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Petitioner: NEW JEHANG IR VAKIL MILLS LTD. VS Respondent: COMMISSIONER OF INCOME-TAX, BOMBAY JUDGMENT
Court Name: Supreme Court of India Judge(s): M. Hidayatullah, Bhagwati, S. R. Das Gupta Title:NEW JEHANG IR VAKIL MILLS LTD. vs COMMISSIONER OF INCOME-TAX, BOMBAY
JUDGMENT
Reported As: 1989 PTD 79 Result: Case remanded Judgment JUDGMENT ' BHAGWATI, J.-- This appeal with special leave arises out of a judgment and order of the High Court of Judicature at Bombay dated September 23, 1955, delivered in Income-tax Reference No,19 of 1955 made by the Income-tax Appellate Tribunal (hereinafter referred to as "the Tribunal") to the High Court under section 66(1) of the Indian Income-tax Act (XI of 1922) (hereinafter referred to as "the Act") whereby the High Court directed the Tribunal to submit a supplementary statement of case on the points mentioned therein. ' The appellant is a limited liability company manufacturing textile goods at Bhavnagar which was an Indian State during the assessme nt years 1943-44 and 1944-45. For the said assessment years the appellant was held to be a nonresident, its years of account being calandar years 1942 and 1943. For the assessm ent years 1943-44 and 1944-45 (account years 1942 and 1943), the Income- tax Officer computed the British Indian income of the appellant on a proportionate basis under section 4(1)(a) of the Act. In the account year 1942 its total sales amounted to Rs,66,14,852 out of which sale proceeds amounting to Rs,35,92,157 as detailed below were held by the Income-tax Officer to have been received in British India:- Cheques on the Imperial Bank issued by the Supply Department of the Government of India.Rs.2,58,987 Sale proceeds received through Trikamlal Mahasukhram. Rs.20,24,190 Other cheques received at Bhavnagar but drawn on banks in British India. Rs.13,08,980 Rs.35,92,157
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' The Income-tax Officer computed the income of the appellant at Rs,27,11,136 on a proportionate basis, i.e,, proportionate to the sales in and outside British India. He held that the income amounting to Rs,14,72,267 was received in British India under section 4(1)(a) of the Act. There was no dispute in regard to the sale proceeds received through Trikamlal Mahasukhram. ' In respect of the assessm ent year 1944-45 corresponding to the account year 1943 the Income- tax Officer held that sale proceeds amounting to Rs,16,72,693 received by the appellant by cheques from the Supply Department of the Government of India on British India banks were taxable under section 4(1)(a) of the Act. The figure of Rs,16,72,693, according to the appellant, was a mistake for Rs,12,97,631. ' The appellant had contended that the amounts had been received at Bhavnagar, by cheques drawn on banks in British India. The Revenue had not disputed the fact that the cheques had been actually received at Bhavnagar but had contended that payments by cheques, though such cheques were received at Bhavnagar, were received in British India at the time and the place where the cheques were ultimately cashed and honoured by the banks on which the cheques were drawn and that until such encashment of the cheques, the monies could not be said to have been received by the appellant. ' The appellant preferred appeals to the Appellate Assistant Commissioner Ahmedabad Range, against this order of the Income-tax Officer for the said two assessment years. The Appellate Assistant Commissioner by his two separate orders confirmed the orders of the Income-tax Officer and held that the cheques were not legal tender and were not monies or monies worth as such and that the receipt of cheques at Bhavnagar was not receipt of money. Receipt of money, according to the Appellate Assistant Commissioner, took place on actual payments by the drawee banks and he therefore held that the said amounts were taxable under section 4(1)(a) of the Act. ' A further appeal was taken by the appellant to the Tribunal against the said orders of the Appellate Assistant Commissioner and the Tribunal by its consolidated order for both years, dated July 17, 1952, held that the cheques for the said amounts of Rs,2,58,987 and Rs,13,08,987 in respect of the Assessm ent year 1943-44, were received at Bhavnagar and that the sale proceeds were received in Bhavnagar. The Tribunal stated, inter alia, as follows: "There is no evidence that the cheques from Government were received in Bhavnagar. It is not the Department's case that the assessee company has a registered office elswhere. The presumption is that the letters containing the cheques were addressed to the assessee company at Bhavnagar. We, therefore, hold that the cheques were received from Government at Bhavnagar and that the money was also received in Bhavnagar." ' In doing so, the Tribunal followed the judgment of the Bombay High Court in the case of Kirloskar Brothers Ltd. v. Commissioner of Income-tax (1952) 21 1 T R 82. In view of the fact however that an appeal had been