(1) The short question that arises for determination in these petitions is, when can a question of law be said to arise out of the order of the Tribunal (functioning under the Wealth Tax Act of 1957) for directing it to refer the question to the High Court under S. 27(3) of the Wealth Tax Act, 1957. By its order dated 30-12-1963, the Tribunal declined to refer the following question to the High Court for decision:
"Whether on the facts and in the circumstances of the case, the Tribunal was right in law holding that the assets of Rs. 18,79,563 and Rs. 19,98,449 are exempt under S. 5(1)(xxi) of the Wealth Tax Act?"
The brief facts of the case are: The respondent, hereinafter referred to as "assessee", purchased a cotton spinning and weaving mill at Kadirvedu On the basis of its vendor's licence, the assessee applied to the Government on 25-2-1957 for the installation of 10000 spindles and permission was granted in that regard and also to import the spindles and other accessories from abroad. Accounts for this Kadirvedu mills were opened on 2-7-1956 and from March 1957 to 17-7-1958, machinery was installed and installation was completed. The construction of the factory building was commenced in May 1957 and was completed by November 1957. During the year 1956, a sum of Rs. 1,14,143, was spent; during the next year ending 31-12-1957, the total expenditure for the unit amounted to Rs. 18,79,563. The factory commenced production from 1-1-1958. For both the wealth tax assessment years 1958-59 and 1959-60 the assessee claimed exemption under S. 5(1)(xxi) of the Wealth-tax Act, in respect of the said sums of Rs. 18,79,563 and Rs. 19,98,449.
S. 5(1)(xxi) runs as follows :
"S 5(1): Wealth-tax shall not be payable by an assessee in respect of the following assets and such assets shall not be included in the net wealth of the assessee...... (xxi). That portion of the net wealth of a company established with the objects of carrying on an industrial undertaking in India within the meaning of the Explanation to clause (d) of S. 45, as is employed by it in a new and separate unit set up after the commencement of this Act by way of substantial expansion of its undertaking;"
The Wealth-tax Officer rejected the claim on the ground that the new separate unit must be deemed to have been set up before 1-4-1957 even when negotiations took place and arrangements were made for constructing the factory and installing the machinery and that the relevant date was not the date when the mills actually commenced production. The appellate Assistant Commissioner and the Appellate Tribunal came to a contrary conclusion, in the view that the relevant date was the date only when the factory went into production i.e., 1-1-1958. Section 27 of the Wealth-tax Act both in its language and as well as in its purport corresponds to S. 66 of the income tax Act; decision dealing with the scope of an application for reference under S. 66 will be relevant for the instant case. The relevant portion of S. 27(1) runs as follows:
"Within ninety days of the date upon which he is served with an order under S. 24 or S. 26, the assessee or the Commissioner may present an application in the prescribed form and where the application is by the assessee, accompanied by a fee of one hundred rupees to the Appellate Tribunal requiring the Appellate Tribunal to refer to the High Court any question of law arising out of such order, and the Appellate Tribunal, shall, if in its opinion a question of law arises out of such order, state the case for the opinion of the High Court"
Learned counsel for the assessee resists the application on the main ground that the question that is agitated by the department i.e., proper interpretation of S. 5(1)(xxi) has been decided by a Bench of this court in Ramaraju Surgical Cotton Mills Ltd. v. Commr. of Wealth Tax, Madras in which the identical question was
raised on behalf of the department and negatived. In the case before that Bench, a Public Limited Company obtained a licence for starting a new unit in the year 1955, orders for the purchase of plants and machinery were placed in 1956, construction of the building was completed in 1957. After the installation of the machinery, the factory commenced production in the year 1957-58. The Bench held that unless a factory is erected and the plant and machinery are installed therein, before 1-4-1957, it cannot be said to have been set up within the meaning of S, 5(1)(xxi), merely because the company had taken the preliminary steps and the Board of directors had passed the necessary resolution. The Bench held that placing of the orders and such other matters were all merely initial stages towards the setting up of the Unit and that it was only when the factory started functioning that it could be said that the Unit had been set up within the meaning of S. 5(1)(xxi) of the Act. Learned counsel for the respondent assessee, urged that this Bench decision is binding upon us and has to be followed, unless a different view is taken by a fuller Bench or this decision is reversed by the Supreme Court. The substance of the argument of the learned counsel is that if a particular question of law (the same or identical question) is covered by an authoritative decision binding upon the Tribunal and upon this court, it cannot be said that a question of law arises out of the order of the Tribunal. Before considering this argument, it may be mentioned that the department has obtained special leave from the Supreme Court to prefer an appeal against the bench decision of this court in and the appeal before the Supreme Court has been filed and is now pending decision.
