M/S. Zoraster and Co. v. the Commissioner of Income Tax, Delhi, Ajmer, Rajasthan and Madhya Bharat (now) Madhya Pradesh

-K. N. Rajagopala Sastri and D. Gupta, fol" the res­ pondent. r960 Z oraster & Co. v, Contt'llission!!r. of I ncbnic~tax Zora~t~r 6 Co. 212 SUPREME COURT REPORTS [1!161] 1960. August 17. The Judgment of the Court was delive~ed by - v. HIDAYATULLAH .T.-This appeal, by special leave c,.,.,,.rnoua "! of this Court, is against the judgment and order dated lncwu-lax March 24, 1955, of the Punjab High Court by which Hidayat1<1/alo 1- the High Court, purporting to a.ct under s. 66(4) of the Indian Income-tax Act, ca.lied for a. supplemental statement of the case from the Income-tax Appellate Tribunal. The special leave granted by this Court is limited to the question whether the High Court had jurisdiction in this case to ca.II for the supplemental statement. The a.ssessee, Messrs. S. Zora.st-er & Co., .Ta.ipur, consists of three partners. Two of them a.re copa.rco­ ners of a. joint Hindu family, and the third is 11 stranger. They had formed this partnership in ,J nnc, 1940, for the manufacture and sale of blankets, felts and other woollen a.rticlos. A deed of partnership was also executed on March 16, 1944. The a.ssessee.enter­ ed into contracts with Government for the sup­ ply of goods, and in the assessment year 1942-43, Rs. 10,80,658-0-0 and in the assessment year 1943_-44, Rs. 17,45,336-0-0 were assessed as its income by the Income-tax Officer, Contractor's Circle, New Delhi. The supplies to Government were madfl f. o. r. J a.ipur by the a.ssessee, and payment was by cheques which were received a.t Jaipur and wero endorsed in favour of the joint Hindu family, which acted a.s the asses­ see's bankers. The contention of the a.ssessee was· that this income was received a.t .Jaipur outside the then taxable territories. This contention was not accepted by the Income-tax Appellate Tribunal, Delhi. · The assessee then applied for a. reference to the High Court under s. 66(1) of the Indian Income-tax Act, and by its order dated December 10, 1952, the Income-tax Appellate Tribunal referred tho following question for the decision of the High Court: " Whether on the facts and circumstances of the case the profits and gains in respect of the ~ales ma.de t-0 the Government of India. were received by the aBSesaee in the te.xe.ble territories ? " ' v 1 S.C.R. SUPREME COURT REPORTS 213 The Tribunal had stated in the statement of the case r960 as follows: Th d b h G f Zoraster & Co. " e payment was ma e y. t e overnment o India by cheques drawn ·on ·the Reserve Bank .of Comm;s.~~ner of India, Bombay Branch. These cheques were received Income,tax in Jaipur.". It may 'be ·pointed out that in the contract of sale mdayatullah J. between the·assessee and the Government of India, the foliowing clause was inciluded to determine the system of payment: . "21. System of payment :-Unless otherwise agreed between the Purchaser _and the Contractor payment for the delivery of the stores will be made by the Chief Audit6r, Indian Stores Department, New Delhi, by cheque on a Government treasury in India or on a branch of the Imperial Bank of India or the Reserve Bank of India transacting Government. bu:::;iness." ¥ In dealillg with the Reference, the High Court passed an order u.nder s. 66(4) of the Income-tax Act observin_g, , " .. ~ .. .it would be necessary for the. Appellate Tribunal to find, inter .alia, whether the cheques were sent to the assessee firm by post or by hand and · . what directions, if any, had the assessee firm given to the Department in the matter". The High Court thereafter remanded the· case to the Tribunal for a supplemental statement of· the case on the lines indicated. This order is questioned on the authority of the decision of this Court in The New Je'hangir Vakil Mills Ltd. v: The Commissioner of Income-tax(') which, it is claimed, completely, covers this case. 