filed in this Court against that decision of the Bombay High Court the Tribunal further stated: "We might point out that in case the Supreme Court does not uphold the Bombay High Court decision in Kirloskar case (1952) 21 I T R 82 an enquiry will have to be made as to whether the assessee company's banks at Ahmedabad acted as the assessee company's agents for collecting the money due on the cheques." ' In respect of the Assessm ent year 1944-45, the Tribunal, after directing the Income-tax Officer to verify the correctness of the figure of the amounts received by the appellant by cheques from the Government (i.e, whether it was Rs,12,97,631 as contended for by the appellant or Rs,16,72,693 as held by the Income-tax Officer or any other figure), held that the cheques representing the said amount were received at Bhavnagar and the monies or sale proceeds were also received in Bhavnagar. The Tribunal also held that another amount of Rs,5,53,447 in respect of the said latter
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year, being the aggregate amount of the cheques received at Bhavnagar from other merchants was also received in Bhavnagar. ' It may be pointed out that neither did the Income-tax Officer, when the proceedings were before him, or when the proceedings were before the Appellate Assistant Commissioner, nor did the Revenue, when the proceedings were before the Tribunal, at any stage contend that the cheques aggregating to the said amounts in the said two years were not received at Bhavnagar because of the alleged posting of the cheques in British India and/or by reason of the allegation that the cheques were sent by post and/or that the post office was the agent of the appellant and that too, in spite of the decision in the case of Kirloskar Bros. Ltd. (1952) 21 I T R 82 which decision had already been pronounced by then and where the said question had been debated and argued by the Revenue. The only ground urged by the Revenue at all material stages was that because the amounts which were received, from the merchants or the Government, were received by cheques drawn on banks in British India which were ultimately encashed in British India, the monies could not be said to have been received in Bhavnagar though the cheques were in fact received at Bhavnagar. ' Being aggrieved by the said decision of the Tribunal, the respondent (Commissioner of Income- tax) filed two applications under section 66(1) of the Act requesting the Tribunal to draw up a statement of the case and refer the question of law arising out of the order of the Tribunal to the High Court. ' In the said applications the facts which were admitted and/or found by the Tribunal and which were necessary for drawing up a statement of the case were stated as under: "Regarding items of Rs,2,58,987 and Rs,12,97,631 received from the Government of India in the accounting years relevant to the assessment for 1943-44 and 1944-45 respectively the amounts were received by cheques drawn on the Imperial Bank of India. No evidence was produced by the assessee at any stage even before the Appellate Tribunal, that the cheques were received at Bhavnagar, nor was any evidence produced to show that these cheques were received as unconditional discharge of debtor's liability. These cheques were collected by the company's bankers in British India. The Income-tax Officer, therefore, held that the amount was received in British India. The Appellate Assistant Commissioner confirmed the Income-tax Officer's action. The Tribunal, however, relied upon the Bombay High Court decision in Kirloskar Brothers' case (1952) 21 I T R 82 and held that the amount was received in Bhavnagar." `As regards items of Rs,13,08,980 and Rs,5,53,447 received in the accounting years relevant to the assessm ents for 1943-44 and 1944-45 respectively, the relevant facts are that the company received these cheques and sent them to their hankers in Ahmedabad for collection. The Tribunal held that the sale proceeds were received at Bhavnagar on the basis of the Bombay High Court's decision in the Kirloskar Brothers case (1952) 21 I T R 82 without enquiring as to whether the cheques were received by the company in unconditional discharge of the drawer's liability." ' On these facts the respondent submitted that the following questions of law arose out of the order of the Tribunal: "(i) Was there any evidence on the record to justify the Tribunal's finding that the mere receipt by the assessee of cheques of Rs,2,58,987 and Rs,13,08,980 in Bhavnagar amounted to receipt of the above amounts in Bhavnagar even though the said cheques had actually been cashed in British India and the proceeds thereof were credited to the assessee's accounts with certain banks in British India? (ii) Whether in the circumstances of this case, the income, profits and gains in respect of the sales amounting to Rs,15,67,967 made to the Government of India and other customers were received in British India within the meaning of section 4(1)(a) of the Indian Income-tax Act?"
