JUDGMENT JUDGMENT judgment of court was delivered by J. S. VERMA C.J.-A consolidated reference has been made for assessment years 1969-70 to 1974-75 under section 256(1) of Incometax Act, 1961 (hereinafter referred to as " Act "), at instance of assessee for answering following questions of law, namely: " 1. Whether, on facts and in circumstances of case, Tribunal is justified in holding that assessment orders did not become time barred under sub-section (1) of section 153 of Income-tax Act, 1961, in view of provisions of Explanation (1) to said sub-section? 2. Whether, on facts and in circumstances of case, Tribunal is justified in law in holding that realisations made by official liquidator by running business of assessee-company are income liable to tax under Income-tax Act, 1961? 3. If answer to question No. 2 is in affirmative, whether Tribunal was right in law in holding that deduction on account of interest payable to creditors could not be allowed in computation of income? 4. If answer to question No. 2 is in affirmative, then: (i) Whether, on facts and in circumstances of case and on correct interpretation of terms of agreement dated October 31, 1955, and consent decree dated February 25, 1959, Tribunal is justified in holding that assessee is not owner of Cinema theatre styled'Maratha Mandir' and machinery, plant, furniture, etc., installed in said building by assessee with its own finances and no depreciation and development rebate is available to it in respect thereof? and (ii) Whether, on facts and in circumstances of case, Tribunal is justified in rejecting alternative contention of assessee that amount spent by assessee-company on construction of cinema known as Maratha Mandir and in purchasing movable assets installed therein out of its own funds is neither capital nor revenue expenditure? 5. Whether, Tribunal is correct in law in holding that no notice to show cause need be given to assessee before levying penal interest under section 139/215/217(1A) of Income-tax Act, 1961? 6. Whether, on facts and in circumstances of case, Tribunal is right in law in holding that Income-tax Officer is not under obligation to reduce or waive penal interest under section 139/215/217(1A) of Income- tax Act, 1961, read with rule 117A/ 40 of Income-tax Rules, 1962, without there being petition by assessee before him? 7. Whether, on facts and in circumstances of case, Tribunal was justified in law in holding that learned Appellate Assistant Commissioner was right in not admitting additional evidence in respect of assessee's claim for reduction or waiver of penal interest in terms of rule 117A/40 of Income- tax Rules, 1962? 8. Whether, on facts and in circumstances of case, Tribunal is justified in holding that assessee-company is not industrial company? (Assessment years 1972-73 and 1973-74 only) 9. Whether, on facts and in circumstances of case, Tribunal was justified in law in holding that assessee is not entitled to relief under section 80G of Income-tax Act, 1961? (Assessment year 1972-73 only) 10. Whether, on facts and in circumstances of case, Tribunal is justified in law in holding that expenditure in providing tea, coffee, coca-cola and bare meals is entertainment expenditure in terms of section 37(2B) of Income-tax Act, 1961, and in sustaining disallowance of Rs. 1,510, Rs. 2,538 and Rs. 2,024 on that view?" relevant assessment years are 1969-70, 1970-71, 1971-72, 1972-73, 1973-74 and 1974-75. assessee, M/s. Golecha Properties (P.) Ltd., went into voluntary liquidation on July 4, 1966. Pending proceedings of winding up, its affairs were looked after by official liquidator with effect from May 10, 1968. Soon after appointment of official liquidator, Income-tax Officer applied to company court for permission under section 446 of Companies Act, 1956, to proceed with assessment of company. company court allowed Incometax Officer to proceed with assessments by his order dated August 12, 1969. Income-tax Officer completed assessments for years 1969-70 to 1971-72 on October 31, 1972. assessee questioned validity of these assessments on ground that these were not completed within time prescribed in section 153 of Act. Revenue's contention was that assessments were within time after excluding period during which proceedings had been stayed by Rajasthan High Court. Tribunal has finally held that assessments for three assessment years 1969-70 to 1971-72 were made within time as contended by Revenue. assessee also contended that receipts earned after date of winding up order passed by company court were not taxable as income under Act, since business was carried on by official liquidator after winding up order merely for beneficial winding up of company. This contention of assessee has also been rejected throughout. It has been held that company in liquidation, after winding up order, does not lose its distinct character as legal entity and receipts earned by carrying on business after date of winding up order amount to income which is taxable under Act. assessee also contended that even if receipts so earned are taxable as income under Act, interest should be treated as business expenditure and deducted from total receipts. This contention was rejected on ground that in view of rule 179 of Companies (Court) Rules, 1959, such eventuality could arise only in event of there being surplus after payment in full of all claims admitted to proof. It was held that this stage not having been reached, question does not arise for decision. It was further contended by assessee that no penal interest could be charged under section 139 or 215 without giving prior opportunity to assessee of showing cause against same. It was held that there was no provision for giving such opportunity and provisions made for waiver or reduction in amount of penal interest could be relied on by assessee for this purpose. It was also held that no such claim having been made by assessee, question of reduction or waiver of interest did not arise. assessee also contended that it was entitled to deduction of amount of depreciation on various assets belonging to company in cinema talkies run by it. This claim was rejected following reasoning given by Tribunal for rejecting similar claim relating to assessment year 1965- 66. assessee also claimed that it should be treated as industrial company and benefit of concessional rate of tax should be given on that basis. Tribunal rejected this