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P.C. Sharma and Sons Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 2 of 1976
Judge
Reported in[1979]116ITR758(Cal)
ActsIncome Tax Act, 1961 - Section 256(1) and 256(2)
AppellantP.C. Sharma and Sons
RespondentCommissioner of Income-tax
Appellant AdvocateDebi Pal, Adv.
Respondent AdvocateAjit Sengupta, Adv.
Cases ReferredIn India Cements Ltd. v. Commissioner of Income
Excerpt:
- .....supreme court (pp. 756, 757): 'the high court may only answer a question referred to it by the tribunal: the high court is however not bound to answer a question merely because it is raised and referred......... if the power of thehigh court to refuse to answer questions other than those which are questions of law directly related to the dispute between the taxpayer and the department, and which, when answered, would determine qua that question the dispute, be granted, we fail to see any ground for restricting that power when 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......power to reframe a question may beexercised to clarify some obscurity in the question referred, or to pinpoint.....
Judgment:

Dipak Kumar Sen, J.

1. This reference under the Income-tax Act, 1961, arises from the income-tax assessment of M/s. P. C. Sharma & Sons, the assessee, in the assessment year 1964-65, the previous accounting year having ended on the 31st March, 1964. At such assessment a cash credit of Rs. 35,000 was found in the name of one Ganeshilal Sharma in the books of the assessee. The ITO rejected the assessee's contention that it was a genuine loan and added back the said sum as income of the assessee from undisclosed sources. The AAC and the Tribunal both confirmed the order of the ITO.

2. The assessee made an application under Section 256(1) of the I.T. Act, 1961, asking that the following questions be referred to this court:

'1. Whether, on the facts and in the circumstances, the reassessment proceedings under Section 148 of the I.T. Act, 1961, was in accordance with law

2. Whether the Tribunal was right in holding that the loan of Rs. 35,000 by Sri G.L. Sharma, who confirmed the loan and explained the source thereof, was not a genuine one

3. Whether the Tribunal was right in not considering the fact that the assessee having discharged the initial onus, the burden shifted on to the department ?'

3. The Tribunal held that the said questions did not arise from the order of the Tribunal and dismissed the application of the assessee. Thereupon, the assessee made a further application under Section 256(2) to this court. It appears from the records that the assessee invited this court to direct the Tribunal to draw up a statement of case and refer the very same questions which it had raised before the Tribunal in its application under Section 256(1) ofthe Act set out hereinabove. This court, however, directed the Tribunal to draw up a statement of case in respect of the following question :

'Whether, on the facts and circumstances of the case, the finding of the Tribunal that the loan of Rs. 35,000 (rupees thirty-five thousand only) by Shri G.L. Sharma is not genuine, is perverse ?'

4. At the hearing Mr. Ajit Sengupta, learned counsel for the revenue, raised a preliminary point to the effect that the assessee not having asked for the question which has been referred either before the Tribunal in its application under Section 256(1) of the Act or before this court in its application under Section 256(2) thereof, this court should not answer the same.

5. In support of his contentions Mr. Sengupta has cited the following as authority:

(a) India Cements Ltd. v. CIT : [1966]60ITR52(SC) . This decision was cited for the following observations of the Supreme Court (p. 64):

'......in a reference, the High Court must accept the findings of factmade by the Appellate Tribunal and it is for the person who has applied for a reference to challenge those findings first by an application under Section 66(1). If he has failed to file an application under Section 66(1) expressly raising the 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 the other.' (b) CIT v. Smt. Anusuya Devi : [1968]68ITR750(SC) . This decision was cited for the following observations of the Supreme Court (pp. 756, 757):

'The High Court may only answer a question referred to it by the Tribunal: the High Court is however not bound to answer a question merely because it is raised and referred......... If the power of theHigh Court to refuse to answer questions other than those which are questions of law directly related to the dispute between the taxpayer and the department, and which, when answered, would determine qua that question the dispute, be granted, we fail to see any ground for restricting that power when 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......power to reframe a question may beexercised to clarify some obscurity in the question referred, or to pinpoint the real issue between the taxpayer and the department or for similar other reasons; it cannot be exercised for reopening an enquiry on questions of fact or law which is closed by the order of the Tribunal.' (c) Lakshmiratan Cotton Mills Co. Ltd. v. CIT : [1969]73ITR634(SC) . This decision was cited for the following observations of the Supreme Court (p. 647):

'Correctness of an order of the High Court calling for a statement of case may be challenged at the hearing of the reference and the court may decline to answer the question referred pursuant to the direction of the High Court, if it did not arise out of the order of the Tribunal, or is a question of fact or is academic or could not have been raised because it was not incorporated in the application under Section 66(1).' (d) CIT v. Imperial Chemical Industries (India) (P.) Ltd. : [1969]74ITR17(SC) . This decision was cited for the following observations of the Supreme Court (p. 23):

