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Commissioner of Income-tax, Gujarat Vs. C. Shantilala and Co. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberIncome-tax Reference No. 259 of 1975
Judge
Reported in[1982]136ITR522(Guj)
ActsIncome Tax Act 1961 - Sections 34(3),34(4),139(2),140A, 143, 156, 183, 256(2), 271, 271(1), 271(1), 271(2) and 274
AppellantCommissioner of Income-tax, Gujarat
RespondentC. Shantilala and Co.
Appellant Advocate B.R. Shah, Adv.
Respondent Advocate J.P. Shah, Adv.
Excerpt:
direct taxation - penalty - section 271 (2) of income tax act, 1961 - whether tribunal justified in cancelling order levying penalty on ground that assessee not liable to pay any tax on account of advance tax and tax having been paid under section 140a - tribunal not called upon to consider and decide question of validity of levy of penalty as per section 271 (2) - applicability of section 271 (2) not raised before tribunal - court declined to answer reference. - - since the assessee failed to furnish the return of income within the time limited by law, a notice under s. , was therefore, clearly attracted. 271 read as under at the relevant tim :271. (1) if the income-tax officer or the appellate assistant commissioner, in the course of any proceedings under this act, is satisfied.....p.d. desai, j.1. the income-tax appellate tribunal has stated the case and referred the following question of law for the opinion of this court pursuant to the direction issued under s. 256(2) of the i.t. act, 1961 (hereinafter referred to as 'the act' : 'whether, on the facts and in the circumstances of the case, and in view of section 271(1)(a) read with section 271(2) of the act, the tribunal was right in law in canceling the order levying penalty on the ground that the assessee was not liable to pay any tax on account of the advance tax and tax having been paid under section 140a of the act ?' 2. the facts giving rise to the reference are few. the assessment year involved herein is assessment years 1967-68, the previous years being s.y. 2022. the assessee is a registered partnership.....
Judgment:

P.D. Desai, J.

1. The Income-tax Appellate Tribunal has stated the case and referred the following question of law for the opinion of this court pursuant to the direction issued under s. 256(2) of the I.T. Act, 1961 (hereinafter referred to as 'the Act' :

'Whether, on the facts and in the circumstances of the case, and in view of section 271(1)(a) read with section 271(2) of the Act, the Tribunal was right in law in canceling the order levying penalty on the ground that the assessee was not liable to pay any tax on account of the advance tax and tax having been paid under section 140A of the Act ?'

2. The facts giving rise to the reference are few. The assessment year involved herein is assessment years 1967-68, the previous years being S.Y. 2022. The assessee is a registered partnership firm. The assessee was required to furnish its return of income for the assessment year in question on or before June 30, 1967. The assessee made an application for extension of time up to September 30, 1967, for furnishing the return. The return was actually filed on July 4, 1968. Meanwhile, on October 30, 1967, a notice under s. 139(2) was served on the assessee. Since the assessee failed to furnish the return of income within the time limited by law, a notice under s. 274 was issued calling upon the assessee to show cause why penalty should not be levied under s. 271(1)(a) of the Act. In response to the notice, the assessee furnished an explanation pleading, inter alia, tha : (1) accounts were not finalised due to irregular attendance of the accountant, (2) the extension of time for furnishing the return was twice applied for on June 25, 1967, and September 29, 1967, (3) a notice under s. 139(2) was served on October 30, 1967, and (4) the decision in CIT v. Kula Valley Transport Co. P. Ltd. : [1970]77ITR518(SC) was applicable in the instant case. The ITO, however, rejected the explanation and a penalty in the sum of Rs. 8,385 was, therefore, levied on the basis that the return of income was later by seven months. The order of the ITO was confirmed in appeal by the AAC. The Tribunal, however, reserved the decision of the lower authorities basing itself upon the decision in CIT v. Vegetable Products Ltd. : [1973]88ITR192(SC) . The view of the Tribunal was that if the advance tax and the tax paid under s. 140A by the assessee were taken into consideration, the assessee was entitled to a refund on regular assessment. The assessee was, therefore, not liable to pay the tax and, under such circumstance, the provisions with regard to the quantification of penalty was rendered inapplicable. The decision in CIT v. Vegetable Products Ltd., was therefore, clearly attracted. The order of penalty was, therefore, cancelled.

