Full Judgment Text
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PETITIONER:
COMMISSIONER OF INCOME-TAX (CENTRAL),NEW DELHI
Vs.
RESPONDENT:
M/S. S. ZORASTER & COMPANY
DATE OF JUDGMENT24/09/1971
BENCH:
VAIDYIALINGAM, C.A.
BENCH:
VAIDYIALINGAM, C.A.
REDDY, P. JAGANMOHAN
CITATION:
1972 AIR 2048 1972 SCR (1) 916
ACT:
Court in granting certificate-No jurisdiction to go behind
the finding recorded in original judgment disposing of the
Reference.
HEADNOTE:
In respect of the goods supplied by the assessee the
Government of India paid the price by cheques. The cheques
drawn on the- Reserve Bank of India, at Bombay, were
received by the assessee at Jaipur, outside the taxable
territories. On the question whether the amounts repre-
sented by the cheques, cashed at Bombay, were taxable in the
hands of the assessee under the Income-tax Act, 1922, the
High Court, on reference, held that the mere fact that the
cheques were realised at Bombay was of no consquence and
that in the particular circumstances of the case since the
cheques were ’received by the assessee outside the taxable
territory the amounts covered by the cheques were received
by the assessee at that place. In dealing with the
contention of the revenure that the assessee must be
considered to have received the cheques at Delhi where they
were posted, the High Court accepted the finding recorded by
the Appellate Tribunal in its supplementary statement that
the revenue failed to establish the fact of posting of
cheques at Delhi. The High Court also recorded a finding
that the revenue failed to place any material before the
Tribunal to prove that the cheques were being sent by the
Government of India through post.
The revenue filed applications before the High Court for
grant of certificate for appeal to this Court. The learned
Judges who dealt with these applications were different from
those who dealt with the main reference. Two alternate
grounds were urged viz., (1) the payments by cheques were
not made at Jaipur where the cheques were received, but at
Bombay where they were cashed and (ii) the cheques were
posted at Delhi and as the post office acted as the agent of
the assessee the payment was made at Delhi. On the first
ground the High Court held that in view of the decisions of
this Court no substantial question of law remained to be
decided; but, granted certificate to appeal on the second
ground. It held that the question of law which really arose
was whether a presumption could be drawn under the
circumstances of the case that the cheques were sent by the
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Government by post or whether the fact of sending the
cheques by post had to be positively proved by the Revenue.
The court also observed that the general question whether a
Presumption under s. 114 illustration (f) of the Evidence
Act could be raised in circumstances such as those presented
by the case was likely to arise in many future cases not
restricted to income-tax.
In this Court a preliminary objection was raised as to the
maintainability of the appeals on the ground that the
certificates granted by the High Court were not proper. It
was urged that the High Court erred in ignoring the specific
findings recorded by the Tribunal, and accepted by the
learned Judges. answering the reference, that the Revenue
placed no evidence before it to show that the cheques were
posted at Delhi, and, therefore, there was no question of
any presumption arising under s. 114
91 7
illustration (f) of the Evidence Act. Setting aside the
order of the High Court granting the certificate,
HELD : (i) In circumstances like the present case the
jurisdiction of the court at the stage of dealing with
application for grant of certificate is limited only to
considering whether any substantial question of law arises
having due regard to the material on record and the
discussion on facts and law contained in the judgment of the
High Court which dealt with the appeal or reference or any
other proceeding as the case may be., [924 E]
(ii)On the findings recorded by the Appellate Tribunal and
by the High Court no question of applying any presumption
under s. 114 of the Evidence Act arises for consideration.
The learned Judges, dealing with the application for grant
of certificates, had no jurisdiction to go behind the
finding recorded in the original judgment disposing of the
reference. [925 F]
(iii)This Court should not be invited to decide any
question of law much less substantial question of law,
purely in the abstract. The question of law must reasonably
arise on the basis of the material on record. [924 H]
(iv)Regarding the question that the assessee may be
considered to have received the payments at Bombay the
learned Judges rightly declined to grant a certificate.
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 2012 and
2013 of 1968.
Appeals from the judgment and order dated February 21, 1967
of the Delhi High Court in Income-tax Reference No. 7 of
1961.
R.H. Dhebar, Urmila Kapoor and P. L. Juneja, for the
appellant (in both the appeals).
N.D. Karkhanis, Ram Lal, A. T. M. Sampath and E. C. Agra-
wala, for the respondent (in both the appeals).
