Case: The New Jehangir Vakil Mills Ltd Vs. The Commissioner Of Income-Tax, Bombaynorth, Kutch And Sau

2. The appellant is a limited liability company manufacturing textile goods at Bhavnagar which was an Indian State during the assessment years 1943-44 and 1944-45. For the said assessment years the appellant was held to be a non-resident, its years of account being calendar years 1942 and 1943. For the assessment years 1943-44 and 1944-45 (account years 1942 and 1943), the Income-tax Officer computed the British Indian Income of the appellant on a proportionate basis under S. 4 (1) (a) of the Act. In the account year 1942 its total sales amounted to Rs. 66,14,852 out of which sale proceeds amounting to Rs. 35,92,157 as detailed below were held by the Income-tax Officer to have  been received in British India:Cheques on the Imperial Bank issued by the Supply Department of the Government of India Rs. 2,58,987Sale proceeds received through Trikamlal Mahasukhram Rs. 20,24,190Other cheques received at Bhavnagar but drawn on Banks in British India Rs.13,08,980Rs. 35,92,1573. The Income-tax Officer computed the income of the appellant at Rs. 27,11,136 on a proportionate basis i. e., proportionate to the sales in and outside British India. He held that the income amounting to Rs. 14,72,267 was received in British India under S. 4 (1) (a) of the Act. There was no dispute in regard to the sale proceeds received through Trikamlal Mahasukhram.4. In respect of the assessment year 1944-45 corresponding to the account year 1943 the Income-tax Officer held that sale proceeds amounting to Rs. 16,72,693 received by the appellant by cheques from the Supply Department of the Government of India on British India Banks were taxable under S. 4 (1)(a) of the Act. The figure of Rs. 16,72,693, according to the appellant, was a mistake for Rs. 12,97,631.5. The appellant had contended that the amounts had been received at Bhavnagar, by cheques drawn on banks in British India. The Revenue had not disputed the fact that the cheques had been actually received at Bhavnagar but had contended that payments by cheques, though such cheques were received at Bhavnagar, were received in British India at the time and the place where the cheques were ultimately cashed and honoured by the banks on which the cheques were drawn and that until such encashment of the cheques, the monies could not be said to have been received by the appellant.6. The appellant preferred appeals to the Appellate Assistant Commissioner, Ahmedabad Range, against this order of the Income-tax Officer for the said two assessment years. The Appellate Assistant Commissioner by his two separate orders confirmed the orders of the Income-tax Officer and held that the cheques were not legal tender and were not monies or monies worth as such and that the receipt of cheques at Bhavnagar was not receipt of money. The receipt of money, according to the Appellate Assistant Commissioner, took place on actual payments by the drawee Banks and he therefore held that the said amounts were taxable under S. 4 (1) (a) of the Act.7. A further appeal was taken by the appellant to the Tribunal against the said orders of the Appellate Assistant Commissioner and the Tribunal by its consolidated order for both the years, dated 17-7-1952, held that the cheques for the said amounts of Rs. 2,58,987 and Rs. 13,08,987 in respect of the assessment year 1943-44, were received at Bhavnagar and that the sale proceeds were also received in Bhavnagar. The Tribunal stated inter alia asis no evidence that the cheques from Government were received in Bhavnagar. It is not the Departments case that the assessee company has a registered office elsewhere. The presumption is that the letters containing the cheques were addressed to the assessee company at Bhavnagar. We therefore hold that the cheques were received from Government at Bhavnagar and that the money was also received in Bhavnagar." In doing so, the Tribunal followed the Judgment of the Bombay High Court in the case of Kirloskar Bros. Ltd. v. Commr. of Income-tax, Bombay, 1952-21 ITR 82  : (AIR 1952 Bom 306  ). In view of the fact however that an appeal had been filed in this Court against that decision of the Bombay High Court the Tribunal further stated:"We might point out that in case the Supreme Court does not uphold the Bombay High Court decision in Kirloskar case an enquiry will have to be made as to whether the assessee companys banks at Ahmedabad acted as the assessee companys agents for collecting the money due on the cheques.In respect of the assessment year 1944-45, the Tribunal, after directing the Income-tax Officer to verify the correctness of the figure of the amounts received by the appellant by cheques from the Government (i. e., whether it was Rs. 12,97,631 as contended for by the appellant or Rs. 16,72,693 as held by the Income-tax Officer or any other figure), held that the cheques representing the said amount were received at Bhavnagar and the monies or sale proceeds were also received in Bhavnagar. The Tribunal also held that another amount of Rs. 5,53,447 in respect of the said latter year, being the aggregate amount of the cheques received at Bhavnagar from other merchants was also received in Bhavnagar.9. It may be pointed out that neither did the Income-tax Officer, when the proceedings were before him or when the proceedings were