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PETITIONER: SALEM COOPERATIVE CENTRAL BANK LIMITED

       Vs.

RESPONDENT: COMMISSIONER OF INCOME TAX, MADRAS

DATE OF JUDGMENT06/04/1993

BENCH: JEEVAN REDDY, B.P. (J) BENCH: JEEVAN REDDY, B.P. (J) VENKATACHALA N. (J)

CITATION:  1993 AIR 1517            1993 SCR  (2) 997  1993 SCC  Supl.  (4) 200 JT 1993 (3)   181  1993 SCALE  (2)460

ACT: Income Tax Act, 1961: Sections  86(i)  and 256--Cooperative  Society  carrying  on banking     business--Business    income     exempt     from income-tax--Interest  on  Security  Deposit  for  supply  of electricity--Whether additional surcharge leviable--Tribunal holding  interest to be business income--Reference  to  High Court--High Court returning reference and directing Tribunal to   consider  all  points   whether  additional   surcharge attracted--Whether   High  Court  exceeded   the   reference jurisdiction.

HEADNOTE: The appellant-assessee was a cooperative society engaged  in the  business of banking The previous year relevant  to  the assessment  year 1963-64 was the year ending June 30,  1962. The  business  income of the assessee was exempt  under  the provisions  of Section 80(1) as it then stood.   During  the aforesaid accounting yew, the assessee received a sum of Rs. 19  being  the interest on the deposit made by  it  with  an Electricity  Distribution Company.  This deposit had  to  be made  by the assessee as it was required by  the  conditions notified  by the electricity company for supply  of  energy, and  it  carried interest.  It was on account  of  the  said deposit that the sum of Rs. 19 was received by the assessee, by way of interest. The  Income-tax  Officer  treated the amount of  Rs.  19  as income  from  other sources, and on that  basis,  he  levied additional surcharge, in a sum of Rs. 81,920. The   assessee   appealed   to   the   Appellate   Assistant Commissioner  who upheld the assessee’s contention that  the said sum of Rs. 19 constituted its business income and,  was therefore,  exempt.  He held that the levy of surcharge  was unsustainable. The  Revenue appealed to the Appellate Tribunal  which  held that   it  was  ’income  from  business’,  and   accordingly dismissed the Revenue’s 997 998 appeal.   At  the  instance of  the  Revenue,  the  Tribunal referred the question to the High Court. The  High  Court  held,  that the  assumption  made  by  the

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Appellate  Assistant Commissioner and the Tribunal that  the liability  of surcharge was not attracted in case  the  said sum  of  Rs.  19  represented business  income  may  not  be warranted  and that in such a situation the High Court  does possess the power to correct the error so long as the  point arose  out  of  the  Tribunal’s  order.   It  returned   the reference  unanswered and directed the Tribunal to  consider the  case  on all points that require consideration  of  the question whether additional surcharge was attracted. In  the  assessee’s appeal to this Court, it  was  submitted that the High Court exceeded its jurisdiction in making  the aforesaid  direction, that the High Court widened the  scope of  enquiry which it was not empowered to do in a  reference under Section 256 and that the matter should be sent back to the  High Court for answering the question of law as  stated by the Tribunal. Dismissing the appeal, this Court, HELD : All that the High Court has asked the Tribunal to  do is  to  consider whether the liability of surcharge  is  not attracted  even  if  the said sum of Rs. 19  is  treated  as income from business.  The fact that the revenue was also  a party  to the said erroneous assumption before the  Tribunal cannot stand in the way of the Revenue resiling from an  er- roneous assumption of law. [1004 D-F] In  the  instant case, the question was  whether  additional surcharge was leviable for the assessment year 1963-64 under the  relevant  Finance Act.  The assessee’s  contention  was that  it  had no income which was liable to be  assessed  to income-tax  inasmuch as its entire income was  exempt  under Section 81 (1) (a), and it was submitted that the sum of Rs. 19 was also a business income and, therefore, the  liability of additional surcharge did not attach to the assessee.  The I.T.O. took the view that the said sum of Rs. 19 represented income  from  other  sources and,  therefore,  liability  of additional surcharge was attracted.  The Appellate Assistant Commissioner  upheld  this  contention.   The  High   Court, however,  thought that having-regard to the language of  the provisions  of the relevant Finance Act, the Tribunal  ought to examine whether the liability to additional 999 surcharge  was attracted even if the said sum of Rs. 19  was treated as income from business.  The High Court was of  the opinion  that this legal submission, though raised  for  the first  time, did call for serious consideration.   This  was done to arrive at a correct decision in law relating to  the liability  to additional surcharge.  If  really,  additional surcharge  was chargeable according to the Finance Act  even In case the said sum of Rs. 19 represented business  income, the  High  Court  cannot  be  called  upon  to  act  on  the assumption  that  it  is not so chargeable  and  answer  the question  stated.   Such a course would neither  be  in  the interest  of  law or justice. That the Revenue  was  also  a party  to  the  erroneous assumption  of  law  makes  little difference to the principle. [1004 B-F] C.I.T.  Bombay v. Scindia Steam Navigation Ltd.,  42  I.T.R. 589, relied on.[1004-H] V.R.Y.K.N. Kallappa Chettiar v. Commissioner of Income  Tax, 62  I.T.R. 576; C.L T. v. Ogale Glass Works Ltd., 25  I.T.R. 529;  Keshav Mills Co. Ltd. v. Commissioner of  Income  Tax, Bombay  North,  Ahmedabad, 56 I.T.R.  365;  Commissioner  of Income Tax, Bihar and Orissa v. Kirkend Coal Co., 74  I.T.R. 67 and Kusumben D. Mahadevia v. Commissioner of Income  Tax, Bombay City 39 I.T.R. 540, not applicable. [1004-H]

