Supreme Court Sets Aside High Court Order Directing Supplementary Statement Under Section 66(4) of Income-tax Act. High Court Cannot Raise New Questions Not Arising from Tribunal's Order or Direct Investigation into New Facts; Power Limited to Facts Already on Record.

Case Note & Summary

The appeal by special leave arose from a judgment and order of the High Court of Judicature at Bombay dated September 23, 1955, in Income Tax Reference No. 19 of 1955. The appellant was a limited liability company manufacturing textile goods at Bhavnagar, then an Indian State. For assessment years 1943-44 and 1944-45, the company was assessed as a non-resident. The Income-tax Officer computed British Indian income on a proportionate basis under Section 4(1)(a) of the Indian Income-tax Act, 1922, treating certain sale proceeds as received in British India. The dispute concerned whether receipts by cheques at Bhavnagar, later encashed in British India, amounted to receipt of money in British India. In the account year 1942, total sales were Rs. 66,14,852, and the Income-tax Officer held that sale proceeds of Rs. 35,92,157 were received in British India, comprising cheques on the Imperial Bank issued by the Supply Department (Rs. 2,58,987), sale proceeds received through Trikainlal Mahasukhram (Rs. 20,24,190, not in dispute), and other cheques received at Bhavnagar but drawn on banks in British India (Rs. 13,08,980). For the account year 1943 (assessment year 1944-45), the Income-tax Officer held that cheques from the Supply Department of the Government of India on British India banks amounting to Rs. 16,72,693 (which the appellant claimed was Rs. 12,97,631) and other cheques from merchants totalling Rs. 5,53,447 were received in British India. The Revenue contended that payment by cheque was received in British India at the time and place where the cheques were cashed and honoured, not at the place of receipt of the cheques. The Appellate Assistant Commissioner confirmed the Income-tax Officer. The Income-tax Appellate Tribunal, by consolidated order dated July 17, 1952, reversed and held that the cheques were received at Bhavnagar and the sale proceeds were also received in Bhavnagar, following the Bombay High Court decision in Kirloskar Brothers Ltd. v. CIT. The Tribunal noted that if the Supreme Court did not uphold Kirloskar, an enquiry might be needed whether the company's banks at Ahmedabad acted as agents for collecting the money. The Commissioner of Income-tax then filed reference applications under Section 66(1) before the High Court, stating facts and raising questions of law. The High Court observed that mere receipt of cheques by post at Bhavnagar was not conclusive and that a further inquiry was necessary, such as whether the cheques were sent by post without any request and whether the post office was the agent of the assessee. It directed the Tribunal to submit a supplementary statement of case under Section 66(4). This order was appealed to the Supreme Court. The legal issue before the Supreme Court was whether the High Court, under Section 66(4) of the Income-tax Act, 1922, had jurisdiction to direct the Tribunal to submit a supplementary statement of case on new points not raised before the income-tax authorities or the Tribunal, and to direct investigation into new facts. The appellant contended that Section 66(4) did not permit the High Court to raise new questions or direct fresh investigations; its power was limited to additions and alterations of facts already on record. The respondent supported the High Court's order, relying on the High Court's view that it had a right independently of the conduct of parties to direct the Tribunal to state further facts to properly exercise advisory jurisdiction. The Supreme Court examined Section 66(4) in the context of Sections 66(1) and 66(2). It held that Section 66(4) did not empower the High Court to raise a new question of law which did not arise out of the Tribunal's order or to direct the Tribunal to investigate new and further facts necessary to determine such new question. The power under Section 66(4) was confined to directing additions and alterations to the statement of case on facts which already formed part of the record but were not included by the Tribunal in the statement. The Court referred to several English and Indian authorities, including Craddock (H.M. Inspector of Taxes) v. Zevo Finance Co. Ltd., Commissioner of Income-tax, West Bengal v. State Bank of India, and others, and distinguished earlier cases. It found that the High Court had misconceived its powers. The substantive question of whether receipt of cheques at Bhavnagar amounted to receipt of sale proceeds in British India was not decided. The Supreme Court allowed the appeal, set aside the High Court's order, and held that the High Court had exceeded its jurisdiction under Section 66(4). The matter was to be dealt with according to law on the questions properly arising from the Tribunal's order.

Headnote

Issue of Consideration

Final Decision

The Supreme Court allowed the appeal, set aside the High Court's order dated September 23, 1955, and held that the High Court misconceived its powers under Section 66(4) of the Indian Income-tax Act, 1922. It directed that the reference be dealt with according to law, without directing any supplementary statement on new questions.

Law Points