Case: The Commissioner Of Income-Tax, Bombay Vs. The Scindia Steam Navigatlon Co. Ltd

1. The respondents were the owners of a steam ship called "El Madina". That was requisitioned by the Government during the last world war, and was lost by enemy action on March 16, 1944. As compensation therefor, the Government paid the respondents Rs. 20,00,000 on July 17, 1944; Rs. 23,00,000 on December 22,1944; and Rs. 33,333 on August 10, 1946. The original cost of the ship was Rs. 24,95,016 and its written-down value at the commencement of the year of account was Rs. 15,68,484. The difference between the cost price and the written-down value viz., Rs. 9,26,532 represents the deductions which had been allowed year after year on account of depreciation. As the total compensation received exceeded the cost price, the respondents have recouped themselves all the amounts deducted for depreciation.It is not disputed by the respondents that the sum of Rs. 9,26,532 would be profits liable to be taxed under this proviso, if it applies. Equally it is not disputed by the appellant that apart from this proviso the amount in question could only be regarded as capital receipt, not liable to be taxed. Before the income-tax authorities, the respondents sought to avoid the application of this proviso on the ground that on representations made by them with reference to this very matter, the Board of Revenue had directed that for the purpose of Rule 4, Schedule II, of the Excess Profits Tax Act, 1940, the amount payable as compensation (both the initial advance as well as any further payment that may be made) should be taken into account as though it had actually been received within thirty days of the date of the loss of the ship; and that in consequence the amount should be deemed to have been received on April 16,1944. If that contention is correct, the amounts would have been received, not in the year of account which was July 1, 1944, to June 30, 1945, but in the year previous thereto, and they could not therefore be included in the income of the company for the year of assessment. This contention, however, was rejected by all the income-tax authorities. Dealing with it, the Appellate Tribunal observed in its Order dated July15, 1953, that the concession which the Board of Revenue had intended to give was limited to excess profits tax, and could not in any event be relied on for the purpose of cutting down the operation of the statutory provision enacted in the relevant proviso in S. 10(2)(vii); and that the material date was when the compensation was in fact received - and that was in the year of account and not when it became due and payable, in the year previous thereto. In the result, the Tribunal held that the amount was liable to be included in the total income of the company.4. The respondent then filed an application before Tribunal, under S. 66(1) of the Act, requiring certain questions to be referred to the Court, and one of them was asin view of the fact that the 4th proviso to section 10(2) (vii) of the Indian Income-tax Act did not apply to the assessment for the Assessment year 1945/46 and under the law in force as applicable to that assessment year the sum of Rs. 9,26,532 which accrued in the previous year relevant to that Assessment year was not taxable at all, and the fact that having regard to the Assessees method of accounting the said sum should not be assessed in any other year, the Assessment in respect of the said sum in the subsequent Assessment year 1946/47 was valid in law."5. By its order dated February 9, 1954, the Tribunal referred the following question for the opinion of thethe sum of Rs. 9,26,532/- was properly included in the assessee companys total income computed for the assessment year 1946-47."The reference came up for hearing before a Bench of the Bombay High Court consisting of Chagla, C. J., and Tendolkar, J., and then the respondents raised the contention that the proviso to S. 10(2)(vii) under which the charge was made could not be taken into account in making the present assessment, as the same had been introduced by the Income-tax (Amendment) Act, 1946 (VIII of 1946), which came into force on May 4, 1946, whereas the liability of the company to be taxed fell to be determined as on April 1, 1946, when the Finance Act, 1946, came into force. The appellant raised a preliminary objection to this question being raised for the first time before the Court, on the ground that it did not arise out of the Order of the Tribunal, having been neither raised before it nor dealt with by it, and that further it had not been referred to the Court. Overruling this objection, the learned Judges observed that the form in which the question was framed was sufficiently wide to take in the new contention, that even if the particular aspect of the question had not been argued before the Tribunal, it was implicit in the question as framed, and that therefore the assessee could raise it. On the merits they held that as the proviso was not retrospective in its operation, the amount in question was not liable to be included in the taxable income and answered the question in the negative. It is against this decision that the present appeal by special leave is directed.

