Case: Commissioner of Income Tax Kerala, Ernakulam Vs. V. Damodaran, Trivandrum

made by the applicant, who in that application must specify the questions of law which, he claims, a rise out of the order of the Appellate Tribunal made under s. 254. The form of reference application prescribed by rule 48 of the Income Tax Rules, 1962 specifically requires the applicant to state the questions of law which he desires t o be referred to the High Court. He may, in appropriate cases, be permitted by the Appellate Tribunal, to raise further questions of law at the hearing of the reference application. But in every case, it is only the party applying for a reference who is entitled to specify the questions of law which should be referred. Nowhere in the statute do we find a right in the non- applicant (a phrase used here for convenience) to ask for a reference of questions of law on the application made by the applicant.In this connection, two categories of cases can be envisaged. One consists of cases where the order of the Tribunal under section 254 has decided the appeal partly against one party and partly against the other. T his may be so whether the appeal consists of a single subject matter or there are more than one independent claims in the appeal. In the former, one party may be aggrieved by the grant of relief, even though partial, while the other may be aggrieved by the refusal to grant total relief. In the latter, relief may be granted or refused with reference to individual items in dispute, and accordingly one party or the other will be aggrieved. In either case, the party who is aggrieved and who desires a reference to the High Court must file a reference application for that purpose. It is not open to him to make a reference application filed by the other party the basis of his claim that a question of law sought by hi m should be referred. The second category consists of cases where the order made by the Appellate Tribunal under s. 254 operates entirely in favour of one party, although in the course of making the order the Appellate Tribunal may have negatived some points of law raised by that party. Not being a party aggrieved by the result of the appeal, it is not open to that party to file a reference application. But on a reference application being filed by the aggrieved party it is open to the non-applicant, in the event of the Appellate Tribunal agreeing to refer the case to the High Court, to ask for a reference of those questions of law also which arise on its submissions negatived in appeal by the Appellate Tribunal. It is, as it were, recognising a right in the winning party to support the order of the Appellate Tribunal also on grounds raised before the Appellate Tribunal but negatived by it.There are, therefore, those two categories, one in which a non-applicant can ask for the reference of questions of law suggested by it and the other in which it cannot. To the extent to which the Courts have omitted to consider the distinction between these two categories, they have erred. There are cases w here it has been held that there is an absolute bar against a non-applicant seeking a reference of questions of law on a reference application made by the other party. They include: Commissioner of Income Tax, Madras v. S. K. Srinivasan and Commissioner of Income Tax, Madras v. Ramdas Pharmacy. cases taking the opposite extreme view are: Commissioner of Income Tax v. Bantiah Bank Ltd., followed in Girdhar Das &Co. Ltd. (supra) and Educational &Civil List Reserve Fund No. 1 through H. H . Maharana Bhagwat Singhji of Udaipur &Ors. v. Commissioner of Income Tax, Delhi and Rajasthan Smt. Dhirajben R. Amin v. Commissioner of Income Tax, Gujarat II, Ahmedabad and Commissioner of Wealth Tax, Gujarat II v. Mrs. Arundhati Balkrishna . The judgment in the last case was affirmed by this Court in Commissioner of Wealth Tax, Gujarat v. Arundhati Balkrishna but the point raised before us does not appeal to have been taken there. The observations in Bantiah Bank Limited (supra) seem to show that the High Court was alive to the possibility of a winning party being deprived of the right to raise questions of law which could properly arise as further questions because they would be intimately involved in a decision on the questions referred at the instance of the applicant, but it failed to classify such a case separately from the case where a non-applicant seeks to raise independent and unassociated questions of law. Cases in which a distinction was not iced between the two categories but no opinion was expressed on the right of a winning party to raise questions of law without applying for a reference are Commissioner of Income Tax v. Jiwaji Rao Sugar Co. Ltd., followed in Commissioner of Income Tax, M.P. v. Dr. Fida Hussain G. Abbasi and Commissioner of Income Tax, Madras v. K. Rathnam Nadar. Some attention has