SHIVRAJPUR SYNDICATE LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference under section 66(2) of the Indian Income -tax Act (hereinafter referred to as the Act) made in pursuance of the requisition of this court. The assessee is a limited liability company and the business of the company is of raising manganese ore. We are here concerned with the assessment years 1953 -54, 1954 -55 and 1955 -56, the relevant accounting years ending with 30th of November, 1952, 30th of November, 1953, and 30th of November, 1954. The method of valuing the closing stock adopted by the assessee was to value the stock at cost price. Bonus paid to the employees had at no time been included by the assessee company in the cost price of the manganese ore. It is an admitted position that in all these years the cost price of the closing stock was lower than the market price. In the assessment year 1953 -54 the assessee company paid Rs. 1,14,810 by way of bonus to its employees relating to the previous year. Similarly, it paid Rs. 2,51,710 in the assessment year 1954 -55 and Rs. 4,44,556 in the assessment 1955 -56. For the first time in the assessment year 1953 -54 the Income -tax Officer included the proportionate amount of bonus paid by the assessee company to its employees in determining the cost price of the closing stock. He also adjusted the price of the opening stock by taking the price of the closing stock of the preceding year in respect of the assessment years 1954 -55 and 1955 -56. The opening stock for the assessment year 1953 -54, however, was not adjusted. The assessee company objected thereto. The principal contention raised by the assessee was that the bonus paid by it to its employees does not form part of the cost price of raising manganese ore inasmuch as bonus is paid out of the profits of the company. In the alternative the assessee contended that, in the method of accounting adopted by the assessee, bonus had never been included in the cost price and, therefore, it was not open to the income -tax authorities to vary that method of accounting. In the further alternative the assessee contended that the bonus paid in those relevant years related to the respective previous years and, therefore, at any rate, it cannot be taken into account in determining the cost price of the manganese ore raised in those years. In the last alternative the assessee contended that if at all the amount of bonus paid by the assessee company to its employees is to be taken into account then the opening stock of the assessment year 1953 -54 also required to be adjusted accordingly. The contentions raised by the assessee were overruled. The Income -tax Officer took into account the proportionate amount of the bonus paid in those respective year by the assessee to its employees in determining the closing stock of those three years. As already stated he made adjustment on this basis in relation to the opening stock of the assessment year 1954 -55 and 1955 -56 but did not make such adjustment in respect of the opening stock of the assessment year 1953 -54. The appeal filed by the assessee before the Appellate Assistant Commissioner failed. In the second appeal taken by the assessee to the Tribunal, the Tribunal held that, in the present day circumstances, bonus has long ceased to be an ex gratia payment payable only when there are profits. On the other hand, bonus paid had become part and parcel of the wages and salary as the case may be though its quantum is determined later on. The Tribunal, therefore, held that the proportionate amount of bonus can be taken into account in determining the cost price of the closing stock. The Tribunal also rejected the other alternative contentions raised by the assessee and dismissed the assessee's appeal. The assessee then applied to the Tribunal under sub -section (1) of section 66 requesting the Tribunal to draw up a statement of case and refer to this court the question of law arising out of the Tribunal's order. This application was, however, rejected by the Tribunal. The assessee then moved this court by an application under sub -section (2) of section 66 of the Act and, on the requisition of this court, the Tribunal has drawn up a statement of case and referred the following three questions of law to this court : '(1) Whether on general principles, the Tribunal was justified in upholding the addition of a proportionate part of the bonus for the earlier years paid in the accounting year to the cost of the stock on hand for the purpose of valuation ? (2) Whether such addition was in any event unjustified having regard to the petitioner's regular method of accounting ? (3) In the event of the above question being answered against the petitioners, whether the Tribunal was justified in revaluing the closing stock for the assessment year 1953 -54 by adding a proportionate part of the amount of bonus and in refusing to revalue the opening stock in the same manner and on the same basis ?'

(2.) IN our opinion, the questions framed have not been happily worded to bring out the real and principal controversy between the assessee and the income -tax authorities. That question is : 'Whether the Tribunal was justified in law in holding that the proportionate amount of bonus paid by the assessee to its employees can be taken into account in determining the cost price of the closing stock ?'

(3.) MR . Joshi contends that it is not open to this court to raise this question at this stage because the assessee had not asked a question in this form to be raised in his application under sub -section (1) of section 66 of the Act. According to Mr. Joshi, the jurisdiction of this court is advisory to answer the question, which the assessee wants the Tribunal to raise. If the assessee does not ask that any particular question should be raised and referred to this court, it is not open to this court to raise that question. The jurisdiction of this court is limited only to answer the questions, which the assessee seeks the Tribunal to raise and refer to this court.