- (1.) ALL these three references under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as " the Act "), are at the instance of the assessee for the decision of some common questions of law. The five questions of law referred in Reference No. 16 of 1978 are questions Nos. 1 to 5 in Reference No. 24 of 1978 and the remaining question No. 6 in Reference No. 24 of 1978 is merely consequential. The only question referred in Reference No. 25 of 1978 is question No. 3 in Reference No. 16 of 1978. This is how all these references involve the same questions relating to the same assessee in respect of different periods of assessment.
(2.) REFERENCE No. 16 of 1978 pertains to the assessment year 1965-66 for which the accounting period ended on March 31, 1965. REFERENCE No. 24 of 1978 relates to the assessment year 1966-67 for which the accounting period ended on March 31, 1966. REFERENCE No. 25 of 1978 relates to the assessment years 1959-60 and 1960-61 for which the accounting periods ended on March 31, 1959, and March 31, 1960, respectively. The remaining material facts which are common are stated hereunder. The assessee, M/s Golcha Properties (P.) Ltd., went into voluntary liquidation on July 4, 1966. Pending the proceedings of winding up, its affairs were looked after by the official liquidator with effect from May 10, 1968. The Income-tax Officer applied to the company court under Section 446 of the Companies Act, 1956, to proceed with the assessment of the company in respect of the assessment years 1965-66 and 1966-67. The company court has stayed the assessment proceedings resulting in extension of the time for completion of assessment. Admittedly, the assessment was completed in respect of both the assessment years within the extended period. The Revenue placed reliance on the provisions of Explanation to Sub-section (1) of Section 153 of the Act for contending that the assessment for these years has been completed within the prescribed period of limitation. The company had been carrying on the business of exhibiting films in a cinema house known as Maratha Mandir at Bombay and Golcha Cinema at Delhi. It is contended that it was an industrial company and was, therefore, entitled to concessional rates of income-tax by the Finance Act, 1965. The assessee claimed the benefit available to an industrial company under this provision on the ground that its business of exhibiting films amounted to business of processing of goods which was one of the requirements for treating it as an industrial company under the Finance Act, 1965. The assessee had entered into an agreement with M/s Maratha Mandir Pvt. Ltd., on October 31,1955, according to which it was to complete the construction of the cinema building undertaken by Maratha Mandir Pvt. Ltd., and which had remained incomplete for want of finance. The agreement further provided that the assessee could be entitled to manage his cinema theatre for a period of 20 years on the terms and conditions contained in this agreement after which the entire immovable property along with the plant, machinery, etc., fitted therein would revert to Maratha Mandir Pvt. Ltd. There was also some litigation between the parties which related to a consent decree passed on February 25, 1959, in a civil suit at Bombay. The terms of that decree also regulated the jural relationship between the assessee and Maratha Mandir Pvt. Ltd. in respect of the cinema theatre known as Maratha Mandir at Bombay. The assessee claimed depreciation and certain other deductions in respect of expenditure incurred by it under the terms of this contract. The Income-tax Officer disallowed the assessee's claim and the assessee's further appeals to the Appellate Assistant Commissioner and then to the Tribunal also failed. Aggrieved by the decision of the Tribunal, the assessee applied for a reference under Section 256(1) of the Act which has led to reference of certain questions of law in respect of the aforesaid assessment years. The questions of law referred for decision by this court in these three references are as follows : " 1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessment order for the assessment year 1965-66 did not become time-barred under Sub-section (1) of Section 153 of the Income-tax Act, 1961, in view of the provisions of the Explanation 1 to the said section ? 2. Whether, on the facts and in the circumstances of the case, the Tribunul was justified in holding that the assessee-company is not an industrial company ? 3. Whether, on the facts and in the circumstances of the case, and on a correct interpretation of the terms of the agreement dated October 31, 1955, and the consent decree dated February 25, 1959, the Tribunal is justified in holding that the assessee is not the owner of the cinema styled as Maratha Mandir and the machinery, plant, furniture, etc., installed in the said building by the assessee-company with its own finances and no depreciation and development rebate are available to it in respect thereto ? 4. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in rejecting the alternative contention of the assessee that the amount of Rs. 20,000 spent by the assessee-company on the construction of the cinema known as Maratha Mandir and in purchasing the various movable assets installed therein out of its own funds, is neither capital nor a revenue expenditure ? 5. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the interest income of Rs. 1,15,684 had accrued and arisen to the assessee-company on its loans given to M/s Golcha Properties Pvt. Ltd., Nepalganj, Nepal, and that the resolution passed by the assessee-company on June 22, 1965, did not have the effect of making the said income non-existent in the accounting period corresponding to the assessment year 3965-66 ?
(3.) WE shall deal with the questions referred in Reference No. 16 of 1978 which could cover the question referred in the other two references as well. The first question relates to the limitation for completing the assessment proceedings in respect of the assessment years 1965-66 and 1966-67. There is no controversy that the company court had stayed the completion of assessment proceedings by passing an appropriate order in the proceedings for winding up before it and the final order of assessment was passed by the Income-tax Officer within the extended period in each case. It is also claimed that the company court had clearly mentioned in that order that the same was made as required by Explanation 1 to Section 153 of the Act. This Explanation says that in computing the period of limitation for the purposes of this section prescribing the time-limit for completion of assessment, the period during which the assessment proceeding is stayed, by an order or injunction by a court shall be excluded. There is thus no escape from the conclusion that the assessment having been completed within the period prescribed after excluding the period of stay in computing the period of limitation, there was no defect of limitation attached to it. The first question has, therefore, to be answered in the affirmative and in favour of the Revenue. The second question relates to the benefit claimed by the assessee as an industrial company under the Finance Act, 1965. As already indicated, this claim of the company was based wholly on the ground that its business of exhibiting films was a business of processing of goods. Reliance was placed on the provision only to this extent for claiming this benefit. The Tribunal has by cogent reasons intimated as to why this contention be not accepted. The expression " processing of goods " cannot cover the business activity of exhibiting films for the obvious reason that there is no change undergone in the films which are merely projected on a screen for public view. The expression " processing of goods " necessarily contemplates some kind of change in the goods itself which is obviously non-existing in the process of exhibiting the films. The Tribunal, therefore, was justified in rejecting the assessee's claim on this point as well. This question also has to be answered in favour of the Revenue. ;