Salem
Cooperative Central Bank Limited Vs. Commissioner of Income Tax, Madras [1993] INSC 189 (6 April 1993)
Jeevan
Reddy, B.P. (J) Jeevan Reddy, B.P. (J) Venkatachala N. (J)
CITATION:
1993 AIR 1517 1993 SCR (2) 997 1993 SCC Supl. (4) 200 JT 1993 (3) 181 1993
SCALE (2)460
ACT:
Income
Tax Act, 1961:
Sections
86(i) and 256--Cooperative Society carrying on banking business--Business
income exempt from income-tax--Interest on Security Deposit for supply of
electricity--Whether additional surcharge leviable--Tribunal holding interest
to be business income--Reference to High Court--High Court returning reference
and directing Tribunal to consider all points whether additional surcharge
attracted--Whether High Court exceeded the reference jurisdiction.
HEAD NOTE:
The
appellant-assessee was a cooperative society engaged in the business of banking
The previous year relevant to the assessment year 1963-64 was the year ending June 30, 1962.
The
business income of the assessee was exempt under the provisions of Section
80(1) as it then stood. During the aforesaid accounting yew, the assessee
received a sum of Rs. 19 being the interest on the deposit made by it with an
Electricity Distribution Company. This deposit had to be made by the assessee
as it was required by the conditions notified by the electricity company for
supply of energy, and it carried interest. It was on account of the said
deposit that the sum of Rs. 19 was received by the assessee, by way of
interest.
The
Income-tax Officer treated the amount of Rs. 19 as income from other sources,
and on that basis, he levied additional surcharge, in a sum of Rs. 81,920.
The assessee
appealed to the Appellate Assistant Commissioner who upheld the assessee's
contention that the said sum of Rs. 19 constituted its business income and, was
therefore, exempt. He held that the levy of surcharge was unsustainable.
The
Revenue appealed to the Appellate Tribunal which held that it was 'income from
business', and accordingly dismissed the Revenue's 997 998 appeal. At the
instance of the Revenue, the Tribunal referred the question to the High Court.
The
High Court held, that the assumption made by the Appellate Assistant
Commissioner and the Tribunal that the liability of surcharge was not attracted
in case the said sum of Rs. 19 represented business income may not be warranted
and that in such a situation the High Court does possess the power to correct
the error so long as the point arose out of the Tribunal's order. It returned
the reference unanswered and directed the Tribunal to consider the case on all
points that require consideration of the question whether additional surcharge
was attracted.
In the
assessee's appeal to this Court, it was submitted that the High Court exceeded
its jurisdiction in making the aforesaid direction, that the High Court widened
the scope of enquiry which it was not empowered to do in a reference under
Section 256 and that the matter should be sent back to the High Court for
answering the question of law as stated by the Tribunal.
Dismissing
the appeal, this Court,
HELD :
All that the High Court has asked the Tribunal to do is to consider whether the
liability of surcharge is not attracted even if the said sum of Rs. 19 is
treated as income from business. The fact that the revenue was also a party to
the said erroneous assumption before the Tribunal cannot stand in the way of
the Revenue resiling from an er- roneous assumption of law. [1004 D-F] In the
instant case, the question was whether additional surcharge was leviable for
the assessment year 1963-64 under the relevant Finance Act. The assessee's
contention was that it had no income which was liable to be assessed to
income-tax inasmuch as its entire income was exempt under Section 81 (1) (a),
and it was submitted that the sum of Rs.19 was also a business income and,
therefore, the liability of additional surcharge did not attach to the assessee.
The I.T.O. took the view that the said sum of Rs. 19 represented income from
other sources and, therefore, liability of additional surcharge was attracted.
The Appellate Assistant Commissioner upheld this contention. The High Court,
however, thought that having-regard to the language of the provisions of the
relevant Finance Act, the Tribunal ought to examine whether the liability to
additional 999 surcharge was attracted even if the said sum of Rs. 19 was
treated as income from business. The High Court was of the opinion that this
legal submission, though raised for the first time, did call for serious
consideration. This was done to arrive at a correct decision in law relating to
the liability to additional surcharge. If really, additional surcharge was
chargeable according to the Finance Act even In case the said sum of Rs. 19
represented business income, the High Court cannot be called upon to act on the
assumption that it is not so chargeable and answer the question stated. Such a
course would neither be in the interest of law or justice. That the Revenue was
also a party to the erroneous assumption of law makes little difference to the
principle. [1004 B-F] C.I.T. Bombay v. Scindia Steam Navigation Ltd., 42 I.T.R.
