Judgment:
V.K. Singhal, J.
1. The Income-tax Appellate Tribunal has referred the following questions of law arising out of its order dated June 18, 1982, in respect of the assessment year 1975-76 :
'1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the provisions of Section 144B of the Income-tax Act, 1961, which came into effect from January 1, 1976, are procedural in nature and, therefore, they had retrospective effect andwere applicable to all assessments pending on January 1, 1976, irrespective of the year of assessment
2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in rejecting the assessee's claim that realisation made by the official liquidator for running the business for the beneficial winding up of the company in view of the provisions made by the Companies Act as well as the order passed by the Hon'ble Company Judge, Rajasthan High Court, were not liable to tax under the Income-tax Act, 1961
3. If the answer to the second question is in the negative, whether the Tribunal was justified in holding that the assessee was not entitled to deduction of interest to the creditors on the agreed rate of interest of 12% or at the rate of 4% of the amount of the claim admitted by the official liquidator
4. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee was not entitled to depreciation on immovable assets of Maratha Mandir, Bombay
5. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that deduction of interest under Sections 220 and 139 of the Income-tax Act was not allowable ?'
2. The brief facts of the case are that a draft order under Section 144B was forwarded to the assessee on December 29, 1977, as the variation between the returned income and assessed income was more than Rs. 1 lakh. The assessee filed its objection to the draft order and the case was referred to the Appellate Assistant Commissioner. On receipt of the direction under Section 144B on March 16, 1978, a copy of which was also sent to the assessee the assessment was also framed on May 31, 1978.
3. So far as question No. 1 is concerned, the submission of the assessee before the Commissioner of Income-tax (Appeals) was that the provisions of Section 144B came into force only on January 1, 1976, and, therefore, were not applicable for the assessment year 1974 75. The objection which was taken before the Inspecting Assistant Commissioner was rejected and the Commissioner of Income-tax (Appeals) held that the said objection is only a procedural part of the enactment and, therefore, would apply to all the matters in which the assessment has to be framed after that date. The Income-tax Appellate Tribunal also came to the conclusion that the provision is absolutely procedural and not substantive and, therefore, will be applicable to all assessments pending on the date of coming into force of this section.
4. The provisions of Section 144B were omitted by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), with effect from April 1, 1989. The said section provided that when an assessment is to be made under Sub-section (3) of Section 143 and the Income-tax Officer proposes to make variation of the income then the matter has to be referred to the Inspecting Assistant Commissioner. As a matter of fact this provision has been inserted for safeguarding the assessee and was a beneficial legislation. If the procedural provision is enacted in a legislation, then it would apply to all pending assessments. The section as contemplated in a situation where the assessment is made under Section 143(3) and the variation proposed by the Income-tax Officer is beyond the limit prescribed by the Board, then a draft of such an order has to be sent to the assessee. The assessee may submit his objections in respect of the proposed draft within a period of seven days from the receipt of the draft or within such further period not exceeding 15 days which the Income-tax Officer may allow and if the objections are received within time, then the Income-tax Officer has to forward the draft order to the Inspecting Assistant Commissioner along with objections. In this section, no prejudicial order could be passed against the assessee without giving him an opportunity of being heard and thereafter the Inspecting Assistant Commissioner may give a direction, after hearing the assessee. It would be evident from the procedure which has been given in that section that it is merely procedural and that it was intended to provide an opportunity to the assessee so that any allegation of arbitrariness or not providing proper opportunity by the Income-tax Officer may not be alleged at a subsequent stage. The provision being absolutely procedural has to be followed for all the assessments where variation in the income returned was more than Rs. 1 lakh and, therefore, the Income-tax Appellate Tribunal was justified in holding that the provisions of Section 144B of the Act are procedural in nature and will be applicable to all assessments which were pending on the date of coming into force of the said section.
5. So far as the second question is concerned, the matter was considered by this court in the case of the assessee in Golecha Properties (P) Ltd. v. CIT [1988] 171 ITR 47 and without going into the details of the facts in view of the said decision, we are of the opinion that the Income-tax Appellate Tribunal was justified in rejecting the claim of the assessee that the realisation made by the official liquidator for running the business for the beneficial winding up of the company, in accordance with the provisions of the Companies Act and according to the orders passed bythe Hon'ble Company Judge, Rajasthan High Court, are not liable to tax under the Income-tax Act, 1961.
6. As regards question No. 3, the assessee claimed deduction of interest to the creditors on the agreed rate of 12 per cent. on the income, but the claim was rejected. An alternative contention was raised by the assessee that without prejudice to this claim of deduction at the rate of 12 per cent., the company is entitled to deduction of the amount of interest calculated at the rate of 4 per cent. on the amount claimed and admitted by the official liquidator. This point was not referred by the Commissioner of Income-tax (Appeals), but was rejected by the Tribunal following its earlier decision in the case of the assessee. This question was raised in References Nos. 65, 65A and 65B of 1979 (see [1988] 171 ITR 47 ). 'If the answer to question No. 2 is in the affirmative, whether the Tribunal was right under law in holding that the deduction on account of the interest payable to the creditors could not be allowed in computation of income ?' This court has held that the reasoning of the Tribunal was while rejecting the assessee's contention that under Rule 179 of the Companies (Court) Rules, 1959, this question could arise only in the event of there being a surplus after payment in full of the claim in the winding up proceedings. No defect in the reasoning has been pointed out. The question was returned unanswered. We are also of the view that the question being hypothetical as the possibility of paying of interest to the creditor is not yet known, we refuse to answer this question.
7. With regard to question No. 4, we find that the same is also covered by the decisions of this court in the case of the assessee in Golecha Properties (P) Ltd. v. CIT [1988] 171 ITR 47 and Golcha Properties (P) Ltd. v. CIT wherein it was held that the assessee was not the owner of the immovable property of Maratha Mandir, Bombay and, therefore, was not entitled for the depreciation. Accordingly, it is held that the Tribunal was justified in holding that the assessee was not the owner of Maratha Mandir, Bombay, and was not entitled for depreciation.
8. So far as question No. 5 is concerned, the facts are that the assessee made a claim while computing its income in respect of interest charged by the Department under Section 139(8) of the Income-tax Act for late filing of the return of the total income and also interest charged by the Department under Section 220 of the Act for not paying the tax demanded by the Department. It was held that the said amount cannot be said to have been paid for the purpose of carrying out the business of the assessee.
9. This point is also covered by the decision given by this court in the case of the assessee in Golecha Properties (P) Ltd. v. CIT [1988] 171 ITR 47.
10. Consequently, questions Nos. 1, 2, 4 and 5 are answered in favour of the Revenue and question No. 3 is returned unanswered.