The Judgment of the Court was delivered by
Vaidialingam, J. These two appeals, on certificate, by the
Commissioner of Income-tax (Central) New Delhi, are directed
against the common judgment and order dated February 21,
1967 in Income-tax Reference No. 7 of 1961. The reference
related to the assessment years 1942-43 and 1943-44. The
question of law, referred for the opinion of the High Court
under S. 66(1) of the Indian Income-tax Act, 1922
(hereinafter to be referred to as the Act) was as follows :
" Whether on the facts and circumstances of
the case, the profits and gains in respect of
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the sales to the Government of India, were
received by the assessee in the taxable
territories."
The High Court answered the said question in
favour of the assessee as follows :
"On the facts and circumstances of the case,
the profits and gains in respect of the sales,
made to the
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Government of India, must be deemed to have
been received by the assessee outside, the
taxable territories."
When Mr. R. R. Dhebar, learned counsel for the Revenue
opened the appeals, a preliminary objection was raised by
Mr. N. D. Karkhanis, learned counsel for the assessee-
respondent that the certificates granted by the High Court
are not proper and as such the appeals are not maintainable.
The nature of the preliminary objection will be referred to
by us in due course. As we are accepting the preliminary
objection, we will only refer to the facts in so far as they
are relevant for holding that the certificates granted are
not proper and as such the appeals are not maintainable.
The assessee-respondent is a firm consisting of three
partners, namely, Sohanmal, Mehtab chand and Allahdin.
Sohanmal and Mehtabchand are also the two coparceners of a
Hindu Undivided Family. The said family had got its own
business firm known also by the name of the assessee, M/s.
S. Zoraster and Company. The assessee firm, as well as the
joint family firm, were both situated in Jaipur, which was
outside the taxable territories at the relevant period. The
assessee had business dealings with the Government of India.
In respect of the goods supplied by the said firm, the
Government of India paid the price by cheques. The cheques
in question were received by the assessee at Jaipur.
However, the said cheques were drawn on the Reserve Bank of
India, at Bombay. The assessee, through the agency of the
family firm, sent those cheques to Bombay for collection and
realised the amounts due under the cheques at Bombay. The
question arose whether the amounts represented by the
cheques, which were cashed at Bombay, were taxable in the
hands of the assessee under the Act. The Income-tax
Officer, the Appellate Assistant Commissioner. as well as
the Appellate Tribunal held that as the amounts had been
realised in Bombay, which is a taxable territory, the
amounts covered by the cheques were liable to tax under the
Act.
On an application made by the assessee, the Appellate Tri-
burial made a Reference on December 10, 1952 to the High
Court of Judicature for the State of Punjab at Simla. The
question of law, that was referred to the High Court was
one, which we have set out in the earlier part of the
judgment. The Reference was numbered as Civil Reference
Case No. 3 of 1953 in the Punjab High Court. As, in the
opinion of the High Court, the Appellate Tribunal had not
given a finding as to whether the cheques in question were
sent to the assessee by post and whether the assessee had
given any direction in that regard to the Government ,of
India, by its order dated March 24, 1955, a supplementary
statement was called for. The assessee challenged this
order of
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the High Court calling for a supplementary statement in an
appeal’ before this Court. By its order dated August 17,
1960, this Court dismissed the said appeal. The decision of
this Court is reported in Zoraster & Co. v. Commissioner of
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Income-tax(1). After the decision of this Court, the.
Appellate Tribunal, on March 18, 1961 submitted to the High
Court a supplementary statement. The case was renumbered in
the High Court as Income-tax Reference No. 7 of 1961. At
this stage it may be mentioned that in the supplementary
statement, the Appellate Tribunal had recorded a finding
that there is no material on record to show as to how the
cheques in question were sent, i.e. whether by post or by
hand. The Appellate Tribunal further found that the
assessee had given a direction to pay by cheques and that
apart from this there was no other material on record to
show any direction given by the assessee regarding the mode
of dispatch of cheques.
The High Court, in its order under attack, noted the
findings recorded by the Tribunal,namely, that the cheques
were received by the assessee at Jaipur, but collected at
Bombay, and that it is not established how the cheques were
sent to the assessee by the Government of India. The
Revenue contended before the High Court that the amounts
covered by the cheques in question must be considered to
have been received by the assessee in the taxable territory,
either at Bombay, on the basis that the amounts covered by
the cheques were realised at that place, or at Delhi, on the
ground that the cheques must be considered to have been
received by the assessee at that place where the cheques
were posted, as the post office is to be considered, the
agent of the assessee. The High Court first considered the
question as to what is the effect of payments made by the
Government to the assessee by means of cheques. After a
reference to certain decisions of this Court, the High Court
held that the mere fact that the cheques were realised at
Bombay is of no consequence. It the particular cir-
cumstances of the case, the High Court is of the view that
as the cheques were received by the assessee at Jaipur, it
must be held that the amounts covered by the cheques were
received by the assessee at that place, which was outside
the taxable territory.