3. The revenue made an application to the Tribunal under s. 256(1) seeking a reference to this court in respect of the question set out at the commencement of this judgment. The Tribunal rejected the application. Thereupon, this court was moved by an application under s. 256(2). The application was granted and the Tribunal was directed to state the case and refer the said question for the opinion of this court.

4. At the outset it requires to be observed that what might have been a simple case has become somewhat complicated because of certain developments viewed in the context of the facts and circumstances of the case. In order to appreciate this situation, a reference needs to be made first to the legal position which obtained at the time when the Tribunal decided the case on June 15, 1974.

5. The material part of s. 271 read as under at the relevant tim :

'271. (1) If the Income-tax Officer or the Appellate Assistant Commissioner, in the course of any proceedings under this Act, is satisfied that any person -

(a) has without reasonable cause failed to furnish the return of total income which he was required to furnish..... Or has without reasonable cause failed to furnish it which the time allowed in the manner required.....

he may direct that such person shall pay by way of penalty, -

(i) in the cases referred to in clause (a), in addition to the amount of the tax, if any, payable by him, a sum equal to two per cent, of the tax for every month during which the default continued, but not exceeding in the aggregate fifty per cent. Of the tax;.....

(2) When the person liable to penalty is a registered firm or an unregistered firm which has been assessed under clause (b) of section 183, then, notwithstanding anything contained in the order provisions of this Act, the penalty imposable under sub-section (1) shall be the same amount as would be imposable on that firm if that firm were an unregistered firm.'

6. Now, the provisions of s. 271(1)(a)(i) fell for construction before the Supreme Court in CIT v. Vegetable Products Ltd. : [1973]88ITR192(SC) . In that case, the assessee was a limited company and it had made a default in furnishing its return of income for the assessment year 1960-61. After issuing a show-cause notice, penalty was levied upon the assessee. Be it noted that before the assessment was completed, a provisional assessment was made under s. 23B of the Indian I.T. Act, 1922. The assessee had deposited a certain sum pursuant to such provisional assessment. In determining the penalty due from the assessee, the ITO took into consideration not the amount of tax which remained payable but the amount of tax assessed upon the completion of the assessment. In other words, the penalty was determined upon the completion of the assessment. In other words, the penalty was determined on the basis of the amount assessed under s. 143 and not on the basis of the amount demanded under s. 156. The question which ultimately fell for consideration before the Supreme Court was whether on a true interpretation of s. 271(1)(a)(i), the amount paid by the assessee pursuant to the provisional assessment under s. 23B of the Indian I.T. Act, 1922, was to be deducted from the amount of tax determined under s. 23(2) of that Act in order to determine the amount of tax on which the computation of the penalty was to be based. The Supreme Court held that the word 'payable' occurring in the expression 'the amount of tax, if any, payable by him' in s. 271(1)(a)(i) did not bear the same meaning as the word 'assessed'. A tax payable is not the same thing as the tax assessed; the tax payable is that amount for what as demand notice is issued under s. 156. Therefore, in determining the tax payable, the tax already paid has to be deducted. It was further held that the words 'the tax' found in the later part of s. 271(1)(a)(i) referred to 'the tax, if any, payable' by the assessee mentioned in the earlier part of the said section and that, therefore, for the purposes of levying penalty under s. 271(1)(a)(i), what was required to be taken into consideration was the tax assessed minus the amount paid under the provisional assessment order.

