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PETITIONER: M/S.  ZORASTER AND CO.

       Vs.

RESPONDENT: THE COMMISSIONER OF INCOME TAX, DELHI, AJMER, RAJASTHAN  AND

DATE OF JUDGMENT: 17/04/1960

BENCH: HIDAYATULLAH, M. BENCH: HIDAYATULLAH, M. DAS, S.K. SHAH, J.C.

CITATION:  1961 AIR  107            1961 SCR  (1) 210  CITATOR INFO :  RF         1961 SC1633  (14,26,27,32)  R          1963 SC1356  (121)  R          1963 SC1484  (8)  R          1965 SC1636  (16)  R          1966 SC1466  (7)  RF         1972 SC2048  (5)  R          1990 SC1451  (5)

ACT: Income-tax  Reference--Power  of  High  Court  to  call  for supplemental statement of case--Indian Income-tax Act,  1922 (11 of 1922), s. 66(4).

HEADNOTE: The appellant entered into contract with Government for  the supply  of  goods, and in the assessment  year  1942-43  Rs. 10,80,653  and in the assessment year 1943-44, Rs.  7,45,336 were assessed as its income by the Income-tax Officer.   The supplies  to  Government  were  made  for.   Jaipur  by  the appellant, and payment was by cheques which were received at Jaipur.   The  contention  of the appellant  was  that  this income  was  received  at Jaipur outside  the  then  taxable territories.   This  contention  was  not  accepted  by  the Income-tax  Appellate Tribunal, Delhi.  The  appellant  then applied for a reference to the High Court under s. 66(1)  of the  Indian Income-tax Act, and by its order dated  December 10,  1952, the Tribunal referred the following question  for the decision of the High Court.       "  Whether on the facts and circumstances of the  case the  profits and gains in respect of the sales made  to  the Government 211 of India were received by the assessee in the taxable terri- tories ?" The  High  Court  remanded the case to the  Tribunal  for  a supplemental statement of case calling for a finding on  the question  "  whether the cheques were sent to  the  assessee firm by post or by hand and what directions, if any, had the assessee  firm given to the department in the matter ".  The appellant questioned the order of the High Court relying  on the  decision  in New Jehangir Vakil Mill’s case,  [1960]  1

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S.C.R. 249. Held, that the enquiry in such cases must be to see  whether the   question  decided  by  the  Tribunal  admits  of   the consideration  of  the  new  point  as  an  integral  or  an incidental  part thereof.  The supplemental statement  which the Tribunal is directed to submit must arise from the facts admitted  and/or found by the Tribunal and should  not  open the door to fresh evidence. Held, further, that the question as framed in this case  was wide enough to include an enquiry into whether there was any request, express or implied, that the amount of the bills be paid  by cheques so as to bring the matter within the  dicta of this Court in the Ogale Glass Works case, [1955] 1 S.C.R. 185 or Jagdish Mills case, [1960] 1 S.C.R. 236. In  the absence of anything expressly said in the  Order  of the  High Court to the contrary, it cannot be held that  the direction  given would lead inevitably to the  admitting  of fresh  evidence  as  that has been  prohibited  by  the  New Jehangir Vakil Mills case. The  New  Jehangir Vakil Mills Ltd. v. The  Commissioner  of Income-tax, [1960] 1 S.C.R. 249, distinguished. Jagdish  Mills Ltd. v. Commissioner of Income-tax, [1960]  1 S.C.R.  236,  Keshav  Mills Co.  Ltd.,  v.  Commissioner  of Income-tax,  [1950]  18  I.T.R.  407,  Sir  Sobha  Singh  v. Commissioner of Income-tax, [1950] 18 I.T.R. 998,  Kirloskar Bros.   Ltd.v. Commissioner of Income-tax, [1952] 21  I.T.R. 82,  Commissioner  of Income-tax v. Ogale Glass  Works  Ltd. [1955] 1 S.C.R. 185, Commissioner of Income-tax v. Kirloskar Bros.   Ltd.,  [1954] 25 I.T.R. 547 and  Mrs.   Kusumben  D. Mahadevia,  Bombay  v. Commissioner of  Income-tax,  Bombay, [1960] 3 S.C.R. 417, referred to.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 30 of 1958. Appeal  by special leave from the judgment and  order  dated March 24, 1955, of the Punjab High Court in Civil  Reference No. 3 of 1953. Gopal Singh, for the appellants. K. N. Rajagopala Sastri and D. Gupta, for the respondent. 212 1960.   August 17.  The Judgment of the Court was  delivered by HIDAYATULLAH J.-This appeal, by special leave of this Court, is against the judgment ’and order dated March 24, 1955,  of the  Punjab High Court by which  the High Court,  purporting to  act under s. 66(4) of the Indian Income-tax Act,  called for a supplemental statement of the case from the Income-tax Appellate Tribunal.  The special leave granted by this Court is  limited  to  the question whether  the  High  Court  had jurisdiction  in  this  case to call  for  the  supplemental statement. The  assessee, Messrs.  S. Zoraster & Co., Jaipur,  consists of  three partners.  Two of them are coparceners of a  joint Hindu family, and the third is a stranger.  They had  formed this partnership in June, 1940, for the manufacture and sale of  blankets, felts and other woollen articles.  A  deed  of partnership  was  also  executed on  March  16,  1944.   The assessee entered into contracts with Government for the sup- ply  of  goods,  and in the  assessment  year  1942-43,  Rs. 10,80,658-0-0  and  in  the  assessment  year  1943-44,  Rs. 17,45,336-0-0 were assessed as its income by the  Income-tax Officer,  Contractor’s Circle, New Delhi.  The  supplies  to Government  were  made  for.  Jaipur by  the  assessee,  and