In dealing with the contention of the Revenue that the
cheques must be considered to have been received by the
assessee at Delhi, where they were posted, the High Court
again, after a reference to the relevant decisions of this
Court, adverted to the finding recorded by the Appellate
Tribunal that there is no evidence to show that the cheques
were sent by post. In fact, it is pertinent to note how the
High Court actually dealt with this question. It observed
as follows
(1) [1960] 40 I.T.R. 552.
920
"If there was a finding by the Tribunal that
the Government of India was invariably sending
the cheques referred to earlier from Delhi to
Jaipur through post and that the assessee was
receiving those cheques without demur, then we
would have found no difficulty in upholding
the contention of Shri Kapur that the cheques
in question were sent to the assessee through
post with its implied consent and, that being
so, the post office should be considered as
the agent of the assessee. But as mentioned
earlier, in the instant case, there is no
evidence to show that those cheques were sent
by post. Hence the question of assessee’s
consent, implied or otherwise, does not arise
for consideration."
Later on, the High Court has also observed that the stark
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fact is that there is no finding by the Appellate Tribunal
that the Government of India sent the cheques by post and
that the Revenue has failed to place any material to prove
that the cheques in question were being sent by the
Government through post. On the basis of the above finding,
the High Court answered the question, referred to it, in
favour of the assessee.
The Revenue filed two applications, Supreme Court Applica-
tions Nos. 95 and 96 of 1967 before the High Court for grant
of certificates declaring the cases to be a fit one for
appeal to this Court. Supreme Court Application No. 95 of
1967 related to the assessment year 1942-43 and No. 96 of
1967 related to the assessment year 1943-44. In the grounds
of appeal, in particular, it was stated that the High Court
has not properly interpreted the decisions of this Court and
that the High Court further erred in holding that there was
no proof as to how the cheques were received by the assessee
in Jaipur. Another ground was taken that the evidence on
record establishes that the cheques were issued and sent to
the assessee at his request by post.
The learned Judges, who dealt with the applications for
grant of certificates were different from those who dealt
with the main Reference. By order dated July 15, 1968, the
High Court granted the certificates that the cases are fit
for appeal to this Court. Before the learned Judges, the
Revenue contended that the assessee must be considered to
have received the amounts covered by the cheques in the
taxable territories on. two alternative grounds : (1) that
the payments by cheques made by the Government of India from
Delhi to the assessee at Jaipur were not made at Jaipur
where the cheques were received by the assessee but at
Bombay where the cheques were cashed, or (2) the cheques
were posted by the Government of India at Delhi to the
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address of the assessee at Jaipur and as the post office
acted as an agent of the assessee in receiving cheques the
payment was made at Delhi and not at Jaipur.
Regarding the first ground the learned Judges held "that it
has been convincingly negatived by the learned Judges, who
dealt with the reference on the authority of the decisions
of this Court." There is a reference to the decisions of
this Court, as well as the finding recorded by the High
Court when answering the reference. The learned Judges
finally held that the Revenue is not entitled to a
certificate on the basis of ground No. 1 in the following
words
"In view of the Supreme Court decisions fully
covering this point, no substantial question
of law further remains to be considered
regarding this aspect of the case."
Regarding the second ground, that the cheques were posted by
the Government at Delhi and that the post office acted as an
agent of the assessee and therefore the amounts covered by
the cheques must be considered to have been received by the
assessee at Delhi, which is a taxable territory, the learned
Judges are of the view that the said contention cannot be
rejected on the plea that no substantial question of law
arises for consideration by this Court. In considering this
aspect, the learned Judges observe that it is common
knowledge that cheques are invariably sent by post and the
Government of India, which has to make payments by cheques
to numerous persons situated all over India, cannot be
expected to send messengers carrying cheques to the Various
places. There is a reference to certain English decisions,
from which the learned Judges inferred that a common usage
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can be inferred that cheques are always sent by post and
never through personal messengers in countries where postal
communication is universal. The learned Judges further
observe that the only reasonable and proper way of dealing
with the situation when payments have to be made by cheques
by the Government is to assume that the latter would send
cheques by post. The High Court is of the view that certain
decisions of this Court support the case of the Revenue that
parties intended that cheques issued by the Government of
India at Delhi should be sent to Jaipur by post. The
learned Judges then referred to what in their opinion is a
misunderstanding by the High Court of the decisions of this
Court when answering the reference and characterised the
said misunderstanding as unfortunate. The learned Judges
then referred to illustration (d) to s. 50 of the Indian
Contract Act and expressed the view that posting of the
cheques in Delhi by the Government amounts to payment of
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money to the assessee in Delhi and that is the position
regarding the present assessee. Ultimately, the learned
Judges held that the question of law which really arises in
the present case is whether a presumption could be drawn
under the circumstances of the case that the cheques were
sent by the Government to the assessee by post or whether
the fact of sending the cheques by post must be positively
proved by the Revenue. After referring to S. 114 of the
Indian Evidence Act and in particular to illustration (f)
thereof, the learned Judges observe that in the case on hand
the cheques should have been sent by the Government from
Delhi to the assessee either by post or by the messenger and
that as it is not the case of either party that the cheques
were sent by the messenger, the only conclusion to be drawn
is that the cheques must have been sent by post. Any other
conclusion, according to the learned Judges, apart from
being improbable will also be absurd and, therefore, the
only alternative, on which one can proceed is that the
cheques must have been sent by post. There is a discussion
how the risk can be avoided by the cheques being drawn in a
particular manner when they are sent by post. According to
the learned Judges, the most natural finding should be that
the cheques were sent from Delhi to Jaipur by post.