before the Appellate Assistant Commissioner, nor did the Revenue, when the proceedings were, before the Tribunal, at any stage contend that the cheques aggrugating to the said amounts in the said two years were not received at Bhavnagar because of the alleged posting of the cheques in British India and/or by reason of the allegation that the cheques were sent by post and/or that the post office was the agent of the appellant and that too, in spite of the decision in the case of Kirloskar Bros. Ltd. 1952-21 ITR 82  : (AIR 1952 Bom 306  ), which decision had already been pronounced by then and where the said question had been debated and argued by the Revenue. The only ground urged by the Revenue at all material stages was that because the amounts which were received, from the merchants or the Government, were received by cheques drawn on Banks in British India which were ultimately encashed in British India, the monies could not be said to have been received in Bhavnagar though the cheques were in fact received at Bhavnagar.10. Being aggrieved by the said decision of the Tribunal, the respondent (Commissioner of Income-tax) filed two applications under S. 66 (1) of the Act requesting the Tribunal to draw up a statement of the case and refer the question of law arising out of the order of the Tribunal to the High Court.11. In the said applications the facts which were admitted and/or found by the Tribunal and which were necessary for drawing up a statement of the case were stated asitems of Rs. 2,58,987 and Rs. 12,97,631 received from the Government of India in the accounting years relevant to the assessments for 1943-44 and 1944-45 respectively the amounts were received by cheques drawn on the Imperial Bank of India. No evidence was produced by the assessee at any stage even before the Appellate Tribunal, that the cheques were received at Bhavnagar, nor was any evidence produced to show that these cheques were received as unconditional discharge of debtors liability. These cheques were collected by the Companys bankers in British India. The Income-tax Officer, therefore, held that the amount was received in British India. The Appellate Assistant Commissioner confirmed the Income-tax Officers action. The Tribunal, however, relied upon the Bombay High Court decision in Kirloskar Brothers case and held that the amount was received inregards items of Rs. 13,08,980 and Rs. 5,53,447 received in the accounting years relevant to the assessments for 1943-44 and, 1944-45 respectively, the relevant facts are that the company received these cheques and sent them to their bankers in Ahmedabad for collection .. . . . . . . . ...... . . . The Tribunal, held that the sale proceeds were received at Bhavnagar on the basis of the Bombay High Courts decision in the Kirloskar Brothers case without enquiring as to whether the cheques were received by the company in unconditional discharge of the drawers liability.On these facts the respondent submitted that the following questions of law arose out of the order of theWas there any evidence on the record to justify the Tribunals finding that the mere receipt by the assessee of cheques of Rs. 2,58,987 and Rs. 13,08,980 in Bhavnagar amounted to receipt of the above amounts in Bhavnagar even though the said cheques had actually been cashed in British India and the proceeds thereof were credited to the assessees accounts with certain Banks in British India?(ii) Whether in the circumstances of this case, the income, profits and gains in respect of the sales amounting to Rs. 15,67,967 made to the Government of India and other customers were received in British India within the meaning of S. 4 (1) (a) of the Indian Income-tax Act.A similar statement of facts which were admitted and/or found by the Tribunal was also made in regard to the assessment year 1944-45 and similar questions of law were asked to be referred as in the case of the assessment year 1948-44 except in regard to the change in the figures necessitated by the differences in the amountsThese reference applications being Reference Applications Nos. 615 and 616 of 1952-53 were kept pending until the decision of this Court in the case of Commissioner of Income-tax v. Kirloskar Bros., 1954-25 ITR 547  ; (AIR 1954 SC 504  ). This Court decided that appeal and the companion appeal. The Commr. of Income-tax, Bombay South v. Ogale Glass Works Ltd., 1955-1 SCR 185  : (AIR 1954 SC 429  ), on 17-4-1954 and the said Reference Applications were thereafter heard and decided by the Tribunal on 3-11- 1954.15. It is worthy of note that the decision of this court in the said two cases proceeded on the basis that on the particular facts of those appeals the Post Office had acted as the agent of the assessee and that though the cheques were in fact received by post by the assessees outside British India, nevertheless, by reason of the fact that the assessees in the said two appeals had expressly requested the Government to remit the amounts by cheques, the assessees had constituted the Post Office their agent to receive, on their respective behalves, the said cheques which were posted by the Government at Delhi having addressed them to the assessees outside British India.16. In spite of the said decisions, the Revenue did not urge before the Tribunal that the said aspect of the matter should in the present case also be referred to the High Court for