U.P. Forest Corporation Vs. Commissioner of Income-tax - Court Judgment

K.C. Agrawal, J.

1. This is an application under Sub-section (2) of Section 256 of the Income-tax Act, 1961, moved by the U.P. Forest Corporation for a direction to the Income-tax Appellate Tribunal to refer the following two questions to this court:

' (1) Whether the Corporation has been created under the Act as an agent and carries on its activities (including the activities of disposing of trees, exploitation of forest resources which yield profit and income) on behalf of the State and not on its own account ?

(2) Whether the income in regard to which the assessment is sought to be made under the Income-tax Act, against the Corporation, is in truth and reality the income of the State of U.P, and is, therefore, exempt from income-tax under Article 289(1) of the Constitution ?'

2. For the assessment year 1978-79, the assessee-Corporation submitted a return declaring a loss of Rs. 7,57,800 and that its income is exempt under Section 10(20) of the Income-tax Act. The assessee's plea regarding exemption was not accepted by the Inspecting Assistant Commissioner of Income-tax (Assessment), Lucknow. As against this order, an appeal was filed which was partly accepted but the plea of exemption under Section 10(20) was negatived by giving the following finding :

'In my view, the activities of a Corporation which is primarily engaged in profit-earning activities and are not in the nature of activities for supply of commodity or services within a particular jurisdictional area do not come within the purview of Section 10(20) and, therefore, the Inspecting Assistant Commissioner (Assessment) was right in refusing the claim of exemption to the appellant. Therefore, his decision on this issue is confirmed.'

3. Thereafter, the Forest Corporation filed the second appeal before the Income-tax Appellate Tribunal challenging the finding of the Commissioner, of Income-tax (Appeals) that it was not entitled to exemption under Section 10(20) of the Income-tax Act. On September 4, 1984, the assessee filed an application for addition of an additional ground to the following effect:

'Because the income made by the assessee is in reality the income of the State Government of U.P. and is, therefore, exempt under Article 289(1) of the Constitution. '

4. For the year 1976-77, the Tribunal had not accepted that the petitioner was entitled under Article 289(1) of the Constitution not to be treated as State and to be held not liable to pay tax.

5. In the earlier year, the income of the assessee-Corporation was exempted under Section 10(20). In respect of the year 1978-79, following its earlier decision, held that the income of the Corporation fell within the exemption provided under Section 10(20). He did not examine other grounds taken in the appeal. The Forest Corporation had filed an application under Sub-section (1) of Section 256 for the year 1976-77. The application was rejected by the Tribunal on the finding that no question of law arose out of the order of the Tribunal which was to be referred to the High Court. The application in respect of the assessment year 1977-78 was also rejected. While rejecting, the Tribunal remarked :

'Following the aforesaid earlier order of the Tribunal dated February 22, 1984, we refuse to refer the question suggested by the parties in the aforesaid reference application on the ground that nothing had been brought before us to take a contrary decision......'

6. As against the rejection of the application in respect of the year 1976-77, the Corporation filed Reference Application No. 11 of 1985 in this court under Sub-section (2) of Section 256. The Bench rejected the application by observing that since the Tribunal had already held that the petitioner was not liable to be assessed under the Income-tax Act, the application under Section 256(2) of the Income-tax Act was, at this stage, in the absence of the application for reference on behalf of the Department, only of academic interest. Consequently, without going into the merits of the matter, the High Court rejected the application under Section 256(2) in respect of the year 1976-77.

7. Coming to the present application which is in respect of the assessmentyear 1978-79, learned counsel for the Corporation urged that althoughthe income of the Corporation is exempt under Section 10(20), it is stillentitled to raise the controversy that no tax is leviable on it due toArticle 289(1) of the Constitution. We do not consider it necessary to gointo the question of applicability of Article 289(1). To us, it appears that the said controversy is academic and does not call for our judgment in this case. The assessee-Corporation has been held entitled to exemption under Section 10(20). In that view of the matter, it was not necessary for the Income-tax Appellate Tribunal or for us to examine the applicability of Article 289(1) of the Constitution to the facts of the present case. It is settled law that no court should engage itself in deciding a futile controversy--a controversy which does not call for decision which will have no bearing on its result. The controversy about the applicability of Article 289(1) of the Constitution is merely academic in the facts of the present case.

8. It has been held in Madanlal Dharnidharka v. CIT : [1948]16ITR227(Bom) and CIT v. M.P. Sugar Mills (P) Ltd. : [1975]101ITR655(All) , that unnecessary or irrelevant questions should not be answered.

9. It was noted in the previous order of the High Court rejecting the application under Section 256(2) that since the Revenue had not filed any application against the judgment of the Income-tax Appellate Tribunal holding the assessee to be entitled to exemption under Section 10(20), there was no occasion for the assessee to prefer the same against the Tribunal's order. The order of the Tribunal, as it stands at present, is in favour of the Corporation. In CIT v. Damodaran : [1980]121ITR572(SC) , the Supreme Court observed (headnote):

'Where, however, the order made by the Tribunal operates entirely in favour of one party, although in the course of making the order the Tribunal may have negatived some points of law raised by that party, not being a party aggrieved by the result of the appeal, it is not open to that party to file a reference application. On a reference application being filed by the aggrieved party, it is open to the non-applicant to ask for a reference of those questions of law which arise on its submissions negatived in the appeal by the Tribunal.'

10. From what we have said above, we reject the application. There shall be no order as to costs.