Gokhale, J.
Heard Mr. Mistry for the petitioners. Mr. Desai appears for the respondents.
2. This petition seeks to challenge the order of the Tribunal dated 30-9-1986 passed under section 256 of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') insofar as it referred four questions for the consideration of this court in para 9 of that order in addition to two questions which were initially proposed to be referred when the draft statement of case was prepared. The question sought to be raised in this petition is as to whether such a modification in the draft statement amounts to a review and whether the same is permissible in law.
3. The facts leading to this petition are as follows :
The petitioner is a company having a licence to carry on banking business in India under section 22 of the Banking Regulation Act, 1949. The Inspecting Assistant Commissioner by his order dated 21-3-1980, disallowed certain claims of the petitioners for the assessment year 1977-78. On the petitioners filing an appeal, the contentions of the petitioners were partly accepted and the Tribunal by its order dated 13-10-1983 held as follows :
(a) that the method of accounting adopted by the petitioner in determining its profits or losses from the sale of securities as also the profit on revaluation and interest of broken period should be followed as in the past;
(b) that in accordance with petitioners method of accounting in respect of interest on sticky loans these should be taxed on receipt basis;
(c) that section 44C was applicable to disallow expenses incurred only after 1-6-1976;
(d) that section 40A(5) was not applicable to expenses allowable under section 20 of the Act; and
(e) that club membership subscription fees were not disallowable under section 40A(5).
4. The respondent No. 4 the Commissioner thereafter sought reference of certain questions of law to this court arising out of that order. The Commissioner moved an application under section 256(1) and sought a reference on following 8 questions of law :
'1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the provisions of section 145 could not be applied to the case of the assessee in computing the income, profits and gains from the interest on securities?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the purchase price of securities should be bifurcated into (i) interest accrued upto date of purchase (ii) balance of the price and that such interest should be allowed as revenue expenditure, in the year of purchase, if it is the practice of the banks to charge such interest to revenue account ?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the past assessments having been made on the footing that the interest accruing on securities upto the date of purchase, having been allowed as revenue expenditure, this should be continued notwithstanding that the Karnataka High Court in the case of Vijaya Bank Ltd. 1976 CTR (Kar) 1 has held that such part of the price is not revenue expenditure and in spite of it not having been established to be the departmental practice to allow such expenditure in case of all banks?
4. Without prejudice to the above, whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the Commissioner (Appeals) was justified in directing that the sum of Rs. 4,07,283 being interest received on the broken period of the securities sold by the assessee should not be considered as part of the chargeable income for the year of account
5. Whether, on the facts and in the circumstances of the case, the assessee is not liable to be taxed in respect of the amount credited to the interest suspense account representing interest on sticky loans and advance and which is not taken to the profit and loss account for the relevant accounting year?
6. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the restriction of deduction of expenses at 5 per cent laid down in section 44C of the Act was not applicable in respect of expenditure incurred upto 1-6-1976 ?
7. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the provisions of section 40A(5) of Income Tax Act, 1961 are not applicable to the proportionate expenses deductible under section 20 of Income Tax Act for computing income chargeable to tax under the head 'interest on securities' even though such interest on securities and treasury bills was part of the business profits of the assessee?
8. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the provisions of section 40A(5) of Income Tax Act are not applicable for disallowance of the expenses incurred by the assessee in respect of the club membership subscription fees paid in respect of the employees of the assessee-company?'
5. The Tribunal proposed a draft statement of the case on 12-5-1986 and decided to refer only question Nos. 5 and 8 out of these 8 questions for the decision of the High Court. After that draft statement was prepared, a notice dated 19-5-1986 was issued to both the parties concerned enclosing therewith the draft statement and informing that the application under section 256 was fixed for hearing on 13-6-1986. The notice further stated : 'Suggestions, if any, may please be made on or before the date of hearing'. Thereafter the final statement of case was drawn by the Tribunal on 30-9-1986 and while doing that, the Tribunal added four more questions out of the original eight, i.e., question Nos. 2, 3, 4 and 6.