contention also following its view in respect of earlier years' assessments. assessee's claim for deduction of Rs. 1,510 and Rs. 2,538 for assessment year 1972-73 as expenditure incurred in providing tea, coffee and refreshment, etc., to customers was also disallowed. Similarly, assessee's claim for rebate under section 80G for contributions made towards National Defence Fund and Jawan Relief Fund has been disallowed on ground that payments were not proved by producing relevant receipts. Aggrieved by view taken by Tribunal on these points, assessee applied for reference under section 256(1) of Act which has been made by Tribunal to answer above-quoted questions of law. In respect of same assessee, for some earlier years of assessment, reference was made under section 256(1) of Act to answer some questions of law arising out of Tribunal's order. facts on basis of which those of law arising out of Tribunal's order. facts on basis of which those questions were to be answered are same and some of questions in present references are common. decision of this court in those earlier references is common and is reported in Golcha Properties (P) Ltd. v. CIT [1987] 166 ITR 259 (Raj). It is not necessary to mention other facts which are common and are mentioned in that decision. Similarly, it is not necessary to reconsider or discuss questions which are common in these references also. There is no dispute that some of questions herein being covered by that decision have to be answered following decision in Golcha Properties' case [1987] 166 ITR 259 (Raj). We shall first dispose of questions which are covered by this earlier decision. Question No. 1.-This question is covered by decision in Golcha Properties' case [1987] 166 ITR 259 (Raj). Following that decision, this question is answered in affirmative and against assessee. Question No. 4.-We shall discuss questions Nos. 2 and 3 later, but having reached conclusion that question No. 2 is to be answered in affirmative, against assessee, we are first taking up question No. 4, both parts of which are covered by decision in Golcha Properties' case [1987] 166 ITR 259 (Raj). Following that decision, both parts of question No. 4 are answered in affirmative and against assessee. Learned counsel for assessee tried to contend that insertion of sub-section (1A) in section 32 of Act with effect from April 1, 1971, distinguishes earlier decision in respect of assessment years after 1970-71, since even lessee of building is entitled to get that benefit. short answer to this contention is that no such expenditure by assessee for assessment year 1970-71 and, thereafter, has been shown to enable reliance being placed on sub-section (1A) of section 32 of Act in respect of subsequent years. Accordingly, earlier decision in Golcha Properties' case [1987] 166 ITR 259 (Raj) cannot be distinguished in respect of any of these assessment years. Question No. 8.-There is no dispute that this question is also covered by earlier decision in Golcha Properties' case [1987] 166 ITR 259 (Raj). Following that decision, answer to this question is given against assessee. Question No. 9.-This question does not really arise. finding of Tribunal is that payments in respect of which relief under section 80G of Act is claimed by assessee have not been proved by production of any receipts. It is obvious that without any proper proof of payment, question of giving relief based thereon does not arise. This question is also, therefore, answered against assessee. Question No. 10.-There is no controversy at this stage that expenditure incurred by assessee in providing tea, coffee and snacks etc., to customers is permissible deduction as held in decisions of this court in Devichand Bastimal v. CIT [1985] 156 ITR 166 and Metharam Lekhumal v. CIT [1987] 165 ITR 568. Accordingly, Tribunal was not justified in disallowing claim made by assessee under this head. This question is, therefore, answered in favour of assessee. Question No. 2.-The contention of learned counsel for assessee based on several provisions of Companies Act is that business of company is carried on by official liquidator for limited purpose of beneficial winding up and not with motive of earning profit. It is not disputed that company continues to be distinct entity and legal person, even after winding up order, during this period. It is argued that absence of any profit motive shows that receipts earned from business during this period cannot be treated as income for purpose of Act. It is argued that fact that no dividend is to be declared after winding up order till stage contemplated by rule 179 of Companies (Court) Rules, 1959, is reached, also shows that it is not business for purpose of earning profits. Learned counsel added that receipts earned from business are mainly for purpose of making payment to creditors and not for earning any profits. In our opinion, Tribunal was justified in rejecting this contention. definition of " income" contained in section 2(24) of Act is inclusive definition and is wide enough to include receipts earned from business carried on by official liquidator after winding up order. receipts are definitely profits and gains of business which is admittedly carried on by official liquidator on behalf of company. Several decisions cited by learned counsel for assessee are inapplicable for deciding point. During hearing, we pointed out to learned counsel for assessee decision in ITO v.Official Liquidator, Swaraj Motors (P) Ltd. (In Liquidation) [1978] 111 ITR 77 (Ker), which negatives assessee's contention. Learned counsel for assessee made no attempt to show how that decision is inapplicable. question arose in that case in context of section 178 of Act It was held that tax payment referred to is in respect of income of company accrued before its winding up and it has no application to income accruing to company after making of winding up order. fact that receipts earned by company before as well as after winding up order, are income as defined in Act and taxable thereunder, was not even doubted. In our opinion, contention of learned counsel for assessee has no merit and view taken by Tribunal on this point is justified. Question No. 3.