(2) It must be mentioned at the outset that in an application for reference under S. 27 (Corresponding to S. 66 of the Income-tax Act), the High Court is not concerned with the correctness of the decision of the Appellate Tribunal on the merits of the appeal which was disposed of by the Tribunal; but the High Court is only concerned with the correctness or otherwise of the order of the Tribunal in holding that no question of law arises out of its order warranting a reference under S. 27 of the Act. It is sufficient to refer to the statement of the law in Palkiwala's Income-tax, 5th Edn. Vol. I, at pages 906 and 907. Reference may also be made to the Bench decision of the Bombay High Court in Central Talkies Circuit v. Commr. of Income-tax, Bombay, (1939) 7 ITR 628: (AIR 1939 Bom 448) where Beaumont C. J. Delivering the judgment of the Bench held that the ultimate decision on a point of law whether for or against the Commissioner, can have no bearing on the question whether there was a point of law upon which a case should have been stated. This decision in (1939) 7 ITR 628: (AIR 1939 Bom 448) has been followed in Dhanrajmal Chatandas v. Commr. of Income-tax, Bombay Presidency, Sind and Baluchistan (1942) 10 ITR 384: (AIR 1942 Sind 74). In R. B. L. Banarsi Dass & Co. Ltd. v. Income-tax Appellate Tribunal, Delhi Bench, the Bench of the Punjab High Court has taken the same view holding that at the stage of an application for stating a case to the High Court, the court is not concerned with the merits or ultimate decision or objection, whether it would be in favour of or against the assessee, and that what is crucial to consider is whether there is a point of law upon which a case should have been stated. The learned counsel for the department contends that in an application under S. 27, at this stage, the question is not whether the decision of the Tribunal is correct and whether the High Court would therefore accept the same, but whether the question of law arises out of the order of the Tribunal.
(3) When can a question of law be said to arise out of the orders of the Tribunal? Would it be sufficient if the order of the Tribunal contains a discussion of and follows certain propositions or aspects of law which are either obvious and well established or covered by authoritative pronouncements of the Supreme Court. Are the words "any question of law arising out of such order" in S 27, used merely in contra-distinction to the words "any question of fact arising out of such order" with a view to emphasise and connote that whenever the decision of the Tribunal involves a question of law, however well established and authoritatively decided, even if it be by a decision of the Supreme Court, a case should be stated. In other words, is the Commissioner bound to state a case, the moment it is shown that the decision of the Tribunal rests upon a question of law and not on facts? In our opinion, the extreme contention put forward on either side cannot be accepted. One thing which is to be borne in mind in arriving at the proper interpretation of S. 27, is that the scheme of the Legislature is not to make the decision of the revenue authorities final, but that the Commissioner or the subject can have the remedy of an adjudication by the High Court whenever the decision involves a question of law. On question of fact, the scheme of the Act is, that the decision of the revenue authorities and the Appellate Tribunal would be final. Every effort should be made not to interpret the section in any narrow manner as to make this remedy of adjudication by the High Court illusory. The right to approach the High Court for an adjudication is a real and effective right and any view of the section which will have the effect of making the decision of the Tribunal on a question of law as the final say in the matter would cut at the very root and scheme of the section. In other words, this provision which confers a right to seek relief in a court of law, especially the High Court, should receive a liberal interpretation. At the same time, it must be noticed that the Tribunal is to refer a case or the High Court is to direct the Tribunal to refer a case for the purpose of being dealt with under S. 27(6), the High Court has to decide the question of law raised therein. If a decision of the Tribunal is so obvious and self evident and a contrary contention is patently inarguable and the High Court would automatically without any consideration what so ever affirm the decision of the Tribunal, it will be sheer waste of time for the tribunal to refer a case or for the High Court to direct the Tribunal to do so resulting in unnecessary expenses for the parties concerned. In Mangaldas N. Verma v. Commr. of Income-tax and E. P. T., (FB), a case arising under a corresponding provision, S. 8(5) of the Taxation on Income (Investigation Commission) Act XXX of 1947, the position was stated thus by Chagla C.J. at p. 191, (of ITR); (at p. 188 of AIR), delivering the judgment of the Bench of the Bombay High Court:
