Full Judgment Text
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PETITIONER:
INDIA MACHINERY STORES (P) LTD.
Vs.
RESPONDENT:
COMMISSIONER OF INCOME-TAX, BIHAR
DATE OF JUDGMENT:
06/05/1970
BENCH:
SHAH, J.C.
BENCH:
SHAH, J.C.
HEGDE, K.S.
GROVER, A.N.
CITATION:
1970 AIR 1563 1971 SCR (1) 539
1970 SCC (2) 168
CITATOR INFO :
R 1980 SC 226 (19)
ACT:
Income-tax Act, 1922, s. 66A(2)--Certificate of fitness to
appeal to Supreme Court-High Court must mention grounds-
Certificate justified only when question of great public or
private importance is at issue.
HEADNOTE:
The appellant was a private limited company incorporated
with the object of taking over the business carried on by
another company. By an agreement dated August 2, 1956, the
appellant company agreed to purchase all the assets goodwill
etc. of the vendors. By cl. 4 of the agreement it was
provided that all assets of the vendors in respect of their
business "shall be taken over at the book value standing in
the books of accounts of the vendors" as on August 1, 1956.
The Income-tax Officer in proceedings for the assessment
year 1958-59 found that in the books of the vendors the
’value of stock’ as on August 1, 1956 was Rs. 1,77,285 but
in the books of the appellant company the opening stock
taken one was valued on the same day at Rs. 2,10,225. The
latter valuation also appeared in the Schedule annexed to
the deed of transfer. The Income-tax Officer observed that
the valuation by the appellant company of the opening stock
was in "clear violation of the agreement between the vendors
and the Company". He accordingly added a sum of Rs.
33,000/- representing the difference between the value of
the closing stock in the books of account of the vendors and
the opening stock in the books of account of the Company.
The order was confirmed in appeal by the Appellate Assistant
Commissioner and by the Income-tax Appellate Tribunal. In
reference the High Court of Patna upheld the view taken by
these authorities. A Division Bench of the High Court
certified the case under s. 66A(2) of the Indian Income-tax
Act, 1922, observing that the case fulfilled all the
requirements of the said section and was a fit case for
appeal to the Supreme Court. The Revenue contended in this
Court that the certificate was incompetent as the question
of law which had to- be decided was not set out and no
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question of public or private importance had been disclosed.
HELD : (i) In granting the certificate the High Court merely
observed that is was ’a fit case for appeal to the Supreme
Court’ : they did not indicate the grounds which persuaded
them to hold that it was a fit case for appeal to this
Court. It would be conducive to better administration of
justice if in certifying a case under s. 66A(2) of the
Indian Income-tax Act as a fit case for appeal, the High
Court sets out the question of law which they regard as of
public or private importance which falls to be decided by
this Court. [543 G]
(ii) It is true that under s. 66(1) and (2) of the Indian
Income-tax Act, 1922 only a question of law may be referred
to the High Court for opinion, but the right to obtain a
certificate under s. 66A(2) arises only when in the proposed
appeal a question of great public and private importance
arises. It cannot be held that because a question of law
alone may be referred to the High Court under s. 66 of the
Indian Income-tax Act. in the proposed appeal a question of
law of great public or private importance necessarily
arises. Any other view, would make every opinion of the
High Court in a reference under s. 66 appealable to this
Court. [544 B-C]
540
The practice followed in some of the High court of issuing
certificates under s. 66A(2) without recording reasons or
grounds for certifying the case would not justify a
departure in the present case from the practice laid down,
many years ago by decision of the Judicial Committee of the
Privy Council according to which a certificate under s.
66A(2) which does not set out precisely the grounds or raise
a question of great public or private importance does not
comply with the requirements of the Act.[544 E]
Commissioner of Income-tax, Central Provinces of Berar v.
Sir S. M. Chitnavis, L.R. 59 I.A. 290, followed.
Delhi Cloth and General Mills Company Ltd. v. Income-tax
Commissioner, Delhi, L.R. 54 I.A. 421, Banarsi Parshad v.
Kashi Krishna Narain & Anr., L.R. 28 I.A. II, Radha Krishn
Das v. Rai Krishn Chand, L.R. 48 I.A. 31 and Radhakrishna
Ayyar v. Swaminatha Ayyar, L.R. 48 I.A. 31, applied.
(iii)The appellant made no attempt to explain the
discrepancy in the valuation of the stock transferred. The
Income-tax Officer was of the view that the company had
inflated the opening stock so as to reduce the ultimate
profits. That view was confirmed by the Appellate Assistant
Commissioner and by the Tribunal. No question of law arose
out of the order of the Tribunal. The reference itself was
incompetent. [545 A-B]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 376 of 1967.
Appeal from the judgment and decree dated December 8, 1965
of the Patna High Court in Misc. Judicial Case No. 38 of
1962.
M. C. Chagla and R. C. Prasad, for the appellant.
Jagadish Swarup, Solicitor-General, G. C. Sharma, R. N.
Sachthey and B. D. Sharma, for the respondent.
The Judgment of the Court was delivered by
Shah, J. This appeal is filed with certificate granted by-
the High Court of Patna under s. 66A(2) of the Indian
Income-tax Act, 1922.