589, relied on.[1004-H] V.R.Y.K.N. Kallappa Chettiar v. Commissioner of Income
Tax, 62 I.T.R. 576; C.L T. v. Ogale Glass Works Ltd., 25 I.T.R. 529; Keshav
Mills Co. Ltd. v. Commissioner of Income Tax, Bombay North, Ahmedabad, 56
I.T.R. 365; Commissioner of Income Tax, Bihar and Orissa v. Kirkend Coal Co.,
74 I.T.R. 67 and Kusumben D. Mahadevia v. Commissioner of Income Tax, Bombay
City 39 I.T.R. 540, not applicable. [1004-H]
CIVIL
APPELLATE JURISDICTION: Civil Appeal No. 2169(NT). of 1993.
From
the Judgment and Order dated 10.12.1979 of the Madras High Court in Tax Case
No. 398 of 1976.
Mrs. Janaki
Ramachandran for the Appellant.
K.N. Shukla,
Sudhir Walia and P. Parmeswaran for the Respondent.
The
Judgment of the Court was delivered by B.P. JEEVAN REDDY, J. Under Section
256(1) of the Income Tax Act, the Income Tax Appellate Tribunal, Madras stated the following question of
law for the opinion of the Madras High Court:
"Whether
on the facts and in the circumstances of the case, the Tribunal was right in
holding that the sum of Rs. 19 being the interest received on the deposits made
with the 1000 Electricity company is a business receipt and accordingly
deleting the additional surcharge of Rs. 81,920 charged .for the assessment
year 1963-64?" The High Court returned the reference unanswered. It
directed the Tribunal to consider the case 'on all points that require
consideration of the question, whether additional surcharge was attracted'. In
short, it asked the Tribunal to examine whether the additional surcharge was
attracted even if the income of Rs. 19 is chargeable under the head 'Profits
and gains of business'. The learned counsel for the assessee submits that the
High Court exceeded its jurisdiction in making the above direction. It is
submitted that the matter be sent back to the High Court for answering the
question of law as stated by the Tribunal.
The
contention of the learned counsel is that by giving the impugned direction the
High Court has sought to widen the scope of enquiry which it is not empowered
to do in a reference under Section 256.
The assessee
is a cooperative society engaged in the business of banking. The previous year
relevant to the assessment year 1963-64 was the year ending June 30, 1962.
Its
business income was exempt under the provisions of Section 81(1) as it then
stood. During the said accounting year, the assessee received a sum of Rs. 19
being the interest on the deposit made by it with the Salem-Erode Electricity
Distribution Company. This deposit was made by the assessee as required by the
conditions notified by the said company for supply of energy. The deposit
carried interest and it is on account of the said interest that the sum of Rs.
19 was received by the assessee. The Income Tax Officer treated the said amount
of Rs. 19 as 'income from other sources'. On that basis, he levied additional
surcharge, in a sum of Rs. 81,920, under the provisions of the relevant Finance
Act. On appeal, the Appellate Assistant Commissioner upheld the contention of
the assessee that the said sum of Rs. 19 also constituted its business income
and, therefore, exempt. Accordingly, he held, the levy of surcharge was
unsustainable. The Revenue appealed to the Appellate Tribunal. Its case was
that the said receipt cannot be treated as a business receipt and that it was
rightly treated by the I.T.O. as "income from other sources'. The Tribunal
recorded in its order : "Before us it is made clear by both sides that the
levy of additional surcharge and interest would depend upon the classification
of the head of income for this interest income of Rs. 19 and that if it fell
under income from business, the appeal has to be dismissed 1001 and that if it
fell under 'income from other sources', the appeal has to be allowed and the
levy of surcharge and interest restored. So we proceed to discuss the vital
issue in this case on which hangs the result of this appeal." The Tribunal
held it 'income from business' and accordingly dismissed the appeal filed by
the Revenue. At the instance of the revenue, the Tribunal stated the aforesaid
question.