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' A similar statement of facts which were admitted and/or found by the Tribunal was also made in regard to the Assessm ent year 1944-45 and sim questions of law were asked to be referred as in the case of the Assessm ent year 1943-44 except in regard to the change in the figures necessitated by the differences in the amounts received. ' These reference applications being Reference Applications Nos. 615 and 616 of 1952-53 were kept pending until the decision of this Court in the case of Commissioner of Income-tax v. Kirloskar Brothers (1954) 25 I T R 547. This Court decided that appeal and the companion appeal Commissioner of Income-tax v. Ogale Glass Works Ltd. (1954) 25 I T R 529 = (1955) 1 SCR 185 on April 17, 1954, and the said reference applications were thereafter heard and decide by the Tribunal on November 3, 1954. ' It is worthy of note that the decision of this Court in the said two cases proceeded on the basis that on the particular facts of those appeals the post office had acted as the agent of the assessee and that though the cheques were in fact received by post by the assessees outside British India nevertheless, by reason of the fact that the assessees in the said two appeals had expressly requested the Government to remit the amounts by cheques, the assessees had constituted the post office their agent to receive, on their respective behalves, the said cheques which were posted by the Government at Delhi having addressed them to the assessees outside British India. ' In spite of the said decisions, the Reveune did not urge before the Tribunal that the said aspect of the matter should in the present case also be referred to the High Court for its decision and the referene applications were heard on the materials which were on the record before the Tribunl when it made its orders dated July 17, 1952. The said order of the Tribunal was based on the facts admitted and/or found by the Tribunal as stated in the reference applications made by the Revenue as aforesaid and this aspect of the case, viz. Whether any portion of these cheques was received by post and if so whether there was any request by the appellant, express or implied, that the amounts of those cheques should be remitted to Bhavanagar by post, had certainly not been canvassed before any of the Income-tax authorities or before the Tribunal and did not find its place in the order of the Tribunal and any question of law appertaining thereto could not be said to arise out of the said order of the Tribunal. ' On the materials as they stood on the record then, the Tribunal drew up on November 5, 1952, a statement of case in which all the facts and events above referred to were set out. Besides the same the Tribunal also referred in paragraph 8 thereof to two letters on the record which showed that the cheques from the Supply Department were received by post. It also annexed a sample agreement form on record between the appellant and its customers other than the Government and annexed thereto the copies of the Appellate Assistant Commissioner's orders for the Assessm ent years 1943-44 and 1944-45. The two letters showing that the cheques from the Supply Department were received by post were evidently put in with a view to show that the order of the Tribunal dated July 17, 1952, was correct in making the presumption that the letters containing the cheques were addressed to the appellant at Bhavnagar and in holding that the cheques were received from the Government at Bhavnagar. There was no other reason, so far as the record then stood, to make any reference to the said two letters. Out of the facts stated above the Tribunal raised t following question of law: "Whether the receipt of the cheques in Bhavnagar amounted to receipt of sale proceeds in Bhavnagar?" ' The said reference was heard by the High Court on September 23, 1955, and judgment was delivered the same day whereby the High Court held that it was not possible to answer the question in the absence of materials as to whether the cheques which were received in Bhavanagar were posted by the Government the request of the appellant and the High Court observed:
