1966 PLP 820 (PTD)

TENDOLKAR, J.-The facts giving rise to this reference are few. One Rai Saheb Peshora Singh Sial of Nagpur carried on several businesses. He inter alia owned coal mines at Majri and Ghogri and worked them. In 1944 a private limited company was formed by the said Sial; and on the 31st of March 1947, by an agreement in writing, the said Sial transferred to the private limited company the management of the entire 'business of working his collieries and mines. Clause (6) of the agreement provided as under: "That in consideration of the mining proprietor (assessee) having allowed the use and occupation of the running collieries to the agency company- the company shall give to the mining proprietor royalty at the rate of Rs. -/6/- (Rs. nil and annas six only) per ton of coal raised and despatched out of the colliery premises. The mining proprietor shall have nothing to do with any items of expenses that will be incurred for raising coal or for running the business at all these three places." Clause (16) provided that if the price of coal rose, the commission payable [which, we presume, is the royalty referred to in clause (6)] shall be proportionately increased. Clause (19) provided as follows: "That the company has agreed to take over all the business outstanding debits either due by or to the proprietor at the face value as per books of the proprietor for the year ending 31st March 1947, and in lieu thereof the company has agreed to allot shares of the equivalent net value in the name of the proprietor or his nominees." Now, the assessee before us was the said Sial, who has since died and whose heirs have been brought on the record as applicants. The assessment year is 1948-49, the corresponding accounting year being the 1st of April 1947, to the 31st of March 1948. During the course of the assessment proceedings, the assessee was required to produce a statement of out standings that were taken over by the private limited company under clause (19) of the agreement. Such a statement was put in and it appeared from the statement that the assessee had got a credit for Rs. 2,54,907-15-3. The details of this amount disclosed that included in the amount were two amounts of Rs. 55,000 each, one for the goodwill of the Majri coal mine and the other for the goodwill of the Ghogri coal mine, making together a sum of Rs. 1,10,

000. The Income-tax Officer held that the value of the goodwill was Rs. 15,000 and treated the balance of Rs. 95,000 as capital gain. The Appellate Assistant Commissioner, on appeal, raised the value of the goodwill to Rs. 25,000 and taxed the balance from Rs. 1,10,000 as capital gain. Upon an appeal to the Tribunal, the Tribunal held that this was not a case of capital gain at all, but it also held that the payment constituted a capitalized part of the income of the assessee, and that if he had not received this amount, he would have charged a higher royalty than six annas per ton. On this footing the assessee would have been subject to a much larger tax than had already been imposed upon him on the footing of a capital gain. The Tribunal, therefore, not having the power to enhance the assessment, simply dismissed the appeal. As arising out of the decision of the Tribunal, the Tribunal referred to the Nagpur High Court the following three questions:- (1) Whether the assessee in effecting the transfer of the management of the coal mines to the company made a capital gain and, if so, the extent thereof? (2) If the answer to question No. (1) is in the affirmative whether the law imposing a tax on capital gains is intra vires? (3) If the answer to question No. (1) be in the negative, whether, in effecting the transfer of the management of the coal mines to the company the assessee made an income liable to tax and, if so, the extent thereof? When this reference came up for hearing before the Nagpur High Court, that High Court made an order for a supplementary statement of the case and raised two questions on which they asked for a statement. The supplementary statement has now been made by the Tribunal and the questions raised are: (1) Whether there is material for the finding of the Tribunal that the amount of Rs. 1,10,000 was nothing else but a premium (advance payment) paid by the company to the assessee and that it forms wholly as his income? (2) Whether the Tribunal was competent to make the assessment on the basis of income when that point did not form the subject of the appeal or objection? Now, the Tribunal, in stating the supplementary case, has drawn our attention to the fact that no application was made by assessee to the High Court within the time allowed by section 66 (2) of the Income-tax Act requiring the Tribunal to state the case on these questions; and, therefore, the Tribunal submits that the questions cannot be agitated. Now, it is no doubt true that a party desiring to have an additional question raised in a case stated by the' Tribunal must apply to the Court within the time prescribed in section 66 (2) and the practice of this Court has been that such an application is normally made by way of a notice of motion which may, for convenience, be heard with the reference itself; but, no doubt, the making of such an application within the time allowed is a condition precedent to the exercise of jurisdiction by this Court to require the Tribunal to state a case. We are not familiar with the practice that prevailed in, the Nagpur High Court but we are told that it was the practice in that Court not to make any such applications before the hearing of the reference, but to make them at the time of the hearing even if such hearing took place long after the period of six months that is prescribed in section 66 (2); and it is apparently in pursuance of this practice that the order was made by the Nagpur High Court. Since that order has been made by a Division Bench of that Court, we do not propose to consider in these proceedings the validity of that order. It is needless to state that the procedure followed in this Court, and which is in conformity with the provisions of section 66 (2), will, however, have to be observed in matters coming up to this Court from that area in future. Now, the question that really determines this reference is the second question raised in the supplementary statement of the case, namely, whether the Tribunal was competent to make the assessment on the basis of income when that point did not form the subject of the appeal or objection; and the matter appears to us to be covered by a decision of a Division Bench of this Court, to which decision I was a party, reported in New India Life Assurance Co. Ltd. v. Commissioner, Income-tax ((1957) 31 I T R 844). The relevant observations are to be found in the judgment of Chagla, C. J., at page 856 and they are: "Subsection (4) of section 33 provides that the Appellate Tribunal may, after giving both parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit, and shall communicate any such orders to the assessee and to the Commissioner. The expression `thereon' has come in for considerable judicial comment and observation, and the authorities lay down that the power of the Tribunal is confined to dealing with the subject-matter of the appeal and the subject-matter of the appeal is constituted by the grounds of appeal preferred . by the appellant. This subject matter cannot be expanded even by the appellant unless leave is granted to him to do so by the Appellate Tribunal. The subject-matter can certainly not be expanded by the respondent, as already pointed out, if he has not either appealed or cross-objected. Then the learned Chief Justice reviewed the cases right from the decision of Motor Union Insurance Co. Ltd. v. Commissioner of Income-tax, Bombay ((1945) 13 I T R 272) and came to the conclusion that they all supported the proposition that it was not competent to the Income-tax Tribunal to decide any matter before it except when it arose out of the grounds of appeal preferred by the appellant. In this particular case, it was certainly not the appellant's case before the Tribunal that the sum of Rs. 1,10,000 was his income, nor does-it appear to have been the case for the taxing authority. The. Tribunal apparently of its own motion came to that conclusion on the facts before it. Following the decision reported in New India Life Assurance Co. Ltd. v. Commissioner of Income-tax, we have no hesitation in holding that the Tribunal had no jurisdiction to do so; and we must, therefore, answer issue No. (2) referred to us by the supplementary written statement in the negative: The other issues do not, therefore, really survive because the Tribunal has held in terms that this was not a case of a capital gain and against this decision the Income-tax Commissioner has not come upon a reference;, but the Tribunal has in question (1) referred to us the question as to whether this was a capital gain. One has merely to read the definition of "capital gain" to realize that this could not conceivably be a capital gain, because there was no transfer, sale or exchange of a capital asset. All that was done was to give the management of that asset to someone else and Mr. Amin has not attempted to argue that this was a case of a capital gain. Therefore, we answer question No. (1) raised on the original reference in the negative. Question No. 2 does not arise. Question No. 3: It was not competent to the Tribunal to determine whether this was the income of the assessee. Question No. 1 referred to us on the supplementary statement of the case does not arise because we have held that the Tribunal had no jurisdiction to determine it. The Income-tax Commissioner to pay the costs of the reference. Reference answered accordingly.