Before
the High Court it was contended by the Revenue that both the A.A.C. and the
Tribunal laboured under an erroneous assumption that the said sum of Rs. 19
represented business income and the liability of surcharge was not attracted.
It was submitted that whether the said sum was a business income or income from
other sources, it attracted the liability of additional surcharge. The assessee,
however, submitted that it was not open to the revenue to take the said stand,
inasmuch as it agreed before the Tribunal that in case the said sum constituted
business income, liability of additional surcharge was not attracted. The assessee
submitted further that the High Court should not allow the revenue to shift its
stand and urge a new contention. The High Court held, after an examination of
the relevant provisions of the Finance Act and of the decisions relating to the
nature of jurisdiction of the High Court in such a reference, that the
assumption made by the A.A.C. and the Tribunal that the liability of surcharge
is not attracted in case 'the said sum of Rs. 19 represented business income
may not be warranted and that in such a situation the High Court does possess
the power to correct the error so long as the point arose out of the Tribunal's
order. The High Court held:
"This
Court cannot look on helplessly with reference to an error which is manifested
in the contention of both sides before the Tribunal. This court has
jurisdiction to correct an error in the order of the Tribunal, so long as the
point arose out of its order, whoever be the author of the mistake or error in
taking up an particular contention. Having regard to the nature of the issue that
was before the Tribunal and having regard to what we have stated above, we
think it proper to set aside the order of the Tribunal and direct the Tribunal
to consider the case on all the points that require consideration of the
question whether additional surcharge was attracted. The reference is returned
unanswered." 1002 We find it difficult to agree with Smt. Janaki Ramachandran,
learned counsel for the assessee that the High Court has exceeded its
jurisdiction under Section 256 in making the above direction. As rightly
observed by the High Court, if the Tribunal proceeds upon an assumption which
is erroneous in law and refers a question to the High Court, it cannot be said
that the High Court is bound by the terms of the question referred and cannot correct
the erroneous assumption of law underlying the question. If such power is not
conceded to the High Court, the result would be that the answer given by the
High Court may equally be erroneous in law. Such a situation cannot certainly
be countenanced. It would not be in the interest of law or justice. It is not
as if the High Court has asked for any fresh investigation of facts in this
case not that such power does not exist in the High Court in a appropriate
case. All that the High Court has asked the Tribunal to do is to consider
whether the liability of surcharge is not attracted even if the said sum of Rs.
19 is treated as income from business, The fact that the revenue was also a
party to the said erroneous assumption before the Tribunal cannot stand in the
way of the Revenue resiling from an erroneous assumption of law.
In
C.I.T., Bombay v. Scindia Steam Navigation Ltd.,
(42 I.T.R. 589) the facts were these: a steam-ship belonging to the respondent
company was requisitioned by-the government.
The
ship was lost by enemy action on March 16, 1944. The company received a sum of Rs. 20 lacs by way of
compensation on July
17, 1944, a sum of Rs.
23 lacs on December 22. 1944 and a sum of Rs. 33,333 on August 10, 1946. The total compensation so received
exceeded the cost price of the steam ship. The difference between the cost
price and written down value was Rs. 9,26,532. In the assessment proceeding for
the A.Y. 1946-47, the revenue sought to charge the said amount under the fourth
proviso to Section 10(2)(vii) of the Income Tax Act, 1922, inserted by the
Income Tax (Amendment) Act, 1946, which came into force on May 4, 1946. The assessee contended that the amount should be
deemed to have been received on April 16,1944 as was done for the purposes of Excess Profits Tax Act, in
which case it could not fall within the accounting period July 1, 1944 to June 30, 1945, relevant to the A.Y. 1946-47. The Tribunal was of the
opinion that the material date for the purpose of the fourth proviso to Section
10(2)(vii) was the date when the compensation was in fact received and that
therefore the amount was assessable in the A.Y. 1946-47. At the instance of the
assessee, the Tribunal 1003 stated the following question of law for the
opinion of the High Court "whether the sum of Rs. 9,26,532 was properly
included in the assessee company's total income computed for the A.Y.
