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Controller of Estate Duty Vs. Smt. Shanta Ben Mani Lal Patel - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtRajasthan High Court
Decided On
Case NumberD.B. Civil Estate Duty Case No. 128 of 1972
Judge
Reported in[1975]100ITR229(Raj); 1973()WLN722
ActsEstate Duty Act, 1953 - Sections 10 and 64
AppellantController of Estate Duty
RespondentSmt. Shanta Ben Mani Lal Patel
Appellant Advocate S.M. Mal Lodha, Adv.
Respondent Advocate L.R. Mehta, Adv.
Cases Referred and Bhanji Bhagwandas v. Commissioner of Income
Excerpt:
.....for any reason admittedly in this case the department did not challenge the finding of the tribunal in its application under section 64(1) of the act before the tribunal and, therefore, it is no longer open to it to attack the validity of the order of the tribunal on the ground which was never raised before the tribunal. - section 2(k), 2(1), 7 & 40 & juvenile justice (care and protection of children) rules, 2007, rule 12 & 98 & juvenile justice act, 1986, section 2(h): [altamas kabir & cyriac joseph, jj] determination as to juvenile - appellant was found to have completed the age of 16 years and 13 days on the date of alleged occurrence - appellant was arrested on 30.11.1998 when the 1986 act was in force and under clause (h) of section 2 a juvenile was described to mean a..........fell to the share of purshottamdas patel came to rs. 29,322. at the time of the assessment of the firm to income-tax for the year 1962-63, the income-tax officer had taken this refund amount as income of the firm but on an appeal by the assessee-firm the appellate assistant commissioner accepted the contention of the appellant that only the deceased was entitled to the refund and not the firm and, therefore, deleted the addition of the refund amount of rs. 1,17,287 from the income of the firm. on this basis the assistant controller of estate duty included the entire amount of rs. 1,17,287 in the estate of the deceased. an appeal was taken by the accountable person and the zonal appellate controller of estate duty, by his order dated january, 7, 1971, held that the valuation of goodwill.....
Judgment:

B.P. Beri, C.J.

1. This is an application under Section 64(3) of the Estate Duty Act, 1953 (hereinafter called 'the Act'), ior directing the Income-tax Appellate Tribunal, Jaipur Bench (hereinafter called 'the Tribunal'), to state the case and to refer two questions of law arising out of its order dated December 10, 1971, in the Estate Duty Appeal No. 3 of 1971-72 to this court which the Tribunal had refused to do by its order dated April 27, 1972.

2. Shri Manilal Shivlal of Kota (hereinafter called 'the deceased') died on February 9, 1965, and his widow, Smt. Shanta Ben, is the accountable person for the purposes of the Act. The deceased carried on business as the sole distributor of a reputed brand of 'bidi' under the name of Chandulal Jagjivandas & Co., Bhavani Mandi. In 1953, a partnership firm of the same name was constituted. The partners of this firm were the deceased and his brother, Purshottamdas Patel. Their shares were 15 per cent, and25 per cent., respectively. From the assessment year 1963-64, however, their shares were changed and became 56 per cent, and 44 per cent., respectively.

3. While assessing the value of the estate of the deceased, the Assistant Controller of Estate Duty valued the goodwill of the deceased's share in the partnership at Rs. 2,00,000 and added it in the dutiable estate of the deceased. This figure of Rs. 2,00,000 was rounded up. The principle applied for calculating the value of goodwill was that three years' super profits were first ascertained and therefrom were deducted, (a) the interest on the capital invested, and (b) the salaries of the partners notionally fixed. The share of the profits of the deceased for the preceding five years was at Rs. 5,00,000. The Assistant Controller calculated the value of the goodwill at three years' super profits after deducting six percent, interest on the capital employed and Rs. 12,000 as salary of the applicant out of the profits and thus he rounded up the figure at Rs. 2,00,000.

