1963 (11) TMI 4 - SC - Income Tax

Whether the business called Castle at Bombay was a branch of the assessee? Held that - Non-inclusion of the income of Castle in the assessment of the assessee may have been a relevant circumstance, but its effect had to be considered in the light of other circumstances on which the Appellate Assistant Commissioner had relied. Moreover, reliance placed by the Tribunal upon the single circumstance on which its decision was founded had proceeded on an assumption that in the previous year to the year of assessment 1951-52, Castle had carried on business and had earned income. The observations made by the Appellate Assistant Commissioner about Castle being separately assessed at Bombay in the status of a registered firm apparently refer to assessment of that business in subsequent years and not in the year of assessment 1951-52. The conclusion of the Tribunal, therefore, suffers from a double infirmity it assumes the only fact on which its conclusion is founded and ignores other relevant matters on which the Appellate Assistant Commissioner relied in support of his conclusion. The Tribunal has therefore misdirected itself in law in arriving at its finding, and in refusing to require the Tribunal to state the case and to refer it, the High Court was, in our view, in error. Appeal allowed.

Summary

Issues:
1. Interpretation of section 15C of the Indian Income-tax Act, 1922 regarding exemption from tax for a newly established undertaking.
2. Determination of whether a business entity is considered a branch of another for tax assessment purposes.
3. Application of section 66(2) of the Income-tax Act regarding the High Court's jurisdiction to require the Appellate Tribunal to state a case.

Analysis:
1. The case involved a dispute over the interpretation of section 15C of the Indian Income-tax Act, 1922, concerning the exemption from tax for a newly established undertaking. The assessee, M/S. Indian Woollen Textiles Mills, sought exemption for 6% of the capital employed in its branch named "Eldee." The issue was whether the amount advanced to another concern, "Castle," could be included in the computation of capital for section 15C. The Income-tax authorities initially rejected the claim, but the Tribunal directed the inclusion of the amount advanced to "Castle" in the capital calculation.

2. Another issue was the determination of whether the business entity "Castle" was a branch of the assessee for tax assessment purposes. The Appellate Assistant Commissioner rejected the inclusion of the amount advanced to "Castle" in the capital employed in "Eldee" based on the similarity in the constitution and ownership of the two undertakings. However, the Tribunal disagreed, primarily considering the non-inclusion of "Castle" income in the assessment as a crucial factor. The High Court upheld the Tribunal's decision, emphasizing the factual inference drawn by the Tribunal.

3. The application of section 66(2) of the Income-tax Act was crucial in this case. The High Court's jurisdiction to require the Appellate Tribunal to state a case and refer it arises when the Tribunal refuses to state a case on the ground of no legal question. The High Court can intervene if it finds a legal question in the Tribunal's order. In this case, the Tribunal's decision was deemed flawed as it had misdirected itself in law by basing its conclusion on a single assumption and ignoring other relevant factors. The High Court erred in not requiring the Tribunal to state the case, leading to the appeal being allowed and the proceedings remanded for proper consideration.

In conclusion, the Supreme Court allowed the appeal, remanding the proceedings to the High Court for further consideration in accordance with the law. The costs of the appeal were to be borne as costs in the High Court.