Court's reasoning:
24. It will be seen from the foregoing review of the decisions that all the High Courts are agreed that S. 66 creates a special jurisdiction, that the power of the Tribunal to make a reference and the right of the litigant to require it, must be sought within the four corners of S. 66(1), that the jurisdiction of the High Court to hear references is limited to question which are properly referred to it under S. 66(1), and that such jurisdiction is purely advisory and extends only to deciding questions referred to it. The narrow ground over which the High Courts differ is as regards the question whether it is competent to the Tribunal to refer, or the High Court to decide, a question of law which was not either raised before the Tribunal or decided by it, where it arises on the facts found by it. On this question, two divergent views have been expressed. One is that the words, "any question of law arising out of" the order of the Tribunal signify that the question must have been raised before the Tribunal and considered by it, and the other is that all questions of law arising out of the facts found would be questions of law arising out of the order of the Tribunal. The latter is the view taken by the Bombay High Court in (1948) 16 ITR 227 : (AIR 1949 Bom 24  ) and approved by the Nagpur High Court in 1952-22 ITR 448 : (AIR 1953 Nag 173). The former is the view held by all the other High Courts. Now the argument in support of the latter view is that on the plain grammatical construction of S. 66(1), any question of law that could be raised on the findings of fact given by the Tribunal, would be questions that arise out of the order, and that, to hold that they meant that the question must have been raised before the Tribunal and decided by it, would be to read into the section words which are notare unable to agree with this contention. Under the British statute when once a decision is given by the Commissioners, it is sufficient that the assessee should express his dissatisfaction with it and ask that the matter be referred to the decision of the High Court. It is then for the Commissioners to draw up a statement of the case and refer it for the decision of the court. The British statute does not cast, as does S. 66(1) of the Act, a duty on the assessee to put in an application stating the questions of law which he desires the Commissioners to refer to the court and requiring them to refer the questions which arise out of that order. In 1953 SCR 463   : (AIR 1953 SC 118  ) this Court has decided that the requirement of S. 63(1) are maters affecting the jurisdiction to make a reference under that section. The attempt of the respondents to equate the position under S. 66(1) of the Act with that under the British statute on the ground that the Tribunal has to draw up a statement of the case and refer it, and that the court is to decide questions of law raised by it, must break down when the real purpose of a statement in a reference is kept in view. A statement of case is in the nature of a pleading wherein all the facts found are set out. There is nothing in it which calls for a decision by the court. It is the question of law referred under S. 66(1) that calls for decision under S. 66(5) and it is that that constitutes the pivotal point on which the jurisdiction of the court hinges. The statement of the case is material only as furnishing the facts for the purpose of enabling the court to decide the question referred. It has been repeatedly laid down by the Privy Council that the Indian Act is not in pari materia with the British statute and that it will not be safe to construe it in the light of English decisions, vide Commissioner of Income-tax Bengal v. Shaw Wallace and Co. 59 Ind App 206 : (AIR 1932 PC 138  ). In view of the difference between S. 66(1) and the corresponding provision in the British statute, we consider that no useful purpose will be served by referring to the English decisions for interpreting S. 66.26. But the main contention still remains that the language of S. 66(1) is wide enough to admit of questions of law which arise on the facts found by the Tribunal and that there is no justification for cutting down its amplitude by importing in effect words into it which are not there. There is considerable force in this argument. But then there are certain features, which distinguish the jurisdiction under S. 66, and they have to be taken into consideration in ascertaining the true import of the words, "any question of law arising out of such order." The jurisdiction of a court in a reference under S. 66 is a special one, different from its ordinary jurisdiction as a civil court. The High Court, hearing a reference under the section, does not exercise any appellate or revisional or supervisory jurisdiction over the Tribunal. It acts purely in an advisory capacity, on a reference which properly comes before it under S. 66(1) and (2). It gives the Tribunals advice, but ultimately it is for them to give effect to that advice. It is of the essence of such a jurisdiction that the court can decide only questions which are referred to it and not any other question. That has been decided by this Court in 1960-1 SCR 249   : 1959-37 ITR 11   : (AIR 1959 SC 1177  ); 1960-3 SCR 417   : (1960) 39 ITR 540   : (AIR 1960 SC 