P. Venkatarama Reddi, J
1. The petitioners in these two writ petitions seek issuance of writ of certiorari to quash the order of the Settlement Commission dated 17-6-1992 insofar as it relates to the Assessment year 1984-85 and its decision on the question of admissibility of development expenditure of Rs.3,44,817/-. Both the petitioners are allied firms.
2. Among the various items dealt with by the Settlement Commission, the transaction relating to Rasoolpura property is one. The owners of the plot entered into an agreement with the petitioners, according to which the petitioners were allowed to develop the plot and to construct the buildings and the petitioners were authorised to let out the buildings during the period of agreement which is stipulated to be 11 years from 1-1-1984. The terms and conditionsof the agreement have been adverted to by the Settlement Commission. According to the said terms, the cost of construction shall be borne by the petitioners; however such construction shall be deemed to have been carried out on behalf of the owners and the construction as and when made shall become the property of the owners. The petitioners will pay the owners 'compensation' at the rate of 15 paise per square fool per month after the construction is completed. The petitioners were permitted to let out the constructed buildings and receive the rent. The rent received from these buildings was declared as revenue receipts and the expenditure for construction and development of the property was claimed as revenue expenditure. For some oilier assessment years also, the Assessing Officer did not allow the cost of construction as revenue expenditure under Section 37 of the Income Tax Act (for short 'the Act'). On appeal, the Tribunal held in favour of the petitioners that it was a deductible expenditure. Reference cases arising out of the said Order of the Tribunal are being disposed of today. We have not answered the question referred to this Court on merits as we felt that the Tribunal did not record its conclusion on a consideration of the terms of the agreement and other relevant factors.
3. As far as the present writ petitions are concerned, the correctness of the conclusion reached by the Settlement Commission that the expenditure in question cannot be treated as revenue expenditure is assailed. The Settlement Commission was of the view that the petitioner started a totally new business venture and the expenditure incurred in putting up structures on the land was for the purpose of commencing a new income-earning activity, which had no connection with the existing business. The Commission was, therefore, of the view that the cost of construction incurred by the petitionerswas in the nature of capital expenditure. The Commission, referred to various decisions on the subject before reaching the impugned conclusion.
4. The learned Standing Counsel for Income Tax Department has contended that the view taken by the Commission in regard to the admissibility of development expenditure cannot be the subject matter of challenge under Article 226 of the Constitution and is not amenable to judicial review under Article 226.
5. In our view, the said contention is well founded and ought to be accepted. It is not open to us, in exercise of jurisdiction under Article 226, to decide whether the conclusion recorded by the Commission on question of fact and even on a question of law, is correct or not. Having regard to the objective underlying the constitution of Settlement Commission and the nature of functions entrusted to it and the powers of the Commission, we are of the considered view that the conclusions, both on questions of fact and law, reached by the Commission cannot be nullified except under very limited circumstances. The judicial review power of the High Court cannot be equated to the judicial review of administrative action or the findings of a quasi-judicial Tribunal. It is much more limited, as indicated hereinafter. All legal errors do not come under the pale of scrutiny by the High Court in exercise of jurisdiction under Article 226 or 227. In coming to this conclusion, we are not without precedential support.
6. There is lucid exposition of law on this subject by a Division Bench of Karnataka High Court consisting of Rama Jois and Rajendra Babu, JJ., in N. Krishnan v. Settlement Commission 0065/1989 : 180ITR585(KAR) . The learned Judges after tracing the background in which the Settlement Machinery was created pursuant to the recommendations of Wanchoo Committee observed thus :
'It is a forum for self-surrender and seeking relief and not a forum for challenging the legality of assessment order or orders passed in any other proceedings. This is not only evident from the provision of the Act which prevents the application matte from being withdrawn as also the provision which makes the decision of the Settlement Commission final and conclusive both on questions of law and fact. The power conferred on the Settlement Commission is so wide that it can take any view on any questions of law, which it considers appropriate, having regard to the facts and circumstances of a case, which would be applicable only to that case and it has also the power to give immunity against prosecution or imposition of penalty. It is in this background that we should find out an answer to the second question, namely, the scope for interference against a decision of the Settlement Commission in a petition under Article 226 of the Constitution of India. The provision for settlement would show that it is in the nature of statutory arbitration to which a person may submit himself voluntarily. Therefore, it appears to us that the scope is much more restricted than the power of the Court to interfere with an arbitration award.'
Having said so, the parameters of interference with the decision of the Settlement Commission are thus indicated:
'In our opinion, many of the grounds on which arbitration awards could be set aside would not be available in view of the nature and jurisdiction of the Settlement Commission could be interfered with only:
(i) if grave procedural defects such as violation of the mandatory procedural requirements of the provisions in Chapter XIX-A and/or violation ofthe rules of natural justice is made out;
(ii) if it is found that there is no nexus between the reasons given and the decision taken by the Settlement Commission;
(iii) this Court cannot interfere either with an error of fact or error of law alleged TO have been committed by the Settlement Commission.'
The propositions laid down in the above quoted passage have to be qualified by the proposition enunciated by Their Lordships of the Supreme Court in a later case, relied on by the learned Counsel for the petitioners. That is the case of Jyotendrasinhji v. S.I. Tripath and others : 201ITR611(SC) . The central theme of that decision is to restrict the scope of judicial review to a very limited sphere. At the outset, the Supreme Court referred to the argument of the Counsel for Revenue and observed as follows:
'May be, there is also some force in what Dr. Gauri Shankar says, viz., that the order of the Commission is in the nature of a package deal and that it may not be possible, ordinarily speaking, to dissect its order and that the assessee should not be permitted to accept what is favourable to him and reject what is not.'