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payment  was  by cheques which were received at  Jaipur  and were  endorsed  in favour of the joint Hindu  family,  which acted  as  the assessee’s bankers.  The  contention  of  the assessee was that this income was received at Jaipur outside the  then  taxable  territories.  This  contention  was  not accepted by the Income-tax Appellate Tribunal, Delhi. The assessee then applied for a reference to the High  Court under  s.  66(1) of the Indian Income-tax Act,  and  by  its order  dated  December 10, 1952,  the  Income-tax  Appellate Tribunal referred the following question for the decision of the High Court: "  Whether  on the facts and circumstances of the  case  the profits  and  gains  in respect of the  sales  made  to  the Government  of  India were received by the assessee  in  the taxable territories ? " 213 The  Tribunal  had stated in the statement of  the  case  as follows: "The payment was made by the Government of India by  cheques drawn  on the Reserve Bank of India, Bombay  Branch.   These cheques were received in Jaipur." It  may be pointed out that in the contract of sale  between the  assessee  and the Government of  India,  the  following clause was included to determine the system of payment:        "  21.   System of payment:-Unless  otherwise  agreed between  the  Purchaser and the Contractor payment  for  the delivery  of the stores will be made by the  Chief  Auditor, Indian  Stores  Department,  New  Delhi,  by  cheque  on   a Government treasury in India or on a branch of the  Imperial Bank  of  India  or the Reserve Bank  of  India  transacting Government business." In  dealing  with the Reference, the High  Court  passed  an order under s. 66(4) of the Income-tax Act observing, "........  it would be necessary for the Appellate  Tribunal to  find, inter alia, whether the cheques were sent  to  the assessee  firm  by post or by hand and what  directions,  if any,  had the assessee firm given to the Department  in  the matter ". The High Court thereafter remanded the case to the  Tribunal for  a  supplemental  statement of the  case  on  the  lines indicated.  This order is questioned on the authority of the decision of this Court in The New Jehangir Vakil Mills  Ltd. v.  The Commissioner of Income-tax(1) which, it is  claimed, completely  covers this case.  In that case also,  the  High Court  of Bombay had called for a supplemental statement  of the case, and it was ruled by this Court that the High Court had exceeded its jurisdiction. Before  dealing  with this question, it is necessary  to  go back  a  little,  and refer briefly to  some  cases  decided earlier  than  The  New Jehangir Vakil Mills  case  (1)  and Jagdish  Mills  Ltd. v. Commissioner of Income-tax  (2),  on which reliance has been placed in this case.  ID (1) [1960] 1 S.C.R. 249. (2) [1960] 1 S.C.R. 236. 214 Keshav  Mills Co., Ltd. v. Commissioner of  Income-tax  (1), the High Court of Bombay called for a supplemental statement of the case, but it expressed the view that if a cheque  was received by a creditor on a British Indian Bank and he  gave the  cheque  to his bank for collection, the  bank  must  be treated  as  his agent and that, on the realisation  of  the amount of the cheque in the taxable territory, the  creditor must  be  regarded  as having received  it  in  the  taxable territory, even if he was outside it.  In Sir Sobha Singh v. Commissioner  of Income-tax (2), it was held by  the  Punjab

