1959 (4) TMI 30 - HC - Income Tax

Summary

Issues Involved:
1. Whether the amount of Rs. 2,51,425 represented trade debt from J.K. Kothi and should be excluded in the computation of the average capital of the assessee for the relevant chargeable accounting period.
2. Whether the observations of the Tribunal in its remand order dated 20th March, 1947, and other preceding orders were merely obiter dicta and not binding on the Tribunal when it finally decided the matter on July 29, 1947.

Issue-wise Detailed Analysis:

1. Trade Debt and Average Capital Computation:
The primary issue was whether the amount of Rs. 2,51,425, which represented trade debt from J.K. Kothi, should be excluded in the computation of the average capital of the assessee for the relevant chargeable accounting period. The Tribunal had to ascertain the nature of the transactions between the assessee and J.K. Kothi. It was found that J.K. Kothi supplied goods to the assessee on credit, and the amounts outstanding against the assessee represented the price of goods supplied. The Tribunal concluded that these amounts were debts due from the assessee to J.K. Kothi but not "borrowed money" within the meaning of Rule 2A of Schedule II of the Excess Profits Tax Act. The Supreme Court's interpretation in Shree Ram Mills Ltd. v. Commissioner of Excess Profits Tax [1953] 23 I.T.R. 120 was cited, emphasizing that a loan requires a positive act of lending and acceptance as a loan, which was not the case here. The transactions were for the supply of goods on credit, not loans. Thus, the amounts could not be treated as capital employed in the business by the assessee and were rightly disregarded in computing the average amount of capital for the relevant chargeable accounting period.

2. Observations in Tribunal's Remand Orders:
The second issue was whether the observations made by the Tribunal in its remand order dated 20th March, 1947, and other preceding orders were merely obiter dicta and not binding on the Tribunal when it finally decided the matter on July 29, 1947. The Tribunal's observation in the remand order was hypothetical, stating that if the interest was not handed over, J.K. Kothi must have acted as bankers for the assessee. This was not a finding of fact but an opinion based on an assumption. The Tribunal's remand orders were for obtaining reports from the Excess Profits Tax Officer and did not finally dispose of the appeal, which remained pending until the final decision on July 29, 1947. Therefore, the Tribunal was not bound by any observations made in the remand orders when giving its final decision. This aligns with the principle that an appellate court's views expressed at an earlier stage do not bind it when giving its final decision.

Conclusion:
The reference was answered in favor of the Department. The Tribunal correctly excluded the amount of Rs. 2,51,425 from the computation of the average capital employed by the assessee. The observations made in the remand orders were not binding on the Tribunal when it finally decided the appeal. The Department was entitled to its costs from the assessee, fixed at Rs. 500.