1946-47?" Before the High Court the assessee raised a new contention for
the first time that the fourth proviso to section 10(2)(vii) did not apply to the
assessment as it was not in force on April 1, 1946 and the liability of the
company had to be determined as on April 1, 1946, when the Finance Act, 1946
came into force. A preliminary objection was raised by the revenue that the
said aspect, or question as it may be called, did not arise out of the order of
the Tribunal, that it was not raised before or dealt with by the Tribunal and
that it was also not referred for the opining of the High Court. The High Court
over-ruled the objection opining that the form in which the question was framed
was sufficiently wide 'to take in the new contention and that the company was
entitled to raise it even if that aspect of the question had not been argued
before the Tribunal. It upheld the new contention raised by the assessee and
answered the question in its favour. On appeal, this court affirmed. It was
held that the High Court had jurisdiction to entertain the new contention
raised by the assessee for the first time inasmuch as it was within the scope
of the question framed by the Tribunal and was implicit therein.
This
court enunciated several principles relating to the nature of the jurisdiction
of the High Court under Section 256, of which the following principle is
relevant for our purpose:
"Section
66(1) speaks of a question of law that arises out of the order of the Tribunal.
Now a
question of law might be a simple one, having its impact at one point, or it
may be a complex one, branching over an area with approaches leading to
different points therein. Such a question might involve more than one aspect,
requiring to be tackled from different standpoints. All that Section 66(1)
requires is that the question of law which is referred to the court for
decision and whic h the court is to decide must be the question which was in
issue before the Tribunal. Where the question itself was under issue, there is
no further limitation imposed by the section that the reference should be
limited to those aspects of the question which had been argued before the
Tribunal. It will be an over- refinement of the position to hold that each
aspect of a question is 1004 itself a distinct question for the purpose of
section 66(1) of the Act.' This decision of the Constitution Bench, in our
opinion justifies and warrants the approach adopted by the High Court in the
judgment under appeal. The question in the present case is whether additional
surcharge was leviable for the A.Y. 1963-64 under the relevant Finance Act. The
assessee's contention was that it has no income which was liable to be assessed
to income-tax inasmuch as its entire income was exempt under Section 81(1)(a).
In tune with this submission, the assessee submitted that the said sum of Rs.
19 was also a business income and, therefore, the liability of additional
surcharge did not attach to the assessee. The I.T.O. took the view that the
said sum of Rs. 19 represented income from other sources and therefore
liability of additional surcharge was attracted. On Appeal, the AAC and the
Tribunal upheld the assessee's contention that it was business income and
therefore the liability of surcharge was not attracted. The High Court,
however, thought that having regard to the language of the provisions of the
relevant Finance Act, the Tribunal ought to examine whether the liability to
additional surcharge is attracted even if the said sum of Rs. 19 was treated as
income from business. The High Court was of the opinion that the legal
submission urged by the Revenue before the High Court, no doubt for the first
time, did call for serious consideration. This was done to arrive at a correct
decision in law relating to the liability to additional surcharge. If really,
additional surcharge was chargeable according to the Finance Act even in case
the said sum of Rs. 19 represented business income, the High Court cannot be
called upon to act on the assumption that it is not so chargeable and answer
the question stated. Such a course would neither be in the interest of law or
justice. That the Revenue was also a party to the erroneous assumption of law
makes little difference to the principle.
Counsel
for the parties have cited several decisions touching upon the nature of the
jurisdiction of the High Court under Section 256 viz., V.R. Y.K.N. Kallappa Chettiar
v. Commissioner of Income Tax, 62 I.T.R. 576 C.I.T v. Ogale Class Works Ltd.,
25 I.T.R. 529 and Keshav Mills Co. Ltd. v. Commissioner of Income Tax Bombay
North, Ahmedabad, 56 I.T.R. 365 by the learned counsel for the appellant and
Commissioner of 'Income Tax, Bihar and Orissa v. kirkend Coal Co., 74 I.T.R. 67
and Kusunben D. 1005 Mahadevia v. Commissioner of Income Tax, Bombay City, 39
I.T.R. 540 by the learned counsel for the Revenue. We do not, however, think it
necessary to refer to them, since the situation present herein was not present
in those cases.
The
principles of these decisions does not in any manner run contrary to the one
affirmed by us herein, which is consistent with the one enunciated in Scindia
Steam Navigation.
The
appeal accordingly fails and is dismissed. No costs.
N.V.K.
Appeal dismissed.
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