7. This was the legal position governing s. 271(1)(a)(i) when the Tribunal decided the instant case. The Tribunal, in the light of the settled legal position, held that since the assessee was actually entitled to a refund on the completion of the assessment, in view of the advance tax and the tax under s. 140A paid by it before the assessment was finalised, penalty could not have been computed on the basis of a sum equal to two per cent. of the tax payable for every month during which the default continued. Be it noted at this stage that the Tribunal was not at all called upon to consider the effect of s. 271(2), although the default in the instant case was committed by an assessee which was a registered firm, and that, therefore, it had not the occasion to consider whether the penalty would still be leviable if the provisions of s. 271(1)(a)(i) were read with s. 271(2). The Tribunal's order having dealt on you with s. 271(1)(a)(i) and it having nowhere referred to s. 271(2) or examined the factual position in that light, it would not be unreasonable to assume that the controversy between the parties was confined to the levy of penalty on the sole basis of the provisions of s. 271(1)(a)(i).

8. After the Tribunal's decision, there was a material change in the law applicable to the case. By the direct Taxes (Amendment) Act, 1974, which received the assent of the President on August 18, 1974. s. 271(1)(a)(i) was substituted by a new clause with retrospective effect from April 1, 1962, i.e., the date from which the Act came into force. As amended, s. 271(1)(a)(i) read as follow :

'(i) in the case referred to in clause (a), in addition to the amount of the tax, if any, payable by him, a sum equal to two per cent, of the assessed tax for every month during which the default continued, but not exceeding in the aggregate fifty per cent. Of the assessed tax.

Explanation-In this clause 'assessed tax' means tax as reduced by the sum, if any, deducted at source under Chapter XVII-B or paid in advance under Chapter XVII-C.'

9. The effect of the amendment was to substitute the words 'the assessed tax' for the words 'the tax' and to insert the Explanation. The consequence was that the penalty for the failure, without reasonable causes, in furnish the return of income or to furnish it within the time allowed or in the manner required, was required to be calculated with reference to the amount of tax assessed as reduced to be calculated with reference to the amount of tax assessed as reduced by any sum deducted at source or paid in advance under the relevant provisions of the Act. The amendment was made with a view to removing the difficulty resulting from the decision in CIT v. Vegetable Products Ltd. : [1973]88ITR192(SC) (see the Statement of Objects and Reasons of the direct Taxes (Amendment) Bill, 1973, [1973] 91 ITR 52 (Statutes).

10. So far as the present case is concerned, the net result of the amendment of s. 271(1)(a)(i), with retrospective effect from April 1, 1962, was that the decision of the Tribunal to the effect that the penalty was not leviable in view of the fact that the assessee was actually entitled to a refund because of the tax paid, inter alia, under s. 140A was rendered inconsistent with the relevant statutory provisions which must be deemed to have governed the case on the date of its decision. The Tribunal's decision, though it was in accordance with the law as declared in CIT v. Vegetable Products Ltd. : [1973]88ITR192(SC) , when it was given, was rendered insupportable to the aforesaid extent, having regard to the retrospective amendment of the relevant provisions.

11. At this stage, it would be convenient to give a chronological history of the case up to the stage of the reference on the basis of the undisputed facts. The decision of the Tribunal was render on June 15, 1974. The application for reference under s. 256(1) was made to the Tribunal on August 24, 1974. The Tribunal rejected the said application on December 12, 1974. The application under s. 256(2) was made to this court on June 4/17, 1975. The court issued rule on the said application on June 30, 1975. Rule was made absolute on August 5, 1975, by directing the Tribunal to draw up the statement and refer the question set out at the commencement of the judgment for the opinion of this court.

12. The sequence of events set out above would indicate that on the date of the decision of the Tribunal, the Direct Taxes (Amendment) Act, 1974, was not in force because it received the Presidential assent on August 18, 1974. However, when the application under s. 256(1) was made, the Amendment Act had come into force. Be it, noted at this stage however, that it is not in dispute that in the said application no reference was made to the altered legal situation and to the amended s. 271(1)(a)(i) and that the reference was not sought on the basis that a clear question of law arose on account of the retrospective amendment of the relevant statutory provision. Even in the order passed by the Tribunal on the said application, no reference is to be found to the material change brought about in the legal position by the respective amendment. It would not be unreasonable to assume, therefore, that even at the hearing of the application under s. 256(1) reference was not sought on the ground that the decision of the Tribunal was not wholly consistent with the retrospective amended provision of s. 271(1)(a)(i).

