Full Judgment Text
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PETITIONER:
SALEM COOPERATIVE CENTRAL BANK LIMITED
Vs.
RESPONDENT:
COMMISSIONER OF INCOME TAX, MADRAS
DATE OF JUDGMENT06/04/1993
BENCH:
JEEVAN REDDY, B.P. (J)
BENCH:
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.
HEADNOTE:
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
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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
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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
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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]
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JUDGMENT:
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
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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
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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
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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
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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.
1006