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Petitioner: EDUCATIONAL AND CIVIL LIST RESERVE FUND No.1 THROUGH H. H. MAHARANA BHAGWAT SINGHJI OF UDAIPUR VS Respondent: COMMISSIONER OF INCOME-TAX, DELHI AND RAJASTHANHonorable Justice MODIRoshanlal,Chandmal
1964 P T D 325
1964 P T D 325
[Rajasthan at Jodhpur (India)]
Before I. N. Modl and L. N. Chhangani, JJ
EDUCATIONAL AND CIVIL LIST RESERVE FUND No.1 THROUGH H. H. MAHARANA BHAGWAT SINGHJI OF UDAIPUR AND OTHERS
Versus
COMMISSIONER OF INCOME‑TAX, DELHI AND RAJASTHAN
Civil Reference No. 69 of 1961, decided on 3rd January 1963.
Reference‑Application by assessee--‑Whether question can be raised by Department‑Question of law‑-Question deliberately not considered by Tribunal ‑ Whether can be referred to the High Court‑Question relating to competency of appeal going to the root of the matter not considered by Tribunal but referred along with questions on merits‑High Court may decline to answer entire reference‑Indian Income‑tax Act, 1922, S. 66.
It is open to the Department also, on an application for a reference made by the assessee, to ask for a question of law, which according to it arises from the order of the Tribunal, to be referred to the High Court.
Girdhardas & Co. Ltd. v. Commissioner of Income‑tax (1957) 311 T R 82 fol.
If the Appellate Tribunal fails to consider a question raised before it, not by mistake or inadvertence but by design or deli berately, the Tribunal cannot ask for the opinion of the High Court on that question.
Commissioner of Income‑tax v. Scindia Steam Navigation Co. Ltd. (1961) 42 I T R 589 explained.
Out of twelve appeals before the Appellate Tribunal the Department had raised the contention that eight were not com petent. The Tribunal, instead of deciding that question, disposed of all the appeals on the merit‑ In an application by the tax payer two questions were referred to the High Court on the merits and a third question regarding the competency of the eight appeals was also referred at the instance of the Department.
Held, that the High Court should decline to answer the entire reference as the question which was likely to go to the root of the matter as regards the eight appeals had not been decided by the Tribunal, and it was open to the Tribunal, after the Court gave its opinion, to proceed to decide that question and nullify the result of the answer given by the Court.
[Procedure of the Appellate Tribunal in deciding an appeal on the merits and failing deliberately to decide the question as to the competency of the appeal before it which would go to the root of the matter, and keeping it open to itself to decide that question after the opinion of the High Court on a reference is given, disapproved.]
Abboy Chetty & Co. v. Commissioner of Income‑tax (1947) 15 I T R 442 ; Kusumben D. Mahadevia v. Commissioner of Income‑tax (1960) 39 I T R 540 and Madanlal Dharnidharka v. Commissioner of Income‑tax (1948) 16 I T R 227 ref.
Roshanlal for the Assessee.
Chandmal for the Commissioner.
JUDGMENT
MODI, J.‑--- This is a consolidated reference by the Income‑tax Appellate Tribunal, Bombay Bench "B", arising out of a group of twelve reference applications under section 66(1) of the Indian Income‑tax Act. The applicant in all these cases is His Highness Maharana Bhigwat Singhji of Udaipur who alleges himself to be the trustee of three funds known as: (i) Raj Kutumba Fund, (ii) Educational and Civil List Reserve Fund No. 1, and (iii) Educational and Civil List Reserve Fund No. II. The Tribunal has referred to the applicant as the sole trustee, and the three funds, respectively, as the R.K. Fund, No. I Trust Fund and No. II Trust Fund, and we shall adhere to the same nomenclature in the rest of our judgment. These twelve reference applications arose out of the several assessments made in respect of the aforesaid three funds for the assessment years 1953‑54, 1954‑55, 1955‑56 and 1956‑57, the relevant accounting years being the financial years ending 31st March, 1953, 1954, 1955 and 1956 respectively. The facts giving rise to certain questions of law which have been referred to us are, generally speaking, similar, and are identical in so far as they relate to each of the funds mentioned above with respect to the several years of assessment thereof and this is how a consolidated reference has been made by the Tribunal.