13. At the hearing of the reference, the following two submissions were made on behalf of the revenu :

(1) Having regard to the retrospective amendment of s. 271(1)(a)(i), which this court was required to take into consideration in view of the decision of CIT v. Straw Products Ltd. : [1966]60ITR156(SC) , the decision of the Tribunal canceling the penalty by taking into consideration the tax paid under s. 140A was not correct in law, and

(2) In any case, the Tribunal was not right in law in canceling the penalty inasmuch as it failed to give effect to s. 271(1)(a)(i) and s. 271(2) by reading those two provisions together. If both those provisions had been read together, the Tribunal could not have come to the conclusion that the assessee was not liable to pay any tax on regular assessment and that, therefore, no penalty was leviable.

14. We are afraid, for the reason which follow, the revenue is not entitled to urge that the question posed for our opinion should be answered in the light of any of the two submissions set out above. It is our considered opinion that having regard to the controversy brought before this court as reflected in the question referred for our opinion, it is not open to the revenue to raise the contention covered by the first submission. So far as the second submission is concerned, though the question as framed clearly reflects the said controversy, we cannot be called upon to answer the same because if does not arise out of the order of the Tribunal. We proceed to elaborate our views.

15. The first aspect that is required to be considered is whether it is open to the revenue to question the decision of the Tribunal, in so far as it cancelled the penalty by taking into consideration the tax paid under s. 140A, on the ground that it is in conflict with the provisions of s. 271(1)(a)(i) as retrospectively amended. If this controversy is kept alive and it is reflected in the question referred for our opinion, there is no manner of doubt that the revenue would be entitled to call upon us to consider the validity of the decision of the Tribunal in the light of the amended law. The decision in CIT v. Straw Products Ltd. : [1966]60ITR156(SC) is a clear authority for the proposition that it is the duty of the court to answer the reference in accordance with the amended law unless the question referred by the Tribunal is not couched into the question in the light of the amendment. Therefore, in the instant case, if the question is found to be so framed as to permit an inquiry into the question of the correctness of the Tribunal's decision by reference to the amended law, we would be bound to undertake such an inquiry. If such an inquiry is, in fact, open, there is no manner of doubt also that the decision of the Tribunal, in so far as it proceeded to cancel the penalty by taking into consideration the tax paid under s. 140A, is inconsistent with the amended law. The question which falls for out consideration, therefore, is whether the question is comprehensive enough to permit an inquiry in the light of the amended law.

16. We shall reproduce the question again in the order to appreciate its width and amplitud :

'Whether, on the facts and in the circumstances of the case, and in view of section 271(1)(a) read with section 271(2) of the Act, the Tribunal was right in law in canceling in order laying penalty on the ground that the assessee was not liable to pay any tax on account of the advance tax and tax having been paid under section 140A of the Act ?'

17. A bare reading of the question clearly manifests that the revenue intended to bring in question before this court the decision of the Tribunal canceling the penalty on the ground only that s. 271(1)(a)(i) was read in isolation and not along with s. 271(2). The words, 'and in view of section 271(1)(a) read with section 271(2) of the Act' and 'on the ground that the assessee was not liable to pay any tax on account of the advance tax and tax having been paid under section 140A of the Act', in parenthesis clearly bring out the content of the controversy which was sought to be brought before this court. If the revenue intended to question the decision on the ground that even if s. 271(1)(a)(i) was applied in isolation and stating by itself, the Tribunal still could not have validly cancelled the penalty in view of the retrospective amendment, the question would have been widely worded. For example, the question would have been framed as follow :

'Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in canceling the order levying penalty ?'

18. Alternatively, in addition to the question as framed, there would have been a separate question in the following term :

'Whether, on the facts and in the circumstance of the case, and on a true and correct interpretation of section 271(1)(a)(i), the Tribunal was right in law in cancelling the order levying penalty on the ground that the assessee was not liable to pay any tax on account of the tax having been paid under section 140A of the Act ?'

19. The frame of the question and the presence therein of the words, extracted above, in juxtaposition leave no doubt in our mind that the reference was limited to questioning the decision of the Tribunal in so far as it cancelled the penalty without giving effect to the combined operation of s. 271(1)(a)(i) and s.271(2).