its decision and the Reference applications were heard on the materials which were on the record before the Tribunal when it made its orders dated 17-7-1952. The said order of the Tribunal was based on the facts admitted and/or found by the Tribunal as stated in the Reference Applications made by the Revenue as aforesaid and this aspect of the case viz., whether any portion of these cheques was received by post and if so whether there was any request by the appellant express or implied that the amounts of those cheques should be remitted to Bhavnagar by post, had certainly not been canvassed before any of the income-tax authorities or  before the Tribunal and did not find its place in the order of the Tribunal and any question of law appertaining thereto could not be said to arise, out of the said order of the Tribunal.17. On the materials as they stood on the record then, the Tribunal drew up on 5-11-1952, a statement of case in which all the facts and events above referred to were set out. Besides the same the Tribunal also referred in para. 8 thereof to two letters on the record which showed that the cheques from the Supply Department were received by post. It also annexed a sample agreement form on record between the appellant and its customers other than the Government and annexed thereto the copies of the Appellate Assistant Commissioners orders for the assessment years 1943-44 and 1944-45 The two letters showing that the cheques from the Supply Department were received by post were evidently put in with a view to show that the order of the Tribunal dated 17-7-1952, was correct in making the presumption that the letters containing the cheques were addressed to the appellant at Bhavnagar and in holding that the cheques were received from the Government at Bhavnagar. There was no other reason, so far as the record then stood, to make any reference to the said two letters. Out of the facts stated above the Tribunal raised the following question ofthe receipt of the cheques in Bhavnagar amounted to receipt of sale proceeds inThe said Reference was heard by the High Court on 23-9-1955, and judgment was delivered the same day whereby the High Court held that it was not possible to answer the question in the absence of materials as to whether the cheques which were received in Bhavnagar were posted by the Government at the request of the appellant and the High Courtquestion that has been submitted to us by the Tribunal is whetherthe receipt of the cheques in Bhavnagar amounted to receipt of sale proceeds inBhavnagar. This question over-looks the important aspect which was dealt with both by us in Kirloskars case and also by the Supreme Court. Assuming that the cheques were received in Bhavnagar, the question still remains as to whether if the cheques were received by post, the post office was constituted the agent of the assessee or not. The mere receipt of cheques by post in Bhavnagar is not conclusive o the question raised by the Tribunal. Unless we are in a position to say whether the cheques were sent to Bhavnagar by post without there being a request express or implied by the assessee the mere receipt of the cheques in Bhavnagar would not constitute receipt of sale proceeds in Bhavnagar. When we look at the statement of the case there is no reference at all to this aspect of the case.The High Court further observed that the burden would be upon the Revenue to establish that the cheques which were received by post were so received at the request express or implied of the appellant and at therefore the Post Office was the agent of the appellant. But it observed in thiswe cannot shut out the necessary inquiry which even from our own point of view is necessary to be made in order that we should satisfactorily answer the question raised in the Reference. It must not be forgotten that under S. 66 (4) of the Income-tax Act we have a right independently of the conduct of the parties to direct the Tribunal to state further facts so that we may properly exercise our advisory jurisdiction.In the result, the High Court directed that a supplementary statement of case should be submitted by the Tribunal on the followingthe finding of the Tribunal that all the cheques were received in Bhavnagar, the Tribunal to find what portion of these cheques were received by post, whether there was any request by the assessee, express or implied, that the amounts which are the subject matter of these cheques should be remitted to Bhavnagar by post. Mr. Joshi concedes that to the extent that the cheques were not received by post but by hand, the receipt will be for the purpose of tax in Bhavnagar.The appellant filed a petition in the High Court on 22-11-1955, for the grant of a certificate under S. 66A (2) of the Act to appeal to this Court from the said judgment an order of the High Court. This application was dismissed by the High Court by its order dated 8-12-1955, with the result that the appellant presented on 22-12-1955, a petition in this Court for special leave to appeal from the said judgment of the High Court dated 23-9-1955. This Court by its order dated 12-3-1956, granted special leave to appeal, such leave being limited to the question whether the High Court had jurisdiction under S. 66 (4) of the Act to call for a supplemental statement of case. This is how the appeal has come up for hearing and final disposal before us.

