section 37.
Held:
The Tribunal said that it was satisfied that all the units were fully interlinked and interlaced so that the inevitable inference was that all these units were one business alone.The Tribunal went on to hold that the facts were sufficient to establish a nexus between the payment of Rs.4,18,107/- and the business. Because a part of the business had been affected by labour disputes, for the industrial health of the business as a whole, it was thought just and necessary that the industrial dispute in that one part of the business be stopped.This was the purpose for which the payment was made and it was, therefore, incurred for the purposes of the business. (Para 5)
The High Court overlooked the cardinal principle that it is the Tribunal which is the final fact finding authority. A deci-sion on fact of the Tribunal can be gone into by the High Court only if a question has been referred to it which says that the finding of the Tribunal on facts is perverse, in the sense that it is such as could not reasonably have been arrived at on the material placed before the Tribunal . In this case, there was no such question before the High Court. Having regard to the finding that these and all the other units outside Kerala formed one business, the expenditure must be held to have been incurred in regard to such business. Upon the facts found by the Tribunal, there is no getting away from the fact that the expendi-ture of Rs. 4,18,107/- that was incurred by the assessee was a business expenditure and that the assessee was entitled to its deduction under Section 37. (Paras 7, 9 and 10)
JUDGEMENT:
BHARUCHA, J.
1. We are concerned in these appeals, from a decision of a Divi-sion Bench of the High Court of Kerala, with the Assessment Year 1972-73, the previous year of which ended for the assessee on 30th September , 1971.The question that was referred to the High Court and which it answered in the negative and against the assessee reads thus:
“Whether on the facts and in the circumstances of the case, the assessee is entitled to claim deduction of Rs. 4,18,107/- under Section 37 of the Income-tax Act?”
2. The assessee, an individual, carried on the business of processing cashew nuts in ten units. Four of these units were situated in Kerala. Of these four units,two were owned by the assessee and two were taken on lease. In October, 1969, the assessee faced labour problems in Kerala, consequent upon which he ordered a lock out of the four units there.On 9th March,1970, the assessee leased out the two units which he owned in Kerala to a private limited company whose only two share-holders were the assessee and his wife.The agreement in this behalf provided that the workmen employed in the two units would have continuity of service. At about the same time the lessee surrendered the two units in Kerala which he had taken on lease.On 21st November,1970 the assessee entered into a settle-ment with the Trade Unions representing the workmen of the units in Kerala and agreed to pay them for the periods of their service upto the date of the lock out five days’wages for each year of service. An aggregate payment of Rs.4,18,107/- was made in this behalf.
3. The payment having been made in the course of the previous year relevant to the Assessment Year 1972-73, the assessee made a claim for the deduction of the said sum of Rs.4,18,107/- under Section 37 of the Income Tax Act, 1961. The Income Tax Officer disallowed the claim. In appeal, the claim was allowed. The Tribunal upheld the decision in appeal. From out of the order of the Tribunal, the question aforestated was referred to the High Court. The High Court, by the judgment and order under appeal , answered the question against the assessee.The assessee is here by special leave.
4. It needs to be noted that the Revenue had sought the re-ference of six questions. The Tribunal had disallowed its application insofar as it related to five questions on the basis that the one issue, that was covered by the question quoted above, had been split up into six questions.The Revenue did not file an application before the High Court under Section 256(2) seeking the reference of the rejected five questions. It is neces-sary to make a point of this because none of the six questions proceeded upon the basis that the Revenue considered the decision of the Tribunal on facts to be perverse; in other words, that it could not reasonably have been arrived at on the materials placed before the Tribunal. Alternatively, assuming that one or more of the questions did proceed upon that basis, the Revenue accepted the fact that they were not referred and did not carry the matter to the High Court. There was, therefore, no challenge by the Revenue to the facts found by the Tribunal before the High Court.