The questions thus referred to us are as follows:
(1) Whether the appeals preferred by the sole trustee to the Appellate Assistant Commissioner against the assessment orders as made by the Income‑tax Officer for the assessment years 1953‑54, 1954‑55, 1955‑56 and 1956‑57 in respect of No. I' and No. II Trust Funds were incompetent to him and, consequently, the appeals filed to the Tribunal from the Appellate Assistant Commissioner's resulting orders were incompetent ?
(2) Whether a trust was in existence at any time material to the assessment years 1953‑54, 1954‑55, 1955‑56 and 1956‑57 in respect of the sum of Rs. 1,75,000 (referred to in the statement as No. II Trust Fund) ?
(3) Whether the provisions of the first proviso to section 41(1) were rightly brought into operation in making the assessment upon the sole trustee in respect of the R. K. Fund and No. I Trust Fund and if the answer to question No. (2) is in the affirmative, in the case of that trust as well ?"
It appears from the reference that, of these three questions, the second and the third have been referred to this Court at the instance of the applicant and the first at the instance of the Department. It may as well be noted at this place that the Tribunal did not consider it necessary to give any finding on the first question set out above, namely, whether the appeals filed by the sole trustee to the Appellate Assistant Commissioner against the orders of the Income‑tax Officer with respect to No.1 Trust Fund and No. 11 Trust Fund were incompetent, and further the appeals filed by him against the orders of the Appellate Assistant Commissioner to the Tribunal relating thereto were equally incompetent. Nevertheless, this question has been included in the reference to us.
A question, therefore, arises at the very threshold of this case whether the reference made to us is not improper inasmuch as the Tribunal has made it without deciding all the questions raised before it. But before we address ourselves to that question, we may state a few facts which have culminated in the present reference.
His late Highness Maharajadhiraj Maharana Shri Sir Bhupal singhji of Mewar (hereinafter referred to as Maharana Bhupal Singhji for the sake of brevity) as the then Ruler of that State promulgated the Constitution of Mewar in May 1947, which was to come into force from the 1st May 1948. Clause 15 of Article III of this Constitution made the following provision:
15. (1) A Rajkutumba Fund shall be maintained by the State with an initial amount of Rs. 2,00,000 and a sum of Rs. 25,000 shall be added to it annually as also such sum or sums as might be added to it by Shriji from his privy purse. (2) The Fund, its income and the accumulations thereof shall be used by Shriji in his discretion in such manner as he deems proper for or on the occasion of the marriage of his child."
The term "Shriji" has been defined by clause (1) of the same article as follows:
"Shriji' as the Dewan of Shri Parameshwarji shall be the temporal Head of the State and his person being sacred shall not be subject to any process of law."
Clause (1) of Article II defines "Shri Parameshwarji" as the Sovereign of Mewar whose sole respresentative was Shriji who as such shall exercise on His behalf all rights, authority and jurisdiction which appertains to or are incidental to such sovereignty except in so far as may be otherwise provided for by or under this Constitution or as may be otherwise directed by Willi.
To implement clause 15 referred to above, Maharana Bhupal singhji as the ruler of the State issued an order No. 9165 dated the 23rd April 1948, by which he directed the Accountant General of the State to pay Rs. 2,25,000 out of the State treasury to his household (see Annexure "A"). By another order No. 9472 dated the 28th April 1948 (Annexure "B"). Maharana Bhupalsingbji directed the Accountant‑General to pay a further sum of Rs. 7,75,000 to his household, debiting the same to the State, for the creation of a Civil List Reserve Fund and Education Fund. It appears from Annexure "C", Order No. 2Y1/3 dated the 12th July, 1948, that Rs. 10,00,000 as sanctioned by Maharana Bhupalsinghji had been received by his household, and, out of this, a sum of Rs. 3,00,000 was ordered by him to be sent to the present applicant, being his only son and successor, for the education of his three children, namely, Maharajkumar Mahendrasinghji, Maharajkumar Arvindkumar Singhji and Baijilal Yogeshwari Kumariji.
