COMMISSIONER OF INCOME TAX Vs. INDO CARPET FACTORY
LAWS(J&K)-1999-11-4
HIGH COURT OF JAMMU AND KASHMIR
Decided on November 14,1999

COMMISSIONER OF INCOME-TAX Appellant
VERSUS
INDO CARPET FACTORY Respondents

JUDGEMENT

B.P. Saraf, C.J. - (1.) BY this reference under Section 256(1) of the Income-tax Act, 1961 ("the Act"), the Income-tax Appellate Tribunal, Amritsar Bench, Amritsar ("the Tribunal"), has referred the following two questions of law to this court for opinion at the instance of the Revenue : "1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in holding that the livability and the quantum of interest charged under Sections 139(8) and 217 of the Income-tax Act can be challenged by the assessee in appeal filed under Section 246(1)(c) of the Act ? 2. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in holding in the manner it has done that weighted deduction was allowable on : (1) establishment expenditure; (2) rent, rates and taxes expenditure ; (3) stationery and printing expenditure, postage, telegram, telephone and telex expenditure ; (4) export sale promotion expenditure ; and (5) commission ?"
(2.) THIS reference pertains to the assessment year 1978-79. The assessee is a registered firm engaged in the business of manufacture, purchase and sale of carpets. The assessee also exports carpets outside the country. The head office of the assessee is at Srinagar. It has also a branch at Delhi. By this reference the Tribunal has referred two questions of law to this court for opinion. The controversy in the first question pertains to the right of appeal under Section 246(l)(c) of the Act against charge of interest under Section 139(8) and Section 217 of the Act. The Tribunal has held that the assessee can also challenge the leviability and quantum of interest charged under Section 139(8) and Section 217 of the Act. Aggrieved by the decision of the Tribunal, the Revenue applied for reference of question No. 1 to this court for opinion which the Tribunal has done. The controversy in the second question pertains to the allowability of weighted deduction in respect of certain items of expenditure. The Tribunal has allowed weighted deduction to the assessee in respect of the following items of expenditure : (1) establishment expenditure ; (2) rent, rates and taxes expenditure ; (3) stationery and printing expenditure, postage, telegram, telephone and telex expenditure ; (4) export sale promotion expenditure ; and (5) commission. The grievance of the Revenue is that the Tribunal could not have allowed weighted deduction in respect of the above items of expenditure without specifying as to under which Sub-clauses of clause (b) of Section (1) of Section 35B of the Act the expenditure in question would be covered and without having any relevant material to show that the expenditure under consideration did fall under any of those Sub-clauses. So far as the first question is concerned, the controversy raised therein now stands concluded by the ratio of the decision of the Supreme Court in Central Provinces Manganese Ore Co. Ltd. v. CIT [1986] 160 ITR 961. In that case, the question before the Supreme Court was whether orders levying interest under Sub-section (8) of Section 139 and under Section 215 are appealable under Section 246 of the Income-tax Act, 1961. The Supreme Court held (page 966) : "Clause (c) of Section 246 provides an appeal against an order where the assessee denies his liability to be assessed under the Act or against any assessment under Sub-section (3) of Section 143 or Section 144, where the assessee objects to the amount of income assessed or to the amount of tax determined or to the amount of loss computed or to the status under which he is assessed. Inasmuch as the levy of interest is a part of the process of assessment, it is open to an assessee to dispute the levy in appeal provided he limits himself to the ground that he is not liable to the levy at all."
(3.) THE ratio of the above decision would also apply to appeal against levy of interest under Section 217 of the Act. We are supported in our above conclusion about the maintainability of appeal against levy of interest under Section 217 of the Act, by the decision of the Bombay High Court in Fort Properties Pot. Ltd. v. CIT [1994] 208 ITR 232. In that case also, the controversy before the court was whether the Appellate Assistant Commissioner was justified in entertaining the ground against the levy of interest under Section 217 of the Act. The contention of the assessee was that no advance tax being payable by the assessee on capital gains, the dispute regarding levy of interest under Section 217 for non-payment of the same was not a dispute in regard to the quantum of interest but a challenge to the levy of interest under Section 217 of the Act. The High Court held (page 256) : ". . . the decision of the Supreme Court in Central Provinces Manganese. Ore Co. Ltd. v. CIT[1986] 160 ITR 961 will apply and the appeal will be maintainable. It will be open to the assessee to dispute the levy of interest in appeal subject to the limits laid down by the Supreme Court in the above decision." ;


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