20. The view which we are taking as regard the amplitude of the question finds support from the surrounding circumstance. As earlier pointed out, though, when the Tribunal decided the case, the amendment had not come into force, when the application for reference under s. 256(1) was made, s. 271(1)(a)(i) had stood retrospectively amended. Although the amendment had been brought into force only about six days prior to the presentation of the application, the revenue cannot possibly urge that it was not aware of the same. Ordinarily, therefore, the question would have been couched in terms of sufficient amplitude to cover an inquiry into the question in the light of the amendment. The decision in CIT v. Straw Products Ltd. : [1966]60ITR156(SC) , which was delivered as far back as in 1965 must be presumed to have been known to the revenue and in the light of the said decision, the revenue would not have failed to so frame the question as to enable us to answer the same bearing in mind the amendment. As illustrated earlier, the question referred would have been differently worded or there would have been two separate question. That is not all. The application under s. 256(1) admittedly does not contain any reference to the amendment nor does the order of the Tribunal on the said application make any reference thereto. In other words, up to the stage the Tribunal was seized of the reference application, no attempt appears to have been made to invoke the amended provisions of s. 271(1)(a)(i) and to seek a reference on that basis.

21. It is true that in the application under s. 256(2) made to this court, a reference was made for the first time to the altered legal situation on account of the retrospective amendment. However, taking a comprehensive view of the matter, the conclusion is inescapable that the revenue either knowingly or unwittingly accepted the decision of the Tribunal, in so far as it was rested on s. 271(1)(a)(i) and that what was sought to be brought in question before this court was only a limited controversy as to whether the Tribunal's decision was erroneous in law since s. 271(1)(a)(i) was not read along with s. 271(2). The mere mention in the question of s. 271(1)(a)(i), in the context, would not lead to a reasonable inference that the decision solely based on the said provision was also sought to be brought into question.

22. In view of the forgoing discussion, we are of the view that on the frame of the question as it is, it is, open to the revenue to rely upon the amendment and to bring into question the decision of the Tribunal cancelling the levy of penalty following the decision in CIT v. Vegetable Products Ltd. : [1973]88ITR192(SC) . The question referred is not couched in terms of sufficient amplitude to cover an inquiry into the question in the light of the amendment.

23. That takes us to be second submission urged on behalf of the revenue. On the question interpreted as above, there is no manner of doubt that the controversy sought to be raised before this court is whether the decision of the Tribunal cancelling the order levying penalty is right in law in view of the fact that the provisions of s. 271(1)(a)(i) had not been read with s. 271(2). It is pertinent to remember in this connection that the assessee is a registered firm. Section 271(2) provides that when the person liable to penalty is a registered firm or an unregistered which has been assessed under clause (b) of s. 183, then notwithstanding anything contained in the other provisions of the Act, the penalty, imposable under s. 271(1) shall be 'the same amount as would be imposable on that firm if that firm were an unregistered firm'. Therefore, for the purpose of the levy of penalty, the assessee was required to be treated as if it were an unregistered firm and the tax payable by it was required to be nationality worked out on that basis and the quantum of penalty was required to be determined as per s. 271(1) taking into account such tax. This would have been the position even if s. 271(1)(a)(i) had stood unamended and even if it was permissible to give credit for the tax under s. 140A paid by the assessee. The Tribunal dealt with the case, however, by applying s. 271(1)(a)(i) only and not in conjunction with s. 271(2). Even on the basis of the unamended provision of law, therefore, the decision of the Tribunal could have been provided the said controversy was raised before the Tribunal. If, as earlier pointed out, the case was argued before the Tribunal only with reference to s. 271(1)(a)(i) and the controversy between the parties was confined to the quantification and levy of penalty, on the basis of the tax payable as a registered firm, and the provisions of s. 271(2) were not invoked and the Tribunal was not called upon the examine the question from the angle and no factual material was placed before it for examination of the question from that angle, it would not be open to the revenue to call upon us to consider the controversy and answer the question in that light, since the question cannot be said to arise out of the order of the Tribunal.