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High  Court  that  where cheques were given to  a  bank  for purposes of collection, the receipt of the money was at  the place  where  the bank on which the cheques were  drawn  was situated. These views found further amplification, and were applied in two  other  cases  by the Bombay If high  Court.   They  are Kirloskar Bros.  Ltd. v. Commissioner of Income-tax (3 ) and Ogale  Glass Works Ltd. v. Commissioner of  Income-tax  (4). In  both  these  cases, it was held that  unless  the  payee expressly constituted the post office as his agent, the mere posting of the cheque did not constitute the post office the agent  of the payee, and that the amount of the  cheque  was also  received at the place where the cheque  was  received. In  Kirloskar Bros.  Ltd. v. Commissioner of  Income-tax(3), it was held that the mere posting of the cheque in Delhi was not  tantamount  to  the receipt of  the  cheque  in  Delhi, because  the payee had not requested the Government to  send the  cheque  by post.  In Ogale Glass Works  case  (4),  the Bombay High Court asked for a supplementary statement of the case  from the Tribunal as to whether there was any  express request  by the assessee that the cheque should be  sent  by post,  and held that as there was no such  express  request, the receipt of the money was not where the cheque was posted but at the place where the money was received. (1)  [1950] 18 I.T.R. 407. (2)  [1950] 18 I.T.R. 998. (3)  [1952] 21 I.T.R. 82. (4)  I.  Tax  Reference No. 10 of 1949 of the Bombay  H.  C. decided on September 17, 1951. 215 The  last  two  decisions  of the  Bombay  High  Court  were reversed  by this Court, and it was held that an  intimation to  the  payer  "  to  remit "  the  amount  by  cheque  was sufficient nomination of the post office as the agent of the payee: vide Commissioner of Income-tax v. Ogale Glass  Works Ltd.  (1) and Commissioner of Income-tax v. Kirloskar  Bros. Ltd.  (2).  Later, the principle was extended still  further by  this Court in Jagdish Mills case(3).  It was  held  that where the bills had an endorsement Government should pay the amount  due by cheque and the cheques were received in  full satisfaction unconditionally, this constituted a  sufficient implied  request for the purpose of the application  of  the rule in Ogale Glass Works case of this Court. Jagdish Mills case (3) and the New Jehangir Vakil Mills case (4)  were  decided by this Court on the same  day.   In  the latter case, the Department had to deal with a  non-resident Company  which,  at  all  material  times,  was  situate  at Bhavnagar, one of the Indian States.  Cheques in payment for supplies  to  Government  were sent from  British  India  to Bhavnagar.  The Department contended in the case that though the cheques were received at Bhavnagar, they were, in  fact, cashed  in British India and until such  encashment,  income could  not  be  said  to have  been  received  but  that  on encashment in British India, the receipt of income was  also in British India.  The Tribunal held that the cheques having been  received  at Bhavnagar the income  was  also  received there.   In  doing  so, the  Tribunal  followed  the  Bombay decision  in  Kirloskar Brothers case  (5).   The  Tribunal, however,  observed  that if the Bombay view which  was  then under appeal to this Court were not upheld, then an  enquiry would  have to be made as to whether the Mills’  bankers  at Ahmedabad  acted  as the Mills’ agents  for  collecting  the amount due on the cheques.  The question whether the posting of  the  cheques  from British India  to  Bhavnagar  at  the request, express or

