Case Note & Summary
The present appeal arose from a reference under the Indian Income-tax Act, 1922 concerning the assessment year 1942-43. The appellant, a company registered in the erstwhile Baroda State, was a non-resident assessee carrying on business in manufacturing and selling textile goods. The Income-tax Officer, Ahmedabad, held that certain sale proceeds were received by the appellant in British India, making the profit taxable under the Act. Among the three disputed items, the present appeal concerned sale proceeds of Rs. 6,71,735 collected by cheques on British Indian Banks and Hundis on British Indian Shroffs and Merchants. The Appellate Assistant Commissioner partly allowed the appellant's appeal, but the Income-tax Appellate Tribunal held that this item was not received in British India. The Tribunal referred the question of law to the Bombay High Court. The High Court felt it required further facts and twice remanded the case to the Tribunal for investigation, directing the submission of supplementary statements of case. Eventually, the High Court decided the question against the appellant and granted a certificate of fitness to appeal to the Supreme Court. Before the Supreme Court, the appellant contended that the High Court had no jurisdiction to direct the Tribunal to collect additional material under Section 66(4) of the Act, relying on the decisions in New Jehangir Vakil Mills Ltd. v. Commissioner of Income-tax and Petlad Turkey Red Dye Works Co. Ltd. v. Commissioner of Income-tax. The Revenue, through the Attorney-General, conceded that if those decisions were followed the appeal would have to be allowed, but urged the Supreme Court to reconsider those two decisions. The matter was referred to a Special Bench of seven judges. The Court considered the principles governing review and revision of its earlier decisions. It held that while the power to review is inherent, it should be exercised only for substantial and compelling reasons. The Court examined factors such as the nature of the alleged error, whether patent aspects of the question remained unnoticed, impact on administration of law, and public inconvenience. The Court found that the view contended for by the Revenue was reasonably possible, but the opposite view taken in the earlier decisions was also reasonably possible, had been followed on several occasions, and no reported decision had supported the Revenue's interpretation since. Therefore, no case was made out for revision or review. The Court declined to reconsider the earlier decisions and, consequently, allowed the appeal and remitted the case to the Bombay High Court for disposal in accordance with the principles laid down in Petlad Turkey Red Dye Works Co. Ltd.
Headnote
A) Income Tax - Powers of High Court under Section 66(4) - Whether High Court can direct Tribunal to collect additional material and submit supplementary statement - Indian Income-tax Act, 1922, Section 66(4) - The High Court twice remanded the case to the Tribunal for further investigation of facts and thereafter decided the question against the assessee; the Supreme Court in earlier decisions held that the High Court had no such jurisdiction; the Court declined to reconsider those precedents and held that the High Court cannot direct further investigation under Section 66(4). Held that no case was made out for revision or review of the earlier decisions in New Jehangir Vakil Mills and Petlad Turkey Red Dye Works, and the appeal was remitted to the High Court for disposal in accordance with those decisions.
B) Precedent - Stare Decisis and Review of Supreme Court Judgments - Principles governing reconsideration of earlier decisions - No specific act - The Supreme Court has inherent power to review and revise its earlier decisions, but this power should be exercised only when considerations of a substantial and compelling character make it necessary; before a previous decision is pronounced plainly erroneous, the Court must be satisfied with a fair amount of unanimity amongst its members that revision is fully justified; factors such as the nature of the error, impact on administration of law, public inconvenience, and whether the decision has been followed are relevant; no such compelling case existed here. Held that the earlier decisions would not be reviewed or revised, and the principle of stare decisis, though not an absolute bar to reconsideration, was given due weight.
C) Income Tax - Taxability of Sale Proceeds Received in British India - Non-resident Assessee - Indian Income-tax Act, 1922, Sections 23(3), 34 - The dispute pertained to Rs. 6,71,735 collected by cheques on British Indian Banks and Hundis on British Indian Shroffs and Merchants; the Tribunal held that such sale proceeds were not received in British India; the High Court directed further investigation and eventually decided against the assessee; the Supreme Court did not decide the taxability on merits but remitted the case to the High Court for disposal in accordance with the principles laid down in Petlad Turkey Red Dye Works Co. Ltd. Held that the appeal was allowed and the matter sent back to the High Court.
Issue of Consideration
Whether the High Court had jurisdiction under Section 66(4) of the Indian Income-tax Act, 1922 to direct the Income-tax Appellate Tribunal to collect additional material and submit a supplementary statement of case; and whether the Supreme Court should review and revise its earlier decisions in New Jehangir Vakil Mills Ltd. and Petlad Turkey Red Dye Works Co. Ltd.
Final Decision
The Supreme Court declined to review or revise the earlier decisions in New Jehangir Vakil Mills Ltd. and Petlad Turkey Red Dye Works Co. Ltd., holding that no case was made out for reconsideration. Consequently, the appeal was allowed and the case was sent back to the Bombay High Court for disposal in accordance with the principles laid down in Petlad Turkey Red Dye Works Co. Ltd.
Law Points
- High Court under Section 66(4) of Income-tax Act
- 1922 cannot direct Tribunal to collect additional material and submit supplementary statement after further investigation
- Supreme Court's power to review earlier decisions exists but should be exercised only for substantial and compelling reasons
- stare decisis applies
- unanimous decisions of five-judge Bench not lightly disturbed
Case Details
1965 LawText (SC) (02) 12
Civil Appeal No. 1017 of 1963
Gajendragadkar, P.B. (CJ), Subbarao, K., Wanchoo, K.N., Hidayatullah, M., Shah, J.C., Sikri, S.M., Bachawat, R.S.
