S.M. Trivedi Vs. Addl. Commissioner of Income-tax - Court Judgment

Oza, J.

1. This is a reference made by the Income-tax Appellate Tribunal, Indore, on a direction from this court in Misc. Civil Case No. 24 of 1970, dated August 13, 1973. The question on which the opinion of this court is sought is :

'Even if it is ultimately decided by the Tribunal that the income derived from the business carried on in the name and style of M/s. Dye-stuffs and Insecticides is to be treated as the assessee's income, whether, in the facts and circumstances of the case, without proof of mens rea, penalty proceedings under Section 271(1)(c) are attracted ?'

2. For the assessment year 1961-62, penalty was imposed against the assessee and the appeal arising out of the penalty proceedings along with the assessment proceedings was heard by the Income-tax Appellate Tribunal, Bombay. It appears that after the judgment of the Tribunal an application was submitted by the assessee for making a reference to the High Court. This application was rejected and later a petition was filed in this court. It was the direction given by this court referred to above that has caused the Tribunal to make this reference to this court.

3. At the time of assessment, the ITO had started penalty proceedings under Section 271(1)(c) of the I.T. Act, which were referred to the IAC, Indore Range, Indore, for disposal as required under Section 274(2). The IAC considered two groups of the assessee's income to be concealed income. The A group consisted of five items relating to salary, bonus, commission and bhav farak totalling in all to Rs. 29,762, and the B group consisted of the profit of Rs. 16,498, added on account of benami business of M/s. Dyestuffs and Insecticides. The IAC held the assessee guilty of concealment of income in respect of both the groups and imposed a penalty of Rs. 18,000. The assessee went up in appeal to the Tribunal and the Tribunal held that the assessee was not guilty of concealment in respect of items in group A, but took the view that penalty was clearly attracted in respect of the amount of Rs, 16,498 in group B. The appellate order mentioned the reasons for this conclusion. But the Appellate Tribunal reduced the quantum of penalty imposed by the IAC to 25 per cent. of the tax involved after taking into account the total income as determined as a result of the Tribunal's order in the quantum appeal.

4. Learned counsel for the department raised a preliminary question that the question of law which has been referred in this reference is not a question arising out of the order of the Tribunal. He also contended that when the assessee sought a reference to be made by the Tribunal this question was not raised and as this question was not considered by the Tribunal it does not arise out of the order and, therefore, the answer to the question is not necessary. Learned counsel placed reliance on the decision of the Supreme Court in CIT v. Scindia Steam Navigation Co. Ltd, : [1961]42ITR589(SC) .

5. Learned counsel for the petitioner contended that although the appellate order of the Tribunal does not indicate that this question was before the Tribunal or that the Tribunal disposed of this question, but he contended that when an application was made by the assessee to the Tribunal for making a reference, this question was raised in that application ; but that application was rejected and in the petition which the petitioner-assessee filed before the High Court under Section 256(2) of the I.T. Act, 1961, this question is specifically raised and, therefore, this court by its order dated 13th August, 1973, directed the; Tribunal to make a reference on this question. He, therefore, contended that that judgment of the High Court in Misc. Civil Case No, 24 of 1970, dated August 13, 1973, having become final, now, this question cannot be objected to.

6. On merits the learned counsel for the petitioner contended that although the authorities felt that income earned by M/s. Dyestuffs and Insecticides was the income of the assessee yet it could not be said that the assessee had the necessary intent of concealment of this income. It was a debatable question according to learned counsel and even if ultimately the contention of the assessee is not accepted, it could not be said that he concealed the income with the necessary intent. He, therefore, contended that the penalty proceedings being penal in nature penalty could be imposed only if it is found that the assessee has concealed the income with mens rea. He, therefore, contended that the question should be answered in favour of the assessee.

7. Learned counsel for the department on the other hand contended that the finding in the assessment proceedings is that it was a benami created by the assessee himself, to divert the income and if ultimately it is found that the income earned in the business shown to be in the name of M/s. Dyestuffs and Insecticides is the income of the assessee in the circumstances of the case, it is apparent that the assessee had attempted to conceal his income with the necessary intent and, therefore, it could not be contended that it was a debatable question and the necessary intent could not be imputed. However, learned counsel for the department contended that the reference deserves to be rejected on the preliminary ground itself.