Reasoning:
24. It is clear on a plain reading of the terms of S. 66 (1) that the only question of law which the assessee or the Commissioner can require the Tribunal to refer to the High Court is "any question of law arising out of the order of the Tribunal" so that if the question of law which the assessee or the Commissioner requires the Tribunal to so refer to the High Court does not arise out of its order the Tribunal is not bound to refer themore so would be the case where no such material and evidence were at all in existence when the High Court in exercise of its jurisdiction under S. 66 (4) of the Act referred the case back to the Tribunal and asked it to make such additions thereto or alterations therein as the Court may direct in order to enable it to determine the question raised thereby. Adopting such a procedure would involve, in effect, raising fresh issues and taking fresh evidence in order that fresh facts may be found which facts certainly were not there at the time when the matter was heard before the Income-tax authorities or before the Tribunal in the firstobservations in our opinion, do not make any difference to the position that we have adopted herein viz., it is not open to the High Court in the exercise of its jurisdiction under S. 66(4) of the Act to raise a new question and to require the Tribunal to entertain a fresh line of enquiry, hear the parties in regard to the same and record fresh finding of fact which would enable either the assessee or the Commissioner to advance a case which had never been made by it before the Income-tax authorities or the Tribunal and which therefore could not be said to arise out of the order of the Tribunal.The High Court while answering this question did not advert to the relevant aspect of the question and this result was brought about because the Commissioner had taken pains to state some matters very fully, but he had not found the material facts as he should have done. The various essential facts were not found and stated by the Commissioner and the Privy Council observed that the referred question could not be answered until the High Court had exercised its powers under sub-s. (4) of S. 66 of the Act and left it to the discretion of the High Court to specify the particular additions and alterations which the Commissioner should be directed to make. Here also the nature, scope and extent of the jurisdiction of the High Court under S. 66(4) of the Act was not specifically discussed and the only order which was passed was that the case be remanded to the High Court for disposal after taking such action under sub-s. (4) of S. 66 of the Act as the High Court might think fit in the light of the judgment.34. The same observations which we have made earlier while discussing the case of 1939-7 ITR 536   (Pat) (supra) would apply in this case also and the observations of the Privy Council really do not militate against the position as we have laid down above.35. On the facts of the present case before us it is abundantly clear that the only question which was canvassed before the Income-tax authorities and the Tribunal before it made its order dated July 17, 1952 was whether the cheques which were received at Bhavnagar having been cashed in British India, the monies in respect of the same should be said to have been received in British India and the Tribunal had held following the case of Kirloskar Brothers Case 1952-21 ITR 82  : (AIR 1952 Bom 306  ) that the cheques were received from the Government at Bhavnagar and the receipt of money in respect of these cheques from Banks in British India related back to the receipt of the cheque at Bhavnagar and therefore was also received in Bhavnagar.36. At no time was the question as regards the posting of the cheques in British India (Delhi) at the request, express or implied, of the appellant and the consequent receipt of the sale proceeds in British India ever mooted before the Income-tax authorities or the Tribunal before the Tribunal made its order on July 17, 1952 or even in the reference applications filed on September 15, 1952 nor was the said question mooted before the Tribunal when it heard the reference and drew up the statement of case on November 5, 1954, even though this Court had pronounced its decision in Kirloskar Bros case, 1954-25 ITR 547  : (AIR 1954 SC 504  ) (supra) and 1955-1 SCR 185  : (AIR 1954 SC 429  ) (supra) on April 19, 1954. The facts admitted and/or found by the Tribunal as stated in the said applications for reference took count of the position as it had been adopted by the Revenue in all these proceedings and it could not by any stretch of imagination be urged that the question now sought to be mooted was ever in the minds of the Revenue. The question of law which was referred by the Tribunal to the High Court for its decisionthe receipt of the cheques at Bhavnagar amounted to receipts of sale proceeds init was only based on the facts admitted and/or found by the Tribunal which had relevance only to that question and not to the question which sought to be mooted by the High Court in its judgment underare, therefore, of opinion that the High Court was in error in not deciding the reference before it and answering the question on the facts disclosed in the statement of case. We are also of opinion that in the circumstances of this case the High Court had no jurisdiction under S. 66(4) to direct the Tribunal to submit a supplementary statement of case, on the points mentioned in its judgment.