'It is true that the finding of fact will be defective in law if there is no evidence to support it or if the finding is perverse. But in the hearing of a reference under Section 66(1) of the Act it is not open to the assessee to challenge such a finding of fact unless he has applied for the reference of the specific question under Section 66(1). In India Cements Ltd. v. Commissioner of Income-tax : [1966]60ITR52(SC) , it was held by this court 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). If the party concerned has failed to file an application under Section 66(1) 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 is vitiated for any reason.' (e) CIT v. Kamal Singh Rampuria : [1970]75ITR157(SC) . This decision was cited for the following observations of the Supreme Court (pp. 161, 162):

'But in the hearing of a reference under Section 66 of the Act it is not open to the assessee to challenge such a finding of fact unless he has applied for a reference of the specific question under Section 66(1). In India Cements Ltd. v. Commissioner of Income-tax : [1966]60ITR52(SC) , it was pointed out by this court 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). If the party concerned has failed to file an application under Section 66(1) expressly raising the question about the validity of the findings of fact, he is not entitled to urge before the High Court that the finding was vitiated for any reason. The same view has been expressed by this court in a later case in Commissioner of Income-tax v. Sri Meenakshi Mills Ltd. : [1967]63ITR609(SC) .' (f) CIT v. Kotrika Venkataswamy and Sons : [1971]79ITR499(SC) . This decision was cited for the following observations of the, Supreme Court (p. 501): 'Under Section 66(2) of the Act, the High Court may call for a statement of case if the High Court is not satisfied about the correctness of the decision of the Tribunal refusing to state a case to the High Court. The High Court cannot obviously be satisfied that the decision of the Tribunal in not submitting a statement on a question is incorrect when the Tribunal was never asked to submit a statement of case on that question.'

6. Dr. Debi Pal, learned counsel for the assessee, in reply contended, firstly, that the assessee had in fact raised the dispute which was covered by the question referred though the questions suggested by the assessee did not clearly bring out the same and, therefore, the High Court rightly reframed the question to bring into focus the actual dispute between the parties.

7. Dr. Pal contended in the alternative that if it be held that the dispute between the parties cannot be found in the question as referred, the same can be corrected or reframed by the court even at the hearing of the reference. In support of his contentions, Dr. Pal cited the following decisions :

(a) Caltex (India) Ltd. v. CIT : [1952]21ITR278(Bom) . In this case one of the questions which was referred by the Tribunal to the Bombay High Court was as follows :

'Whether the dividend income can be deemed under Section 42 of the Act to accrue to the assessee-company in British India ?' At the hearing of the reference, the Bombay High Court held that the question raised by the Tribunal did not bring out clearly the controversy between the parties and the question was reframed by adding the words 'as agents' after the words 'assessee-company', and was answered accordingly. (b) Shivrajpur Syndicate Ltd. v. CIT : [1962]46ITR1205(Bom) . In this case on application of the assessee under Section 66(2) of the Indian I.T. Act, 1922, the Bombay High Court directed the Tribunal to refer the following questions :

'(1) Whether, on general principles, the Tribunal was justified in upholding the addition of a proportionate part of the bonus for the earlier years paid in the accounting year to the cost of the stock on hand for the purpose of valuation

(2) Whether such addition was in any event unjustified having regard to the petitioner's regular method of accounting

(3) In the event of the above questions being answered against the petitioners, whether the Tribunal was justified in revaluing the closing stock for the assessment year 1953-54, by adding a proportionate part of the amount of bonus and in refusing to revalue the opening stock in the same manner and on the same basis ?'

8. The Bombay High Court held that the questions, though framed on the requisition by the court, had not been happily worded and did not bring out the real controversy between the assessee and the revenue, which was as follows:

'Whether the Tribunal was justified in law in holding that the proportionate amount of bonus paid by the assessee to its employees can be taken into account in determining the cost price of the closing stock? ' The above question as framed by the court was substituted for question No. 1 as referred and was answered.

(c) Oriental Investment Co. P. Ltd. v. CIT : [1969]72ITR408(SC) . In that case, the assessee applied to the Tribunal under Section 66(1) of the Act of 1922 for the following questions to be referred for the opinion of the High Court:

'(1) Whether, on the facts and in the circumstances of the case, the assessee-company can rightly be treated as a dealer in investments and properties

(2) Whether the profits and losses arising from the sale of the shares, securities and immovable properties of the assessee-company can be taxed as business profits ?'

