1960 PLP 987 (PTD)

When the appeal by the Income-tax Department against this order was taken to the Income-tax Appellate Tribunal the assessee was allowed by the learned Tribunal to raise the further plea that the securities in question being those if the Government of India, as it was before the 15th of August 1947, they did not fall within section 8 of the Income-tax Act and, therefore, the interest thereon could not be assessed on the basis of "receiv ability" as alleged. The Tribunal rejected both the contentions of the assessee by their order, dated the 23rd of December, 1950 and have now referred to this Court the following questions: (1) Whether interest on securities of the Central Govern ment of India, as it existed prior to Partition, is taxable in Pakistan under section 8 of the Income-tax Act as adapted by the Pakistan (Adaptation of Existing Pakistan Laws) Order, 1947 ?and (2) Whether, in the circumstances of the case, the amount of Rs. 16,200 has been rightly assessed as interest on securities "receivable" by the assessee during the account year, within the meaning of section 8 of the Income-tax Act as adapted by the Pakistan (Adaptation of Existing Pakistan Laws) Order, 1947 ? Learned counsel appearing for the respondent, the Commissioner of Income-tax, Punjab and N.-W. F. P., has raised a preliminary objection to this reference. He contended that the questions referred to us are purely academic in nature and would have no effect, one way or the other, on the final assessment because income-tax on the amount in question could be charged under the provisions of the Act other than those contained in section

8. In order to convince us of the validity of the second part of his contention he requested us to construe certain other sections of the Act-in other words he wanted us to formulate another question of law and to decide it. It is apparent from the facts stated by us, and contained in the Statement of Case submitted by the Tribunal, that the Income-tax Officer and the two appellate Courts decided the matter in issue merely on the basis of the propositions of law contained in the two questions referred to this Court, and that they did not rest their decision upon any other ground. Under subsection (1) of section 66 of the Income-tax Act the Appellate Tribunal is required to " refer to the High Court, at the instance of either party before it, "any question of law arising out of such order" (i.e., the order of the Appellate Tribunal deciding the appeal before it) and to "draw up a statement of the case and refer it to the High Court." Subsection (5) lays down:- " The High Court upon the hearing of any such case shall decide the questions of law raised thereby and shall deliver its judgment thereon . . . . . ." It would thus appear that a duty is cast upon the High Court to decide the questions of law raised by a statement of the case drawn up by the Appellate Tribunal and referred to it. The only other jurisdiction, besides that of deciding the questions referred, which the High Court possesses under this subsection is to satisfy itself (1) that the questions referred are questions of law and (2) that they are "raised" by the Statement of the Case submitted by the Appellate Tribunal. Under sub section (1) the High Court possesses the further jurisdiction to see whether the questions of law referred arose out of the order of the Appellate Tribunal deciding the appeal before it ; because if they do not so arise the Tribunal would have no jurisdiction to make a reference. Beyond this, and that of requiring the Tribunal under subsection (4) to make additions to or alterations in, the Statement of the Case, a High Court possesses no jurisdiction under section 66 when considering a reference by the Appellate Tribunal. The two questions referred to us are unquestionably questions of law which 'did arise out of the Appellate order of the learned Tribunal and have been fairly and unambiguously raised by the Statement of the Case submitted to this Court. Wee therefore, overrule the preliminary objection raised by the respondent. So far as the decision of the first question is concerned, it presents little difficulty. The relevant portion of section 8 of the Income-tax is as follows :- " The tax shall be payable by an assessee under the head "Interest on Securities" in respect of the interest receivable by him on any security of the Central Government . . . . . ." The expression "Central Government" when used in any law of a particular country means the Central Government of thai country and would, therefore, when used in the Pakistan Income tax Act, mean the Central Government of Pakistan. The intention B of section 8 is to bring only the interest receivable on the securities of the country within its purview ; and to exclude front' it interest on the securities of foreign Governments, which would fall under either section 10 or section 12 of the Act. There fore the sole question falling for decision is whether the secu rities in question are those of the Central Government of Pakistan. This is purely a question of fact and it is not denied by either party to the reference that the securities are of the Government of India. Had it been only conceded that the