'In that case also; the High Court of Born- . bay had called for a supplemental 'statement of the case, and it was ·ruled by this Court that the·· High Court had exceeded its jurisdiction. Before dealing with this question, it is necessary to · go back a little, an·d refer briefly to some cases decided earlier than The New Jehangir Vakil Mills case (1) and Jagdish Mills Ltd. v. Commissioner of Income-tax('), on which reliance has been placed in this case. In (1) [1960] l S.C.R. 249. • (2) [1960] l S.C.R.'236. 214 Sl:PRE~!E COl:HT RE'.PORTS [ 1961 J i96o KP.Shav Mills Co., Ltd. v. Commissione·r of Income- Zorast" & Co tax('), thP. High Court of Bombay ca.lied for a. supple- v. mental Hta.t~ment of the case, but it expressed the Commi<s•ouer of view that if a. cheque was received by a. creditor on a Income-tu British Indian Bank and he gave the cheque to his bank for collection, the bank must bo treated a.a his llidayatullah J. a.gent and that, on the l'ea.lisa.tion of the amount of the eheque in the taxable territory, the creditor must be regarded as having received it in the taxable territory, even if he wa.s outside it. In Sir Sabha Singh v. Commissioner of Income-tax('), it was helri by the Punjab High Court that whero cheques were given to a. bank for purposes of collection, tho receipt of the money was a.t the pla.ee where the hank on which the cheques were drawn was situated. These views found further amplification, and were applied in two other cases by tho Boruba.y High Court. They are Kirloskar Bros. Ltd. v. Commissioner of In- I come-tax(') and Ogale Glass Work.' Ltd. v. Commissio- ner of Income-tax('). In both these ca.sos, it was held that 11,nless the payee expres~ly constituted the post office a.a his a.gent, the mere posting of the cheque did not constitute the post office the a.gent of the payee, ·and that the a.mount of the cheque was also received at the place where tho cheque was received. In Kirloskar Bros. Ltd. v. Commissioner of Income-tax('), it wa.~ hold that t.he mere posting of the cheque in Delhi was not tantamount to the receipt of the cheque in Delhi, because the payee had not requested the Government to send the cheque by post. In Ogale Glass Works case('), tho Bombay High Court asked for a supplementary statement of the case from the Tribunal as to whether there wa.s a.ny express request by the a.ssesAee that the cheque should he sent by post, and held that a.s thero was no such express request, the receipt of the money was not where the cheque was posted but a.t the place where the money was received. (1) (1950] 18 l.T.R. 407. (2) [1950] 18 I.TR. 998. · (3) [1952] 21 I.T.R. 82. (4) I. Tax Reference !'\o. I9 of 1949 or the Bombay H. c. decided on September 17, 1951. I S.C.R. SUPREME COURT REPORTS 215 The last two decisions of the Bombay High Court r960. were reversed by this Court, and it was held that an ' ' · h · " h b Zoraster J;, CO. mt1mat10n to t e payer "to remit . t e amounr y cheque wa.s sufficient nomination of the post o.ffice as v. · Conunissioner of the agent of the payee: vide Commissioner of Income- Income-tax tax v. Ogale Glass Works Ltd. (1) and Commissioner of -. · Income-tax v. Kirloskar Bros. Ltd.('). Later, the llidayatullah J. principle was extended still further by this Court in Jagdish Mills case(') . . It was held that where the bills had an endorsement '" Government should pay the amount due. by cheque". and_ the cheques were received in full satisfaction unconditionally, this con- stituted a sufficient implied request for the purpose of the application of the rule in Ogale Glass Works.case (1) of this CourtP · Jagdish Mills case(') and the New Jehangir Vakil Mills case(') were decided by this Court on the same · day. · In the latter case, the Department had to deal with a non-resident Company which, at all material times, .was situate at Bhavnagar, one· of. the Indian States. Cheques in payment for supplies to Govern­ .ment we1e sent from British India to· Bhavnagar. The Department contended in. the case th~t though the cheques were received at Bhavnagar, they were, in fact, cashed in British India and until such encash­ ment, income could not be said to have been received but _that on. encashment in British India, the receipt of income was also in British India. The Tribunal held that the cheques having been received at Bhav­ nagar the income was also received there. In doing so, the Tribunal followed the Bombay decision in· Kirloskar Brothers case('). The Tribunal, however, observed that if the Bombay view which was then under appeal to this Court were not upheld, then an enquiry would have to be made as to whether the Mills' bankers at Ahmedabad acted as the Mills' agents for collecting the amount due on the cheques. The question whether the posting of the cheques from British India to Bhavnagar at the request, express or (1) [1955] I S.C.R. 185. (2) (1954].25 I.T.R. 547. (3) [1960] 1 s.c.R. 230. (4) [1960J ' s.c.R .. 