Judgment:
N.K. Sodhi, J.
1. This is a petition under Section 256(2) of the Income-tax Act, 1961 (for short, 'the Act'), for a direction to the Income-tax Appellate Tribunal to refer the following two questions of law to this court for its opinion :
'(i) Whether, on the facts and in the circumstances of the case, the learned Tribunal is right in deleting the disallowance of interest of Rs. 80,915 relating to the advance of Rs. 12.25 lakhs which was not for the purpose of its own business ?
(ii) Whether, on the facts and in the circumstances of the case and material on record, the findings of the learned Tribunal that the Departmental authorities were not justified in making/sustaining the disallowance of interest of Rs. 80,915 are not perverse ?'
2. The assessee-company during the relevant assessment year advanced a sum of Rs. 12.25 lakhs to Hindustan Brown Boveri Ltd. for the purchase of a five tonne capacity induction furnace and this amount was paid by the assessee from its cash credit account which it was maintaining with the Punjab National Bank. After placing the order on the supplier, the assessee decided not to install the induction furnace for different reasons and also because it thought that it may not be economically viable. As a result of this change of mind, the assessee had either to allow the advance to be forfeited by the supplier or to transfer the order for the furnace to some other party. In order to minimise the loss, the assessee decided to transfer the order to Seth Hari Chand and Sons Private Ltd. which is said to be a sister concern of the assessee. In the return of income filed by the assessee for the relevant assessment year, the interest paid to the bank on overdraft account was claimed as a deduction from its income. The Assessing Officer disallowed the proportionate interest amounting to Rs. 80,915 on the amount of Rs. 12.25 lakhs on the ground that the furnace was not finally purchased by the assessee and the amount advanced to the supplier was not for the purpose of the assessee's business. This amount of proportionate interest was consequently disallowed under Section 36(1)(iii) of the Act. On appeal the order of the Assessing Officer was confirmed. In the second appeal before the Tribunal the aforesaid amount of interest was allowed to be deleted it being held that the assessee had taken the overdraft loan of Rs. 12.25 lakhs specifically for the purpose of making payment to the supplier. It was further held that the purpose of making advance to the supplier was for the purpose of business since at the time of making the advance payment the assessee intended to put up the furnace for itself and, therefore, according to the Tribunal, the interest on the amount advanced was allowable as a deduction under Section 36(1)(iii). The Tribunal while recording the aforesaid findings referred to the statement of the bank account of the assessee wherein certain amounts had been withdrawn for making the advance payment to the supplier and simultaneously larger sums of money were deposited in the account. The Revenue then filed an application before the Tribunal under Section 25G(1) of the Act with a prayer that the aforesaid questions of law which arise from its order dated October 28, 1993, be referred to this court. The Tribunal held that the findings recorded by it were pure findings of fact which did not give rise to any question of law and, consequently, the application was dismissed. Hence, the present petition under Section 256(2) of the Act by the Revenue.
3. It is true that the Tribunal has recorded findings of fact but those findings too are sought to be challenged by the Revenue and a question to that effect is also being claimed. The inference to be drawn from those findings is, of course, a question of law.
4. Having heard counsel for the parties and after perusing the orders of the Tribunal, we are of the opinion that the following two questions of law arise from the order dated October 28, 1993 :
'(i) Whether, on the facts and in the circumstances of the case, the Tribunal was right in allowing the deduction of interest of Rs. 80,915 relating to the advance of Rs. 12.25 lakhs ?
(ii) Whether, on the facts and in the circumstances of the case and the material on record, the findings of the Tribunal that the amount of Rs. 12.25 lakhs had been advanced by the assessee for its business purposes and that no interest on that amount was paid to the bank arc perverse ?'
5. In the result, we allow the petition and direct the Tribunal to refer the aforesaid questions of law to this court for its opinion along with the statement of case.