6. With respect to this addition of question Nos. 2,3 and 4, the Tribunal has observed as follows :
'The department contended that the Karnataka High Court had taken a contrary view in the case of Vijaya Bank Ltd. 1976 CTR Kar. 1 and this gave rise to questions of law.
We agree with this contention and accordingly refer question Nos. 2,3 and 4 detailed in para 1 above.' (which para of the order mentioned the 8 questions sought to be referred)
7. Similarly with respect to question No. 6, the Tribunal observed in para 7 of this order as follows :
'By means of proposed question No. 6 the applicant-Commissioner questions the Tribunal's conclusion that the provisions of section 44C are applicable to the expenditure incurred on or after 1-6-1976. This conclusion is based on fact that section 44C has been inserted in the Income Tax Act by the Finance Act, 1976 with effect from 1-6-1976, the Tribunal followed the Madras High Court in CIT v. Best & Co. (P) Ltd. : [1979]119ITR830(Mad) and held that section 44C would apply only to expenses incurred after 1-6-1976. This gives rise to a question of law and we refer question No. 6 as detailed in para 1 above, to the High Court.'
8. This petition was filed on 29-6-1987 to challenge this addition of 4 questions vide the above order of reference dated 30-9-1986. Amongst other, we find that the challenge in the present petition is principally contained in paragraphs 8 and 10. In paragraph 8, it is submitted that the petitioners had objected to the addition of these questions before the Tribunal by pointing out that the hearing subsequent to the notice was only to settle the draft of the case; that reference of the remaining questions had already been rejected by the Tribunal; and that the Tribunal had no power to review its own decision refusing to refer the remaining questions. As far as this alleged objection by the petitioners is concerned, we do not find any reference thereto in the statement of the case dated 30-9-1986 nor it is stated in the petition as to in what manner this objection was raised before the Tribunal that such addition cannot be done and that the petitioners were objecting to any such addition. It is not stated that any affidavit was filed raising such objection nor is it contended that the counsel appearing for the petitioners had orally raised this objection. This becomes relevant when one finds that the learned counsel who appeared before the Tribunal when the statement of case was drawn and the one who settled present writ petition is one and the same. That apart as held by the Apex Court in State of Maharashtra v. Ramdas Nayak : 1982CriLJ1581 , the principle is well settled that the statements of facts as to what transpired at the hearing, recorded in the judgment of the court are conclusive of the facts so stated and no one can contradict such statements by affidavit or other evidence. It is, therefore, not possible to accept this submission raised for the first time in the petition that the petitioners had objected at the time of hearing to the addition of the questions as added.
9. The second objection raised in the petition is in paragraph 10 of the petition, which is that the Tribunal has no power to review its earlier decision not to refer the remaining questions. It is further stated that no reasons are given by the Tribunal in reviewing its earlier decision. As far as the second limb of this objection is concerned, namely that no reasons have been given, as pointed out above there are reasons in the final statement of case of justifying the addition of question Nos. 2, 3 and 4 as well as question No. 6. Thus this part of the objection cannot be sustained.
10. That takes us to the other part of this submission of Mr. Mistry, namely that there is no such power to review once a draft statement of case is prepared by the Tribunal. This submission presumes that the order finalising a draft statement and adding a few questions at that stage is an order reviewing the earlier order preparing the draft statement. That apart, the principal submission is that once a draft statement of the case is prepared, the same is final, and if one wants any addition or alteration therein, it can only be by making a specific application for modification or addition to that authority or by challenging that order preparing draft statement by moving a petition in the High Court.