-This question arises on account of our conclusion that question No. 2 should be answered in affirmative. reasoning of Tribunal for rejecting assessee's contention is that under rule 179 of Companies (Court) Rules, 1959, this question can arise only in event of there being surplus after payment in full of all claims admitted to proof, which stage has not yet been reached in winding up proceedings. No defect in this reasoning has been pointed out. Learned counsel for assessee contended that if receipts earned from business carried on by official liquidator after date of winding up order is taxable as income, then deduction on account of interest payable to creditors should also be allowed. There can be no doubt that in computing taxable income under Act, all permissible deductions have to be allowed while making final regular assessment. However, at present, question is only hypothetical, since even possibility of payment of interest to creditors is not yet known. This question being hypothetical at this stage does not, therefore, require any decision. We, therefore, decline to answer same. Questions Nos. 5, 6 and 7.-These questions being connected are considered together. material provisions are section 139(8)(a) and proviso thereunder read with rule 117A of Income-tax Rules, 1962, and section 215(4) read with rule 40 of Income-tax Rules, 1962. plain reading of these provisions and their harmonious construction lead to inevitable conclusion that liability for payment of interest thereunder is incurred automatically in event of default by assessee specified therein. This being so, question of giving any show cause notice prior to fixing liability for payment of this interest by order does not arise. This liability for interest is attracted automatically by operation of law without further requirement of any order to that effect. order made merely quantifies amount of interest. However, Income-tax Officer is empowered to reduce or even waive interest at instance of assessee, if good cause is shown for same by assessee. It is, therefore, obvious that no prior show cause notice is required to be given to assessee, since liability to pay interest is attracted automatically by operation of law, but rigour thereof is mitigated by empowering Income-tax Officer to reduce or even waive amount, if good cause is shown by assessee after incurring that liability. There is no breach of any principle of natural justice in penal provision inasmuch as assessee has opportunity given by statute to apply for reduction or even waiver of amount by showing proper cause. basic requirement of principles of natural justice are, therefore, fully satisfied and it is incorrect to say that provision violates principles of natural justice by imposing penalty without giving any opportunity to show cause against same. We may observe that it is duty of assessee to invoke authority's power of reduction or waiver of amount of interest when liability has been incurred by operation of law and, therefore, occasion for authority to decide this question would arise only when assessee invokes that power by proper application setting out grounds on which reduction or waiver of interest is sought. Since reduction or waiver can be granted only on good cause being shown by assessee, it is obvious that authority cannot act suo motu, facts constituting ground for waiver or reduction being within special knowledge of assessee who has to disclose them. further question is as to whether this power can be exercised only by Income-tax question is as to whether this power can be exercised only by Income-tax Officer and not thereafter in appeal by appellate authority. We find no reason to hold that appellate authority is not empowered to grant this relief, if assessee invokes power at appellate stage and also shows sufficient cause for not being able to apply to Income-tax Officer in original proceedings. In present case, assessee's contention is that it entertained bona fide belief that prior show cause notice would be given before levy of penal interest and, therefore, no prayer for reduction or waiver of interest was made till making of assessment order by Income-tax Officer This impression apparently was under bona fide mistake about construction of relevant statutory provisions, which constitutes sufficient cause to explain default in applying for waiver or redaction of interest to Incometax Officer before Income-tax Officer's final order was passed. In such situation, assessee could apply to appellate authority for exercise of that power by showing reason for failure to apply before Income-tax Officer. appeal is rehearing of original lis and power of appellate authority in this respect is conterminous with that of original authority. There is neither principle nor authority to support conclusion that appellate authority cannot entertain assessee's request for waiver or reduction of interest and exercise that power given in these statutory provisions. In case like present, it would be permissible for appellate authority to entertain such request and to consider and decide it on merits. This view is also in consonance with construction we have made of statutory provisions that no prior show cause notice is necessary, but assessee can thereafter invoke power for reduction or waiver of interest. We find that Division Bench of this court in CIT v. Devichand Pan Mal [1986] 160 ITR 545 (Raj) has taken view that Appellate Assistant Commissioner can consider question of waiver or reduction of penal interest in appeal when same had not been considered by Income-tax Officer. This decision also supports conclusion we have reached on this point. We are, therefore, of opinion that neither Appellate Assistant Commissioner nor Tribunal were correct in taking view that this question of reduction or waiver of penal interest could not be considered, since it was raised by assessee for first time before Appellate Assistant Commissioner. As result of above discussion, it follows that questions Nos. 5 and 6 have to be answered in affirmative and against assessee, but question No. 7 has to be answered in negative and in favour of assessee. Consequently, reference is answered as follows: 1. Questions Nos. 1, 2, 4, 5, 6 and 8 are answered in favour of Revenue and against assessee by holding that view taken by Tribunal on these points is justified. 2. Questions Nos. 3 and 9 do not arise and, therefore, require no answer. 3. Questions Nos. 7 and 10 are answered in favour of assessee and against Revenue by holding that view of Tribunal on these points is not justified. *** GOLECHA PROPERTIES (P.) LTD. v. COMMISSIONER OF INCOME TAX