1. The following four questions stand referred to us under s. 256(1) of the I.T. Act, 1961, by the Income-tax Appellate Tribunal :
'(1) Whether, on the facts and in the circumstances of the case, the assessee was entitled to the deduction of interest on 3% Sterling Promissory Note for the assessment years 1951-52 and 1955-56 to 1967-68 ?
(2) Whether, on on the facts and in the circumstances of the case, the assessee was entitled to the deduction of interest on 3% Indian Rupee Promissory Note for the assessment years 1951-52, 1955-56 and 1957-58 ?
(3) Whether the interest on 3% Indian Rupee Promissory Note was rightly held to be not deductible for the assessment years 1956-57 and 1958-59 to 1967-68 ?
(4) Whether, on the facts and in the circumstances of the case, the assessee was entitled to deduction of fees paid in connection with representation of the assessee's case before the Income-tax Officer in income-tax proceedings for the assessment years 1958-59, 1960-61, 1961-62, 1966-67 and 1967-68 ?'
It is found from the statement of the case that it was the Commissioner of Income-tax alone who had required the Income-tax Appellate Tribunal to draw up statements of the case for certain years under s. 66(1) of the Indian I.T. Act, 1922, and for other years under s. 256(1) of the I.T. Act, 1961. Out of the four questions earlier set out, questions Nos. 1 and 2 were sought for by the Commissioner. It is made clear from para. 8 of the statement of the case that the assessee-company had not itself filed any reference applications. However, it claimed to exercise its right as a respondent and required the Tribunal to refer certain questions which are now reflected in questions Nos. 3 and 4.
Mr. Joshi invited our attention to a decision of the Supreme Court in CIT v. V. Damodaran : 121ITR572(SC) , where it has been observed that the High Court would have no jurisdiction to consider and decide such questions. The relevant observations are to be found at page 577 of the report and read as follows :
'The second question is whether the provision for payment of tax and dividend can be taken into account when computing the accumulated profits as on March 31, 1958. The Revenue contends that this question should not have been referred by the Appellate Tribunal to the High Court at the instance of the assessee because no reference application was made by the assessee. The only reference application, it is pointed out, before the Appellate Tribunal was the reference application filed by the CIT. We are of opinion that the Revenue is right. The objection was taken by the Revenue before the Appellate Tribunal when the statement of case was being prepared, but the Appellate Tribunal overruled the objection, relying on Girdhardas & Co. Ltd. v. CIT : 31ITR82(Bom) . It does not appear that the Revenue contended before the High Court that the reference made to it by the Appellate Tribunal was incompetent in so far as the second question was concerned. Since, however, the objection pertains to the competence of the reference to the extent that it covers the second question and, therefore, relates to the jurisdiction of the High Court to consider and decide that question, we are of opinion that the Revenue is entitled to raise that question before us.'
It is undoubtedly true that in V. Damodaran's case : 121ITR572(SC) , it has been observed by Pathak J., speaking for the Bench, that the Revenue had objected to the reference before the Tribunal, but the Tribunal had overruled the objection. On the other hand (in V. Damodaran's case), the objection had not been pressed before the High Court. Despite this, the Supreme Court considered the objection and held that the contention went to the root of the question of jurisdiction, and ultimately decided in favour of the Revenue.
We are bound by the said decision, and, in accordance therewith, we will refrain from giving our opinion on questions Nos. 3 and 4. As the Supreme Court has observed that the reference itself (as far as these two questions are concerned) is incompetent, it is not proper for the High Court to give its advice on these two questions (questions Nos. 3 and 4) improperly referred to us.
As far as questions Nos. 1 and 2 are concerned, the Tribunal relied on the decision given by this High Court for the different assessment years. This decision was in Income-tax Reference No. 94 of 1963 decided by the High Court on March 17, 1970 [CIT v. Public Utilities Investment Trust Ltd. (No. 1) : 143ITR236(Bom) (supra)]. Mr. Joshi has very fairly conceded that an application was made for leave to appeal to the Supreme Court against the said decision, but that application had been rejected by the High Court. Counsel are agreed that these two questions are required to be answered in favour of the assessee by following the earlier High Court decision which indeed had been followed by the Tribunal. Accordingly, the questions are answered as follows :
Question No. 1 :
In the affirmative and in favour of the assessee.
Question No. 2 :
In the affirmative and in favour of the assessee.
Questions Nos. 3 and 4 :
Parties, however, will bear their own costs of the reference.