1964 PLP 93 (PTD)

Reference‑High Court directing Tribunal to refer question not raised before Tribunal‑ Question referred‑Procedure to be followed‑Duty to return question unanswered‑Indian Income‑tax Act, 1922, Ss. 66 (1) & (3). If the High Court requires the Tribunal to refer a question of law which had not been raised before the Tribunal and which, consequently, the Tribunal was not bound to refer to the High Court under section 66 (1), the High Court will be acting in excess of its jurisdiction, and the procedure to be followed by the High Court when the question is referred to it, is to rectify the error it had committed by refusing to answer the question. Bisheswar Singh v. Commissioner of Income‑tax (1955) 27 I T R 376 and Khushiram Murarilal v. Commissioner of Income‑tax (1954) 25 I T R 572 dissented from. Commissioner of Income‑tax v. Arunachalam Chettlar (1953) 23 I T R 180; Commissioner of Income‑tax v. Scindia Steam Navigation Co. Ltd (1961) 42 I T R 589; Estate of Indrani, In re A I R 1931 All. 212 and Rajendra Narayan Bhanja Deo v. Commis sioner of Income‑tax (1940) 8 I T F 495 (P C) ref. K. C. Agarwala for the Assessee. Gopal Behari for the Commissioner. JUDGMENT M. C. DESAI, C. J.‑

The following question has been referred to this Court by the Income‑tax Appellate Tribunal, Allahabad Bench, under section 66 (2) of the Income‑tax Act Whether there was material for the finding of the Tribunal that the sum of Rs. 15,021 out of the sum of Rs. 25,021 appear ing as a deposit on the 20th of June 1947, was income of the assessee liable to be included in the total computation of the assessee's income for the assessment year 1949‑50? The question relates to the assessment year 1949‑50, the corresponding accounting year being the year from Asarh Sudi 2,2004 (corresponding to June 20, 1947) to Asarh Sudi 1,2005 (corresponding to July 7, 1948). The facts, as they appear from the statement of the case submitted by the Tribunal, are as follows The assessee, who is an individual, commenced business on June 20, 1947, with a capital investment of Rs. 25,021, which amount was credited to his personal account. The Income‑tax Officer called upon him to explain the source of the money and he, in his written statement, said that the money was agricultural income from a certain village and from sale of land for Rs. 6,

500. The Income‑tax Officer after considering the evidence produced by him accepted that he had earned agricultural income from the village and sale of land but assessed it at the most at Rs. 10,000 and held that the balance of Rs. 15,021 was revenue income. He held that it was income from some business because he was known to carry on some business simultaneously with serving as a munim of various firms and he had kept the money lying idle with him previous to the investment. He, therefore, included this sum of Rs. 15,021 in the total income of the assessee for assessment purposes. The Appellate Assistant Commissioner dismissed his appeal, relying upon the facts that he was a Vaish and had been in touch with business concerns and that he had produced no accounts to show what his agricultural income was or what savings he had from his salary as munim. The Tribunal in second appeal maintained the assessment on the amount of Rs. 15,

021. The question that is raised by the assessee is whether the Income‑tax authorities and the Tribunal were justified in treating the amount of Rs. 15,000 and odd as income of the accounting year June 20, 1947, July 7, 1948. If there was material, the amount was rightly included in the total income of the accounting year and was rightly assessed to tax in the assessment year 1949‑

50. The main argument of the assessee was that assuming that he had earned the money as income, he could not have earned it on the very first day on which he commenced the business, that he must have earned it previously and that if he had earned it previously it could not be included in the total income of the accounting Sear relevant to the assessment year 1949‑