It is a matter of recent history that after the lapse of the British paramountcy, the princely States of Rajasthan were invited to accede to the Dominion of India on certain specified subjects, which they did, and were eventually persuaded by the Central Government to form themselves into a Union of States, so that the First United State of Rajasthan comprising a few smaller States was inaugurated on the 25th March 1948 ; and the second United States including the Mewar State with Maharana Bhupalsinghji as its Rajpramukh came to be inaugurated on the 18th April, 1948. This was soon followed by a still larger Union of States with Maharana Bhupalsinghji as the Maha Rajpramukh thereof in 1949, until the Part B State of Rajasthan was formed under the Constitution on the 26th January 1950, to be climaxed by the present State of Rajasthan under the States Reorganisation Act, 1956.
The point to be noted is that under the changing pattern of governance it became necessary to fix the private properties of Maharana Bhupalsinghji as distinguished from the property of the State of Mewar (as indeed of other ruling princes qua their respective States), and in that connection it was agreed between Maharana Bhupalsinghji and the Central Government that out of the sum of Rs. 10,00,000 a~ set apart above, a sum of Rs. 3,00,003 shall be refunded to the State, and the amount of the fund would stand at Rs. 7,00,000 only; but it was further agreed out of respect for the sentiments of Maharana Bhupalsingnji that the refund may not be effected during his lifetime (see Annexure "D";. Maharana Bhupalsinghji died on 4th July 1955. It has been found by the income‑tax authorities that consequent upon his death, estate duty had been paid on the sum of Rs. 1,75,000 (being the amount of (the alleged) Trust No. 11) in the course of assessment under the Estate Duty Act, 1953, on the footing that it was included in the personal estate left by Maharana Bhupalsinghji. It has also been found that the income arising from this fund was throughout shown as included in the income of the deceased for purposes of making assessment under the Income‑tax Act. It may also be mentioned at this place that the recovery of the sum of Rs. 3,00,000 from the applicant being the successor of Maharana Bhupalsinghji was ordered to be waived by the Rajasthan Government in consultation with the Government of India: vide Annexure "E" dated the 13th July 1956. Thereafter on 22nd April 1957, the applicant made three distinct declarations, namely, Annexures "D", "E" and "F" with respect to the three funds, by which he declared that the various sums which were set apart for the several funds, together with accretions thereof, shall be held on trust and utilised for the education, marriage, maintenance and for the moral and material upliftment of his three children, and that the amount of the said funds shall belong equally to them. The income‑tax authorities have found that these declarations do not and cannot have a direct bearing on the questions raised by this reference as they pertain to the period subsequent to the assessment years with which we are concerned.
The question of making assessment with respect to the income relating to these three funds came up in the normal course, and this brings us to the assessment years 1953‑54, 1954‑55, 1955‑56 and 1956‑57. Voluntary returns were filed in each case by the applicant as the sole trustee of the funds for the several years in question.
The position taken up by the Department with respect to each of these funds for all the assessment years in question may now be summarised.
As regards the R. K. Fund, it was contended on behalf of the applicant before the Income‑tax Officer that the shares of the three beneficiaries were determinate and known in the material accounting years and therefore it should be taxed equally in the hands of the three beneficiaries. The income‑tax Officer held that even though a trust had been established with respect to the amount under this head, the individual shares of the beneficiaries were indeterminate and unknown and so the income of this fund was taxable in the hands of the beneficiaries at the maximum rate under the first proviso of section 41(t) of the Income‑tax Act.
As regards No. I Fund, it was also claimed by the applicant that the income of this fund was assessable as being in the hands of his three children and that he was merely trustee of the funds. The Income‑tax Officer held that no trust was created by the late Maharana Bhupalsinghji with respect to the sum of Rs. 3,00,000 comprising this fund, and, therefore, the income accruing there-from should be taxed in the hands of the applicant in his personal capacity as contra‑distinguished from his capacity as a trustee thereof. The Income‑tax Officer, however, made a precautionary assessment with respect to this fund as being in the hands of the three children of the applicant on their one‑third share each in the income of the fund.
