K. S. PARIPOORNAN J. - These are connected cases. The Revenue is the petitioner in both these cases. The same assessee is the respondent in both the cases. We are concerned with the assessment years 1977-78 and 1978-79. Original petition No. 10703 of 1987 was not in the list. When Original Petition No. 10928 of 1987 was argued, counsel appearing on both sides agreed that Original Petition No. 10703 of 1987 may also be called up and disposed of together. We accordingly heard both the original petitions.
The matter arises from the surtax assessment orders for the years 1977-78 and 1978-79. The Income-tax Officer included only the development allowance reserve as reduced by the portion allowed during the earlier assessment years. In appeal, the Commissioner of Income-tax (Appeals) held that the entire development allowance reserve amounting to Rs. 1,27,264 for the year 1977-78 and Rs. 1,31,008 for the year 1978-79 should be included in the computation of capital. This was concurred with by the Appellate Tribunal relying on the earlier decision of theirs in Peermade Tea Co.s case in S.T.A. Nos. 4 and 5/Coch/1981, dated 5-3-1983. Similarly, while computing chargeable profits under rule 1(viii) of the First Schedule to the Companies (Profits) Surtax Act, the Income-tax Officer excluded only 40% of the dividend. The Commissioner of Income-tax (Appeals), as also the Appellate Tribunal, followed the decision of this court in A. V. Thomas and Co. v. CIT : [1977]110ITR515(Ker) , and held that the entire dividend is excludable. The Revenue filed applications under section 256(1) of the Income-tax Act to refer certain questions of law for the decision of this court. It was rejected. Thereafter, these original petitions were filed by the Revenue.
We heard counsel for the Revenue as also counsel for the assessee. The questions of law, which the Revenue seeks to direct the Appellate Tribunal to refer to this court for decision, are formulated in paragraph 7 of the original petitions. They are as follows:
'1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the entire development allowance reserve should be included in the computation of the capital
2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the entire dividend income was to be excluded from the income assessed under rule 1(viii) of the First Schedule ?'
It was argued that in dealing with the development reserve allowance, the Appellate Tribunal has not entered any definite finding, but only purported to follow its earlier decisions in Peermade Tea Co.s case in S.T.A. Nos. 4 and 5/Coch/1981. There is no finding that the facts in this case are exactly identical and so no part of the development allowance reserve has been allowed as deduction for earlier years and that no abatement is wanted. In the absence of any definite finding in that regard, it was argued that the Tribunal was in error in holding that the entire development allowance reserve should be included in the computation of capital. Similarly, it was argued that the Tribunal overlooked the impact of section 80A, which was introduced with retrospective effect from 1-4-1968 by the Finance (No. 2) Act, 1980, and which has now been fully explained by the Supreme Court in the Supreme Court in the decision in Distributors (Baroda) P. Ltd. v. Union of India : [1985]155ITR120(SC) . So, it was contended by the Revenue that the entire dividend income cannot be excluded from the income assessed under rule 1(viii) of the First Schedule.
We are of the view that the questions formulated in paragraph 7 of the original petition are referable questions of law. Regarding the first question, we feel that there is no definite finding by the Appellate Tribunal except referring to its earlier decision in Peer made Tea Co.s case in S.T.A. Nos. 4 and 5/Coch/81. So, question No. 1 is a referable question of law. Regarding question No. 2, we are of the view that the impact of section 80A introduced in the Income-tax with effect from April 1, 1968, by the Finance (No. 2) Act, 1980, and the impact of he decision of the Supreme Court in Distributors (Baroda) P. Ltd., case : [1985]155ITR120(SC) , falls for consideration. So, question No. 2 is also a question of law. Accordingly, we direct the Income-tax Appellate Tribunal to refer the two questions for both the years for the decision of this court along with the statement of the case. It shall be done within three months from the date of receipt of a copy of this judgment.
The original petitions are allowed.