Actually, what according to the learned Judges, is the
substantial question of law, on the basis of ground No. 2
and in respect of which the certificates have been issued
may be reproduced in their own words:
" .... whether the common course of usage to
the presumption that not only the parties
intended that the cheques should be sent by
post but that the cheques were actually sent
by post. This question has not been
considered by this Court and does not appear
to have been considered in any other reported
judicial decision. The question whether the
profits in a case were received in taxable
territories or not is not likely to arise in
further cases in view of the fact that the
distinction between taxable and non-taxable
territories does not now obtain. But the
general question whether a presumption under
Section 114, illustration (f) of the Evidence
Act should be raised by Court in circumstances
such as those that are present in this case,
is of great importance. It is likely to arise
in many future cases not restricted to income-
tax. Not only is there no specific decision
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of the Supreme Court on this question, but
even a High Court decision covering this point
has not been brought to our notice. We,
therefore, certify that these two cases are
fit for appeal to the Supreme Court."
923
The preliminary objection of Mr. Karkhanis to the maintain-
ability of the appeals on the ground that the certificates
granted by the High Court are not proper, is as follows: The
learned Judges have declined to grant certificate on the
ground that no substantial question of law remains to be
considered regarding the first contention that was urged by
the Revenue, namely, that the assessee when he cashed the
cheques at Bombay, must be considered to have received the
amounts in the taxable territory. But so far as the second
contention raised by the Revenue was concerned, which
related to the posting of the cheques by the Government of
India, at Delhi, the High Court in coming to the conclusion
that there is a substantial question of law has grossly
erred in ignoring the specific findings recorded by the
Appellate Tribunal that the Revenue placed no evidence
before it to show that the cheques were posted at Delhi,
which finding has been accepted by the High Court when
answering the Reference. In view of this finding of fact,
according to the learned counsel, there is no question of
any presumption arising under s. 114, illustration (,f) of
the Evidence Act coming into play. The counsel further
urged that the learned Judges have granted a certificate on
a matter which did not arise for consideration and which was
not in dispute before-,the High Court when it answered the
Reference, and which point had not even been raised in the
applications for grant of certificate. When there was a
categorical finding that the Government placed no evidence
regarding the posting of cheques at Delhi, the reasoning of
the learned Judges when dealing with the applications for
grant of certificates that the cheques must have been posted
at Delhi, is opposed to evidence. Further, it was a
conclusion which cannot be reached at the stage of granting
a certificate, being quite contrary to that reached by the
High Court when dealing with the Reference. In short,
according to the learned counsel the certificates have been
granted on a point which does not arise for consideration in
the appeals.
Mr. Dhebar, learned counsel for the Revenue, contended that
the High Court has considered all aspects when granting the
certificates and that there is no infirmity attached to the
orders granting certificates that the cases are fit for
appeal to this Court. According to the counsel, this was a
fit case where the presumption arising under s.. 114 of the
Evidence Act should have been applied by the High Court when
dealing with the Reference. Mr. Dhebar, finally contended
that as the certificates have been issued properly, the
appeals are maintainable. The counsel further urged that as
reasons had to be given in the order granting certificates
of fitness, it is inevitable that there should be some dis-
cussion about the nature of the questions that arose for
decision before the Bench which answered the Reference.
924
While we agree with Mr. Dhebar that reasons for granting the
certificate must be given by the learned Judges in the
order, those reasons, however, in our opinion, must be
confined to the material on record, which must have been
before the Court which dealt with an appeal or Reference and
in respect of which decision, the aggrieved party desires to
come in appeal to this Court on certificate on the ground
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that a substantial question of law arises for consideration.