249. (5) [1952] 211.T.R. 82. I 216 SUPREME COt:RT REPORTS [1961] '9 60 implied, of the Mills or otherwise, ma.de any differ- z I , c ence was not considered at a.nv stage before the case oras " ~ o. h d h H · h C f -v. rea.c e t e 1g ourt o Bombay. This wa.s ex- Comm;,.;.,,., of pressly found to be so by this Court in these words : Income·t•x " The only ground urged by the Revenue at all material stages was that because the a.mounts which Hidayatullah J. were received, from the merchants or the Government we're received by cheques drawn ori banks in llrit.ish India. which were ultimately en ca.shed in British India, the monies could not bo said to have been received in llha.vnagar though the cheques were in fa.ct received at Bha.vna.ga.r." The reference was held back by tho Tribunal till the decision of this Court in Ogale Gia.as W ork.s case (') and K irkiskar Brother a' case('). Even after ~e'eing that in those two cases the request for payment by cheques to be sent by post ma.de all the difference, the Tribu­ nal did not frame its statement of the case (Ir the question to include this aspect, because that aspect of the matt~r was never considered before. The question referred was thus , limited to the legal effect of the receipt of the chequ"s at Bhavnagar without advert­ .cnce to the fact whether the cheques were so sent by post at the request, express or implied, of the Mills. The question framed was : · " Whether the receipt of the cheques in Bhavnagar amounted to receipt of the sale proceeds in Bha v­ nagar?" The question as framed and tho statement which accompanied it brought into controversy the only point till then considered by the Tribunal and the taxing authorities. Whon the case was heard by it, the High Court desired to consider it from the anglt> of the Kirkiskar Brothe1·s(') and Ogale Glass Works (1) . .. cases. It called for a supplemental statement of the case. In doing so, the High Court went beyond the ambit of the controversy as it had existed till then and also the statement of the case and the question. The High Court directed the Tribunal as follows: .. "On the finding of the Tribunal that all the che­ ques were received in Bhavnagar, the Tribuual to find (•) [1~55] I S.C.R. 185. \2) (195<1] 25 l.T.R. 517· 1 S.C.R. SUPREME COURT REPORTS 217 what portion of these cheques were received by post, 'whether there was any request by the assessee, express or implied, that the amounts which are the subject matter of these cheques should be remitted to Bhav- nagar by post." · In repelling the objection that such an enquiry was alien to the point decided by the Tribunal and might require fresh evidence, the High Court justified itself by saying: " But we cannot shut out the necessary inquiry which even from our own point of view is necessary to be made in order that we should satisfactorily answer the question raised in the B.eference. It-must not be forgotten that . under section 66(4) of the 'Income-tax Act we have a right independently of the conduct. of the parties to direct the Tribunal to state further facts so that we may properly exercise our own advisory j urisdictibn." , This Court pointed out that the High Court exceed. e<l its jurisdiction under s. 66(4) of the Indian Income. tax Act. It was observed : . "If the que~tion actually referred· does not brihg out clearly the real ·issue between the parties, the High Court may reframe the question so that the matter actually agitated before the Tribunal niay be raised before the High Court .. But s. 66(4) does not enable the High Court to raise a new question of 'law which does not arise out of the Tribunal's order·an<l direct the Tribunal