The India Machinery Stores (P) Ltd. is a private company
incorporated with the object of taking over the business
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carried on by the India Machinery and Mills
Stores--hereinafter called ’the vendors’. By an agreement
dated August 2, 1956, the Company agreed to purchase all the
assets of the vendors, goodwill and the "book-debts and
other liabilities and claims against the Company" as on the
date of transfer in consideration of allotment of 260 fully
paid-up shares of the Company of the nominal value of Rs.
2,60,000/-. It was provided by cl. 4 of the agreement
"That all assets of the vendors in respect of
all its business shall be taken over at the
book value standing in the books of accounts
of the vendors as on the 1st August One
Thousand Nine Hundred Fifty-six."
541
In a proceeding for assessment to tax for 1958-59, the
Income-tax Officer found that in the books of the vendors
the "value of stock" as on August 1, 1956 was Rs 1,77,285
while in the books of the Company the opening stock taken
over by the Company was valued on the same day at Rs.
2,10,285. The Income-tax Officer held that the valuation by
the Company, of the opening stock was in "clear violation of
the terms of agreement between the vendors and the Company"
and added a sum of Rs. 33,000 representing the difference
between the value of the closing stock in the books of
account of the vendors and the opening stock in the books of
account of the Company. The order was confirmed in appeal
by the Appellate Assistant Commissioner and by the Income-
tax Appellate Tribunal.
The High Court of Patna recorded their answer in the
affirmative on the following question referred by the
Tribunal
"Whether on the facts and circumstances of the
case and upon a construction of the agreement
of 2nd August, 1956, the Tribunal was
justified in holding that the sum of Rs.
33,000 forms part of the assessable profits of
the assessee Company ?"
A Division Bench of the High Court certified the case under
S. 66A(2) of the Act as fit for appeal to this Court,
observing
"That the case fulfils all the requirements of
s. 66A(2) of the Indian Income-tax Act, 1922,
and, is a fit case for appeal to the Supreme
Court."
At the hearing of the appeal on behalf of the Commissioner
of Income-tax, it is contended that the appeal is
incompetent, since the High Court in certifying the case as
fit for appeal to this Court did not set out the question of
law which this Court has to decide. It was urged that the
certificate or the order certifying the case must disclose
that some substantial question of public or private
importance arises in the case, and on that account the case
is certified to be fit for appeal. In our judgment, the
contention must be accepted.
Section 66A of the Indian Income-tax, Act, 1922, which was
added by the Indian Income-tax (Amendment) Act 24 of 1926 by
sub-s. (2) provides
"An appeal shall lie to the Supreme Court from
any judgment of the High Court delivered on a
reference made under section 66 in any case
which the High Court certifies to be a fit one
for appeal to the Supreme Court.,,
542
The phraseology of sub-s. (2) of s. 66A of the Income-tax
Act is substantially the same as used in S. 109 (c) of the
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Code of Civil Procedure, 1908, Art. 133 (1) (c) and Art.
134(1) (c) of the Constitution. The Judicial Committee in
Delhi Cloth and General Mills Company Ltd. v. Income-tax
Commissioner, Delhi(1), observed
"...... it will be noticed that the appeal
thereby given is by sub-s. 2 confined to a
case which the High Court certifies "to be a
fit one for appeal to His Majesty in Council".
These words are textually the same as the
concluding words of S. 109(c), of the Code of
Civil Procedure, and coupled with the
carefully limited referential words to the
Code of Civil Procedure in sub-s. 3, suffice,
in their Lordships’ judgment, to exclude from
any right of appeal cases which fall within
the requirements of S. 1 1 0 of the Code, and
are operative to confine that right to cases
which are certified to be otherwise fit for
appeal to His Majesty in Council."
In Banarsi Parshad v.. Kashi Krishna Narain & Ant-. (2) the
Judicial Committee explained that the expression "certifies
to be a fit one for appeal" in the Code of Civil Procedure
is clearly intended to meet special cases-such, for example,
as those in which the point in dispute is not measurable by
money, though it may be of great public or private
importance. To certify that a case is of that kind, though
it is left entirely in the discretion of the Court, is a
judicial process which could not be performed without
special exercise of that discretion, evinced by a fitting
certificate.
In Radha Krishn Das v. Rai Krishn, Chand(3) a Division Bench
of the Allahabad High Court had issued a certificate stating
that "though the valuation of the case was below Rs. 10,000
yet as regards the value and nature of the case it fulfilled
the requirements of S. 596 of Act No. XIV of 18 82 (Code of
Civil Procedure)". In that case the value of the subject-
matter was less than Rs. 10,000 and the Judicial Committee
observed that even though S. 596 was referred to there was
nothing to show that the Judges who had issued the
certificate "had exercised their judicial discretion upon
the matter in deciding whether, in order to comply with s.
595 (c) and s. 600 the case was a fit one for appeal to Her
Majesty in Council." On that ground the appeal was dismissed
as incompetent.
(1) L.R. 54 1. A. 421. (2) L.R.28 I.A.11.
(3) I. R. 28 1. A. 1821.