We are not inclined to accept the contention of Mr. Dhebar
that the High Court has properly exercised its jurisdiction
in certifying that the two cases are fit for appeal to this
Court. We must frankly admit that when we went through the
order of the High Court granting the certificates, we felt
that the learned Judges were either sitting in appeal over
the judgment of the Division Bench, which answered the
Reference, or were themselves dealing with the Reference
under s.66(1) of the Act, in the first instance. Unless the
learned Judges were exercising one or the other of the above
jurisdiction, the criticism about the approach made by the
Division Bench when answering the Reference, could not be
justified. It is clear that when dealing with an
application for grant of certificate of fitness, the court
was exercising no such jurisdiction. It must be emphasised
that in the circumstances like this, the jurisdiction of the
Court, at the stage of dealing with application for grant of
certificate is limited only to considering whether any
substantial question of law arises having due regard to the
material on record and the discussion on facts and law
contained in the judgment of the High Court which dealt with
the appeal or Reference or any other proceeding, as the case
may be.
Regarding the question that the assessee may be considered
to have received the payments at Bombay, the learned Judges
have quite rightly declined to grant a certificate on the
ground that the point is covered by the decisions of this
Court and that no substantial question of law arises.
As we have already pointed out the certificate has been
granted by the learned Judges on the basis that the general
question whether a presumption under s. 114, illustration
(f) of the Evidence Act can be raised is of great importance
and that it is likely to arise in many future cases, not
restricted to income-tax. It should be remembered that this
Court should not be invited to decide any question of law
much less the substantial question of law purely in the
abstract. Such question of law must reasonably arise on the
basis of the material on record. Further, the substantial
question of law, in order to be certified as fit to be
decided by this Court must arise on the facts of a
925
particular case. With great respect to the learned Judges
who dealt with the. applications for grant of certificate,
we are constrained to remark that they have ignored the
finding of fact recorded by the Appellate Tribunal in its
supplementary statement dated March 18, 1961 that the
Revenue has placed no materials to prove that the cheques
were posted at Delhi. It should be remembered that when the
Reference was made in the first instance, the Punjab High
Court felt that the Appellate Tribunal had not given any
finding as to whether the cheques in question were sent to
the assessee by post and whether the assessee had given any
direction in that regard to the Government of India. In
view of the absence of such a finding, the High Court by its
order dated March 24, 1955 called for a supplementary state-
ment from the Appellate Tribunal under s.66 (4) of the Act.
This order was challenged before this Court by the assessee
unsuccessfully. The purpose of seeking a supplementary
statement was tofocus the attention of the Appellate
Tribunal to this aspect,namely, the posting of cheques
claimed to have been done at Delhi by the Government of
India. That the Revenue miserably failed to establish the
fact of posting of cheques at Delhi, is clear from the
finding recorded by the Appellate Tribunal in its
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supplementary statement, which finding has been accepted by
the High Court in its judgment dated February 21, 1967 when
answering the Reference. The High Court has also then
recorded a finding that the Revenue has failed to place any
material before the Appellate Tribunal to prove that the
cheques in question were being sent by the Government ’of
India through post. Unfortunately, all those aspects have
been missed by the learned Judges when dealing with the
applications filed by the Revenue for the grant of
certificates.
On the above findings recorded by the Appellate Tribunal and
confirmed by the High Court, no question of applying any
presumption under s. 114 of the Evidence Act arises for
consideration. The learned Judges, dealing with the
applications for grant of certificates, had no jurisdiction
to go behind the finding recorded in the original judgment
disposing of the Reference. In our opinion, the entire
discussion on this aspect of posting of the cheques at Delhi
by the learned Judges is beside the point, as that question
no longer was available to the Revenue, in view of the
finding recorded against it, to which we have made a
reference earlier.
When once the question of a presumption under s. 114,
illustration (f) of the; Evidence Act does not fall to be
considered in these proceedings, in view of the specific
finding recorded by the Appellate Tribunal against the
Revenue. and
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accepted by the High Court, in our opinion, the High Court
was not justified in certifying, on this ground, that the
cases are fit for appeal to this Court.
As the issue of certificates by the High Court is not
proper, the only course open to us is to cancel the
certificates and set aside the order of the High Court
granting them. The result is that the above appeals have
become unsustainable, as they have been brought to this
Court on the basis of certificates, which, as held by us,
have not been properly granted.
The appeals, accordingly, are held to be not maintainable
and are dismissed with cost. There will, however, be only
one hearing fee.
K. B. N. Appeals
dismissed.
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