"Mr. Kolah says that whatever our view may be on the questions of law, questions of law do arise and we should ask the commissioner to refer those questions to us. Now, when S. 8(5) refers to a question of law it does not mean that any question of law, however frivolous, however insupportable, however inarguable, must be referred by the commissioner because the assessee suggests that such a question of law arises. If the court finds that the question of law answers itself or that it is patently inarguable, there is no reason why the time of the Commissioner or of the court should be wasted in asking the Commissioner to refer to us question of law. Ingenuity of lawyers will always suggest questions of law arising out of the finding of the commission. It is only when the court-it satisfied that a question of law arises and that it requires consideration by the court that the court would direct the commissioner to raise the question of law. In that strictly technical sense Mr. Kolah may be right that the questions he has argued before us are questions of law. But on a careful consideration of the points Mr. Kolah has urged before us, we have come to the conclusion that there is no substance whatever in the questions of law and no useful purpose will be served by our asking the Commissioner to refer these questions to us"
(4) In , the Punjab High Court pointed out that the Tribunal is bound to state a case unless the answer is so simple and self evident. In Mathuraprasad Motilal & Co. v. Commr. of Income-tax, (1956) 30 ITR 695: (AIR 1957 Nag 6) the Nagpur High Court took the view that it was not incumbent upon the High Court to require the Tribunal to state a case when the answer is self evident and free from doubt. In a recent Bench decision of the Bombay High Court in Amarchand Jalan v. Commr. of Income-tax, 1964-2 ITJ 56 (Bom), there is a useful discussion of the scope of Ss. 66(1) and 66(2) of the Income-tax Act. The Bench has taken the view that the Tribunal is bound to state a case for decision by the High Court whenever the question is such that it requires to be considered by the High Court or reasonable debate is possible on the point decided by the Tribunal. At the same time, the Bench has pointed out that, if the question of law decided by the Tribunal is covered by a direct decision of the Supreme Court and when there is hardly any argument or room for fresh consideration by the High Court, no useful purpose would be served by directing the Tribunal to state a case to the High Court. The learned judges have taken the view that, if a point is covered by a judgment of the Supreme Court it would be the law of the land under Art. 141 of the Constitution and in such a situation the Tribunal would be justified in rejecting an application for reference.
(5) The question arises as to what would be the position if the decision of the Tribunal is not covered by any decision of the Supreme Court but a decision of the High Court to which it is subordinate. The words used are "any question of law arising out of such order" and not any substantial question of law arising out of such order. It is to be presumed that the legislature in using these words, was well aware of the well recognised distinction between a "question of law" and a "substantial question of law." Even so, if a question is finally and definitely settled by the judicial decisions, it will not be a question of law but would only be a proposition of law. In a recent decision in Chunilal V. Mehta and Sons Ltd. v. Century Spinning and Manufacturing Co. Ltd., , the Supreme Court laid down the tests for determining when a question of law can be said to be a substantial question of law within the meaning of Art. 133 of the Constitution. The Supreme Court, on an examination of the decisions of the various High Courts, took the view that the view taken by the Bombay High Court was rather narrow, while that taken by the High Court of Nagpur was too wide. It accepted as correct the intermediate view taken by the Madras High Court in Subba Rao v. Veeraju, (FB). The matter was put thus at p. 1318.
"The other case relied upon was (FB). In that case the test of the kind suggested by Bose, C. J. was rejected on the ground that logically it would lead to the position that even a palpably absurd plea raised by a party would involve a substantial question of law because the decision on the merits of the case would be directly affected by it. What was however, said was that when a question of law is fairly arguable, where there is room for difference of opinion on it or whether the court thought it necessary to deal with that question at some length and discuss alternative views, then the question would be a substantial question of law. On the other hand, if the question was practically covered by the decision of the highest court or if the general principles to be applied in determining the question are well settled and the only question was of applying those principles to the particular facts of the case it would not be a substantial question of law."
(6) From this it will be seen that if a question of law is fairly arguable, and if there are aspects giving scope or room for difference of opinion, the question will be a substantial question of law Such a question will be a question of law a fortiori. It is clear that, if the question of law raised is not finally decided by the Supreme Court and if the question is such that more than one view, is fairly arguable and the answer to the question is not self evident and obvious, the tribunal must state a case to the High Court.