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(1)  [1955] 1 S.C.R. 185. (3)  [1960] 1 S.C.R. 236. (2)  [1954] 25 I.T.R. 547. (4)  [1960] 1 S.C.R. 249. (5)  [1952] 21 I.T.R. 82. 216 implied, of the Mills or otherwise, made any difference  was not considered at any stage before the case reached the High Court of Bombay.  This was expressly found to be so by  this Court in these words:         "  The  only  ground urged by  the  Revenue  at  all material  stages  was that because the  amounts  which  were received, from the merchants or the Government were received by  cheques  drawn  on banks in  British  India  which  were ultimately  encashed in British India, the monies could  not be  said  to  have been received  in  Bhavnagar  though  the cheques were in fact received at Bhavnagar." The  reference  was  held  back by  the  Tribunal  till  the decision  of  this Court in Ogale Glass Works case  (1)  and Kirloskar  Brothers’  case (2).  Even after seeing  that  in those  two  cases the request for payment by cheques  to  be sent  by post made all the difference, the Tribunal did  not frame  its statement of the case or the question to  include this  aspect,  because that aspect of the matter  was  never considered  before.’ The question referred was thus  limited to  the  legal  effect  of the receipt  of  the  cheques  at Bhavnagar without advertence to the fact whether the cheques were so sent by post at the request, express or implied,  of the Mills.  The question framed was:       "  Whether  the receipt of the  cheques  in  Bhavnagar amounted to receipt of the sale proceeds in Bhavnagar ? " The  question as framed and the statement which  accompanied it  brought  into  controversy  the  only  point  till  then considered by the Tribunal and the taxing authorities.  When the case *as heard by it, the High Court desired to consider it  from  the angle of the Kirloskar Brothers(2)  and  Ogale Glass  Works  (1)  cases.   It  called  for  a  supplemental statement  of  the case.  In doing so, the High  Court  went beyond  the ambit of the controversy as it had existed  till then  and also the statement of the case and  the  question. The High Court directed the Tribunal as follows:    "On the finding of the Tribunal that all the cheques were received in Bhavnagar, the Tribunal to find (1) [1955] 1 S.C.R. 185. (2) [1954] 25 I.T.R. 547. 217 what portion of these cheques were received by post, whether there  was any request by the assessee, express or  implied, that  the  amounts  which are the subject  matter  of  these cheques should be remitted to Bhavnagar by post." In repelling the objection that such an enquiry was alien to the  point decided by the Tribunal and might  require  fresh evidence, the High Court justified itself by saying:      "  But we cannot shut out the necessary  inquiry  which even  from our own point of view is necessary to be made  in order  that  we should satisfactorily  answer  the  question raised  in  the Reference.  It must not  be  forgotten  that under  section 66(4) of the Income-tax Act we have  a  right independently  of the conduct of the parties to  direct  the Tribunal  to  state further facts so that  we  may  properly exercise our own advisory jurisdiction." This  Court  pointed out that the High  Court  exceeded  its jurisdiction  under s. 66(4) of the Indian  Income-tax  Act. It was observed:        "  If the question actually referred does  not  bring

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out  clearly  the real issue between the parties,  the  High Court  may reframe the question so that the matter  actually agitated  before the Tribunal may be raised before the  High Court.  But s. 66(4) does not enable the High Court to raise a  new  question  of law which does not  arise  out  of  the Tribunal’s order and direct the Tribunal to investigate  new or  further facts necessary to determine this  new  question which had not been referred to it under s. 66(1) or s. 66(2) and direct the Tribunal to submit a supplementary  statement of the case." It  was  also pointed out that the facts  admitted  and/  or found  by the Tribunal could alone be the foundation of  the question  of  law which might be said to arise  out  of  the Tribunal’s  order.   The  case thus set two  limits  to  the jurisdiction of the High Court under s. 66(4), and they were that the advisory jurisdiction was confined (a) to the facts on  the  record  and/or found by the Tribunal  and  (b)  the question which     28 218 would  arise from the Tribunal’s order.  It was pointed  out by  this  Court that it was not open to the  High  Court  to order  a  fresh  enquiry  into new  facts  with  a  view  to amplifying  the record and further that it was  equally  not open  to the High Court to decide a question of  law,  which did  not  arise  out  of the  Tribunal’s  order.   This  was illustrated  by  comparing  the question as  framed  by  the Tribunal  with the question which the High Court desired  to decide.    Whereas  the  Tribunal  had  only  referred   the question:        "  Whether  the receipt of the cheques  at  Bhavnagar amounted to receipt of sale proceeds in Bhavnagar ?", what the High Court intended deciding was:          "  Whether  the posting of the cheques  in  British India  at the request express or implied of  the  appellant, amounted to receipt of sale proceeds in British India ?" These were two totally different questions, and it was  held that  the  High-Court could not decide a  matter  which  was different from that decided by the Tribunal, nor call for  a statement of the case bearing on this new matter. The  proposition laid down in the Jehangir Vakil Mills  case (1),  finds  support  from yet another case  of  this  Court decided   very  recently.   In  Kusumben  D.  Mahadevia   v. Commissioner of Income-tax Bombay (2), it was observed:        "  In our opinion, the objection of the  assessee  is well-founded.   The Tribunal did not address itself  to  the question  whether  the  Concessions  Order  applied  to  the assessee.   It decided the question of assessability on  the short ground that the income had not arisen in Baroda but in British  India.   That  aspect of the matter  has  not  been touched  by the Bombay High Court.  The latter has,  on  the other hand, considered whether the Concessions Order applies to  the  assessee,  a matter not touched  by  the  Tribunal. Thus, though the result is the same so far as the assessment is   concerned,  the  grounds  of  decision   are   entirely different. (1) [1960] 1 S.C.R. 249. (2) [1960] 3 S.C.R. 417,421. 219 Section 66 of the Income-tax Act which confers  jurisdiction upon  the High Court only permits a reference of a  question of  law arising out of the order of the Tribunal.   It  does not  confer  jurisdiction  on the High  Court  to  decide  a different question of law not arising out of such order.  It is  possible  that  the same question  of  law  may  involve