50. He challenged the Tribunal's order treating it as income derived by him on the very first day on which be commenced the business. The Income‑tax Officer did not expressly consider the question whether the money was income of the accounting year or of an earlier year; his observations that the money had been lying idle with him until its investment on June 20, 1947, and that he had been carrying on some business simultaneously with serving and had kept the money idle for carrying it on, show three things: (1) that it was not the income of the business which he started for the first time on June 20, 1947, (2) that it was not the income derived by him on June 20, 1947, but was income derived by him earlier and (3) that it was income from an undisclosed business. The year that commenced on Asarh Sudi 2 is the accounting year for the particular business which he commenced on June 20, 1947, and in respect of which he produced the return and the account books; it is not the accounting year for any other business. The income in question was from another business and when its accounting year is not known it must be taken to be a financial year commencing on 1st April and ending on 31st March. The date June 20, 1947, fell in the financial year 1947‑48, which is the accounting year for the assessment year 1948‑49 and not for the assessment year 1949‑

50. Any income derived in the accounting year April 1, 1947, March 31, 1948, cannot be assessed in 1949‑

50. The Income‑tax Officer did not consider this point at all and blindly included the income in the total income for the assessment year 1949‑

50. This question was not raised by the assessee before the Appellate Assistant Commissioner or even before the Tribunal and they were not called upon to consider whether the income, assuming it to be revenue income, could be assessed in the assess ment year 1949‑

50. It appears that he was not at all aware of the law that the accounting year for income from an unknown or undisclosed business is the financial year and not the accounting year of the disclosed business and, consequently, instead of raising the question to which accounting year the income related he always raised the question whether it was revenue income or capital income. In his application made to the Tribunal under section 66 (1) also he did not invite it to refer this question to this Court; the questions he invited it to refer were: (1) Whether the inference drawn from the evidence on the record that the sum of Rs. 15,021 is taxable profit is correct ? and (2) Whether the onus of proof that Rs. 15,021 is taxable profit lies on the assessee or the Income‑tax Department ? The Tribunal rejected the application on the ground that the finding that the money was income from an undisclosed source was of fact supported by materials. Thereupon, the assessee applied to this Court under section 66 (2) and mentioned four questions fit to be referred by the Tribunal to this Court. One question related to the justification for the presumption that the money was from an undisclosed source, another related to the onus of proving that a receipt is a revenue income, the third related to the jurisdiction of the Income‑tax authorities to treat as income a receipt even though it‑was proved to be capital receipt, and the fourth was: Is the drawing of inference from proved facts a question of law and if so could the inference that the sum of Rs. 15,021 is taxable income from undisclosed source be drawn in this particular case? It will be apparent that even in this application the assessee did not raise the question of the assessability of the income in the assessment year 1949‑

50. This application was allowed by Agar wala and Upadhya, JJ. They observed (with reference to the income of Rs. 15,021): It is difficult to see how it could be treated as the income of the relevant previous year. The appellate order of the Tribunal does not give any reasons to show how the Tribunal considered it right to affirm the inclusion of Rs. 1,5021 as the assessee's taxable income in the assessment year. After having heard learned counsel for the parties we are of opinion that a question of law does arise, namely, as to whether there is any material to justify the finding that Rs. 15,021 was assessable income of the assessee liable to be included in his total income in the assessment year 1949‑

50. We accordingly require the Tribunal to state a case and to refer the question of law indicated above for the opinion of this Court. It was in compliance with this order that the Tribunal referred the case. Two preliminary questions arise, (1) whether this Court had jurisdiction to pass the above order in the circumstances mentioned above and (2) whether, if it had not, this Court is bound to answer the question. This Court has no original or appellate or supervisory jurisdiction in income‑tax matters ; the only jurisdiction that is conferred upon it by section 66 is advisory. It is a restricted jurisdiction, being restricted to the determination of "the question of law raised" by the statement of the case: vide section