As regards No. II Fund, the Income‑tax Officer held that there was no trust whatever created by Maharana Bhupalsinghji with respect to it and that it had been taxed in the hands of the late Maharana as his own property. Consequently, the submission of the applicant that the assessment with respect to this fund be made in his capacity as the trustee of the alleged trust was turned down, and assessment was made on the basis that it was his personal property.
Appeals were filed to the Appellate Assistant Commissioner in all the twelve cases. The Appellate Assistant Commissioner agreed with the Income‑tax Officer that no trust had at all been created by Maharana Bhupalsingbji with respect to No. II Trust Fund and, therefore, refused to interfere with the order of assessment made by the Income‑tax Officer with respect to that fund and dismissed the appeals relating to it. He, however, found that trusts were validly created with respect to the remaining two funds; yet he rejected the applicant's contention that the individual shares of the three beneficiaries were determinate or known qua these two trusts, and so after giving notice for enhancement under the first proviso to se;tion 31(3) he eventually held that the income of these two funds should be taxed in the hands of the applicant at the maximum rate of income‑tax and in accordance with the first proviso under section 41(l) and directed the Income‑tax Officer to modify the assessments for the four years under appeal accordingly.
The applicant then went in appeal from the aforesaid orders to the Income‑tax Appellate Tribunal, Bombay Bench B. It was contended before the Tribunal that a trust had been created with respect to No. II Fund also prior to the declaration made on April 22, 1957, and that the Department itself having accepted that trusts had been so established with respect to the other two funds even before the declarations made by the applicant on the last mentioned date, and as the beneficiaries there-under were known and their shares determinate, there was no justification for making the assessment in these cases under the proviso to section 41(1) of the Income‑tax Act, and to impose the maximum rate of income‑tax under that provision, and it was, therefore, submitted that each beneficiary should have been assessed directly on his share of the trust income and at the rate appropriate to him. It was alternatively prayed before the Tribunal that if an assessment was to be raised upon the sole trustee himself, then the tax should be levied on him in the like manner and to the same extent as it would have been leviable upon each of the three beneficiaries. A further contention seems to have been raised for the first time before the Tribunal that assuming while denying that the shares of the beneficiaries were indeterminate or unknown, still an assessment should be made under section 40(l) and not under section 41(l) inasmuch as the beneficiaries in the present case during all the relevant accounting years were minors and, therefore, the specific section, namely, section 40(t), which deals with minors, was applicable, and not the general section 41(1) which deals with trusts generally, and that as there was no provision for the assessment at the maximum rate under section 40(l), the trustee should be assessed at the rate appropriate to the Income of the trust. The Tribunal repelled all these con tentions and upheld the orders of the Appellate Assistant Commissioner, as observed by the Tribunal in its appellate order:
On the view that we have taken on merits in all these 12 appeals, we do not find it necessary to go into the contention raised by the Department that the appeals in regard to No.1 Trust and No. II Trust were incompetent to the Appellate Assistant Commissioner and, consequently, the appeals to us arising from the orders of the Appellate Assistant Com missioner.
Thereupon, the applicant required the Tribunal to state certain points of law, which according to him, arose out of its order to this Court, and this is how the present reference has come before us.
We have already set out the questions in the foregoing psrt of our judgment and need not repeat them here. As already stated, questions Nos. 2 and 3 have been referred at the instance of the applicant, while question No. 1 has been referred at the instance of the Department.
Now this first question relates to the competents of the appeals filed by the applicant before the Appellate Assistant Commissioner against the orders of the Income‑tax Officer with respect to No. I Trust Fund and No. II Trust Fund for the several years of assessment, that is, 1953‑54, 1954‑55, 1955‑56 and 1956‑57, and the consequent incompetence of the appeals filed to the Tribunal against the orders of the Appellate Assistant Commissioner relative to them. As it has transpired, the Tribunal has referred this question to us for answer without itself deciding it when the point was admittedly raised before it on behalf of the Department.
The first question which, therefore, strikes us in this connection is whether in view of the failure of the Income‑tax Appellate Tribunal to decide this question, the present reference is proper and valid. Consequently, we called upon learned counsel for both parties to satisfy us on the point that the present reference was proper in spite of the position that one of the questions raised before us which was likely to go to the root of the matter had not been considered and decided by the Tribunal even though it was raised before it in appeal and that was the admitted position in the case.