11. Mr. Mistry, the learned counsel for the petitioners, relied upon a number of judgments in support of this proposition. Firstly, he relied upon a judgment of the Supreme Court in the case of Kshetra Mohan Sannyasi Charan Sadhukhan v. CEPT : [1953]24ITR488(SC) . This judgment was relied upon to canvass that the statement of case drawn up by the Tribunal is binding on the assessee and he is not entitled to go behind the facts found by the Tribunal in the statement of case. One cannot have any grievance with this proposition, but this proposition does not assist the petitioners in the present controversy in any manner. The second authority relied upon by Mr. Mistry was also from the Apex Court in the case of CIT v. Calcutta Agency Ltd. : [1951]19ITR191(SC) . Mr. Mistry drew our attention particularly to the observations appearing at page 197 of this report. The relevant statements on this page read as follows :
' ................ The statement of the case under the rules framed under the Income Tax Act is prepared with the knowledge of the parties concerned and they have a full opportunity to apply for any addition or deletion from that statement of the case. If they approved of that statement that is the agreed statement of facts by the parties on which the High Court has to pronounce its judgment. In the present case, the parties perused the statement of case and as disclosed by the note made at the end of it had no suggestions to make in respect thereof. It is, therefore, clear that it was the duty of the High Court to start with that statement of the case as the final statement of facts. Surprisingly, we find that the High Court, in its judgment, has taken the argument of Mr. Mistry as if they were facts and have based their conclusion solely on that argument. Nowhere in the statement of the case prepared by the Tribunal and filed in the High Court, the Tribunal had come to the conclusion that the payment was made by the assessee-company to avoid any danger of public exposure or to save itself from scandal or in order to maintain the managing agency of the appellant company................ '
As the paragraph itself clearly points out that it is essentially with respect to the question as to what constitutes the final statement of facts. All that it states is that the parties have full opportunity to apply for any addition or deletion at the stage when the statement of case is finalised and, therefore, it is made clear by the court that it is the duty of the High Court to start with that statement of the case as a final statement of facts. Again this authority does not advance the case of the petitioners any further.
12. The third authority relied upon by Mr. Mistry was a judgment of a Division Bench of this court in the case of N.V. Khandvala v. CIT : [1946]14ITR635(Bom) . The authority deals with the then section 66 of the Act which corresponds to the present section 256(1). All that it lays down is that 'It is not right to allow parties to rush to court and invite it to ask the Tribunal to send a further statement of facts, or to submit a question of law, before the court has an opportunity to consider the case actually submitted by the Tribunal for its consideration.' It further lays down that 'when a statement of case, with the question of law framed by the Tribunal, is filed in court for disposal, if a party is aggrieved and wants to contend that certain further facts ought to be stated, or certain questions of law should be raised, he can make an application by way of notice of motion. That should be heard along with the case stated by the Tribunal for the court's opinion.' This authority does not lay down the converse, namely that the draft statement is final and that no addition can be made when this draft statement is finalised by the Tribunal, which is what has happened in the present matter.
13. The next authority relied upon by Mr. Mistry is the judgment of the Apex Court in the case of Lakshmiratan Cotton Mills Co. Ltd. v. CIT : [1969]73ITR634(SC) . This was only for a limited purpose that the judgment of this court in the case of N.V. Khandvala (supra) was approved by the Apex Court. To the same effect, he relied upon another judgment of the Apex Court in the case of CIT v. McLeod & Co. Ltd. : [1970]78ITR22(SC) , wherein also the above referred judgment of this court in the case of N.V. Khandvala (supra) has been referred with approval.
14. The last authority relied upon by Mr. Mistry was of a Division Bench of this court in the case of Purshottam Laxmidas v. CIT : [1956]30ITR143(Bom) . Mr. Mistry drew our attention to the paragraph appearing on pages 150 and 151 of this report. That was a matter where the Division Bench declined to ask the Tribunal to substitute an entirely new statement of the case as suggested by the assessee. This judgment also does not advance the proposition sought to be canvassed by Mr. Mistry.