9. The application of the assessee having been rejected by the Tribunal, the assessee made a further application under Section 66(2) of the said Act to the Bombay High Court, which was dismissed. Thereafter, the assessee obtained a special leave to appeal to the Supreme Court. The Supreme Court allowed the appeal and formulated the following two questions :

'(1) Whether there are any materials on the record to support the finding of the Income-tax Officer that the assessee-company was a dealer in shares, securities and immovable property during the assessment year in question

(2) Whether the profits and losses arising from the sale of shares, securities and immovable properties of the assessee-company can be taxed as business profits ?'

10. The High Court, thereafter, directed the Tribunal to state a case on the question as formulated by the Supreme Court and ultimately disposed of the reference in favour of the revenue. Against this decision there was a further appeal to the Supreme Court. The Supreme Court held that the questions which had actually been framed by the Supreme Court itself were not appropriate and did not reflect the real controversy between the parties, and therefore, it was in the interests of justice that the questions should be again modified and the questions as originally suggested by the assessee in its application under Section 66(1) of the said Act were held to be the proper questions. The Supreme Court set aside the judgment of the High Court and directed the Tribunal to draw up a statement of case on the saidquestion and the High Court to dispose of the reference in accordance with law.

(d) CTT v. S.P. Jain : [1973]87ITR370(SC) . In this case, the following questions were referred to the High Court at the instance of the revenue:

'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in declining to consider the documents which were already on record and which the department wanted to adduce as evidence

(2) Whether, on the facts and in the circumstances of the case, the Tribunal's finding that the purchase of the shares by the Rana was not a benami transaction was legally valid

(3) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the sum of Rs. 10,80,000 from the total income of the assessee by holding that the Rana was not the benamidar of of the assessee?'

11. In the reference, the High Court sustained the order of the Tribunal. Thereafter, on a further appeal to the Supreme Court, it was held that in its application under Section 66(1) of the Indian I.T. Act, 1922, the revenue had specifically asked for a reference on the following question :

'Whether, on the facts and in the circumstances of the case, the findings of the Tribunal that a sum of Rs. 10,80,000 paid for the purchase of shares was not the assessee's own income was a perverse finding having regard to the evidence on record ?'

12. The same question had been repeated in the application of the assessee under Section 66(2) of the Act. The Supreme Court held that perhaps the High Court thought that the questions Nos. 2 and 3, on which it had directed the Tribunal to state a case would cover within its ambit of the said question on perversity on which the revenue had asked for reference. Thereafter, the Supreme Court went on to consider the question of perversity and ultimately held that the findings of the Tribunal were wholly vitiated and no judicial tribunal could have arrived at such findings. The Supreme Court ignored the said findings of the Tribunal and answered the questions Nos. 2 and 3 referred to the High Court in the negative and in favour of the revenue.

13. In the instant case, the questions which were suggested by the assessee in its application under Section 256(1) and which were reiterated in its application under Section 256(2) of the said Act, do not ex facie raise a controversy as to whether the order of the Tribunal was perverse. Question No. 2 which comes nearest to the question referred is that whether the Tribunal was right in holding that the loan of Rs. 35,000 by Sri J.L. Sharma who confirmed the loan and explained the source thereof, was not a genuine one. The said question appears to assume that it has been found or established that the alleged creditor, G.L. Sharma, has confirmed the loan and has explained the source thereof in his hands. If it had been so found, then that question could have only one answer, i.e., an answer in favour of the assessee. The finding of the Tribunal being otherwise, the question has to be answered against the assessee or need not be answered as being academic. But on a question of fact it cannot be said that the assessee challenged the conclusion of the Tribunal on admitted or undisputed or settled facts as perverse. When this court directed the Tribunal to draw up a statement of case and refer the questions, which are now before us, it appears to have framed a new question which had not been asked for by the assessee up to that stage.

14. The law on the point, appears to be well settled. If a party does not choose to raise a particular question before the Tribunal and before the High Court, then even if such a question is referred either by the Tribunal suo motu or pursuant to the directions of the High Court, the High Court, while disposing of the reference, is not bound and ought not to answer the same.

15. The alternative contention of Dr. Pal that we should again reframe the question in the form in which it was originally asked for by the assessee also does not stand scrutiny. We have already indicated that the question No. 2 as originally suggested by the assessee has to be, (a) answered against the assessee on the facts found; or (b) need not be answered as being a question of fact or an academic question.

16. For the reasons as stated above, the preliminary objection raised by Mr. Sengupta succeeds.

17. We decline to answer the question as referred. We also decline to reframe the said question as suggested on behalf of the assessee. The reference is disposed of accordingly. There will be no order as to costs.

Bimal Chandra Basak, J.

18. I agree.


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