to investigate new or further·facts necessary to determine this new question.which had not been referr~d to it under s. 66(1) or s. 66(2) and direct the Tribunal to submit a supplementary- state. ment of the case." . It was also pointed out that the facts admitted and/ or found by the Tribunal could. alone b6 the founda:' . tion Of the question of law which might be said to arise out of the Tribunal's order. The case thus set two limits to the jurisdiction of the High Court under s. 66(4), and they were that the advisory jurisdiqtion was confined (a) to the facts on the record and/or found by the Tribunal and (b) the question wl!ich 28 .. ' Zoraster &- Co. v. Conimi.>sioner of lnco1ne·tax fl idayatullah J, 218 SCPHEJ\JE COGRT REPORTS [1961] 196o would arise from the Tribunal's order. It was pointed . , . out by this Court that it was not open to the High /om':'. '' c,. Court to order a fresh enquiry int-0 new facts with a. c0 ,,,,,.;,., 0 ,," of \'iew to amplifying the record and further that it was Jn,·o"" '"·' · f'qually not open to the High Court to decide a ques­ tion of law, which did not arise out of the Tribunal's Hid«'·"'"ll"h J order. This was illustrated by comparing the ques­ tion a.s framed by the Tribunal with the question which 'the High Court desired to decide. Whereas the Tribunal had only referred tht1 question: " \Vhethcr the receipt of the cheques at Bha.v­ na.gar amounted to receipt of sale proceeds in Bhav­ nagar ?", what the High Court intended deciding was: "Whether the posting of the cheques in British India. at the request express or implied of the appel­ lant, amounted to receipt of sale proceeds in British India.?" These were two totally different questions, and it was held that the High Court could not decide a. matter which was different from that decided by the Tribu­ nal, nor ca.II for a. statement of the case bearing on this new matter. The proposition la.id down iu the Jehangir Vakil Mills case (1), finds support from y••t anotht'r case of this Court decided very recently. In K usumben D. Mahadevia v. Commissioner of Income-tax, Bcnn­ bay ('), it was observed: "In our opinion, the objection of the assessee is well-founded. The Tribunal did not address itself to the question whether the Concessions Order applied to the asscssee. It decided the question of assessa.bility ou the short ground that the income had not a.risen in Baroda. but in British India.. That aspect of the mat­ ter ha.a not been touched by the Bombay High Court. The latter has, on the other hand, considered whether the Concessions Order applies to the a.ssessee, a. mat­ ter not touched by tho Tribunal. Thus, though the result is the same so far as the assessment is concern­ ed, the grounds of decision a.re entirely different. ·················································· .................. . 1 S.C.R. SUPREME COURT. REPORTS 219 Sect.ion 66 of the Income-tax Act which confers jurisdiction upon the High Court only permits a refe­ rence of a question of law adsing out' of the order of the Tribunal. It does not confer jurisdiction on the High Court to decide a different question of Jaw not arising out of such order. It' is possible that the same ·question of law may involve different approaches for its solution, and the High Court may amplify the question to take in all the approaches. But the ques­ tion must still be the one which was before the Tribu­ nal and was decided by it. It must not be an entirely different question which the Tribunal. never conside­ red." 'It follows from this t.hat the enquiry in such cases must be to see whether the question' decided by the .Tribunal admits the consideration of the new point as an integral or even an incidental part thereof. Even so, the supplemental statement which the Tribunal is directed to submit must arise from the facts admitted and/or found by the Tribunal, and should not open the door to fresh evidence. The fact that in Ogale Glass Works case (1), the Bombay High Court had asked for a supplemental statement in the same way as in the Jehangir Vakil Mills case('), and this Court did not rule out.the new matter, cannot help the- assessee in the present case, because the jurisdiction of the High Court was not questioned, as it had been dorie in the Jehangir Vakil Mills case, or has been done here. We have thus to see whether in this case· the question which was decided and which has been referred to the High Court admits the return of .the case for a supple­ mental statement on the lines indicated by the High Court in the order under appeal. At the very. start, one notices a difference in the question of law in this case and the Ogale Glass Works case ('), on the one hand, and the question of Jaw in the Jehangir Va.kil Mil~ case('), on the other. 