SETHURAMAN J. - At the instance of the Commissioner of Income-tax, the following question has been referred under s. 256(1) of the I.T. Act, 1961 :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 19 being the interest received on the deposit made with the electricity company, is a business receipt and, accordingly, deleting the additional surcharge of Rs. 81,920 charged for the assessment year 1963-64 ?'
The assessee is a co-operative society engaged in the business of banking. We are concerned with the assessment year 1963-64, the relevant previous year ending on 3 June 30, 1962. The total income of the assessee was computed as under :
1. Interest on securities
Less: Property loss
2. Business income
3. Other sources
Under the head 'Other sources' was included a sum of Rs. 19, being the interest from the Salem-Erode Electricity Distribution Company. The assessee had made a deposit with the said company from time to time as required by it in connection with the electricity supply. The deposit carried interest, and the amount so due with reference to the year under reference was Rs. 19. The ITO was of the view that the entire income of the society except the sum of Rs. 19 was eligible for relief under s. 81. Section 81 provides that income-tax shall not be payable by a co-operative society in respect of the profits and gains of business carried on by it, if it is a society engaged in carrying on the business of banking or providing credit facilities to its members. (vide s. 81(1)(a) of the Act). It is not in dispute that this case falls within the scope of s. 81(1)(a) of the Act. The view of the ITO was that the sum of Rs. 19 was assessable under the head 'Other sources', and he brought it to tax and levied income-tax at the rate applicable to the total income of Rs. 15,41,832 mentioned above. Further, he calculated surcharge at Rs. 81,920 as being payable with reference to the income of the year under consideration under the provisions of the Finance Act to be noticed presently. The assessee appealed to the AAC. He upheld the claim of the assessee that the sum of Rs. 19 was the income which was incidental to the banking business of the assessee and that, therefore, the sum of Rs. 19 was also liable to be taxed under the head 'Business'. As income from 'business' was exempt, he was of the view that the assessee was not liable to the surcharge.
The revenue appealed to the Appellate Tribunal contending that the deposit was not part of the trading asset or circulating capital of the assessee and that it was to be made by every consumer of electrical energy. In the submission of the department, the deposit had nothing to do with the business of the assessee in banking. The Tribunal rejected these contentions and agreed with the AAC that the sum of Rs. 19 was income from 'business'. The result was that the department appeal was dismissed. The question arising out of the order of the Tribunal has been referred to this court.
In its, order, in dealing with the dispute as regards the assessability of Rs. 19 either under the head 'Business' or under the head 'Other sources', the Tribunal pointed out thus :
'Before us it is made clear by both sides that the levy of additional surcharge and interest would depend upon the classification of the head of income for this interest income of Rs. 19 and that if it fell under income from business, the appeal has to be dismissed and that if it fell under income from other sources, the appeal has to be allowed and the levy of surcharge and interest restored. So we proceed to discuss the vital issue in this case on which hangs the result of this appeal.'
The learned counsel for the Commissioner contended that there is an erroneous assumption on the part of the AAC as well as the Tribunal that the assessability of the sum of Rs. 19 under the head 'Business' was decisive as regards the applicability of surcharge. In his submission, the provision for surcharge would be attracted whatever be the head under which any particular income could be assessed. The learned counsel appearing for the assessee submitted that the manner in which the present contention was being advanced by the learned counsel appearing for the Commissioner was not available to him because the matter had not been argued before the Tribunal. We have, therefore, to go into the question, whether the contention that whatever be the head under which this sum of Rs. 19 is to be assessed, the assessee would be liable to surcharge under the relevant Finance Act is open to the Commissioner on the facts here.
In order to appreciate the point, it is necessary for us to refer to the relevant provisions of the Finance Act. Section 2 of the Finance Act, 1963, provides for the charge of income-tax at the rages specified in Pt. I of the First Schedule to that Act. In that cases to which Paras. A, B, C and E of that Part applied and with reference to the cases falling under Paras. A, B, C and E of Pt. I, the tax has to be increased by a surcharge for purposes of the Union. In cases falling under Para. E, there is to be a special surcharge. The surcharges are to be calculated in the manner provided in the Schedule. Paragraph C prescribes the rate of income-tax at 25 per cent. on the total income in which the income-tax is to be charged at the maximum rate. In the case of a co-operative society, it is not in dispute that income-tax, the following is the provision which occurs in Para. C :
'The amount of income-tax computed at the rate hereinbefore specified shall be increased by the aggregate of the surcharges calculated as under :
(a) a surcharge for purposes of the Union office per cent. of the amount of income-tax;
(b) a special surcharge of fifteen per cent. of the amount of income-tax; and
(c) an additional surcharge for purposes of the Union calculated on the amount of the residual income at the rates as specified in Paragraph A of this Part.'
It will be seen that cl. (c) used the expression 'residual income'. This expression is defined in s. 2(8) as follows :
'For the purposes of Paragraphs A and C of Part I of the First Schedule, the expression residual income means the amount of the total income as reduced by -
(a) the amount of the capital gains, if any, included therein; and
(b) the amount of tax (exclusive of additional surcharge) which would have been chargeable on such reduced total income if it had been the total income no part of which had been exempt from tax and on no portion of which deduction of tax had been admissible under any provisions of the Income-tax Act or this Act.'