4. In between the period of January 26, 1950, to March, 31, 1951, the deceased carried on the business as a sole proprietor; he had paid sales tax in the sum of Rs. 1,17,287. The deceased had disputed this liability and it appears that the matter was under consideration and was settled later. The amount, however, was refunded on February 16, 1962. It was credited to the profit and loss account of the partnership firm and was divided among the partners according to their shares at that point of time which was 75 per cent, and 25 per cent. What fell to the share of Purshottamdas Patel came to Rs. 29,322. At the time of the assessment of the firm to income-tax for the year 1962-63, the Income-tax Officer had taken this refund amount as income of the firm but on an appeal by the assessee-firm the Appellate Assistant Commissioner accepted the contention of the appellant that only the deceased was entitled to the refund and not the firm and, therefore, deleted the addition of the refund amount of Rs. 1,17,287 from the income of the firm. On this basis the Assistant Controller of Estate Duty included the entire amount of Rs. 1,17,287 in the estate of the deceased. An appeal was taken by the accountable person and the Zonal Appellate Controller of Estate Duty, by his order dated January, 7, 1971, held that the valuation of goodwill by the Assistant Controller at three years' super profits was fair and proper. He, however, held that the profit of the year 1962-63 had included an amount of Rs. 1,17,287 received by way of refund of sales tax due earlier but this amount could not be included while calculating the goodwill. On the question of Rs. 29,322 the Zonal Appellate Controller affirmed the order of the Assistant Controller.

5. A second appeal by the accountable person was taken to the Tribunal and it was held that since the share of the deceased in the firm wasonly 56 per cent, at the time of his death, the valuation of the deceased's share and goodwill should be calculated at fifty-six per cent only. It was further held that 2 years' purchase at supsr profits basis after the allowance of interest at twelve per cent, and remuneration of partners at Rs. 12,000 per annum should be considered as fair and reasonable. On the point of Rs. 29,322 the Tribunal held that since the whole of the refund amount was kept in the partnership business one-fourth share of this amount fell to the share of the other partner, namely, Purshottamdas Patel, and, therefore, the whole amount could not belong to the deceased. The Tribunal accordingly deleted that sum of Rs. 29,322 from the estate of the deceased. Feeling aggrieved by the Tribunal's order aforesaid, the Controller of Estate Duty, Rajasthan, Jaipur, made an application for reference under Section 64(1) under the Estate Duty Act requiring the Tribunal to refer to this court the following questions of law arising out of its order dated December 10; 1971:

'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the share of goodwill of the deceased may be arrived at on the basis of two years' purchase of super profits in the place of three years as fair and reasonable without assigning any reason

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the amount of Rs. 29,322 is deductible from the estate of the deceased when the entire amount of refund of sales tax belonged to the deceased even if it is presumed that the decision of the Appellate Tribunal that the sum of Rs. 29,322 belonged to Shri Purshottamdas, the other partner, is correct despite the fact that the provisions of Section 10 of the Estate Duty Act, 1953, are applicable ?'

(The grammar of the question has been left untouched).

6. The Tribunal by its order, dated April 27, 1972, rejected the reference application. The first question was not referred because the Tribunal held that it was a question of fact. The second question was declined to be referred for the reason that the ground regarding the applicability of Section 10 of the Act was not raised before the Tribunal and, therefore, the question could not be said to arise from the order of the Tribunal. On account of the refusal by the Tribunal to refer the questions the Controller of Estate Duty, Rajasthan, Jaipur, has come up before us under Section 64(3) of the Act.

7. Mr. L. R. Mehta, learned counsel for the accountable person urged that the first question relating to the goodwill wherein the Tribunal had varied the percentage for the purposes of its calculation is largely and basically a question of fact.

8. Mr. S. K. Mal Lodha, however, urged that the mode of calculation of goodwill involved basic principles of law and accountancy and was essentially a question of law.

