1. This is a reference on a case stated under section 256(1) of the Income-tax Act, 1961, by the Income-tax Appellate Tribunal.
2. The assessment year with which we are concerned is the assessment year 1965-66, for which the relevant previous year was the one ending on March 31, 1965. During that year, the assessee sold 1,50,000 shares of Braithwaite and Company (India) Limited, and one of the disputes was regarding the computation of the capital gains arising to the assessee on that sale. The Income-tax Officer computed those gains at Rs. 25,49,538. On an appeal by the assessee, the Appellate Assistant Commissioner reduced the quantum of capital gains to Rs. 20,07,728. While giving effect to the order of the Appellate Assistant Commissioner and determining the tax due, the Income-tax Officer changed the basis of computing the relief in respect of the dividend income of the assessee. In the original assessment order, the Income-tax Officer had adopted the basis of the tax rate of 25% of the dividend income; whereas in giving effect to the order of the Appellate Assistant Commissioner, he adopted the tax rate at 53.51%. The appeal preferred by the assessee against the aforesaid order of the Income-tax Officer was dismissed by the Appellate Assistant Commissioner on merits. The assessee then preferred a second appeal to the Tribunal. Several points were raised by the assessee before the Tribunal. We are, however, not concerned with those points. We must, however, mention that Mr. Dastur pointed out to us that one of the points urged by the assessee before the Tribunal was that the order of the Income-tax Officer changing the basis of computation of relief while giving effect to the order of the Appellate Assistant Commissioner was beyond his jurisdiction and was, therefore, to that extent, illegal. It does not appear from the order of the Tribunal that it has gone into the merits of this contention. The Tribunal, however, took the view that the Income-tax Officer erred in working out the average rate of tax by including the capital gains in the total income of the assessee for determining the average rate under section 85A of the Income-tax Act, 1961. In view of that conclusion, the appeal of the assessee was allowed by the Tribunal, and the Income-tax Officer was directed to modify his impugned order accordingly. From the aforesaid decision, the following two questions have been referred to us :
Question No. 1 which was referred to us at the instance of the Commissioner is as follows :
'(1) Whether, on the facts and in the circumstances of the case, and on an interpretation of section 85A of the Income-tax Act, 1961, the average rate of tax has to be worked out in the assessee's case by excluding the capital gains from the total income as also the tax thereon from the total tax ?' Question No. 2 which has been referred to us at the instance of the respondent-assessee is as follows : '(2) Whether, on the facts and in the circumstances of the case, the Income-tax Officer acted illegally in altering the rate of relief on the dividend income from 40% to 11.49% while giving effect to the order of the Appellate Assistant Commissioner dated April 13, 1968, pertaining only to the computation of capital gains ?'
3. As far as question No. 1 is concerned, it is common ground that the same is concluded in favour of the Revenue, as far as this court is concerned, by the decision of a Division Bench of this court in Birla Bombay P. Ltd. v. CIT : 121ITR142(Bom) . In view of this decision, that question will have to be answered in the negative and against the assessee.
4. As far as question No. 2 is concerned, we find that it has been held by the Supreme Court in CIT v. Damodaran (V.) : 121ITR572(SC) , that in every case it is only the party applying for a reference who is entitled to specify the question of law which should be referred. Nowhere in the Income-tax Act, 1961, is there a right given to the non-applicant to ask for a reference of questions of law on the application made by the applicant. Where the order of the Tribunal under section 254 has decided the appeal partly againstone party and partly against the other, the party who is aggrieved and who desires a reference to the High Court must file a reference application. It is not open to him to make a reference application filed by the other party the basis of his claim that a question of law sought by him should be referred. Where, however, the order made by the Tribunal operates entirely in favour of one party, although in the course of making the order the Tribunal may have negatived some points of law raised by that party, not being a party aggrieved by the result of the appeal, it is not open to that party to file a reference application. On a reference application being filed by the aggrieved party, it is open to the non-applicant to ask for a reference of those questions of law which arise on its submissions negatived in the appeal by the Tribunal.
5. We find that the controversy on the basis of which question No. 2 has been referred has not been dealt with by the Tribunal at all, although Mr. Dastur pointed out that an argument had been advanced as mentioned earlier in that connection by the respondent-assessee before the Tribunal. Nothing has been shown to us from the judgment of the Tribunal to show that the Tribunal has dealt with that controversy. As that question has not been gone into by the Tribunal, we do not see how it would be proper for us to consider and determine that question. It will be open to the Tribunal to consider the controversy reflected in question No. 2 if it thinks fit, in view of question No. 1 having been answered by us against the assessee.
6. No order as to costs.