1965 AIR 1636, 1965 SCR (2) 908
N. A. Palkhivala, I. N. Shroff for appellant; C. K. Daphtary, Attorney-General, R. Ganapathy Iyer, R. H. Dhebar, R. N. Sachthey for respondent
The Keshav Mills Co. Ltd.
Commissioner of Income-tax, Bombay North
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Nature of Litigation
Income tax appeal arising out of a reference under the Indian Income-tax Act, 1922, concerning the taxability of sale proceeds received in British India by a non-resident assessee; specifically the item of Rs. 6,71,735 collected by cheques and hundis.
Remedy Sought
The appellant sought to have the High Court's order and decision set aside, to hold that the High Court had no jurisdiction to direct the Tribunal to collect additional material under Section 66(4), and to have the case sent back to the High Court for disposal in accordance with prior Supreme Court decisions. The respondent sought reconsideration of those prior decisions.
Filing Reason
The High Court twice remanded the case to the Tribunal for further investigation and ultimately decided the question against the appellant, leading the appellant to appeal. The respondent contended that the earlier Supreme Court decisions required reconsideration.
Previous Decisions
The Income-tax Officer held the sale proceeds taxable; the Appellate Assistant Commissioner partly allowed the appeal; the Income-tax Appellate Tribunal held the disputed item was not received in British India; the High Court remanded twice, obtained supplementary statements, and finally answered against the appellant; earlier Supreme Court decisions in New Jehangir Vakil Mills and Petlad Turkey Red Dye Works held that the High Court lacks power under Section 66(4) to direct further investigation.
Issues
Whether the High Court had jurisdiction under Section 66(4) of the Indian Income-tax Act, 1922 to direct the Income-tax Appellate Tribunal to investigate further facts and submit a supplementary statement of case.
Whether the Supreme Court should review and revise its earlier decisions in New Jehangir Vakil Mills Ltd. and Petlad Turkey Red Dye Works Co. Ltd. holding that such jurisdiction does not exist.
What principles govern the Supreme Court's reconsideration of its earlier decisions and the application of stare decisis.
Submissions/Arguments
Appellant contended that the earlier decisions were binding, that no case for reconsideration existed, that the view taken in those decisions was sound, and that the appeal should be allowed and the case sent back to the High Court.
Respondent contended that the earlier decisions required reconsideration, that the High Court had power under Section 66(4) to ask for a supplementary statement after further investigation, that the matter was of importance, and that the appeal should be referred to a larger Bench given that Petlad Co. was a unanimous decision of five judges.
Ratio Decidendi
The power of the Supreme Court to review and revise its earlier decisions is inherent but should be exercised only when considerations of a substantial and compelling character make it necessary. Before a previous decision is pronounced plainly erroneous, the Court must be satisfied with a fair amount of unanimity amongst its members that revision is fully justified. Relevant factors include the nature of the error, whether patent aspects remained unnoticed, whether relevant statutory provisions or previous decisions were not considered, the impact on administration of law or public good, whether the decision has been followed, and whether reversal would lead to public inconvenience, hardship or mischief. Applying these principles, no case was made out to reconsider the earlier decisions in New Jehangir Vakil Mills and Petlad Turkey Red Dye Works, which held that the High Court cannot direct the Tribunal to collect additional material under Section 66(4) of the Indian Income-tax Act, 1922. Therefore, those decisions remained binding, and the appeal was remitted to the High Court.
Judgment Excerpts
The principle of stare decisis cannot be pressed into service in cases where the power of this Court to reconsider and revise its earlier decisions is invoked, because that power is inherent in this Court; but nevertheless the normal principle that judgments pronounced by this Court would be final cannot be ignored.
If the Court is satisfied that its earlier decision was clearly erroneous, it should not hesitate to correct the error; but before a previous decision is pronounced to be plainly erroneous, the Court must be satisfied with a fair amount of unanimity amongst its members that a revision of the said view is fully justified.
No case therefore was made out for a revision or review of the Court's decisions in the Petlad Co. and New Jahangir Mills cases.
Procedural History
The Income-tax Officer, E.P.T. Circle, Ward B, Ahmedabad, passed an order under Sections 23(3) and 34 of the Indian Income-tax Act, 1922 on March 22, 1947, holding that sale proceeds in respect of three items were received by the appellant in British India. The appellant appealed to the Appellate Assistant Commissioner, who partly allowed the appeal. Cross-appeals were filed before the Income-tax Appellate Tribunal, which dismissed the appellant's appeal in respect of one item and allowed the Revenue's appeal in part, but held that the item of Rs. 6,71,735 was not received in British India. The Tribunal drew up a statement of case and referred a question of law to the Bombay High Court, registered as Income-tax Reference No. 2 of 1949. The High Court, by judgment dated September 14/15, 1949, decided two other items against the appellant and, for the item of Rs. 6,71,735, directed the Tribunal to submit a supplementary statement of case after further investigation. The Tribunal submitted a supplementary statement, but the High Court again remanded for further facts. After the second supplementary statement, the High Court finally decided the question against the appellant and granted a certificate of fitness to appeal to the Supreme Court. The appellant filed Civil Appeal No. 1017 of 1963. A Division Bench of the Supreme Court heard the appeal on October 23, 1964; the Attorney-General sought reconsideration of earlier decisions, and the Bench directed the matter be placed before a five-judge Bench. On November 5, 1964, the Constitution Bench again heard the matter and referred it to a seven-judge Special Bench. The Special Bench heard the appeal and delivered the present judgment on February 8, 1965.
Acts & Sections
- Indian Income-tax Act, 1922 (Act No. 11 of 1922): 23(3), 34, 66(4)
