1961 (4) TMI 6 - SC - Income Tax

Whether it was not open to the High Court in the present reference to go into the question as to the applicability of the proviso to section 10(2)(vii), as it was neither raised before the Tribunal nor considered by it, and could not, therefore, be said to be a question arising out of the order of the Tribunal, which alone could be referred for the decision of the court under section 66(1)? Whether the sum of ₹ 9,26,532 was property included in the assessee company s total income computed for the assessment year 1946-47? Held that - In the present case, the question actually referred was whether the assessment in respect of ₹ 9,26,532 was proper. Though the point argued before the income-tax authorities was that the income was received not in the year of account but in the previous year, the question as framed is sufficient to cover the question which was actually argued before the court, namely, that in fact the assessment is not proper by reason of the proviso being inapplicable. The new contention does not involve reframing of the issues. On the very terms of the question as referred which are specific, the question is permissible and was open to the respondents. Indeed the very order of reference shows that the Tribunal was conscious that this point also might bear on the controversy so that it cannot be said to be foreign to the scope of the question as framed. In the result, we are of opinion that the question of the applicability of the proviso is really implicit, as was held by Chagla, C.J., in the question which was referred, and, therefore, it was one which the court had to answer. Appeal dismissed.

Issues Involved:
1. Whether the amount of Rs. 9,26,532 was properly included in the total income of the company for the assessment year 1946-47.
2. Whether the High Court had the jurisdiction to entertain the question of the applicability of the proviso to section 10(2)(vii) of the Indian Income-tax Act, 1922, which was not raised before the Tribunal.

Issue-wise Detailed Analysis:

1. Inclusion of Rs. 9,26,532 in Total Income:
The respondents received compensation from the Government for the loss of their steamship "El Madina" during the war. The original cost of the ship was Rs. 24,95,016, and its written-down value was Rs. 15,68,484. The difference of Rs. 9,26,532 represented the depreciation deductions allowed over the years. The controversy was whether this amount should be included in the total income for the assessment year 1946-47 under section 10(2)(vii) of the Indian Income-tax Act, 1922. The proviso to this section states that if the compensation received exceeds the difference between the written-down value and the scrap value, the excess amount should be deemed as profits of the previous year in which the compensation was received.

The respondents argued that the amount should be deemed to have been received on April 16, 1944, based on a direction by the Board of Revenue for the purposes of the Excess Profits Tax Act, 1940. However, the income-tax authorities and the Appellate Tribunal rejected this contention, holding that the material date was when the compensation was actually received, which was within the year of account. Thus, the Tribunal included the amount in the total income for the assessment year 1946-47.

2. Jurisdiction of the High Court:
The respondents contended before the High Court that the proviso to section 10(2)(vii) could not be applied as it was introduced by the Income-tax (Amendment) Act, 1946, which came into force on May 4, 1946, whereas the liability to be taxed fell to be determined as on April 1, 1946. The appellant objected, arguing that this question was not raised before the Tribunal and thus did not arise out of its order. The High Court overruled this objection, stating that the question as framed was sufficiently wide to include this new contention. On the merits, the High Court held that the proviso was not retrospective and thus the amount was not liable to be included in the taxable income.

The Supreme Court examined whether the High Court could entertain a question not raised before the Tribunal. It noted that section 66(1) of the Act allows the Tribunal to refer any question of law arising out of its order to the High Court. The Court held that the jurisdiction of the High Court is limited to deciding questions referred to it by the Tribunal. However, it concluded that a question of law arising out of the findings given by the Tribunal could be considered by the High Court, even if it was not explicitly raised before the Tribunal.

The Supreme Court summarized its position as follows:
1. A question raised before the Tribunal and dealt with by it arises out of its order.
2. A question raised before the Tribunal but not dealt with by it is deemed to have been dealt with and arises out of its order.
3. A question not raised before the Tribunal but dealt with by it arises out of its order.
4. A question neither raised before nor considered by the Tribunal does not arise out of its order, even if it arises on the findings given by the Tribunal.

In this case, the question of whether the amount of Rs. 9,26,532 was properly included in the total income for the assessment year 1946-47 was within the scope of the reference. The High Court was within its jurisdiction to entertain the respondents' contention regarding the applicability of the proviso.

On the merits, the Supreme Court agreed with the High Court that the proviso, which came into force on May 4, 1946, was not retrospective and could not be applied to the assessment year 1946-47. Therefore, the amount of Rs. 9,26,532 was not liable to be included in the taxable income for that year. The appeal was dismissed with costs.

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