G.K. Sharma, J. - (1.) THE Commissioner of Income-tax, Jaipur, has filed this reference application under Section 256(2) of the Income-tax Act, 1961, arising out of the order of the Income-tax Appellate Tribunal, dated April 18, 1980.
(2.) THE assessee, M/s. Golecha Firms (P.) Ltd., Beawar, was a private limited company. THEy filed a return declaring a loss of Rs. 560 for the assessment year 1978-79. THE assessee-company was incorporated in order to acquire land for dairy and farming. It could not carry out any of the activities in the said business. THE surplus money lying with it had been deposited with the firm, M/s. Ashoka Minerals, Beawar, and the interest accruing from it was shown in the profit and loss account, claiming the same to be income from business. The Income-tax Officer did not agree with the assessee and was of the view that the assessee's business was not that of money-lending, although one of the objects was to lend and advance money on property, etc. The Income-tax Officer was of the view that this object was under the main object of the assessee-company which was incidental or ancillary to the attainment of the main object. The Income-tax Officer assessed the income from the interest as income from other sources. Being aggrieved by the order of the Income-tax Officer, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals). The appellate court confirmed the order of the Income-tax Officer and dismissed the said appeal. Against that order of the Appellate Assistant Commissioner, the assessee preferred a second appeal before the Income-tax Appellate Tribunal. The Income-tax Appellate Tribunal, vide its order dated April 18, 1980, allowed the expenditure of Rs. 8,000 as against the claim of Rs. 10,640 made by the assessee. Hence, the appeal of the assessee was partly allowed. The Commissioner of Income-tax, against the order of the Income-tax Appellate Tribunal, filed an application under Section 256(1) of the Income-tax Act, framing the following questions of law : "Whether, on the facts and in the circumstances of the present case, the Tribunal was justified in holding that the expenditure to the extent of Rs. 8,000 can be considered to be incidental to the assessee's business and is allowable as deduction out of interest income earned upon deposits ? " The Commissioner of Income-tax required the Income-tax Appellate Tribunal to draw up a statement of the case and refer the said question to this court. The Income-tax Appellate Tribunal, after hearing both the sides and considering all the aspects, came to the conclusion that the finding of the Income-tax Appellate Tribunal was purely a finding of fact and no question of law arose out of its order. The application of the Commissioner of Income-tax was dismissed.
(3.) THE Commissioner of Income-tax then moved the present reference application under Section 256(2) of the Income-tax Act before this court, alleging that a question of law arises out of the order of the Income-tax Appellate Tribunal. Mr. Surolia, learned counsel for the petitioner, argued that the order of the Income-tax Appellate Tribunal is erroneous on the ground that the order has not dealt with properly the controversy involved in the matter, and that the order of the Income-tax Appellate Tribunal is based simply on the expenditure allowed during the previous year. He further added that it has not examined the various claims of expenditure as claimed by the assessee, nor has it given any valid justification for enhancing the expenditure from Rs. 1,008 to Rs. 8,000. It was further argued by him that the Income-tax Appellate Tribunal's order enhancing the deductible expenses is perverse and irrational. It was also contended by Mr. Surolia that the assessee was not carrying on its business of dairy and farming, but it had invested its surplus amount with a firm, on interest. According to him, it is not understandable as to how a huge expenditure of Rs. 8,000 would be incurred on a total income of Rs. 10,078. Mr Surolia also argued that the Income-tax Appellate Tribunal has erred in holding that no question of law arises out of its order. So, according to Mr. Surolia, a question of law as mentioned in the reference application filed before the Income-tax Appellate Tribunal arises for the consideration of this court. The Income-tax Officer, while passing the assessment order, opined that in computing the income from other sources, only the expenses incurred by the assessee for earning this income, are to be allowed, and he further opined that the assessee has debited various expenses to his profit and loss account, e.g., managing director's salary, T.A., etc. He did not consider all these expenses necessary for earning the above income of Rs. 10,078 particularly, when the amount had been lying with one firm only throughout the year. He considered the expenditure of about 10% of the income earned as relating to the earning of the above income. Thus, income from interest was Rs. 10,078 and, according" to the Income-tax Officer, he estimated the expenses at Rs. 1,008. ;