9. Let us examine the decided cases to which our attention was invited.

10. In Jogta Coal Co. Ltd. v. Commissioner of Income-tax : [1959]36ITR521(SC) where their Lordships of the Supreme Court observed that the question whether on the interpretation of the sale deed it could be said that any goodwill was purchased by the appellant and whether the Income-tax Officer was compelled to go behind the sale deed and adopt his own value for the assets were questions of law which could be referred to the High Court, In S.C. Cambatta & Co. Pot. Ltd. v. Commissioner of Excess Profits Tax : [1961]41ITR500(SC) the Supreme Court again observed that whether the goodwill of the subsidiary company was calculated in accordance with law did arise and the High Court ought to have directed the Tribunal to refer it treating it to be a question of law. In R. Ranganayaki Ammal v. Controller of Estate Duty : [1973]88ITR386(Mad) the question referred to the High Court was whether, on the facts and in the circumstances of that case, the basis adopted for the valuation of the goodwill was in accordance with law. This was considered to be a question of law and answered as such by the Madras High Court. In Commissioner of Income-tax v. K. Rathnam Nadar : [1969]71ITR433(Mad) the concept of goodwill has been discussed at some length by the Madras High Court and the principle regarding it evaluation has been considered to be a mixed question of law and fact. The aforesaid authorities leave no doubt in our mind that the mode of assessing the value of goodwill of a firm is prima facie as question of law or at least a mixed question of law and fact and deserves to be referred to this court for answer under Section 64(3) of the Act.

11. The second question was split by the learned counsel for the department in two parts. The first part reading :

'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the amount of Rs. 29,322 is deductible-from the estate of the deceased when the entire amount of refund of sales tax belonged to the deceased ?'

and the second part according to the learned counsel included in the question was that:

'even if it is presumed that the decision of the Appellate Tribunal that the sum of Rs. 29,322 belonged to Shri Purshottamdas, the other partner, was correct despite the fact that the provisions of Section 10 of the Estate Duty Act, 1953, are applicable ?'

12. In regard to the first part of the question the finding of the Tribunal is that because the partnership had taken over all the assets and liabilities of the deceased's individual business, therefore, one-fourth of the amount of the refund of the sales tax rightly belonged to the other partner, namely, Purshottamdas Patel. In regard to the second part of the question, with reference to Section 10 of the Act, the Tribunal held that such a question was never raised before it and, therefore, it did not arise from the order of the Tribunal.

13. Mr. Lodha urged that the expression 'was right in holding' was comprehensive enough to include all attacks on the legality of the conclusion reached by the Tribunal. In particular, the learned counsel urged that there was no evidence to show that the partnership firm which came into being in 1953 had inherited all the assets and liabilities of the sole proprietary concern of the deceased and, therefore, in view of the principles laid down in Sree Meenakshi Mills Ltd. v. Commissioner of Income-tax : [1957]31ITR28(SC) a case which was decided with no evidence, did raise a question of law. He also invited our attention to Commissioner oj Income-tax v. Scindia Steam Navigation Co. Ltd. : [1961]42ITR589(SC) , Commissioner of Income-tax v. S. P. Jain : [1973]87ITR370(SC) , India Cements Ltd. v. Commissioner of Income-tax, : [1966]60ITR52(SC) and Commissioner of Income-tax v. Kamal Singh Rampuria : [1970]75ITR157(SC) . In regard to the second part of the question the learned counsel urged that the expression' was right in holding whether the provisions of Section 10 of the Estate Duty Act, 1953, were applicable or not' was implied and no reference to the section was necessary. It merely related to one aspect of the question.

14. Mr. L. R. Mehta, however, urged that at no stage in this estate duty case it was urged on behalf of the department that a question of law arose because the Tribunal decided a question without any evidence on record and in view of the principles laid down in Commissioner of Income-tax v. Scindia Steam Navigation Co. Ltd., the well-known Scindia case it is a question which is covered by the fourth principle enunciated in that judgment, namely, when a question of law is neither raised before the Tribunal nor considered by it, it will not be a question arising out of its order notwithstanding that it may arise on the finding given by it. The learned counsel further urged that Scindia's case has been followed in India Cements Ltd. v. Commissioner of Income-tax, Commissioner of Income-tax v. Sri Meenakshi Mills Ltd. : [1967]63ITR609(SC) , M. M. Ipoh v. Commissioner of Income-tax : [1968]67ITR106(SC) , M.A. Jabbar v. Commissioner oj Income-tax : [1968]68ITR493(SC) , Commissioner oj Income-tax v. Smt. Anusuya Devi : [1968]68ITR750(SC) , Commissioner of Income-tax v. Madan Gopal Radhey Lal. : [1969]73ITR652(SC) , Lakshmiratan Cotton Mills Co. Ltd. v. Commissioner of Income-tax, Commissioner oj Income-tax v. Imperial Chemical Industries of India Ltd. : [1969]74ITR17(SC) , Commissioner oj Income-tax v. Kirkend Coal Co. : [1969]74ITR67(SC) , General Fibre Dealers v. Commissioner of Income-tax and Karnani Properties Ltd, v. Commissioner oj Income-tax : [1970]77ITR23(SC) . Mr. L. R. Mehta endeavoured to distinguish Commissioner of Income-tax v. S. P. Jain, where the facts according to him were altogether different. On the question of 'the aspect' the learned counsel cited the authorities in Indore Malwa United Mitts v. Commissioner oj Income-tax : [1966]59ITR738(SC) , Sundaram & Co. v. Commissioner of Income-tax : [1967]66ITR604(SC) and Bhanji Bhagwandas v. Commissioner oj Income-tax : [1968]67ITR18(SC) and urged that the aspect of a legal question is merely a facet thereof and is not a different question.