8. It is not in dispute that the appellate. order of the Tribunal does not show that this question which has been referred to us was at issue between the parties at the time of hearing of the appeal. It is also not alleged that it was a question raised by the assessee before the Appellate Tribunal at the time of hearing: of the appeal. It, therefore, cannot be disputed that this question does not arise out of the order of the Tribunal. When an application was made before the Tribunal for making a reference it was contended by learned counsel that ground No. (5) in his application raised this question and the assessee sought a reference on this question from the Tribunal, Ground No. (5) on which reliance was placed by learned counsel for the assessee reads :

'(5) The penalty order passed under Section 271(1)(c) is bad in law. The assessment proceedings were started under the Indian Income-tax Act, 1922. Penalty has been levied under Section 271(1)(c) of Income-tax Act, 1961.'

9. Apparently, the question could not be said to have been raised before the Tribunal for making a reference. Learned counsel contended that when it was alleged that 'the penalty order...is bad in law' it implies all possible legal questions. But it is unfortunate that such a contention is advanced and it could not be doubted that the question as is referred to us was not even mentioned in this application, nor the assessee at any time contended before the Tribunal that this question arises in these proceedings.

10. The scope of Section 256 (1) and (2) of the I.T. Act came up for consideration before their Lordships of the Supreme Court in the case of CIT v. Scindia Steam Navigation Co. Ltd. : [1961]42ITR589(SC) , wherein the provisions of Section 66 (1) and (2) of the Indian I.T. Act, 1922 (which is equivalent to Section 256 (1) and (2) of the I.T. Act of 1961), were considered (p. 608):

' The British statute does not cast, as does Section 66(1) of the Act, a duty on the assessee to put in an application stating the questions of law which he desires the Commissioners to refer to the court and requiring them to refer the questions which arise out of that order. In Commissioner of Income-tax v. Arunachalam Chettiar : [1953]23ITR180(SC) , this court has decided that the requirements of Section 66(1) are matters affecting the jurisdiction to make a reference under that section. The attempt of the respondents to equate the position under Section 66(1) of the Act with that under the British statute on the ground that the Tribunal has to draw up a statement of the case and refer it, and that the court is to decide questions of law raised by it, must break down when the real purpose of a statement in a reference is kept in view. A statement of case is in the nature of a pleading wherein all the facts found are set out. There is nothing in it which calls for a decision by the court. It is the question of law referred under Section 66(1) that calls for decision under Section 66(5) and it is that that constitutes the pivotal point on which the jurisdiction of the court hinges. The statement of the case is material only as furnishing the facts for the purpose of enabling the court to decide the question referred. It has been repeatedly laid down by the Privy Council that the Indian Act is not in pari materia with the British statute and that it will not be safe to construe it in the light of English decisions : vide Commissioner of Income-tax v. Shaw Wallace & Co. [1932] 2 Comp Cas 276 (PC). In view of the difference between Section 66(1) and the corresponding provision in the British statute, we consider that no useful purpose will be served by referring to the English decisions for interpreting Section 66.

But the main contention still remains that the language of Section 66(1) is wide enough to admit of questions of law which arise on the facts found by the Tribunal and that there is no justification for cutting down its amplitude by importing in effect words into it which are not there. There is considerable force in this argument. But then there are certain features, which distinguish the jurisdiction under Section 66, and they have to be taken into consideration in ascertaining the true import of the words, 'any question of law arising out of such order'. The jurisdiction of a court in a reference under Section 66 is a special one, different from its ordinary jurisdiction as a civil court. The High Court, hearing a reference under that section, docs not exercise any appellate or revisional or supervisory jurisdiction over the Tribunal. It acts purely in an advisory capacity, on a reference which properly comes before it under Section 66(1) and (2). It gives the Tribunals advice, but ultimately it is for them to give effect to that advice. It is of the essence of such a jurisdiction that the court can decide only questions which are referred to it and not any other question. That has been decided by this court in New Jehangir Vakil Mills Ltd. v. Commissioner of Income-tax : [1959]37ITR11(SC) , Kusumben D. Mahadevia v. Commissioner of Income-tax : [1960]39ITR540(SC) and Zoraster & Co. v. Commissioner of Income-tax : [1960]40ITR552(SC) . If the true scope of the jurisdiction of the High Court is to give advice when it is sought by the Tribunal, it stands to reason that the Tribunal should have had an occasion to consider the question so that it may decide whether it should refer it for the decision of the court. How can it be said that the Tribunal should seek for advice on a question which it was not called upon to consider and in respect of which it had no opportunity of deciding whether the decision of the court should be sought ?'