66. It must be a question of law raised by the statement of the case and I have no doubt that the statement does raise a question of law. It is a question of law whether income was assessable in 1949‑50 or in a previous assessment year. But the matter does not end there. The statement of the case was submitted by the Tribunal to‑ this Court on a requisition by this Court itself. The jurisdic tion of this Court to require the Tribunal to state a case is again very much restricted : It is only when on an application made under section 66 (1) the Tribunal refuses to state the case on the ground that no question of law arises and the High Court is not satisfied with the correctness of this decision of the Tribunal, that it can require it to state the case. In other words, it is only when the Tribunal has wrongly said that no question of law arises that this Court can require it to state the case. An application under section 66 (1) is itself restricted to a question of law that arises out of the Tribunal's order; if no question of law arises out of its order no application can be made to it under section 66 (1) and if no application can be made to it obviously no application can be made to this Court under section 66 (2) and this Court cannot require the Tribunal to state a case to it. The question of the assessability of the income in the assessment year 1949‑50 does not arise out of the Tribunal's order; I have explained what questions were raised before it. The assessee, therefore, could not apply under subsection (1) to the Tribunal to refer the question to this Court. If he still applied, the Tribunal would be bound to refuse to refer the question to this Court and this Court could not possibly say that its refusal was incorrect. The position that emerges is that this Court had no jurisdiction to require the Tribunal to state the case and to refer the question to it. The next question is: what is the effect of the Tribunal's stating the case in compliance with the requisition by his Court even though the requisition was against the provisions of section 66? No assistance in answering the question can be had from section 66; evidently the Legislature did not contemplate the High Court's requiring the Tribunal to state a case in contravention of the provisions of section 66 and did not provide for such a con tingency. If it is true that the Legislature never contemplated this contingency, it follows that this Court should now refuse to determine the question raised by the statement of the case. It should do what would have been done if everything had been done in conformity with the law. Since no statement of the case would have been referred to this Court if the law had been complied with, we should deal with the matter as if there had been no statement of the case, i. e., must return it unanswered. It is no use stressing the words "shall decide" used in subsection (5). They are to be read in respect of a case referred to it in accordance with the provisions of the section. What is meant by subsection (5) is that if an application under subsection (1) made to the Tribunal for referring a question of law arising out of its order is wrongly refused, and the High Court on an application under subsection (2) requires it to refer it and it refers it, the High Court shall decide it. This Court has no jurisdiction to give any direction to the Tribunal except as laid down in section 66 (5), because as I said earlier it possesses no appellate or supervisory jurisdiction over it. The Tribunal acting under subsection (5) is bound to dispose of the case conformably to the High Court's judgment only on questions of law arising out of its order. If a particular question of law was not raised before it at all and, therefore, did not arise out of its order, there is no occasion for its disposing of the case conformably to the High Court's judgment. In other words, the High Court's judgment dealing with such question would be of only academic interest and would not affect the judgment to be passed by the Tribunal. The Tribunal cannot be required by this Court to decide a question not raised before it in a certain manner. The argument that this Court while exercising jurisdiction under subsection (5) cannot upset a finding given by it under subsection (2) is not available in the present case for the simple reason that this Court when requiring the Tribunal to state the case did not decide that a question of law did arise from the Tribunal's order and that its refusal to state the case was incorrect. What it did was to assume that a question of law arose and to ignore completely the question whether the Tribunal's refusal was correct. An assumption cannot be treated as a determination or a finding. It is open to us to say that really no question of law arose out of the Tribunal's order and that this Court wrongly assumed that it arose and required the Tribunal to refer it. We must apply the doctrine laid down by Mukherji and Bennet, JJ. in the matter of the Estate of Indrani (A I R 1931 All. 212) viz., where a Judge for the time being discovers that an order has been passed without jurisdiction either by himself or by his predecessor -in‑office, it is his duty to undo that order so far as it may lie in his power." The only way we can undo the effect of the order passed by this Court without jurisdiction is to refuse to answer the ques tion. The Judicial Committee of the Privy Council used to refuse to decide a question which was purely academic : vide Rajendra Narayan Bhanja Deo v. Commissioner of Income‑tax ((1940) 8 I