15. Learned counsel for the revenue filed before us at our direction a copy of the reference application under Section 64(1) of the Act along with its enclosures for our consideration whether the question of complete lack of evidence was ever raised before the Tribunal.

16. We have given our anxious consideration to the rival contentions submitted before us. The question that emerges for consideration is whether it is open to the revenue to attack the legality of the conclusion reached by the Tribunal on the first part of the second question, namely, on the ground that there was no evidence to show that the partnership firm inherited all the assets and liabilities of the sole proprietary concern of the deceased, Manilal. In Commissioner of Income-tax v. Sri Meenakshi Mills Ltd. it has of course been laid down that a finding of fact is open to attack under Section 66(1) of the Indian Income-tax Act, 1922, as erroneous in law if there is no evidence to support'it or if it is perverse. There is no quarrel regarding this dictum laid down by their Lordships of the Supreme Court. But in the application under Section 64(1) of the Act submitted on behalf of the department no such question of law was sought to be raised on the ground that there was no evidence that the assets of the sole proprietary firm including the amount of sales tax refunded had devolved upon the partnership firm. The question, therefore, that arises is whether in the absence of any foundation laid in this regard is it open to the department to raise a new point which was not raised before the Tribunal. The position in this behalf is very well settled by a chain of Supreme Court decisions. In Commissioner oj Income-tax v. Scindia Steam Navigation Co. Ltd. it has been held that the power of the court to direct a reference under Section 66(2) of the Indian Income-tax Act, 1922, is subject to two limitations:--

(i) the question must be one which the Tribunal was bound to refer; and

(ii) the court cannot direct the Tribunal to refer the question unless it is one which arises out of the order of the Tribunal and was specified by the applicant in his application under Section 66(1).

17. The Supreme Court has succinctly summarised the position under four propositions as follows:

(i) When the question is raised before the Tribunal and dealt with by it, it is clearly one arising out of its order;

(ii) 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;

(iii) 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;

(iv) when a question of law is neither raised before the Tribunal nor 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.