5. As we read the judgment of the Tribunal, it extensively ana-lysed the documents placed before it and came to the conclusion that the ten units run by the assesee constituted a single business, that the four units in Kerala did not constitute a separate business and that, therefore, the payment that was made was not on account of closure of business, which would not be allowable under Section 37. The Tribunal found, on the basis of the accounts placed before it that only one set of accounts were maintained for all the ten units. It found that there was one central financing system that all the units were financed by banks and that these accounts were operated from the head office and that the cashew was purchased for processing by the head office for all the units together. It was also found that there was unity of management and control. Accordingly, the Tribunal said that it was satisfied that all the units were fully interlinked and interlaced so that the inevitable infer-ence was that all these units were one business alone.The Tribunal went on to hold that the facts were sufficient to establish a nexus between the payment of Rs.4,18,107/- and the business. Because a part of the business had been affected by labour disputes, for the industrial health of the business as a whole, it was thought just and necessary that the industrial dispute in that one part of the business be stopped.This was the purpose for which the payment was made and it was, therefore, incurred for the purposes of the business.The Tribunal noted, correctly, that it was for the assessee to decide how he would conduct his business. For the purposes of continuing his business,he had to reduce the number of units from ten to six. Any incidental expense in reducing those units was an expen-diture incurred in the course of conducting the business and allowable under Section 37.
6. The High Court, surprisingly , threw out all the findings of fact that were reached by the Tribunal. It did so because, in the High Court’s view, the Tribunal had misdirected itself in law in arriving at these findings.This was because, according to the High Court, the Tribunal had overlooked or ignored a clinching document and because it had wrongly cast the burden of proving the facts on a party. It is difficult to appreciate what that document was, that the Tribunal had supposedly overlooked or how the High Court was entitled to look at it if it had not been placed before the Tribunal. It was erroneous to say that any burden had been incorrectly cast by the Tribunal because the Tribunal had evaluated all the material, that was put before it, regardless of who had put it on the record.
7. The High Court overlooked the cardinal principle that it is the Tribunal which is the final fact finding authority.A deci-sion on fact of the Tribunal can be gone into by the High Court only if a question has been referred to it which says that the finding of the Tribunal on facts is perverse, in the sense that it is such as could not reasonably have been arrived at on the material placed before the Tribunal. In this case, there was no such question before the High Court. Unless and until a finding of fact reached by the Tribunal is canvassed before the High Court in the manner set out above, the High Court is obliged to proceed upon the findings of fact reached by the Tribunal and to give an answer in law to the question of law that is before it.
8. The only jurisdiction of the High Court in a reference appli-cation is to answer the questions of law that are placed before it. It is only when a finding of the Tribunal on fact is chal-lenged as being perverse, in the sense set out above, that a question of law can be said to arise.
9. The only argument, fairly, that has been raised before us by the Revenue is that this expenditure could not be said to have been incurred in the course of the business because the four Kerela units in respect of which the expenditure was incurred had been shut down by the assessee. This argument would be acceptable if the Tribunal had found that these four units constituted a separate business. Having regard to the finding that these and all the other units outside Kerala formed one business, the expendi-ture must be held to have been incurred in regard to such busi-ness.
10. Upon the facts found by the Tribunal, there is no getting away from the fact that the expenditure of Rs. 4,18,107/- that was incurred by the assesee was a business expenditure and that the assessee was entitled to its deduction under Section 37.
11. In the result, the civil appeals are allowed. The impugned judgment and order is set aside.The question is answered in the affirmative and in favour of the assessee.
12. No order as to costs.
1. We are concerned in these appeals, from a decision of a Divi-sion Bench of the High Court of Kerala, with the Assessment Year 1972-73, the previous year of which ended for the assessee on 30th September , 1971.The question that was referred to the High Court and which it answered in the negative and against the assessee reads thus:
“Whether on the facts and in the circumstances of the case, the assessee is entitled to claim deduction of Rs. 4,18,107/- under Section 37 of the Income-tax Act?”
2. The assessee, an individual, carried on the business of processing cashew nuts in ten units. Four of these units were situated in Kerala. Of these four units,two were owned by the assessee and two were taken on lease. In October, 1969, the assessee faced labour problems in Kerala, consequent upon which he ordered a lock out of the four units there.On 9th March,1970, the assessee leased out the two units which he owned in Kerala to a private limited company whose only two share-holders were the assessee and his wife.The agreement in this behalf provided that the workmen employed in the two units would have continuity of service. At about the same time the lessee surrendered the two units in Kerala which he had taken on lease.On 21st November,1970 the assessee entered into a settle-ment with the Trade Unions representing the workmen of the units in Kerala and agreed to pay them for the periods of their service upto the date of the lock out five days’wages for each year of service. An aggregate payment of Rs.4,18,107/- was made in this behalf.
3. The payment having been made in the course of the previous year relevant to the Assessment Year 1972-73, the assessee made a claim for the deduction of the said sum of Rs.4,18,107/- under Section 37 of the Income Tax Act, 1961. The Income Tax Officer disallowed the claim. In appeal, the claim was allowed. The Tribunal upheld the decision in appeal. From out of the order of the Tribunal, the question aforestated was referred to the High Court. The High Court, by the judgment and order under appeal , answered the question against the assessee.The assessee is here by special leave.