907  ) and 1960-40 ITR 552   : (AIR 1961 SC 107  ). If the true scope of the jurisdiction of the High Court is to give advice when it is sought by the Tribunal, it stands to reason that the Tribunal should have had an occasion to consider the question so that it may decide whether it should refer it for the decision of thesee no force in this contention. Section 66(2) confers on the court a power to direct a reference only where the Tribunal was under a duty to refer under S. 66(1), and it is, therefore, subject to the same limitations as S. 66(1). That has been held by this Court in 1960-1 SCR 249   : 1959-37 ITR 11  : (AIR 1959 SC 1177  ), and in 1960-40 ITR 552  : (AIR 1961 SC 107  ). Moreover, the power of the court to issue direction to Tribunal under S. 66(2) is, as has often been pointed out, in the nature of a mandamus and it is well settled that no mandamus will be issued unless the applicant had made a distinct demand on the appropriate authorities for the very relief which he seeks to enforce by mandamus and that had been refused. Thus, the power of the court to direct a reference under S. 66(2) is subject to two limitations-the question must be one which the Tribunal was bound to refer under S. 66(1) and the applicant must have required the Tribunal to refer it. R(T) is the form prescribed under Rule 22A for an application under S. 66(1), and that shows that the applicant must set out the questions which he desires the Tribunal to refer and that further, those questions must arise out of the order of the Tribunal. It is therefore, clear that under S. 66(2), the court cannot direct the Tribunal to refer a question unless it is one which arises out of the order of the Tribunal and was specified by the applicant in his application under S. 66(1). Now, if we are to hold that the court can allow a new question to be raised on the reference, that would in effect give the applicant a right which is denied to him under S. 66(1) and (2), and enlarge the jurisdiction of the court so as to assimilate it to that of an ordinary civil court of appeal.28. It is again to be noted that, whereas S. 66(1), as it stood prior to the amendment of 1939, conferred on the Commissioner a power to refer a question of law to the court suo motu, that power has been taken away under the present section and it has accordingly been held that under S. 66(1), as it now stands, there is no power in the Tribunal to refer a question of law suo motu for the decision of the court. If, as contended for by the respondents, the court is to be held to have power to entertain in a reference, any question of law, which arises on the facts found by the Tribunal, its jurisdiction under S. 66(5) must be held to be wider than under S. 66(1) and (2). The correct view to take, in our opinion, is that the right of the litigant to asked for a reference, the power of the Tribunal to make one, and the jurisdiction of the court to decide it are all co-extensive and, therefore, a question of law which the applicant cannot require the Tribunal to refer and which the Tribunal is not competent to refer to the court, cannot be entertained by the court under S. 66(5). In view of the above considerations, we are unable to construe the words, "any question of law arising out of such order," as meaning any question of law arising out of the findings in the order of the Tribunal.29. One of the reason given by Chagla, C. J., in, (1948) 16 ITR 227 : (AIR 1949 Bom 24  ), for differing from the decision in1947-15 ITR 442: (AIR 1948 Mad 181), that it is only a question which was raised before the Tribunal that could be said to arise out of its order was that that view must result in great injustice in a case in which the applicant had raised a question before the Tribunal but it had failed to deal with it owing to mistake or inadvertence. In such a case, it was said, the applicant would be deprived, for no fault of his, of a valuable right which the legislature had intended to give him. But we see no difficulty in holding that in those cases the Tribunal must be deemed to have decided the question against the appellant, as Falshaw, J. was disposed to do in (1956) 30 ITR 388 (Punj) (FB). This is only an application of the principle well known to law that a relief asked for and not granted should be deemed to have been refused. It is on this footing that Kania, J. held in 1947-15 ITR 319  : (AIR 1948 Bom 72  (2) (FB)), that, in the circumstances stated above, the court could call upon the Tribunal to state a supplemental case after giving its own decision on the contention. That was also the procedure adopted in (1952) 22 ITR 448: (AIR 1953 Nag 173). Such cases must be exceptional and cannot be founded on for putting a construction different from what the language of S. 66(1) would otherwise warrant.30. There was also some argument as to the position under S. 66(1) when the Tribunal decides an appeal on a question of law not raised before it. That would undoubtedly be a question arising out of the order, and not the less so because it was not argued before it, and this conclusion does not militate against the construction which we have put on the language of S. 66(1).31. The result of the above discussion may thus be summed up :1. When a question is raised before the Tribunal and is dealt with by it, it is