24. Before we proceed to examine this question in the light of the facts of the present case in greater detail, it might be mentioned that in view of the decisions of the Supreme Court in CIT v. Smt Anusuya Devi : [1968]68ITR750(SC) and Lakshmiratan Cotton Mills Co. Ltd. v. CIT : [1969]73ITR634(SC) , merely because this court has directed the Tribunal to state a case and refer the question, we are bound to advise the Tribunal on that question even if the question does not arise out of the order of the Tribunal. It is settled law, in the light of those two decisions, that if by an erroneous order the High Court has directed the Tribunal to state a case on a question which did not arise out of the order of the Tribunal, the High Court is not bound to answer the question, without considering at the hearing of the reference, whether the question arises out of the order of the Tribunal or whether it is a question of law or whether it is academic, unnecessary or irrelevant. It is, therefore, open to us to consider whether the question which the Tribunal has been asked to refer for our opinion arises out of its order.

25. As to when can a question be said to arise out of the order of the Tribunal, is a matter which is no longer res integra. When a question is raised before the Tribunal and is dealt with by it, it is clearly one arising out of its order. 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. 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. When a question of law is neither raised before the Tribunal no 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. A question of law may be a simple one, having its impact at one point or it may be a complex one, trenching over an area with approaches dealing with different points therein. Such a question may involve more than one aspect, requiring to be tackled from different standpoints. All that s. 66(1) requires is 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 must be 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, and it will be an over-refinement of the position to hold that each aspect of a question is itself a distinct question for the purposes of s. 66(1) of the Act [See CIT v. Scindia Steam Navigation Co. Ltd. : [1961]42ITR589(SC) ].

26. Now, in the instant case, as earlier pointed out, the Tribunal was not called upon to decide and has not dealt with the question of the validity of the levy of penalty in the light of s. 271(2). Indeed, we have found above that it would not be unreasonable to assume that the controversy between the parties was limited before the Tribunal to the question of the validity of the levy of penalty on the basis of the tax payable by the assessee as a registered firm and not as an unregistered firm. Not only was s. 271(2) not referred to or relied upon before the Tribunal, but no factual foundation was also laid to show that if the tax payable by the assessee were worked out on the basis that it was an unregistered firm, no refund would have been payable and, in fact, tax would still have been payable by the assessee even after giving credit for the advance tax and tax under s. 140A, paid by it before the completion of the assessment. Under such circumstances, it is difficult to hold that the question referred for out opinion arises out of the order of the Tribunal. The question was neither raised before the Tribunal nor dealt with by the Tribunal and the material findings of fact are not made by the Tribunal. Merely because the Tribunal has given a finding that the penalty was not leviable on the facts and in the circumstances of the case, the question cannot be said to have arisen out of its order, although it was not raised nor considered by the Tribunal.

27. It would not be out of place to mention that on behalf of the revenue, it was fairly stated that on the record as it stands, it would not be possible to urge that the Tribunal was called upon to consider and decide the question of the validity of the levy of penalty in the light of the combined operation of s. 271(1)(a)(i) and s. 271(2). Apart from the fair concession made as aforesaid, it is manifest, having regard to the fact that at no stage of the proceeding s. 271(2) has been referred to and relied upon by the revenue and the at the relevant facts and particulars enabling the Tribunal to examine the question from the angle of s. 271(2) were not placed before the Tribunal, that it would be impossible to urge that the controversy reflected in the question which has been ultimately referred to us was before the Tribunal and that it arises out of its order.