securities in question were created by the Government of India before August 15, 1947, it would still have to be determined whether they belong to it even now. But in the question referred to us it is expressly stated that they are even now "of the Government of India." In the question \referred to us for our decision the Tribunal has mentioned the Pakistan (Adap tation of Existing Pakistan Laws) Order, 1947. There is nothing either in the Statement of Case or in the question itself to indicate which of the provisions of that order the Tribunal had in mind. Learned counsel appearing for the Income-tax Department has referred us to the Schedule to that Order by which the original section 3 (8ab) of the General Clauses Act (X of 1897) has been substituted by the following :- "(8ab) "Central Government" shall- (a) in relation to anything done before the commencement of Part III of the Government of India Act, 1935, mean the Governor-General-in-Council or the authority competent at the relevant date to exercise the functions corresponding to those subsequently exercised by the Governor-General ; (b) In relation to anything done after the commencement of Part III of the said Act, but before the establishment of the Federation of Pakistan, mean as respects matters with respect to which the Governor-General was by or under the provisions of the said Act then in force required to act in his discretion, the Governor-General and as respects other matters, the Governor-General-in-Council ; and (c) in relation to anything done or to be done after the establishment of the Federation of Pakistan ; mean the Governor-General . . . . . These provisions are hardly of any assistance in deciding the question. This section only defines the authority which should be considered as "Central Government" with reference to anything done before the commencement of Part III of Government of India Act, 1935, after that date and after the establishment of the Federation of Pakistan. With reference to the first period it means the Governor-General-in-Council ; the second Governor-General or the Governor-General-in-Council as the case may be and the third the Governor-General. There is nothing in the amended section (8ab) of the General Clauses Act to show that the securities which before the 15th of August 1947 belong to Government of India and even now continue to belong to it should be considered to be the securities of the Central Government within the meaning of section 8 of the Income-tax Act. In fact the expressions " Governor-General- in-Council " and "Governor-General" as used in clauses (a) and (b) of the amended section 3 (8ab) of the General Clauses Act must necessarily mean the Governor-General-in-Council and the Governor-General of the undivided India, as the undivided India and its Government were legal and constitutional entities dis tinctly different from those of Pakistan and its Government. A reference to Article 9 of the Indian Independence (Rights, Properties and Liabilities) Order, 1947 would set at rest the dispute whether the securities in question became the securities of the Government of India after the 15th of August 1947. This Article provides as follows :- "All liabilities in respect of such loans, guarantees and other financial obligations of the Governor-General-in-Council . . . . as are outstanding immediately before the appointed day (i.e. the 15th of August 1947) shall, as from that day:- (a) in the case of liabilities of the Governor-General-in -Council, be liabilities of the Dominion of India ; . . . ." This article makes it clear that after the appointed day the liability in respect of the securities created by the Central Government of India before that day, was cast upon the Dominion (now I Republic) of India, and the Federation of Pakistan was exonerated from the same. The securities being unquestionably those of the present Government of India the first question referred to us must be answered in the negative. As regards the second question referred to us by the Tribunal, it might well be answered as the decisions of the Income-tax Officer and the Appellate Assistant Commissioner rested mainly on the interpretation of the word "receivable" in section 8 ; and as it was decided by the Appellate Tribunal and has been raised in the statement of the Case. Strictly speaking, our answer to should be quite sufficient to dispose of the case. The second question must also be answered in the negative assuming of course that the securities are of the "Central Govern ment of Pakistan" and, therefore, come within the ambit of section 8 of the Income-tax Act. Section 8 is not a charging section, it is only a machinery section and is an explanation, or definition, of the second head of the charge of income set forth in section 6 of the Act. Before income-tax is charged on any particular amount it must be shown to be income under section 4 of the Act. We are fortified in our opinion on this point by the decision of the Division Bench of the Bombay High Court reported in Firm of Narayandas Kedarnath v. Commissioner of Income-tax, Central (A I R 1952 Bom. 459 : (1952) 22 I T R 18). The assessee will be entitled to his costs in this Court. Reference answered in the negative.