clearly one arising out of its order.2. When a question of law is raised before the Tribunal but the Tribunal fails to deal with it, it must be deemed to have been dealt with by it, and is therefore one arising out of its order.3. When a question is not raised before the Tribunal but the Tribunal deals with it, that will also be a question arising out of its order.4. When a question of law is neither raised before the Tribunal nor considered by it, it will not be a question arising out of its order notwithstanding that it may arise on the findings given by it.Stating the position compendiously, it is only a question that has been raised before or decided by the Tribunal that could be held to arise out of itsthe only question on which the parties were at issue before the income-tax authorities was whether the sum of Rs. 9,26,532 was assessable to tax as income received during the year of account 1945-46. That having been decided against the respondents, the Tribunal referred on their application under S. 66(1), the question, whether the sum of Rs. 9,26,532 was properly included in the assessee companys total income for the assessment year 1946-47, and that was the very question which was argued and decided by the High Court. Thus it cannot be said that the respondents had raised any new question before the court. But the appellant contends that while before the income-tax authorities the respondent disputed their liability on the ground that the amount in question had been received in the year previous to the year of account, the contention urged by them before the court was that even on the footing that the income had been received in the year of account, the proviso to S. 10(2) (vii) had no application, and that it was a new question which they were not entitled to raise. We do not agree with this contention. 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 complex one, trenching 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 S. 66(1) requires it that the question of law which is referred to the court for decision and which 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 itself a distinct question for the purpose of S. 66(1) of the Act. That was the view taken by this Court in1955-1 SCR 185  : (AIR 1954 SC 429  ), and in 1960-40 ITR 552  : (AIR 1961 SC 107  ), and we agree with it. As the question on which the parties were at issue, which was referred to the court under S. 66(1), and decided by it under S. 66(5) is whether the sum of Rs. 926,532 is liable to be included in the taxable income of the respondents, the ground on which the respondents contested their liability before the High Court was one which was within the scope of the question, and the High Court rightly entertainedis no doubt true that sometimes the questions are framed in such general terms, that, construed literally, they might take in questions which were never in issue. In such cases, the true scope of the reference will have to be ascertained and limited by what appears on the statement of the case. In this connection, it is necessary to emphasize that, in framing questions, the Tribunal should be precise and indicate the grounds on which the questions of law are raised. Where, however, the question is sufficiently specific, we are unable to see any ground for holding that only those contentions can be argued in support of it which had been raised before the Tribunal. In our opinion, it is competent to the court in such a case to allow a new contention to be advanced, provided it is within the framework of the question asthe point argued before the Income-tax authorities was that the income was received not in the year of account but in the previous year, the question as framed is sufficient to cover the question which was actually argued before the court namely that in fact the assessment is not proper by reason of the proviso being inapplicable. The new contention does not involve reframing of the issues. On the very terms of the question as referred which are specific, the question is permissible and was open to the respondents. Indeed the very order of reference shows that the Tribunal was conscious that this point also might bear on the controversy so that it cannot be said to be foreign to the scope of the question as framed. In the result, we are of opinion that the question of the applicability of the proviso is really implicit, as was held by Chagla, C. J., in the question which was referred, and therefore it was one which the court had to answer.35. On the merits, the appellant had very little to say. He sought to contend that the proviso thought it came into force on May 5, 1946, was really intended to operate from April 1, 1946, and he referred us to certain other enactments as supporting that inference. But we are construing the proviso. In terms, it is not retrospective, and we cannot import into its construction matters which are ad extra legis, and thereby alter its true effect. Then it was argued that the amount of Rs.9,26,532 having been allowed as deduction in the previous years, may now be treated as profits received during the year of assessment, and thereby subjected to tax. But this is a point entirely new and not covered by the question, and on the view taken by us as to the scope of a reference under S. 66(1), it must be disallowed.