The contention for the revenue was that this definition of 'residual income' would clearly comprehend the entire total income exclusive of capital gains and the tax exclusive of additional surcharge. If these amounts are excluded, then in the submission of the learned counsel, the balance of the income would be a 'residual income' and this income would be processed in the manner required by Para. C. It is this aspect which was submitted to be a new contention sought to be put forward by the revenue at this stage and which was objected to by the learned counsel for the assessee.
The Supreme Court has elaborately considered the question of the nature of the contention that may be open to be put forward in a reference to the High Court. In CIT v. Scindia Steam Navigation Co. Ltd. : 42ITR589(SC) , the Supreme Court has pointed out in relation to s. 66(1) of the India I.T. Act, 1922, which is in words identical with s. 256 of the I.T. Act, 1961, as follows (p. 612) :
'All that section 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 was 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. It will be an over-refinement of the position to hold that each aspect of a question is itself a distinct question for the purpose of section 66(1) of the Act.'
In the present case, the question that was before the Tribunal was whether the additional surcharge was leviable. One of the contentions that were raised before the Tribunal by the assessee was that the assessee had no income which was liable to be assessed to income-tax as the entire income was exempt under s. 81(1)(a). In order to attract the relief under s. 81(1)(a) the assessee stated that the income earned from the deposit with the electricity company was income from 'business'. Therefore, the whole question that was before the Tribunal was, whether the assessee was liable to be assessed to the additional surcharge. There was obviously some misconception as regards the conditions when the additional surcharge was attracted. In a case, where the assessee had income which fell within s. 81(1)(a), the Supreme Court in Madurai District Central Co-operative Bank Ltd. v. Third ITO : 101ITR24(SC) has examined the identical provisions of the Finance Act, 1963, and has come to the conclusion that even where some income was exempt, the exemption was liable to be withdrawn by the Finance Act and that the efficacy of that exemption given under the I.T. Act may be reduced by the imposition of a new charge. At the time when the Tribunal passed its order, this decision of the Supreme Court was not available, though the Supreme Court had rendered its decision on July 28, 1975, and the Tribunal came to pass its order on October 30, 1975. However, the relevance of the interpretation placed by the Supreme Court with reference to the identical provision of the Finance Act cannot now be open to question. As the matter before the Tribunal arose only with reference to the assessees liability to the additional surcharge and as this matter had been dealt with on the basis of a particular aspect of the argument advanced by the assessee without reference to the entire provisions of the statute, we consider that the Commissioners contentions cannot be rejected in limine. In the present case, the point whether the assessee is liable to additional surcharge is a live issue as borne out by the question itself which refers to the deleting of the additional surcharge of Rs. 81,920 charged for the assessment year 1963-64, on the basis that the sum of Rs. 19, being the interest received on the deposit made with the electricity company, was a business receipt.
It may perhaps be stated n fairness to the Tribunal that the Tribunal did not obviously feel it necessary to go into these aspects, only because as shown by the passage extracted from para. 3 of its orders, both sides made it clear to the Tribunal that the levy of additional surcharge would depend upon the classification of the head of income under this sum of Rs. 19 is held. However, the AAC as well as the Tribunal were alive to the fact that the question which was to be considered was only in that context of the provisions of the Finance Act, levying additional surcharge. The question was thus a live issue before the Tribunal as well as in the present reference and as the Tribunal has given no decision on this vital point, we think it necessary to send the matter back to the Tribunal. Whether the sum of Rs. 19 is assessable under the head 'Business' is not by itself the main issue.
The learned counsel for the assessee relied on the decision of this court in T. A. Devaki Ammal v. CED : 111ITR403(Mad) in support of his submission that the counsel for the revenue could not be permitted to urge this point before us. In that case, the reference was on the question whether the Appellate Tribunal was justified in law in upholding the assessment of the value of the life interest in the property of the deceased. One of the contentions which was sought to be taken was that the case fell within the scope of section 7 and the other contention was that this court had also to consider whether the valuation of the property was correct or not. This court was unable to entertain either of these contentions because such a case had not been put forward before the Tribunal, and, therefore, could not be said to arise out of the order of the Tribunal. In view of the fact that we have already pointed out that the whole question before the Tribunal was whether the surcharge was attracted and in view of the fact that the Tribunal did not deal with this question only because of the way in which the matter was argued before it, the principle laid down in the decision in T. A. Devaki Ammals case : 111ITR403(Mad) is not applicable here.
The learned counsel for the assessee contended also that where both the parties had not argued a point on a misconception of law, the matter may not be open for consideration by this court. He could not dispute the fact that where there was any error in the contention of the one of the parties then the matter could be gone into on reference. This court cannot look on helplessly with reference to an error which is manifested in the contention of both sides before the Tribunal. This court has jurisdiction to correct an error in the order of the Tribunal, so long as the point arose out of its order, whoever be the author of the mistake or error in taking up in a particular contention. Having regard to the nature of the issue that was before the Tribunal and having regard to what we have stated above, we think it proper to set aside the order of the Tribunal and direct the Tribunal to consider the case on all the points that require consideration of the question whether additional surcharge was attracted. The reference is returned unanswered. There will be no order as to costs.