Appeal No 2169NT
of 1993
From the Judgment and Order dated 10121979 of the Madras High Court in Tax Case No 398 of 1976
Mrs Janaki Ramachandran for the Appellant
KN Shukla Sudhir Walia and P Parmeswaran for the Respondent
The Judgment of the Court was delivered by BP JEEVAN REDDY J
Under Section 2561 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 81920 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 811 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 81920 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 ITO 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 AAC 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 AAC 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 CIT Bombay vs Scindia Steam Navigation Ltd  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 33333 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 926532
In the assessment proceeding for the AY 1946 47 the revenue sought to charge the said amount under the fourth proviso to Section 102vii 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 161944 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 AY 1946 47
The Tribunal was of the opinion that the material date for the purpose of the fourth proviso to Section 102vii was the date when the compensation was in fact received and that therefore the amount was assessable in the AY 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 926532 was properly included in the assessee company s total income computed for the AY 1946 47 Before the High Court the assessee raised a new contention for the first time that the fourth proviso to section 102vii 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 661 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 661 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 661 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 AY 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 811a
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 ITO 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 VR YKN Kallappa Chettiar vs Commissioner of Income Tax CIT vs Ogale Class Works Ltd and Keshav Mills Co Ltd vs Commissioner of Income Tax Bombay North Ahmedabad by the learned counsel for the appellant and Commissioner of Income Tax Bihar and Orissa vs kirkend Coal Co and Kusunben D 1005 Mahadevia vs Commissioner of Income Tax Bombay City 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
NVK Appeal dismissed


Summary:
The question involved in these appeals was whether the amounts collected for spending on charity and kept in a separate account for Dharmadha could be included in the business income of the assessee
The explanation that these amounts were distributed among the poor relatives of the labourers and to the girls in their families at the time of marriage was not accepted by the Income tax Officer as a charity
He added the entire dharmadha amounts to the business income of the appellant assessees
On appeal the Appellate Assistant Commissioner deleted the said additions and the Tribunal confirmed the deletions
Revenue filed ap plications before the High Court for reference
The High Court having dismissed the applications Revenue preferred the present appeals contending that the assessees were using the amounts collected in the name of dharmadha for business purposes
Allowing the appeals this Court HELD1
So far as the inclusion of amounts collected as Dharmada which are kept in a separate account and are utilised for charitable purposes is concerned there can be no dispute that they are not liable to be included in the income of the assessee
The Revenue s case is that though collected in the name of Dharmada these amounts were neither meant for any charitable purpose nor were they spent on charitable purposes
In these circumstances the High Court ought to have directed the Tribunal to state the question under Sec2562 of the Income tax Act 875 1961 as to whether such amounts could be assessed to tax as revenue receipts
The Tribunal is directed to do so
877 A C