been given to the distinction between the two categories in Commissioner of Income Tax, West Bengal v. A. K. Das.In the present case, the question whether the provision of Rs. 11, 000 for tax and Rs. 6, 900 for dividend can be taken into account when determining the accumulated profits as on March 31, 1958 is not relate to the question whether accumulated profits can take in current profits. The two questions involve the grant of separate and distinct reliefs and the decision on one question does not affect the decision on the other.11. Accordingly, we hold that the Appellate Tribunal was not competent to refer the second question, and the reference to that extent must be considered void. In the circumstances, it is not necessary to examine the second question on its merits. The judgment of the High Court must be set aside so far as it incorporates its opinion on the second question.12.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]We are in agreement with that view, being persuaded in that behalf by the reasoning which has prevailed in the aforementioned cases. The distinction between "accumulated profits" and "current profits" has long held the field, and as the learned judges of the High Court of Australia observed in Hooper &Harrison Ltd. (I n Liquidation) (supra), it has been well known in judicial decision and in the mercantile world for well over a century. Moreover, this Court in M. V. Murugappan (supra) has also taken the view that current profits cannot be included i n accumulated profits. It appears to be now the established law of the land.An attractive submission was raised on behalf of the Revenue that in the Twelfth Report of the Law Commission of India, the authors of the Report consider that the intention of the Legislature was to include current profits in the expression "accumulated profits" in section 2(6A) and that the present definition of "accumulated profits" by Explanation 2 to section 2(22) of the Income Tax Act. 1961 only clarifies what the true intent was allalong. In the view which has found favour with us, we are not persuaded by thatwe hold that the High Court was right in answering the first question in favour of the assessee and against theare of opinion that the Revenue is right. The objection was taken by the Revenue before the Appellate Tribunal when the statement of case was being prepared, but the Appellate Tribunal overruled the objection, relying on Girdhardas &Co. Ltd. v. Commissioner of Income Tax, Ahmedabad. It does not appear that the Revenue contended before the High Court that the reference made to it by the Appellate Tribunal was incompetent insofar as the second question was concerned. Since, however, the objection pertains to the competence of the reference to the extent that it covers the second question and, therefore, relates to the jurisdiction of the High Court to consider and decide that question, we are of opinion that the Revenue is entitled to raise that question before us.Section 256(1) ofthe Income Tax Act, 1961 entitles the assessee or the Commissioner, as the case may be, to apply to the Appellate. Tribunal to refer to the High Court any question of law arising out of the order made by the Appellate Tribunal under section 254. A period of limitation for making such application is prescribed. If the application is rejected by the Appellate Tribunal the applicant is entitled to apply to the High Court, again within a prescribed period of limitation, and the High Court may, if it is not satisfied of the correctness of the decision of the Appellate Tribunal, require the Appellate Tribunal to state the case and refer it. It is clear that the statute expressly contemplates an application in that behalf by a party desiring a reference to the High Court. The application has to be filed within a prescribed period of limitation. If the Application is rejected by the Appellate Tribunal, it is the applicant thus refused who is entitled to apply to the High Court. If the Appellate Tribunal allows the application made to it, s. 256(1) requires it to draw up the statement of the case and refer it to the High Court.the present case, the question whether the provision of Rs. 11, 000 for tax and Rs. 6, 900 for dividend can be taken into account when determining the accumulated profits as on March 31, 1958 is not relate to the question whether accumulated profits can take in current profits. The two questions involve the grant of separate and distinct reliefs and the decision on one question does not affect the decision on thewe hold that the Appellate Tribunal was not competent to refer the second question, and the reference to that extent must be considered void. In the circumstances, it is not necessary to examine the second question on its merits. The judgment of the High Court must be set aside so far as it incorporates its opinion on the second question.