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"The question that has been submitted to us by the Tribunal is whether the receipt of the cheque in Bhavnagar amounted to receipt of sale proceeds in Bhavnagar. This question overlooks the important aspect which was dealt with both by us in Kirloskar's case (1952) 21 I T R 82 and also by the Supreme Court. Assuming that the cheques were received in Bhavnagar, the question still remains as to whether if the cheques were received by post, the post office was constituted the agent of the assessee or not. The mere receipt of cheques by post in Bhavnagar is not conclusive of the question raised by the Tribunal. Unless we are in a position to say that the cheques were sent to Bhavnagar by post without there being a request, express or implied, by the assessee, the mere receipt of the cheques in Bhavnagar would not constitute receipt of sale proceeds in Bhavnagar. When we look at the statement of the case there is no reference at all to this aspect of the case." ' The High Court further observed that the burden would be upon the Revenue to establish that the cheques which were received by post were so received at the request, express or implied, of the appellant and that, therefore, the post office was the agent of the appellant. But it observed in this context: "But we cannot shut out the necessary inquiry which even from our own point of view is necessary to be made in order that we should satisfactorily answer the question raised in the reference. It must not be forgotten that under section 66 (4) of the Income-tax Act we have a right independently of the conduct of the parties to direct the Tribunal to state further facts so that we can properly exercise our advisory jurisdiction." ' In the result, the High Court directed that a supplementary statement of case should be submitted by the Tribunal on the following points: "On the findings of the Tribunal that all the cheques were received in Bhavnagar, the Tribunal to find what portion of these cheques were received by post Whether there was any request by the assessee, express or implied, that the amounts which are the subject-matter of these cheques should be remitted to Bhavnagar by post. Mr. Joshi concedes that to the extent that the cheques were not received by post but by hand, the receipt will be for the purposes of tax in Bhavnagar." ' The appellant filed a petition in the High Court on November 22, 1955 for the grant of a certificate under section 66-A(2) of the Act to appeal to this Court from the said judgment and order of the High Court. This application was dismissed by the High Court by its order dated December 8, 1955, with the result that the appellant presented on December 22, 1955, a petition in this Court for special leave to appeal from the said judgment of the High Court dated September 23, 1955. This Court by its order dated March 12, 1956, grand special leave to appeal, such leave being limited to the question whether the High Court had jurisdiction under section 66(4) of the Act to call for a supplemental statement of case. This is how the appeal has come up for hearing and final disposal before us. ' We have narrated the facts and events leading up to this appeal in such detail in order that we may have the proper perspective and the background against which the High Court directed the Tribunal to submit a supplementary statement of case on the points mentioned therein. The appeal raises important question as to the nature, scope and extent of the jurisdiction veste the High Court under section 66(4) of the Act and we shall now address ourselves to that question. ' The relevant provisions of section 66 of the Act may now be referred to: "66(1) Within sixty days of the date upon which he is served with notice of an order under subsection (4) of section 33 the assessee or the Commissioner may, by application in the prescribed form, accompanied where application is made by the assessee by a fee of one hundred rupees, require the Appellate Tribunal to refer to the High Court any question of law arising out of such order, and the Appellate Tribunal shall within ninety days of the receipt of such application draw up a statement of the case and refer it to the High Court:
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' Provided that, if in the exercise of its powers under subsection (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 the refusal to state the case, withdraw his application and, if he does so, the fee paid shall be refunded. (2) If on any application being made under subsection (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 the refusal, apply to the High Court, and the High Court may, if it is not satisfied of 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. (4) If the High Court is not satisfied that the statements in a case referred under this section are sufficient to enable it to determine the question raised thereby, the Court may refer the case back to the Appellate ' Tribunal to make such additions thereto or alterations therein as the Court may direct in that behalf." It is clear on a plain reading of the terms of section 66(1) that the only question of law which the assessee or the Commissioner can require the Tribunal to refer to the High Court is "any question of law arising out of the order of the Tribunal" so that if the question of law which the assessee or the Commissioner requires the Tribunal to so refer to the High Court does not arise out of its order the Tribunal is not bound to refer the same. What has, therefore, to be looked at in the first instance is whether the question of