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JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2169(NT).  of 1993. From  the Judgment and Order dated 10.12.1979 of the  Madras High Court in Tax Case No. 398 of 1976. Mrs. Janaki Ramachandran for the Appellant. K.N.  Shukla,  Sudhir  Walia  and  P.  Parmeswaran  for  the Respondent. The Judgment of the Court was delivered by B.P. JEEVAN REDDY, J. Under Section 256(1) of the Income Tax Act,  the Income Tax Appellate Tribunal, Madras  stated  the following question of law for the opinion of the Madras High Court:               "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 deposits made with the 1000               Electricity company is a business receipt  and               accordingly deleting the additional  surcharge               of Rs. 81,920 charged .for the assessment year               1963-64?" The  High  Court  returned  the  reference  unanswered.   It directed  the Tribunal to consider the case ’on  all  points that   require  consideration  of  the   question,   whether additional surcharge was attracted’.  In short, it asked the Tribunal  to  examine whether the additional  surcharge  was attracted  even if the income of Rs. 19 is chargeable  under the  head  ’Profits  and gains of  business’.   The  learned counsel  for  the  assessee  submits  that  the  High  Court exceeded its jurisdiction in making the above direction.  It is submitted that the matter be sent back to the High  Court for answering the question of law as stated by the Tribunal. The contention of the learned counsel is that by giving  the impugned  direction the High Court has sought to  widen  the scope  of  enquiry  which it is not empowered  to  do  in  a reference under Section 256. The  assessee  is  a  cooperative  society  engaged  in  the business  of  banking.  The previous year  relevant  to  the assessment  year 1963-64 was the year ending June 30,  1962. Its  business  income  was exempt under  the  provisions  of Section 81(1) as it then stood.  During the said  accounting year,  the  assessee  received a sum of  Rs.  19  being  the interest  on  the deposit made by it  with  the  Salem-Erode Electricity Distribution Company.  This deposit was made  by the  assessee as required by the conditions notified by  the said  company  for supply of energy.   The  deposit  carried interest and it is on account of the said interest that  the sum of Rs. 19 was received by the assessee.  The Income  Tax Officer  treated the said amount of Rs. 19 as  ’income  from other  sources’.   On  that  basis,  he  levied   additional surcharge,  in a sum of Rs. 81,920, under the provisions  of the   relevant  Finance  Act.   On  appeal,  the   Appellate Assistant Commissioner upheld the contention of the assessee that  the said sum of Rs. 19 also constituted  its  business income  and, therefore, exempt.  Accordingly, he  held,  the levy  of surcharge was unsustainable.  The Revenue  appealed to  the  Appellate  Tribunal.  Its case was  that  the  said receipt cannot be treated as a business receipt and that  it was  rightly  treated by the I.T.O. as  "income  from  other sources’.   The Tribunal recorded in its order : "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