15. Mr. Mistry then referred to the Appellate Tribunal Rules, 1963 and particularly rule 44 which deals with preparing of the statement of case if a question of law arises. He also pointed out that under rule 43 if in the opinion of the Tribunal no question of law arises, then the application for reference can be dismissed. He was, however, not in a position to point out any provision with respect to a draft statement being prepared prior to the final statement of case. We were, however, told by the counsel for both the parties that the said practice has developed over the years. In fact, as far as section 256 is concerned it only provides for drawing of the statement of case by the Tribunal and does not speak of any draft statement. The section reads as follows :
'256. Statement of case to the High Court.(1) The assessee or the Commissioner may, within sixty days of the date upon which he is served with notice of an order passed before the 1-10-1998, under section 254, by application in the prescribed form, accompanied where the application is made by the assessee by a fee of two hundred rupees, require the Appellate Tribunal to refer to the High Court any question of law arising out of such order and, subject to the other provisions contained in this section, the Appellate Tribunal shall, within one hundred and twenty days of the receipt of such application, draw up a statement of the case and refer it to the High Court :
Provided that the Appellate Tribunal may, if it is satisfied that the applicant was prevented by sufficient cause from presenting the application within the period hereinbefore specified, allow it to be presented within a further period not exceeding thirty days.
(2) If, on an application made under sub-section (1), the Appellate Tribunal refuses to state the case on the ground that no question of law arises, the assessee or the Commissioner, as the case may be, may, within six months from the date on which he is served with notice of such refusal, apply to the High Court, and the High Court may, if it is not satisfied with the correctness of the decision of the Appellate Tribunal, require the Appellate Tribunal to state the case and to refer it, and on receipt of any such requisition, the Appellate Tribunal shall state the case and refer it accordingly.
(3) Where in the exercise of its powers under sub-section (2), the Appellate Tribunal refuses to state a case which it has been required by the assessee to state, the assessee, may, within thirty days from the date on which he receives notice of such refusal, withdraw his application, and, if he does so, the fee paid shall be refunded.'
16. Mr. Mistry was fair enough to draw our attention to a judgment of a Division Bench of the Gujarat High Court in the case of CWT v. Sayaji Mills Ltd. : [1971]82ITR662(Guj) . The principal question raised in that matter was with respect to the date from which the time will start running for the purposes of filing the application to the High Court to direct the Tribunal to refer certain additional questions of law. In that matter, what had happened was that the assessee concerned took the date on which the draft statement was prepared as the relevant date for that purpose. The Division Bench held that it was not the correct date, but only after the final statement was filed and notice of filing of reference was served on the assessee that the limitation would start running. However, what is material is that in this context, the Division Bench of the Gujarat High Court observed as follows :
' . . . . . We may point out that till the stage when the reference is actually filed in court, the earlier stages which the Tribunal goes through are tentative stages and not final and at no intermediary stage can it be said that a final decision is taken by the Tribunal. It is possible that in a particular case in the process of formulating the questions of law, the Tribunal may feel that its earlier decision regarding how many questions out of the questions suggested by the applicant should be referred to the court, should be recast or reconsidered. It is obvious that the statement of the case will have to be drawn up in the light of the questions that are actually decided by the Tribunal as questions requiring to be referred to the High Court....' (page 667)
17. The proposition laid down in this authority has been commented in the commentary by Kanga and Palkhivala, Law & Practice of Income Tax Eighth Edition at page 1535 as follows :
'.... At the hearing on the draft statement of the case, it is open to a party to reagitate that a question which the Tribunal has not included in the draft statement should also be referred.'
Mr. Mistry submitted that this conclusion cannot be drawn from the judgment. We are afraid that we cannot accept this submission of Mr. Mistry. The conclusion drawn in Kanga and Palkhivala is a correct one and directly flowing from the observations of the Division Bench in the case of Sayaji Mills Ltd. (supra). We are in full agreement with the proposition laid down by the Division Bench. A draft statement is an intermediate stage and thereafter a notice is given to all concerned to make their suggestions thereon. Thereafter on hearing the parties concerned, the Tribunal can certainly alter the questions raised earlier in the draft statement and in fact that is the purpose of preparing a draft statement. The draft statement prepared at the intermediate stage is not the final statement of the case and the final statement modifying the draft statement cannot be construed as a review of the order preparing the draft statement. This is because the statement prepared at the intermediate stage has no finality, it is only a stage in the process of preparing the final statement of case.
18. For the reasons stated above, we do not find any infirmity in the addition of questions by the Tribunal when the final statement was drawn. Petition is, therefore, dismissed. However, there will be no order as to costs.