28. The revenue urged, however, that what is reflected in the question is merely an aspect of the issue in question before the Tribunal and that, therefore, the question referred for our opinion arises out of the order of the Tribunal, even though the Tribunal has not specifically applied its mind from that angle. Reliance was placed in support of this submission on the decisions in CIT v. Breach Candy Swimming Bath Trust : [1955]27ITR279(Bom) and Bhanji Bagawandas v. CIT : [1968]67ITR18(SC) . In B.C. Swimming Bath Trust's case : [1955]27ITR279(Bom) , the question in controversy was whether the assessee was liable to pay tax on the income derived from certain activities carried on by the trust because the trust was a charitable institution. The Bombay High Court took the view that in order to resolve such controversy, it was not necessary for the assessee to suggest under what particular section of the Act the income was exempt. That was matter of legal argument which could always be advanced in the court. The court would not be bound necessarily to take the same view as the Tribunal. In order to uphold an exemption, it would be open to the court, if that question was raised, to say that although the court did not agree with the Tribunal that the income was exempt under the particular provision of the law on which the Tribunal had relied, it was still exempt from taxation under some other provisions provided all the necessary facts were before the court. If any facts were not stated which it would be necessary to state in order to decide the real controversy between the parties, the court would call for a supplementary statement of the case. In Bhanji Bagawandas' case : [1968]67ITR18(SC) on of the questions was whether the assessment was saved from the bar of limitation under the second proviso to s. 34(3). The revenue's submission was that in answering the question the effect of the Income-tax (Amendment) Act, 1959, which inter alia, inserted a new sub-s. (4) in s. 34, was required to be taken into consideration. The Supreme Court held that though the impact of the amendment was not raised before the Appellate Tribunal or before the High Court, it was not a separate question by itself and that it was only an aspect of the question of limitation which had already been referred by the Appellate Tribunal to the High Court. Under those circumstances, since the question of the limitation was itself under issue, there was no further limitation imposed that the reference should be limited to those aspects of the question which had been argued before the Tribunal. It would be an over-refinement of the position of hold that each aspect of a question is itself a distinct question for the purposes of reference.

29. Both these decision, though apparently relevant are no applicable on the facts and in the circumstance of the case. In the present case, right from the inception, that is to say, from the issue of the show-causes notice under s. 274 till the final termination of the said proceeding by as order of the Tribunal, the revenue has not fallen back upon s. 271(2) at any stage to impose and sustain the penalty. It has also not laid any factual foundation for the same. Under such circumstances, it is not possible to hold that the revenue can validly rise the contention before the High Court for the first time that the penalty was leviable in view of the provisions of s. 271(2). Indeed, having regard to the overall facts and circumstance of the case, it is difficult to take the view that the question raised is a mere aspect and not an independent question. Merely because the question of penalty under s. 271(1)(a)(i) was in issue, it would not be possible to hold, on the facts and in the circumstances of the case, that the question with regard to the levy of penalty on the basis of the combined operation of s. 271(1)(a)(i) and s. 271(2) is an aspect of the question. Whether the question is an independent question not arising out of the order of the Tribunal or whether it is an aspect of the question which was in issue before the Tribunal has to be decided on the facts of each case. If we examine the facts of this case in the light of the principles referred to above, it would be clear that we are being called upon to answer a question which was never in issue before the Tribunal and for which there is no factual foundation laid on the record of the proceedings. Under the circumstances, in our opinion, the question referred for our opinion being one which does not arise out of the order of the Tribunal, we are not required to answer the same.