(7) In this connection reference also may be made to the judgment of the Privy Council in Alcock Ashdown and Co. Ltd. v. Chief Revenue Authority, ILR 47 Bom 742: (AIR 1923 PC 138) reversing the decision of the Bombay High Court in In the matter of Excess Profits Duty Act, ILR 45 Bom 881: (AIR 1921 Bom 119). That case arose under a corresponding provision, S. 51 of the Income-tax Act. 1918. The provision relating to the reference to the High Court under S. 51(1) ran thus:
"If in the course of any assessment under this Act or any proceeding in connection there with than a proceeding under Ch. VII, a question has arisen with reference to the interpretation of any of the provisions of this Act or of any rule thereunder, the Chief Revenue authority may either on its own motion or on reference from any revenue officers subordinate to it, draw up a statement of the case, and refer it with its own opinion thereon, to the High Court, and shall so refer any such question on the application of the assessee, unless it is satisfied that the application is frivolous or that a reference is unnecessary"
The Collector of Income-tax (the revenue authority) while determining the excess profits, had to decide the question as to when the profits of the business could be said to be employed in the business. The Bombay High Court took the view that the decision of the revenue authority was correct on the merits and therefore its refusal to state a case to the High Court could not be interfered with. But on appeal, the Privy Council reversed the decision of the High Court, on the ground that the perspective of approach of the High Court was not correct. The matter was put thus at p. 752 (of ILR): (at p. 142 of AIR):
"In their Lordships' view, always supposing that there is a serious point of law to be considered, there does lie a duty upon the Chief Revenue Authority to state a case for the opinion of the Court, and if he does not appreciate that there is such a serious point, it is in the power of the court to control him and to order him to state a case. So far their Lordships are in agreement with the High Court There remains the question which has led to this appeal. The High Court has apparently considered that there is no serious point of law involved in this case. It was, indeed, contended by counsel for the respondent that the High Court had accepted the position that there was a question of law and then had gone on to decide it adversely to the applicants, but their Lordships think this contention inadmissible. If there is a point of law, it ought to be decided in a regular manner and upon a proper matters: and here it should be said that the manner is not regular and that it is at least doubtful whether the materials are complete"
From these observations, it follows that the fact that ultimately the High Court is likely to agree with the decision of the Tribunal on the question of law, is not a ground for the Tribunal not to state a case nor even for the High Court not to direct the Tribunal to do so. Our attention was drawn to the Bench decision of the Calcutta High Court in Tarak Nath Bagchi v. Commr. of Income-tax, Bengal, (1946) 14 ITR 319: (AIR 1947 Cal 347) in which it was held that even if any point of law arose upon which the Tribunal refused to state a case, the High Court would not direct the Appellate Tribunal to state a case, if the High Court was satisfied with the correctness of the decision of the Tribunal. The attention of the learned Judges does not appear to have been drawn to the perspective of approach indicated in the observations of the Privy Council in ILR 47 Bom 742: (AIR 1923 PC 138). Further this view of the Calcutta High Court is opposed to the general trend of other High Courts which have held that at the stage of an application for stating a case to the High Court, the High Court is not concerned with the merits or ultimate decision of the Tribunal. With great respect, we are unable to subscribe to this view of the Calcutta High Court. Further, an important change has been introduced in S. 66 of the Income-tax Act of 1922, corresponding to S. 51 of the Act of 1918. The words "unless it is satisfied that the application is frivolous or that a reference is unnecessary" which occurred in the Act of 1918, have been omitted in the Act of 1922, with the result that whenever a question of law is involved in the decision of the Tribunal, it is bound to state a case to the High Court.
(8) In the instant case as observed earlier, the Supreme Court has already granted special leave and an appeal is pending from the decision of this court . This means the
Supreme Court has been satisfied that the decision of this High Court requires scrutiny, that the point is a debatable one, and that a substantial question of law is involved. We perused the judgment of the Bench of this Court in and we may observe that the learned judges felt some difficulty in construing the words "set up". They have observed that in the special context of the exempting provision of S. 5(1)(xxi) of the Act, the words "set up" present "some complexity" creating a "stubborn indefiniteness"
(9) The proper interpretation of an important provision of a statue. S. 5(1)(xxi) is beyond doubt a question of law and the point decided by the Tribunal is by no means in arguable or self-evident. On the other hand, it is quite a fairly arguable point. We, therefore, direct the tribunal to state a case for reference as prayed for and as set out in the beginning of the judgment
(11) Petitions allowed.