Case Note & Summary
The appeal arose from a reference under the Income-tax Act, 1922. The assessee, a shareholder of a company, had received distributions out of land acquisition compensation and salami realised by the company for grant of long-term leases. The Income-tax Appellate Tribunal referred three questions to the High Court: (i) whether the amount distributed out of land acquisition compensation was a receipt of ‘dividend’ under Section 2(6A); (ii) whether the amount distributed out of salami was taxable as income from ‘other sources’ under Section 12; and (iii) whether the amount referred to in question (ii) was not a receipt of ‘dividend’ under Section 2(6A). The High Court, following its earlier judgment, answered the questions in the negative but observed that the answers were subject to the final decision in appeals pending in the Supreme Court against that earlier judgment. The Commissioner of Income-tax appealed to the Supreme Court by special leave. The Supreme Court held that the High Court had erred in the manner of disposal. Even if the parties consented, the High Court was bound to record its answers with reasons and could not make them conditional upon the outcome of pending appeals. The Court emphasized that such answers are final and cannot be modified by a judgment in another case. It further directed that on facts, the High Court must decide whether salami constituted capital gain or revenue receipt, and whether any part of the compensation for compulsory acquisition was capital gain, noting that interest on compensation is income. The question whether receipt from capital gains was income from other sources was not covered by the pending appeal and required independent determination. Accordingly, the appeals were allowed, and the case was remitted to the High Court for disposal in accordance with law.
Headnote
A) Tax Law - Practice and Procedure - Reference under Income-tax Act - Income-tax Act, 1922 - High Court must record its answers to referred questions and give reasons; such answers are final and cannot be left conditional upon the outcome of pending appeals - Held that even where there was consent of the parties, the High Court's order answering the questions subject to the final decision in appeals pending in the Supreme Court was erroneous (Paras 34G-H) B) Tax Law - Capital Gains - Determination of Nature of Salami and Compensation - Income-tax Act, 1922 - High Court must decide on the facts of each case whether an amount of salami is capital gain or revenue receipt, and whether part of compensation for compulsory acquisition is capital gain; interest statutorily payable on compensation is income - Held that the High Court was required to examine the facts to determine the nature of these receipts instead of merely following an earlier judgment (Paras 35A-B) C) Tax Law - Income from Other Sources - Receipt from Capital Gains - Income-tax Act, 1922, s. 12 - Whether receipt from capital gains was income from other sources was not the subject-matter of the appeal pending against the earlier judgment - Held that the High Court erred in assuming that this question would be covered by the pending appeal and should have decided it independently (Paras 35E-F)
Issue of Consideration
Whether the High Court properly disposed of the reference by making its answers conditional on the outcome of pending appeals in the Supreme Court
Final Decision
The Supreme Court held that the High Court had erred in the manner of disposal. The High Court must record its answers with reasons and decide each issue on facts. The appeals were allowed, and the case was remitted to the High Court to dispose of the reference according to law.
Law Points
- High Court disposing reference under Income-tax Act must record answers with reasons irrespective of consent
- answers are final and not modifiable by Supreme Court judgment in another case
- nature of salami and compensation must be determined on facts
- interest on compensation is income not capital gain
- question of receipt from capital gains as income from other sources is distinct and not covered by pending appeal