'In the former two cases, the question is very widP, while in the latter it is extremely narrow. This can- be seen by placing the three questions sirle by side as below: (1) I. Tax Reference No. 19 of 1949 of the Bombay lI. C. decided on S•i>~•mbet i7. i95t. ·(2) [1960] I S.C.R. 249. (3) [1955] I S.C.R. 185. Zorasler & C~. v. Con111tissiontr of - I ticonu~tax Hidayafullah- j.- 220 SUPRE:\IE COUitT REPOHTS [I!l61] ,,,60 .Jehangir Vakil Mills case('): " Whether the receipt of the cheques in Bha.v­ nagar a.mounted to receipt of the sale pro­ ceeds in Bhavnaga.r ?" " Whether on the facts of the case, .income, profits a.nd gains in respect of sales ma.de to the Government of India was received in British India. within the meaning of Section 4(l)(a.) of the Act?" "Whether.on the facts a.nd circumstances of the case the profits and gains in re8pect of the sales ma.de to the Government of India were recci ved by the assessee in taxable territories ?" Lorastrr {?· Co. v. Co111111i.~.~io>ur nf !tu:omt:-tax H 1da).:alullah J. Ogale Glass Works case (') : This case: It is thus quite plain that tho question as framed in this case ca.n include an enquiry into whether there wa.s a.ny request, express or implied, that the amount of the bills he paid by cheques so a.s to hring the mat­ ter within the dicta of this Court in the Ogale Gloss Works case (') or Jagdish !.fills case('), The first limit to the jurisdiction of the High Court as la.id down by this Court is thus not exceeded by the High Court in exercising its powers under s, 66(4) of the Income-tax Act, The question is wide enough to include the alternative line of approach that if there was a request, express or implied, to send the a.mount due under tho bills by cheque, the post office would bo the a.gent of the a.ssessee, a.nd the income was received ' in the taxable territory when the cheques were pos­ ted. (1) [1¢oj 1 S.C.R. 249. . (2) [1955] I S.C.R. 185. (3) [ r¢o] 1 S,C:R. 236. 1 S.C.R. SUPREME COURT REPORTS 221 The next question is whether the High Court has 1960 t. ransgressed the second limitation implicit is s. 66(4), Zoras/er 6" Co. that is to say, that the q,uestion must arise out of the facts admitted and/or found by , the Tribunal. The commi,:ioner of lligh Court has observed that, h;conu-tax " ...... _ .. .it would be necessary for the Appellate Tribunal fo find inter alia whether the cheques were Hidayatullah J. sent to the assessee-firm by post or by hand and what directions, if any, had the assessee-firm given· to the Department in that matter." If the Tribuna;J has to make a fresh enquiry leading to the admission of fresh evidence on the record, then this direction offends against the ruling of this Court in_ the Jehangir Vakil Mills case('). If, however, the direction be interpreted to mean that the Tribunal in giving the finding must confine itself to the facts admit_ted and/or found by it, the direction cannot be described ·as in excess of the jurisdiction of the High Court. It would- have. been better if the High Court had given directions confined to. the record of the case before the Tribunal; but, in the absence of anything expressly to the contrary, we cannot hold that the direction would lead inevitably to the admit­ ting of fresh evidence. This, at least, now cannot be done, since the· Jehangir Vakil Mills case (1); has pro­ hi,bited the admission of fresh evidence. Im our opini­ on, the present case does not fall within the rule in the Jehangir .Vakil Mills case('), and is distinguish­ able. In the result, the appeal fails; and is·dismissed with costs. · Appeal dismissed.