11. Their Lordships further considered the scope of Section 66(2) of the old Act (equivalent to Section 256(2) of the I.T. Act of 1961), and observed (p. 609):

'It was argued for the respondents that, in view of the fact that the court could compel the Tribunal to refer a question of law under Section 66(2) for its decision, not much significance could be attached to the advisory character of its jurisdiction. It is not conceivable, it was said, that any authority should have a right to compel another authority to take its advice. We see no force in this contention. Section 66(2) confers on the court a power to direct a reference only where the Tribunal was under a duty to refer under Section 66(1), and it is, therefore, subject to the same limitations as Section 66(1). That has been held by this court in New Jehangir Vakil Mills Ltd. v. Commissioner of Income-tax : [1959]37ITR11(SC) and in Zoraster & Co. v. Commissioner of Income-tax : [1960]40ITR552(SC) . Moreover, the power of the court to issue direction to the Tribunal under Section 66(2) is, as has often been pointed out, in the natureof a mandamus and it is well settled that no mandamus will be issued unless the applicant had made a distinct demand on the appropriate authorities for the very reliefs which he seeks to enforce by mandamus and that had been refused. Thus, the power of the court to direct a reference under Section 66(2) is subject to two limitations--the question must be one which the Tribunal was bound to refer under Section 66(1) and the applicant must have required the Tribunal to refer it. R(T) is the form prescribed under Rule 22A for an application under Section 66(1), and that shows that the applicant must set out the questions which he desires the Tribunal to refer and that, further, those questions must arise out of the order of the Tribunal. It is, therefore, clear that under Section 66(2), the court cannot direct the Tribunal to refer a question unless it is one which arises out of the order of the Tribunal and was specified by the applicant in his application under Section 66(1). Now, if we are to hold that the court can allow a new question to be raised on the reference, that would in effect give the applicant a right which is denied to him under Section 66(1) and (2), and enlarge the jurisdiction of the court so as to assimilate it to that of an ordinary civil court of appeal.'

12. And, ultimately, their Lordships held (p.611):

' The result of the above discussion may thus be summed up :

(1) When a question is raised before the Tribunal and is dealt with by it, it is clearly one arising out of its order.

(2) When a question of law is raised before the Tribunal but the Tribunal fails to deal with it, it must be deemed to have been dealt with by it, and is, therefore, one arising out of its order.

(3) When a question is not raised before the Tribunal but the Tribunal deals with it, that will also be a question arising out of its order.

(4) When a question of law is neither raised before the Tribunal nor considered by it, it will not be a question arising out of its order notwithstanding that it may arise on the findings given by it.

Stating the position compendiously, it is only a question that has been raised before or decided by the Tribunal that could be held to arise out of its order.'

13. It, therefore, cannot be doubted that a question which was not raised before the Tribunal and which has not been decided by the Tribunal could not be held to be a question arising out of its order, and no reference, therefore, is called for.

14. It was contended by learned counsel for the assessee that the Tribunal has made the reference under the direction of this court and, therefore, the matter cannot be considered again. In CIT v. Smt. Anusuya Devi : [1968]68ITR750(SC) , their Lordships of the Supreme Court considered this question and held (p. 756):

'We find it difficult to uphold the view of the Calcutta High Court that, if an order is passed by the High Court calling upon the Tribunal to state a case on a question which does not arise out of the order of the Tribunal, the High Court is bound to advise the Tribunal on that question even if the question does not arise out of the order of the Tribunal. The High Court may only answer a question referred to it by the Tribunal: the High Court is, however, not bound to answer a question merely because it is raised and referred. It is well settled that the High Court may decline to answer a question of fact or a question of law which is purely academic, or has no bearing on the dispute between the parties or though referred by the Tribunal does not arise out of its order. The High Court may also decline to answer a question arising out of the order of the Tribunal, if it is unnecessary or irrelevant or is not calculated to dispose of the real issue between the taxpayer and the department. If the power of the High Court to refuse to answer questions other than those which are questions of law directly related to the dispute between the taxpayer and the department, and which, when answered, would determine qua that question the dispute, be granted, we fail to see any ground for restricting that power when by an erroneous order the High Court has directed the Tribunal to state a case on a question which did not arise out of the order of the Tribunal. We are unable, therefore, to hold that at the hearing of a reference pursuant to an order calling upon the Tribunal to state a case, the High Court must proceed to answer the question without considering whether it arises out of the order of the Tribunal, whether it is a question of law, or whether it is academic, unnecessary or irrelevant.'

15. It is, therefore, clear that if the question does not arise out of the order of the Tribunal we are not bound to answer it even if the reference has been made under the directions of this court.

16. As discussed earlier, it is clear that the question referred does not arise out of the order of the Tribunal. We, therefore, do not think it necessary to answer the question as it does not arise. In the circumstances of this case, parties are directed to bear their own costs.