law thus required to be referred arises out of the order of the Tribunal. The Tribunal no doubt has got before it t facts which are admitted and/or found by the Tribunal--and which are necessary for drawing up a statement of the case and it is the, facts admitted and/or found by it that would form the basis on which the statement of case would be drawn and references of the question of law made by the Tribunal to the High Court. If such facts were not there whether in the order of the Tribunal or in the record before it there would certainly not be any foundation for the raising of any question of law either in the abstract or otherwise and it is only question of law which would arise out of such facts which are admitted and/o found by the Tribunal that would be the substratum of the reference to the High court. The facts admitted and/or found by the Tribunal would really be the foundation or the basis on which such questions of law could be raised an neither party would be entitled to require the Tribunal to refer to the High Court any question of law which could not thus arise out of the order of the Tribunal. Section 66(2) which gives the power to the High Court to require the Tribunal to state the case and refer the question of law to it also proceeds on the same basic and even where the High Court exercises the power under section 66(2) it can only require the Tribunal to state the case on any question of law arising out of such order. The scope and subject-matter of the reference under section 66(2), therefore, is co-extensive with that of the reference under section 66(1) of the Act and the High Court has no power or jurisdiction under section 66(2) to travel beyond the ambit of section 66(1). Section 66(2) comes into play only when the Tribunal refuses to state the case on the ground that no question of law arises and if the High Court is not satisfied of the correctness of the decision of the Tribunal, it has got the power and jurisdiction to requite the Tribunal to state the case and refer the same to it. On the conditions of section 66(1) and section 66(2) being thus complied with the statement of case has to be drawn up by the Tribunal and the question of law arising out of its order referred to the High Court for its opinion. This, statement of case which is based, as stated above, on the facts which are admitted and/or found by the Tribunal may not contain sufficient material to enable the High Court to determine the question raised thereby and in that case the High Court under section
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66(4) is vested with the jurisdiction to refer the case back to the Tribunal to make such additions thereto or alterations therein as the Court may direct in that behalf only for the purpose of determining the question referred to it. If the question actually referred does not bring out clearly the real issue between the parties, the High Court may reframe the question so that the matter actually agitated before the Tribunal may be raised before the High Court. But section 66(4) does not enable the High Court to raise a new question of law which does not arise out of the Tribunal's order and direct the Tribunal to investigate new or further facts necessary to determine this new question which had not been referred to it under section 66(1) or section 66(2) and direct the Tribunal to submit a supplementary statement of case. This power and jurisdiction which is vested in the High Court is to be exercised within the four corners of section 66. If under section 66(1) and section 66(2) the statement o case has to be drawn up on the basis of the facts which are admitted and/or found by the Tribunal and this is the requirement also of paragraph 3. Of the prescribed form--the scope of such statement of case cannot, in our opinion, be in any manner enlarged by the power which is given to the High Court under section 66(4) to make such additions thereto or alterations therein in the statement o case as the Court may direct in that behalf. The jurisdiction of the High Court under section 66 is a consultative or advisory jurisdiction. In order to satisfactorily discharge that advisory jurisdiction the, High Court must have before it all the facts which are admitted and/or found by the Tribunal properly set out in the statements in the case. It is only in those cases where the statement of case referred to the High Court under section 66(1) and section 66(2) are not sufficient to enable the High Court to determine the question raised thereby that the High Court is empowered to refer the case back to the Tribunal, so that the Tribunal within the four corners of section 66(1) and section 66(2) may make such additions to those statements or alterations therein as may be directed, the Court. Even though the terms of section 66(4) are wide enough to comp" `such…
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