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that  if it fell under income from business, the appeal  has to be dismissed 1001 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 Tribunal  held  it ’income from  business’  and  accordingly dismissed the appeal filed by the Revenue.  At the  instance of the revenue, the Tribunal stated the aforesaid question. Before  the High Court it was contended by the Revenue  that both the A.A.C. and the Tribunal laboured under an erroneous assumption that the said sum of Rs. 19 represented  business income and the liability of surcharge was not attracted.  It was  submitted  that  whether the said sum  was  a  business income  or  income  from other  sources,  it  attracted  the liability  of additional surcharge.  The assessee,  however, submitted  that it was not open to the revenue to  take  the said  stand, inasmuch as it agreed before the Tribunal  that in case the said sum constituted business income,  liability of  additional  surcharge was not attracted.   The  assessee submitted  further that the High Court should not allow  the revenue  to shift its stand and urge a new contention.   The High  Court  held,  after an  examination  of  the  relevant provisions of the Finance Act and of the decisions  relating to  the nature of jurisdiction of the High Court in  such  a reference,  that the assumption made by the A.A.C.  and  the Tribunal that the liability of surcharge is not attracted in case ’the said sum of Rs. 19 represented business income may not be warranted and that in such a situation the High Court does  possess the power to correct the error so long as  the point  arose  out of the Tribunal’s order.  The  High  Court held:               "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 an 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." 1002 We   find   it  difficult  to  agree   with   Smt.    Janaki Ramachandran, learned counsel for the assessee that the High Court  has  exceeded its jurisdiction under Section  256  in making the above direction.  As rightly observed by the High Court, if the Tribunal proceeds upon an assumption which  is erroneous in law and refers a question to the High Court, it cannot be said that the High Court is bound by the terms  of the  question  referred  and cannot  correct  the  erroneous assumption of law underlying the question.  If such power is not conceded to the High Court, the result would be that the answer  given by the High Court may equally be erroneous  in law.  Such a situation cannot certainly be countenanced.  It would  not be in the interest of law or justice.  It is  not as  if the High Court has asked for any fresh  investigation

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of facts in this case  not that such power does not exist in the  High  Court in a appropriate case.  All that  the  High Court  has asked the Tribunal to do is to  consider  whether the liability of surcharge is not attracted even if the said sum  of Rs. 19 is treated as income from business, The  fact that  the  revenue was also a party to  the  said  erroneous assumption  before the Tribunal cannot stand in the  way  of the Revenue resiling from an erroneous assumption of law. In  C.I.T.,  Bombay v. Scindia Steam  Navigation  Ltd.,  (42 I.T.R. 589) the facts were these: a steam-ship belonging  to the respondent company was requisitioned by-the  government. The  ship was lost by enemy action on March 16,  1944.   The company received a sum of Rs. 20 lacs by way of compensation on July 17, 1944, a sum of Rs. 23 lacs on December 22.  1944 and  a  sum  of Rs. 33,333 on August 10,  1946.   The  total compensation  so  received exceeded the cost  price  of  the steam  ship.   The  difference between the  cost  price  and written  down  value was Rs. 9,26,532.   In  the  assessment proceeding  for  the  A.Y. 1946-47, the  revenue  sought  to charge  the said amount under the fourth proviso to  Section 10(2)(vii)  of  the Income Tax Act, 1922,  inserted  by  the Income  Tax (Amendment) Act, 1946, which came into force  on May 4, 1946.  The assessee contended that the amount  should be deemed to have been received on April 16,1944 as was done for the purposes of Excess Profits Tax Act, in which case it could not fall within the accounting period July 1, 1944  to June  30, 1945, relevant to the A.Y. 1946-47.  The  Tribunal was of the opinion that the material date for the purpose of the  fourth proviso to Section 10(2)(vii) was the date  when the compensation was in fact received and that therefore the amount was assessable in the A.Y. 1946-47.  At the  instance of the assessee, the Tribunal 1003 stated the following question of law for the opinion of  the High  Court  "whether the sum of Rs. 9,26,532  was  properly included in the assessee company’s total income computed for the A.Y. 1946-47?" Before the High Court the assessee raised a new contention for the first time that the fourth  proviso to section 10(2)(vii) did not apply to the assessment as  it was  not in force on April 1, 1946 and the liability of  the company  had to be determined as on April 1, 1946, when  the Finance Act, 1946 came into force.  A preliminary  objection was raised by the revenue that the said aspect, or  question as  it may be called, did not arise out of the order of  the Tribunal, that it was not raised before or dealt with by the Tribunal  and that it was also not referred for the  opining of the High Court.  The High Court over-ruled the  objection opining  that the form in which the question was framed  was sufficiently  wide ’to take in the new contention  and  that the company was entitled to raise it even if that aspect  of the  question had not been argued before the  Tribunal.   It upheld  the  new  contention  raised  by  the  assessee  and answered the question in its favour.  On appeal, this  court affirmed.  It was held that the High Court had  jurisdiction to  entertain the new contention raised by the assessee  for the  first time inasmuch as it was within the scope  of  the question  framed by the Tribunal and was  implicit  therein. This  court  enunciated several principles relating  to  the nature  of the jurisdiction of the High Court under  Section 256,  of which the following principle is relevant  for  our purpose:               "Section  66(1)  speaks of a question  of  law               that arises out of the order of the  Tribunal.               Now  a question of law might be a simple  one,               having its impact at one point, or it may be a