As we look at the matter and having regard to the nature of the orders passed by the Income‑tax Officer and the Appellate Assistant Commissioner, we are far from satisfied that this question is of merely academic interest. On the other hand, it.
seems to us, that if eight of these appeals as filed were incompetent both before the Appellate Assistant Commissioner and the Tribunal, then the order of the Income‑tax Officer would become final so far as the two funds in question go and both the appellate authorities would have no jurisdiction to decide them on the merits. Learned counsels were not able to cite any authority to us which pointedly governs a case of the present character. Our attention was drawn to Commissioner of Income‑tax v. Scindia Steam Navigation Co. Ltd. ((1961) 42 I T R 589), as affording guidance in the decision of the question before us.
Be that as it may, we have given the matter our anxious and careful consideration and have come to the conclusion that the present reference is not valid. Section 66 obviously governs the decision of the point before us. It lays down, among other matters with which we are not concerned for our present purposes, that the assessee or the Commissioner may require the Appellate Tribunal to refer to the High Court any question of law arising out of such order, and the 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.
The narrow question which emerges for determination, therefore, is whether a question of law which was raised before the Tribunal but which it has avowedly refused to consider or decide can be said to arise out of such order.
But before we deal with this question, we should like to dispose of the point whether, in an application for reference made by the assessee, it is open to the Department also, on such an application, to ask for a reference on a question of law, which, according to it, arises from the order of the Tribunal. This question came up before a Bench of the Bombay High Court in Girdhardas & Co. v. Commissioner of Income‑tax ((1957) 31 I T R 82). It was there held, relying on an earlier decision of the same Court that, no matter, whoever may be a party who asks for a reference, once it is decided to be made by the Tribunal, all questions of law which arise out of the order of the Tribunal can be referred to the High Court for its determination, and that such questions may be suggested not only by the party which wants a reference but by the part‑ which is content with the decision of the Tribunal. It was further held that once the decision of the Tribunal is assailed and is required to be brought before the High Court, there is no reason why the party that loses should be given the sole or exclusive right of suggesting questions of law that arise from the order of the Tribunal, but it should be equally open to the winning party to point out to the Tribunal that certain other questions of law also arise from its order and that these may well be considered by the High Court. The ratio underlying this view has been stated by Chagla, C. J. as follows
"It is obvious that there may be cases where a winning party would be seriously prejudiced if it was precluded from raising a question of law merely because it had not made an application for a reference and the reference was asked for at the instance of the losing party. The winning party can never apply for a reference. But it may happen that if the Court takes a particular view on the reference asked for by the losing party, certain other questions of law may arise which may have to be decided in the interest of the winning party. Therefore, it would not be proper to shut out a party before the Tribunal from raising a question of law which clearly arises from the order of the Tribunal merely because it so happens that it has not made an application for a reference."
We are in respectful agreement with this view. We are, therefore, disposed to think that it was open to the Department to have suggested that the particular question regarding the maintainability of the appeals of the assessee before the Appellate Assistant Commissioner and the Appellate Tribunal be also referred to the High Court, as the point had undoubtedly been raised on behalf of the Department before the Tribunal though, unfortunately, it did not consider it necessary to deal with it.
This brings us to the main question which we have set out above. The precise point is: what do the words "any question of law arising out of such order" (that is, the order of the Appellate Tribunal) mean? Do these words permit a reference on a point which was raised before the Tribunal but which it has said it would not answer. As we have adverted to above, it seems to us that this question is not directly covered by the case law which has been brought to our notice. The question as to the exact meaning of the words "any question of law arising out of the order of the Tribunal" came up for direct consideration before their Lordships of the Supreme Court in Commissioner of Income -tax v. Scindia Steam Navigation Co. Ltd. Their Lordships while accepting the correctness of the view generally held by the High Courts in India that section 66 created a special jurisdiction and that such jurisdiction was of an advisory or consultative character and not appellate or supervisory, and that the power of the Tribunal to make a reference and the right of the litigant to require it must be sought within the four walls of section 66(l) posed the further question, on which there was disagreement between the High Courts in our country, namely, whether it is competent to the Tribunal or the…
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