Case Note & Summary
The dispute arose from the assessment of compensation received by the Scindia Steam Navigation Co. Ltd. for the loss of its requisitioned steamship 'El Madina' during the Second World War. The assessee received Rs. 20,00,000 on July 17, 1944, Rs. 23,00,000 on December 22, 1944, and Rs. 33,333 on August 10, 1946, as compensation from the Government. The original cost of the ship was Rs. 24,95,016 and its written-down value at the commencement of the year of account was Rs. 15,68,484. The difference of Rs. 9,26,532 represented depreciation deductions previously allowed. The Income Tax Officer included this amount in the assessee's total income for assessment year 1946-47 under the fourth proviso to Section 10(2)(vii) of the Indian Income Tax Act, 1922, which deemed excess compensation over written-down value as deemed profits. The assessee contended before the income-tax authorities that the compensation should be deemed received on April 16, 1944, based on a Board of Revenue direction under the Excess Profits Tax Act, and hence not taxable in the relevant year. This contention was rejected by all authorities, and the Tribunal by order dated July 15, 1953, held the amount taxable. On the assessee's application under Section 66(1), the Tribunal referred the question whether the sum of Rs. 9,26,532 was properly included in the assessee's total income for assessment year 1946-47. Before the Bombay High Court, the assessee raised a new contention that the fourth proviso to Section 10(2)(vii) had been introduced by the Income-tax (Amendment) Act, 1946, which came into force on May 4, 1946, whereas the assessee's liability fell to be determined as on April 1, 1946, when the Finance Act, 1946 came into force; therefore the proviso was not retrospective and could not apply. The Commissioner objected that this contention was not raised before the Tribunal and could not be heard in a reference. The High Court overruled the objection and held that the proviso had no application, so the compensation was not taxable. The Commissioner appealed to the Supreme Court. The Supreme Court examined the scope of the High Court's jurisdiction under Section 66 of the Income Tax Act. The majority held that the jurisdiction is purely advisory and that the High Court can decide only questions referred to it, which implies questions that the Tribunal had occasion to consider. The phrase 'any question of law arising out of such order' does not mean any question arising from the findings but only questions raised before or decided by the Tribunal. However, a question of law may have multiple aspects, and a broadly worded reference need not be confined to the aspects argued before the Tribunal. In this case, the question referred was wide enough to cover the new contention. The Court held that the fourth proviso to Section 10(2)(vii), not being retrospective, had no application to assessment year 1946-47. Shah, J. delivered a separate judgment, agreeing with the High Court's jurisdiction but for different reasons. The Supreme Court dismissed the appeal, affirming the High Court's decision that the compensation amount was not taxable.
Headnote
A) Income Tax - Reference Jurisdiction - Advisory Nature - Indian Income Tax Act, 1922, Section 66 - The High Court's jurisdiction under Section 66 is purely advisory and limited to questions referred to it; it cannot decide questions not raised or decided by the Tribunal. The words 'any question of law arising out of such order' mean questions that were raised before or decided by the Tribunal, not all questions arising from findings. Held that the High Court cannot entertain new questions (Paras 1-23). B) Income Tax - Reference Jurisdiction - Scope of 'Any Question of Law' - Indian Income Tax Act, 1922, Section 66(1) - The phrase 'any question of law arising out of such order' does not mean any question arising from the order's findings but only questions raised or decided by the Tribunal. The Indian Act is not in pari materia with the British Statute, so English decisions are not useful. Held that the High Court's power is circumscribed (Paras 1-23). C) Income Tax - Reference Jurisdiction - Powers Under Sections 66(2) and 66(5) - Indian Income Tax Act, 1922, Sections 66(2), 66(5) - The High Court's jurisdiction in a reference is co-extensive with the litigant's right to ask for a reference and the court's power to make one. It can decide questions raised and decided by the Tribunal, raised but not decided, or decided though not raised; but not questions neither raised nor decided. Held that the power under Section 66(2) is subject to the same limitations as Section 66(1) (Paras 1-23). D) Income Tax - Reference Jurisdiction - Question of Law with Multiple Aspects - Indian Income Tax Act, 1922, Section 66(1) - A question of law may have more than one aspect, and each aspect is not a distinct question; the reference need not be limited to aspects argued before the Tribunal. Held that a broadly worded question can encompass a new contention (Paras 1-23). E) Income Tax - Assessment - Depreciation Recoupment on Compensation - Fourth Proviso to Section 10(2)(vii) - Indian Income Tax Act, 1922, Section 10(2)(vii), fourth proviso - The fourth proviso taxing compensation moneys as deemed profits was inserted by the Income-tax (Amendment) Act, 1946, which came into force on May 4, 1946. Since the assessee's liability for assessment year 1946-47 fell to be determined as on April 1, 1946, the proviso was not retrospective and had no application. Held that the compensation amount was not taxable (Paras 1-23). F) Income Tax - Reference Jurisdiction - Dissenting View - Indian Income Tax Act, 1922, Section 66 - Per Shah, J., Section 66 does not require the question to have been raised or argued before the Tribunal; the court may decide any question arising out of the order, even if not argued. Held that the High Court had jurisdiction to decide the new contention (Paras 1-23).
Issue of Consideration
Whether the High Court in answering a reference under Section 66 of the Indian Income Tax Act, 1922 could decide a question not raised or argued before the Tribunal; and whether the fourth proviso to Section 10(2)(vii) inserted by Income-tax (Amendment) Act, 1946 applied to assessment year 1946-47.
Final Decision
The Supreme Court by majority dismissed the Commissioner's appeal, holding that the question referred was wide enough to cover the assessee's contention and that the fourth proviso to Section 10(2)(vii), not being retrospective, had no application; hence the compensation amount was not taxable for assessment year 1946-47. Shah, J. delivered a separate judgment agreeing that the High Court had jurisdiction to decide the new contention but for different reasons.
Law Points
- High Court's jurisdiction under Section 66 is purely advisory
- 'any question of law arising out of such order' means questions raised before or decided by Tribunal
- question of law may have multiple aspects
- fourth proviso to Section 10(2)(vii) not retrospective