543;
In Radhakrishna Ayyar v. Swaminatha Ayyar(1) the High, Court
granted ’a certificate in a case in which the claim was, Rs.
4,560 due as rent. The certificate recited :
"It is hereby certified that, as regards the
value of the subject matter and the nature of
the question involved, the case fulfils the
requirements of ss. 109 and 1 1 0 of the Code
of Civil Procedure, and: that the case is a
fit one for appeal to His Majesty in Council."
The Judicial Committee observed that where any certificate
is’ granted certifying a case, it is of the utmost
importance that the certificate should show clearly upon
which ground it is granted. Indealing with the argument
that the case was covered by s. 109 (c) of the Code of Civil
Procedure, 1908, their Lordships observed
"There is no indication in the certificate of
what the nature of the question is that it is
thought was involved in the hearing of this
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appeal, nor is there anything to show that the
discretion conferred by S. 109(c) was invoked
or was exercised. Their Lordships think....
that these certificates are of great
consequences, that they seriously affect the
rights of litigant parties, and that they
ought to be given in such a form that it is
impossible to mistake their meaning upon their
face."
Again, the Judicial Committee observed in Commissioner of
Income-tax, Central Provinces & Berar v. Sir S. M.
Chitnavis(2) that when a certificate is granted under s. 66A
of the Income-tax Act it must be on a question affecting not
only a particular assessee ,and depending upon the state of
the evidence in a particular case,, but a question of great
public importance affecting assessees generally and
depending upon general principles.
In granting the certificate the High Court merely observed
that it was "a fit case for appeal to the Supreme Court" :
they did not indicate the grounds which persuaded them to
hold that it was a. fit case for appeal to this Court. It
would be conducive to better administration of justice if in
certifying a case under s. 66A(2) of the Indian Income-tax
Act as a fit case; for appeal, the High Court sets out the
question of law which they regard as of great public or
private importance which falls to be decided by this Court.
Mr. Chagla contended that the rules laid down by the
Judicial Committee applicable to a certificate issued under
s. 109(c) of the Code of Civil Procedure, 1908, and under s.
596 of the Code of 1882, in regard to appeals in civil
matters have no bearing in determining the meaning of s.
66A(2), for the High Court
(1) L. R. 48 1. A. 31.
(2) L. R. 59 I. A. 290.
-544
exercises advisory jurisdiction on a reference on questions
of law and on that account even if the question of law which
in the view of the High Court arises is not stated in the
certificate, it may be presumed when the High Court has
certified a case to be fit for appeal, that a substantial
question of law is involved, and the technical defect in the
certificate may be. ignored. We are unable to accept that
argument. It is true that under S. 66(1) & (2) of the
Indian Income-tax Act, 1922, only a question of law may be
referred to the High Court for opinion, but the right to
obtain a certificate under s. 66A(2) arises only when in the
proposed appeal a question of great public or private
importance arises. It cannot be held that because a
question of law alone may be referred ,to the High Court
under S. 66 of the Indian Income-tax Act, in the proposed
appeal a question of law of great public or private
importance necessarily arises. Any other view, would make
every ,opinion of the High Court in a reference under s. 66
appealable to this Court. In our view, the certificate
granted by the High Court was defective.
It was also urged that a practice is fairly common in some
of the High Courts to certify a case under S. 66A(2) without
recording any reasons or the grounds for certifying the
case, and we may not penalize the Company when we are
enunciating the true rule for the first time. But the
practice, in our judgment, was laid down many years ago by
the decisions of the Judicial-Committee that a ,certificate
under s. 66A(2) which does not set out precisely the grounds
or raise a question of great public or private importance
does not comply with the requirements of the Act. The
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jurisdiction of this Court to entertain an appeal from the
opinion recorded under the Indian Income-tax Act arises only
when a certificate is properly issued by the High Court or
when this Court grants special leave under Art. 136 of the
Constitution.
In our judgment, there is again no merit in the appeal. By
cl. 4 of the agreement dated August 2, 1956, it was
expressly provided
"That all assets of the vendors in respect of
all its business shall be taken over at the
book value standing in the books of accounts
of the vendors as on the 1st August One
Thousand Nine Hundred Fifty-six."
It is undisputed that the stock-in-trade was entered in the
books of account of the vendors on the date of transfer of
the undertaking at Rs. 1,77,285 and the Company valued the
stock-in-trade at Rs. 2,10,285. It is true-that to the deed
of transfer is annexed a Schedule of the assets and
liabilities taken over by the Company and in the Schedule
the value of stocks at Patna, Muzaffarpur and
545
Purnea is shown at Rs. 2,10,285.87. No attempt was made to
explain the discrepancy between the operative part of the
agreement and the valuation shown in the Schedule. The
Income-tax Officer was of the view that the Company had
inflated the opening stock so as to reduce the ultimate
profits. That view was confirmed by the Appellate Assistant
Commissioner and by the Tribunal. No question of law arose
out of the order of the Tribunal. The reference itself was
incompetent.
The appeal fails and is dismissed with costs.
G.C. Appeal
dismissed.
13 Sup. Cl./70-6
546