Then follows the crucial dicta, which we quote :
'Be that as it may, the fact remains that it is open to the Commission to accept an amount of tax by way of settlement and to prescribe the manner in which the said amount shall be paid. It may condone the defaults and lapses on the part of the assessee and may waive interest, penalties or prosecution, where it thinks appropriate. Indeed, it would be difficult to predicate the reasons andconsiderations which induce the Commission to make a particular order, unless the Commission itself chooses to give reasons for its order. Even if it gives reasons in a given case, the scope of enquiry in the appeal remains the same as indicated above, viz., whether it is contrary to any of the provisions of the Act. In this context, it is relevant to note that the principle of natural justice (audi alterm partem) has been incorporated in Section 245D itself. The sole overall limitation upon the Commission thus appears to be that it should act in accordance with the provisions of the Act. The scope of enquiry, whether by the High Court under Article 226 or by this Court under Article 136 is also the same - whether the order of the Commission is contrary to any of the provisions of the Act and if so, apart from ground of bias, fraud and malice which, of course, constitute a separate and independent category, has it prejudiced the petitioner/ appellant.'
The Supreme Court then referred with approval to the observations in R.B. Shreeram Durga Prasad v. Settlement Commission : 176ITR169(SC) that the Court is 'concerned with the legality of the procedure followed and not with the validity of the order'. The approach of Their Lordships on the question as to when the order of the Commission can be said to be contrary to the provisions of the Act is well indicated by the following observations:
'The Commission has interpreted the trust deeds in a particular manner. Even if the interpretation placed by the Commission on the said deed is not correct, it would not be a ground for interference in these appeals, since a wrong interpretation of a deed of trust cannot be said to be a violation of theprovisions of the Income-tax Act. It is equally clear that the interpretation placed upon the said deeds by the Commission does not bind the authorities under the Act in proceedings relating to other assessment years.'
Thus, even the interpretation of a deed of trust which is often considered to be a legal question was held to be within the exclusive domain of the Commission and is not amenable to judicial review. However, for different reasons. Their Lordships proceeded to analyse the clauses of the trust deed and affirmed the conclusion reached by the Settlement Commission.
7. Bearing these principles in view, the irresistible conclusion which we reach is that the order of the Settlement Commission on the question as to the character of the expenditure incurred - whether it be right or wrong, cannot be interdicted in this proceeding under Article 226 of the Constitution. The assessee cannot invite us to sit in Judgment over the view taken and the ultimate decision reached by the Commission.
8. In the instant case, it is not possible for us to hold that the Settlement Commission acted contrary to the provisions of the Act. It is not as if the Commission over-looked or disregarded any provision of law. On the other hand, the tenor of discussion by the Settlement Commission would disclose that the Commission was well aware of the provision under which the deduction is admissible and the tests governing the determination of the nature of the expenditure - whether it is business expenditure or capital expenditure. The Commission actively applied its mind to this mixed question of law and fact with which it was confronted and purported to record its conclusion in the light of the principles and tests laid down in decidedcases on the interpretation of Section 37 of Income Tax Act. A mere error of law -even if it be, does not necessarily amount to contravening or disregarding a provision of law; more so when such error can be established by a long drawn process of reasoning and debate. It is not as if the conclusion reached by the Settlement Commission on the issue which is in the nature of mixed question of law and fact, can be said to be ex facie and patently untenable. It is neither a decision reached de hors the provisions of the Act, nor does it transgress any provision of law. The error, if any, is only in the course of applying law to the facts of the particular case and/or interpreting the terms of the Agreement - which is very much akin to the case of Jyotendrasinhji's case : 201ITR611(SC) .
9. Viewed from another angle, the legal error, if any, committed by the Commission is not one which can be corrected by a writ of certiorari. As observed by the Constitution Bench of the Supreme Court in Syed Yakoob v. Radhakrishnan : 5SCR64 .
'An error of law which can be corrected by a writ of certiorari must be one which is apparent on the face of the record. Thus where it is manifest or clear that the conclusion of law recorded by an interior Court or Tribunal is based on an obvious mis-interpretation of the relevant statutory provision, or sometimes in ignorance of it, or may be, even in disregard of it, or is expressly founded on reasons which are wrong in law, the said conclusion can be corrected by a writ of certiorari. In all these cases, the impugned conclusion should be so plainly inconsistent with the relevant statutory provision that no difficulty is experienced by the High Court in holding that the said error of law is apparent on the fact of the record..... If a statutory provisionis reasonably capable of two constructions and one construction has been adopted by the inferior Court or Tribunal, its conclusion may not necessarily or always be open to correction by a writ of certiorari.'
In the instant case too, the error is not such as is open to correction by means of a writ of certiorari. The error of law - if any, is not apparent on the face of record. We are, therefore, of the view that the decision of the Settlement Commission on one of the issues dealt with by it, namely, the deduction of development expenditure cannot be interfered with under Article 226. We would like to make it clear that we have not gone into the correctness or otherwise of the view taken by the Settlement Commission as regards the nature of expenditure and we shall not be understood to have expressed any view on merits on that aspect.
10. In the result, the writ petitions are dismissed. In the circumstances, we make no order as to costs.