30. We may, in this connection, profitably refer to the decision of the Supreme Court in CGT v. Smt Kusumben D. Mahadevia : [1980]122ITR38(SC) . The assessee, in that case, contended in the course of its assessments to gifts-tax or wealth-tax, as the case may be, that the value of the shares held by her in a private limited company, which was admittedly an investment company, should be taken to be the figure arrived at by applying the profits earning method of valuation of shares without making any adjustment in the profits of the company. The GTO and the WTO did not accept the figures of valuation given by the assessee on the basis of the profits-earning method and valued the shares at much higher figures by applying the break-up method. On appeal, the AAC reduced the valuation of the shares but not to the extent claimed by the assessee. Both the revenue and the assessee felt unhappy with the decision of the AAC and the same resulted in appeals by the revenue before the Tribunal and cross-objections by the assessee in such appeals. The only controversy before the Tribunal between the parties was as to which method should be followed for valuing the shares of the company. The revenue contended that the proper method of valuation would be to take the mean of the two valuation, one arrived at by applying the profits-earning method and the other by applying the break-up method, while the assessee pleaded for adopting only the profits-earning method. The Tribunal accepted the contention of the assessee with the result that the revenue's appeals were dismissed and the assessee's cross-objections were allowed. The revenue applied to the Tribunal to state a case for the opinion of the High Court on the question of law said arise out of its order, namely, whether the Tribunal was right in holding that the shares of the investment company had to valued only on the basis of the yield without taking into account the assets owned and reflected in the balance-sheet. The application was rejected. An application to the High Court for calling for a reference also failed. Hence, the revenue applied for and obtained special levee to appeal, the Supreme Court observed that there was no doubt that the question as to which method should be adopted for the valuation of the shares was clearly a question of law. However, the answer to the question relating to the method to be adopted for the valuation of shares of the investment company in question was clearly concluded by the decision of the Supreme Court in CWT v. Mahadeo Jalan : [1972]86ITR621(SC) and that the High Court was, therefore, justified in refusing to call for a reference on the said question. The revenue's contention, however, was that the decision in Mahadeo Jalan's case was rendered under the W.T. Act, 1957, and that there was a vital difference between the relevant provisions of the W.T. Act and the G.T. Act and that since the articles of association of the investment company in question admittedly contained restrictive provisions as to the alienation of shares, r. 10, sub-r. (2), of the G.T. Rules, 1958, was applicable and that according to that sub-rule, the value of the shares was required to be ascertained by reference to the value of the total assets of the company and it was only if the value was not so ascertainable that it could be determined in any other manner to be applied for arriving at the valuation of the shares and the Tribunal was, therefore, wrong in determining the value of the shares by applying the profits-earning method so far as the valuation under the G.T. Act was concerned. This submission made on behalf of the revenue was rejected by the Supreme Court in the following words (p. 48 of 122 ITR :

'Now, it is difficult to see how the question whether the valuation of the shares should have been made on the basis of the break-up method by reason of r. 10, sub-r. (2) of the G.T. Rules, can be required to be referred by the Tribunal to the High Court. It is well settled that no question can be referred to the High Court unless it arises out of the order of the Tribunal and, as pointed out by this court in CIT v,. Scindia Steam Navigation Co. Ltd. : [1961]42ITR589(SC) , a question of law can be said to arise out of the order of the Tribunal only if it is dealt with by the Tribunal or is raised before though not decided by the Tribunal and a question of law not raised before the Tribunal and not dealt with by it in its order cannot be said to arise out of its order, even if on the facts of the case stated in the order the question fairly arises. It is obvious that this question sought to be raised on behalf of the revenue was neither raised before the Tribunal nor decided by it and the only argument advanced before the Tribunal was that the mean of the values arrived at on an application of the profit-earning method and the break-up method should be taken to be the value of the shares. There was no argument addressed to the Tribunal that the break-up method should be adopted because that was the primary method prescribed by r. 10 sub-r. (2), and the Tribunal had, therefore, no occasion to deal with such argument. This question obviously, therefore, does not arise out of the orders of the Tribunal and it cannot be required to be referred to the High Court.

31. The extracted observation go a long way in supporting the view which we have taken above, namely, that since, in the instance case, the Tribunal was not called upon to consider and decide the question of the validity of the levy of penalty in the light of the provisions of s. 271(2), and the of the levy of penalty in the light of the provisions of s. 271(2), and the Tribunal had, therefore, no occasion to deal with such an argument, the question of the applicability of s. 271(2) cannot be said to arise out of the order of the Tribunal and we cannot be called upon to answer the question posed for out opinion in the light of the said provisions.

32. In the aforesaid view of the matter, we decline to consider and answer the question whether, if s. 271(2) was invoked, the assessee was liable to be visited with penalty in the light of the provisions of the said sub-section.

33. In view of the foregoing discussion, we decline to answer the question posed for our opinion. Having regard to the fact that the assessee has not appeared at the hearing of the reference, there shall be no order as to the costs of the reference.

34. Before parting with the matter, we wish to place on record our sense of gratitude to Mr. J. P. Shah who readily agreed to render assistance to us as amicus curiae.


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