T R 495 (P C)). The material facts in that case were that on a requisition by the High Court the Commissioner of Income‑tax referred the case to it and the question referred had only "an academic interest, whichever way it might be answered" and their Lordships, on an appeal from the answer given to the question by the High Court, saw no justification to depart from the well‑established practice to refuse to decide a purely academic question and observed at page 500; The function of the High Court in cases referred to it under section 66 of the Act is advisory only, and is confined to con sidering and answering the actual question referred to it. It may well be that when . . . is considered, some question may emerge with regard to the appellant's liability to income‑tax . . ., but it would clearly be contrary to their Lordships' practice to attempt to formulate any such question, even if they had before them the materials for so doing. In their Lordships' opinion, both the respondent and the High Court ought to have refused to answer the question referred to it . . ." The Supreme Court has laid down in Commissioner of Income- tax v. Arunachalam Chettiar ((1953) 23 I T R 180) that the jurisdiction of the High Court under section 66 (2) is conditional upon a question of law arising out of an order of the Tribunal passed under section 33 (4). The Supreme Court dismissed an appeal from an order of the Madras High Court refusing to answer a question referred to it by the Tribunal under subsection (1) ; this means that the Supreme Court upheld the High Court's refusal to answer the question even though at page 190 they said, in reply to the appellant's argument that the High Court, having required the Tribunal under subsection (2) to state the case, could not sub sequently refuse to answer the question, that "whether the High Court was so precluded or not requires no decision on this occasion." Actually they had said earlier at page 189: If, therefore, the reference was incompetent for want of jurisdiction both under section 66 (1) or section 66 (2) surely the High Court could decline to entertain it as it did. Just as in the above case the Supreme Court said that sub section (2) contemplates a valid application under subsection (1), so also subsection (5) contemplates a valid order under subsection (2). We were referred on behalf of the assessee to Bisheswar Singh v. Commissioner of Income‑tax ((1955) 27 I T R 376) in which Ramaswami and Sahai, JJ. said at pages‑385‑86: . . . . . the Bench of the High Court ought not to have called for a statement of the case on this question. But the assessee has succeeded in persuading the previous Bench to call for a statement. The question is whether at this stage we should say that the reference should never have been called for under section 66 (2). That would mean, in substance, that we overrule the order passed by the previous Bench. As the matter stands I think that the question must be dealt with and answered on its merits and the reference cannot now be thrown out on the ground that the question does not arise out of the Tribunal's order. With great respect to the learned Judges I do not think this is the correct approach. Further, the Patna High Court in dealing with the matter under subsection (2) might have given a definite finding that a question of law did arise out of the Tribunal's order and in any case the Supreme Court case referred to above is clearly against the view taken by the Patna High Court. The Calcutta High Court took a similar view in Khushiram Murarilal v. Commissioner of Income tax ((1954) 25 I T R 572). Chakravartti, C. J. and Lahiri, J. said at page 577: once this Court directs a case to be stated with reference to a particular question, it must be deemed to have held that the question did arise out of the appellate order and thereafter it cannot be open to the Bench finally hearing the reference to throw it out on the peliminary ground that the question did not arise at all. No reasons and no authority are cited by the learned Judges in support of this statement and respectfully dissent. Also the circumstances of the instant case do not warrant any such legal fiction. Commissioner of Income‑tax v. Scindia Steam Navigation Co. Ltd. (1) only explains the provisions of sections 66 (1) and 66 (2) and does not help the assessee. On the other hand it emphasises that a High Court's power to require the Tribunal to refer a case under subsection (2) is subject to two limitations, (1) that the question must be one which the Tribunal was bound to refer under subsections (1) and (2) that the applicant must have required it to refer it. The question whether a High Court can refuse to answer a question referred to it by the Tribunal in compliance with its order passed under subsection (2) did not arise before, and was not decided by the Supreme Court. There the question was referred to the High Court by the Tribunal under subsection ((1961) 42 I T R 589). In the result, I would return the reference to the Tribunal unanswered on the grounds that the question referred to this Court did not arise out of the Tribunal's order, the Tribunal was never required by the assessee to refer it to this Court and never refused to refer it to this Court, the assessee did not ask this Court also to require it to refer it and this Court never held that the Tribunal's refusal was incorrect and, consequently, had no jurisdiction to call upon it to refer it. The Commissioner of Income‑tax should get his costs assessed at Rs. 200 from the assessee. BRIMAL GUPTA, J.‑

I agree.