4. It needs to be noted that the Revenue had sought the re-ference of six questions. The Tribunal had disallowed its application insofar as it related to five questions on the basis that the one issue, that was covered by the question quoted above, had been split up into six questions.The Revenue did not file an application before the High Court under Section 256(2) seeking the reference of the rejected five questions. It is neces-sary to make a point of this because none of the six questions proceeded upon the basis that the Revenue considered the decision of the Tribunal on facts to be perverse; in other words, that it could not reasonably have been arrived at on the materials placed before the Tribunal. Alternatively, assuming that one or more of the questions did proceed upon that basis, the Revenue accepted the fact that they were not referred and did not carry the matter to the High Court. There was, therefore, no challenge by the Revenue to the facts found by the Tribunal before the High Court.
5. As we read the judgment of the Tribunal, it extensively ana-lysed the documents placed before it and came to the conclusion that the ten units run by the assesee constituted a single business, that the four units in Kerala did not constitute a separate business and that, therefore, the payment that was made was not on account of closure of business, which would not be allowable under Section 37. The Tribunal found, on the basis of the accounts placed before it that only one set of accounts were maintained for all the ten units. It found that there was one central financing system that all the units were financed by banks and that these accounts were operated from the head office and that the cashew was purchased for processing by the head office for all the units together. It was also found that there was unity of management and control. Accordingly, the Tribunal said that it was satisfied that all the units were fully interlinked and interlaced so that the inevitable infer-ence was that all these units were one business alone.The Tribunal went on to hold that the facts were sufficient to establish a nexus between the payment of Rs.4,18,107/- and the business. Because a part of the business had been affected by labour disputes, for the industrial health of the business as a whole, it was thought just and necessary that the industrial dispute in that one part of the business be stopped.This was the purpose for which the payment was made and it was, therefore, incurred for the purposes of the business.The Tribunal noted, correctly, that it was for the assessee to decide how he would conduct his business. For the purposes of continuing his business,he had to reduce the number of units from ten to six. Any incidental expense in reducing those units was an expen-diture incurred in the course of conducting the business and allowable under Section 37.
6. The High Court, surprisingly , threw out all the findings of fact that were reached by the Tribunal. It did so because, in the High Court’s view, the Tribunal had misdirected itself in law in arriving at these findings.This was because, according to the High Court, the Tribunal had overlooked or ignored a clinching document and because it had wrongly cast the burden of proving the facts on a party. It is difficult to appreciate what that document was, that the Tribunal had supposedly overlooked or how the High Court was entitled to look at it if it had not been placed before the Tribunal. It was erroneous to say that any burden had been incorrectly cast by the Tribunal because the Tribunal had evaluated all the material, that was put before it, regardless of who had put it on the record.
7. The High Court overlooked the cardinal principle that it is the Tribunal which is the final fact finding authority.A deci-sion on fact of the Tribunal can be gone into by the High Court only if a question has been referred to it which says that the finding of the Tribunal on facts is perverse, in the sense that it is such as could not reasonably have been arrived at on the material placed before the Tribunal. In this case, there was no such question before the High Court. Unless and until a finding of fact reached by the Tribunal is canvassed before the High Court in the manner set out above, the High Court is obliged to proceed upon the findings of fact reached by the Tribunal and to give an answer in law to the question of law that is before it.
8. The only jurisdiction of the High Court in a reference appli-cation is to answer the questions of law that are placed before it. It is only when a finding of the Tribunal on fact is chal-lenged as being perverse, in the sense set out above, that a question of law can be said to arise.
9. The only argument, fairly, that has been raised before us by the Revenue is that this expenditure could not be said to have been incurred in the course of the business because the four Kerela units in respect of which the expenditure was incurred had been shut down by the assessee. This argument would be acceptable if the Tribunal had found that these four units constituted a separate business. Having regard to the finding that these and all the other units outside Kerala formed one business, the expendi-ture must be held to have been incurred in regard to such busi-ness.
10. Upon the facts found by the Tribunal, there is no getting away from the fact that the expenditure of Rs. 4,18,107/- that was incurred by the assesee was a business expenditure and that the assessee was entitled to its deduction under Section 37.
11. In the result, the civil appeals are allowed. The impugned judgment and order is set aside.The question is answered in the affirmative and in favour of the assessee.
12. No order as to costs.