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             complex  one,  branching  over  an  area  with               approaches   leading   to   different   points               therein.   Such a question might involve  more               than one aspect, requiring to be tackled  from               different standpoints.  All that Section 66(1)               requires is that the question of law which  is                             referred  to the court for decision  and  whic h               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 1004               itself a distinct question for the purpose  of               section 66(1)               of the Act.’ This  decision  of the Constitution Bench,  in  our  opinion justifies  and  warrants the approach adopted  by  the  High Court  in  the judgment under appeal.  The question  in  the present  case is whether additional surcharge  was  leviable for  the A.Y. 1963-64 under the relevant Finance  Act.   The assessee’s  contention was that it has no income  which  was liable  to be assessed to income-tax inasmuch as its  entire income was exempt under Section 81(1)(a).  In tune with this submission, the assessee submitted that the said sum of  Rs. 19 was also a business income and, therefore, the  liability of additional surcharge did not attach to the assessee.  The I.T.O. took the view that the said sum of Rs. 19 represented income  from  other  sources  and  therefore  liability   of additional surcharge was attracted.  On Appeal, the AAC  and the  Tribunal upheld the assessee’s contention that  it  was business income and therefore the liability of surcharge was not attracted.  The High Court, however, thought that having regard  to  the language of the provisions of  the  relevant Finance  Act,  the  Tribunal ought to  examine  whether  the liability  to additional surcharge is attracted even if  the said sum of Rs. 19 was treated as income from business.  The High  Court  was of the opinion that  the  legal  submission urged by the Revenue before the High Court, no doubt for the first  time, did call for serious consideration.   This  was done to arrive at a correct decision in law relating to  the liability  to additional surcharge.  If  really,  additional surcharge  was chargeable according to the Finance Act  even in case the said sum of Rs. 19 represented business  income, the  High  Court  cannot  be  called  upon  to  act  on  the assumption  that  it  is not so chargeable  and  answer  the question  stated.   Such a course would neither  be  in  the interest  of  law or justice.  That the Revenue was  also  a party  to  the  erroneous assumption  of  law  makes  little difference to the principle. Counsel  for  the  parties  have  cited  several   decisions touching  upon  the nature of the jurisdiction of  the  High Court under Section 256 viz., V.R. Y.K.N. Kallappa  Chettiar v. Commissioner of Income Tax, 62 I.T.R. 576 C.I.T  v. Ogale Class Works Ltd., 25 I.T.R. 529 and Keshav Mills Co. Ltd. v. Commissioner  of  Income  Tax Bombay  North,  Ahmedabad,  56 I.T.R.  365  by the learned counsel for  the  appellant  and Commissioner  of  ’Income Tax, Bihar and Orissa  v.  kirkend Coal Co., 74 I.T.R. 67 and Kusunben D. 1005

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Mahadevia  v.  Commissioner of Income Tax, Bombay  City,  39 I.T.R.  540 by the learned counsel for the Revenue.   We  do not, however, think it necessary to refer to them, since the situation  present  herein was not present in  those  cases. The principles of these decisions does not in any manner run contrary  to  the  one  affirmed  by  us  herein,  which  is consistent   with  the  one  enunciated  in  Scindia   Steam Navigation. The appeal accordingly fails and is dismissed.  No costs. N.V.K.                       Appeal dismissed. 1006