18. The dictum laid down in this leading case, i.e.. Commissioner of Income-tax v. Scindia Steam Navigation Company Ltd. has been reaffirmed in India Cements Ltd. v. Commissioner of Income-tax and Commissioner of Income-tax v. Kamal Singh Rampuria: In India Cements Ltd. v. Commissioner of Income-tax it has been held that, in a reference, the High Court must accept the findings of fact made by the Appallate Tribunal and it is for the person who has applied for a reference to challenge these findings first by an application under Section 66(1) of the Indian Income-tax Act, 1922. If he has failed to file an application under Section 66(1) expressly raising a question about the validity of the findings of fact, he is not entitled to urge before the High Court that the findings are vitiated for one reason or another. In Commissioner of Income-tax v. Kamal Singh Rampuria : [1970]75ITR157(SC) the Supreme Court has again laid down that in a reference the High Court must accept the findings of fact reached by the Appellate Tribunal and it is for the party who applied for a reference to challenge those findings of fact first by an application under Section 66(1) of the Indian Income-tax Act, 1922. If the party concerned has failed to file an application under Section 66(1) of the Indian Income-tax Act, 1922, expressly raising the question about the validity of the finding of fact, he is not entitled to urge before the High Court that the finding was vitiated for any reason. From the above authorities of the Supreme Court it will appear that the law is well-settled on the point. It is incumbent on the party to challenge the findings of fact first by an application to the Tribunal itself and if the party had failed to do so it is no longer open to it to challenge the finding of the Tribunal before the High Court on the ground that the findings were vitiated for any reason. Admittedly, in this case, the department did not challenge the finding of the Tribunal in its application under Section 64(1) of the Act before the Tribunal and, therefore, it is no longer open to it to attack the validity of the order of the Tribunal on the ground which was never raised before the Tribunal itself. The reason for this is obvious. If the ground had been taken before the Tribunal and if it was a correct one the Tribunal may have been persuaded to refer this question to this court. Moreover, if the ground was not correct, the Tribunal might have indicated as to on what basis, it concluded, that the entire assets and liabilities were taken over by the partnership firm. In our opinion, the present case is governed by the fourth proposition of law laid down in Scindia Steam Navigation Company Ltd.. The learned counsel for the department urged that the case is governed by proposition No.(ii) laid down in Scindia Steam Navigation Company Ltd.. We have very closely examined all the four propositions laid down in Scindia Steam Navigation Co. Ltd.'s case and we are clearly of the opinion that the present case is governed by proposition No, (iv). The department did not agitate the ground that there was no evidence that the entire assets and liabilities of the sole proprietary concern of the deceased were taken over by the partnership firm. Consequently, it is not open to the department to agitate this ground before us which was never raised in its application under Section 64(1) of the Act.

19. Mr. Lodha invited our attention to Commissioner of Income-tax v. S. P. Jain with a view to show that the later decision of the Supreme Court has taken a view which ran counter to the view laid down in the aforesaid three Supreme Court cases. We have minutely examined this decision. This decision does not directly deal with the question which has been pointedly raised before us. It only lays down that where the Tribunal has arrived at a finding based on no evidence or where the finding is inconsistent with the evidence or contradictory of it or acted on material partly relevant and partly irrelevant or where the Tribunal draws upon its own imagination, imports facts and circumstances not apparent from the record or bases its conclusion on mere conjectures or surmises, the finding so arrived is vitiated in law. This is exactly the principle laid down in Meenakshi Mills case. This case does not directly deal with the point which is before us. The case is, therefore, clearly distinguishable and is of no assistance to the learned counsel for the department. Likewise Sundaram & Co. v. Commissioner of Income-tax and Bhanji Bhagwandas v. Commissioner of Income-tax are not directly on the point as they relate to the aspect of the question raised before the Tribunal and are, therefore, clearly distinguishable. We need not discuss the other cases cited by Mr. L. R. Mehta, which repeat or follow the dictum laid down in Scindia's case. Suffice it to say that the petitioner in his application under Section 64(1) of the Act did not expressly assail the finding of the Tribunal that the assets of the sole proprietary concern devolved upon the partnership concern on the ground that there was no evidence. It is, therefore, not open to the department to assail the order of the Tribunal on that ground as the point in the circumstances cannot be said to arise out of the order of the Tribunal.

20. We, therefore, refuse to refer part 1 of the question No. 2 as stated earlier.

21. In regard to the second part of the second question, the Tribunal has observed that Section 10 of the Estate Duty Act was not referred to by the revenue at the stage of the hearing of the appeal or before the Tribunal. It has further been observed by the Tribunal that no mention of it either was wade in its order. The Tribunal has noted that there is no warrant for the conclusion that taking over of the assets and liabilities of the partnership amounted to transfer or gift so as to attract Section 10 of the Estate Duty Act. It may be that the application of Section 10 may be implied in the order of the Tribunal but it only relates to a gift which was not the question canvassed before the Tribunal. In these circumstances, it cannot be said that the second part of the question arises out of the order of the Tribunal.

22. For the reason set out earlier, we decline to direct the Tribunal to refer the question No. 2 to this court. This question, in our opinion, is plainly not a question of law which arises in the circumstances of the case. The Tribunal is, therefore, directed to refer the following question No. 1 for our answer under Section 64(3) of the Act:

'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the share of goodwill of the deceased may be arrived at on the basis of two years' purchase of super profits in the place of three years as fair and reasonable without assigning any reason '

23. There will be no order as to costs.


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