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different  approaches for its solution, and the  High  Court may amplify the question to take in all the approaches.  But the  question  must still be the one which  was  before  the Tribunal and was decided by it.  It must not be an  entirely different question which the Tribunal never considered." It follows from this that the enquiry in such cases must  be to  see whether the question decided by the Tribunal  admits the consideration of the new point as an integral or even an incidental   part  thereof.   Even  so,   the   supplemental statement  which  the Tribunal is directed  to  submit  must arise from the facts admitted and/or found by the  Tribunal, and  should not open the door to fresh evidence.   The  fact that  in Ogale Glass Works case (1), the Bombay  High  Court had asked for a supplemental statement in the same way as in the  Jehangir Vakil Mills case (2 ), and this Court did  not rule  out  the new matter, cannot help the assessee  in  the present case, because the jurisdiction of the High Court was not  questioned, as it had been done in the  Jehangir  Vakil Mills  case,  or has been done here.  We have  thus  to  see whether  in  this case the question which  was  decided  and which has been referred to the High Court admits the  return of  the  case  for a supplemental  statement  on  the  lines indicated by the High Court in the order under appeal. At the very start, one notices a difference in the  question of  law in this case and the Ogale Glass Works case (3),  on the one hand, and the question of law in the Jehangir  Vakil Mills case (2), on the other.  In the former two cases,  the question  is very wide, while in the latter it is  extremely narrow.   This  can be Been by placing the  three  questions side by side as below : (1)  I.  Tax  Reference No. 19 of 1949 of the Bombay  H.  C. decided on September 17, 1951. (2) [1960] 1 S.C.R. 249. (3) [1955] 1 S.C.R. 185. 220 Jehangir Vakil Mills case         " Whether the receipt                                   of the cheques in Bhav-                                   nagar amounted to receipt                                   of the sale proceeds in                                   Bhavnagar ?" Ogale Glass Works case            " Whether on the facts                                   of the case, income,                                   profits and gains in                                   respect of sales made                                   to the Government of                                   India was received in                                   British India within                                   the meaning of Section                                   4(1)(a) of the Act ?" This case                         "Whether on the facts                                    and circumstances of                                    the case the profits                                    and gains in respect of                                    the sales made to the                                    Government of India                                    were received by the                                    assessee in taxable                                    territories ?" It  is thus quite plain that the question as framed in  this case  can  include  an enquiry into whether  there  was  any request, express or implied, that the amount of the bills be paid  by cheques so as to bring the matter within the  dicta of  this Court in the Ogale Glass Works case (2) or  Jagdish Mills case (3).  The first limit to the jurisdiction of  the High  Court as laid down by this Court is thus not  exceeded

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by the High Court in exercising its powers under s. 66(4) of the Income-tax Act.  The question is wide enough to  include the  alternative  line  of  approach that  if  there  was  a request,  express or implied, to send the amount  due  under the  bills by cheque, the post office would be the agent  of the  assessee,  and the income was received in  the  taxable territory when the cheques were posted. (1) [1960] 1 S.C.R. 249. (2) [1955] 1 S.C.R. 185. (3) [1960] 1 S.C.R. 236. 221 The next question is whether the High Court has transgressed the second limitation implicit is s. 66(4), that is to  say, that  the  question  must arise out of  the  facts  admitted and/or  found by the Tribunal.  The High Court has  observed that,       ".........  it  would be necessary for  the  Appellate Tribunal to find inter alia whether the cheques were sent to the assessee firm by post or by hand and what directions, if any,  bad the assessee-firm given to the Department in  that matter." If  the Tribunal has to make a fresh enquiry leading to  the admission  of  fresh  evidence  on  the  record,  then  this direction  offends against the ruling of this Court  in  the Jehangir  Vakil Mills case (1).  If, however, the  direction be  interpreted  to  mean that the Tribunal  in  giving  the finding  must  confine itself to the facts  admitted  and/or found by it, the direction cannot be described as in  excess of  the jurisdiction of the High Court.  It would have  been better  if the High Court had given directions  confined  to the  record  of the case before the Tribunal;  but,  in  the absence  of  anything expressly to the contrary,  we  cannot bold that the direction would lead inevitably to the  admit- ting of fresh evidence.  This, at least, now cannot be done, since the Jehangir Vakil Mills case (1), has prohibited  the admission  of fresh evidence.  In our opinion,  the  present case  does  not fall within the rule in the  Jehangir  Vakil Mills case (1), and is distinguishable. In  the  result,  the appeal fails, and  is  dismissed  with costs.                         Appeal dismissed. (1) [1960] 1 S.C.R. 249. 222