1971 (9) TMI 21 - SC - Income Tax

Whether the profits and gains in respect of the sales to the Government of India, were received by the assessee in the taxable territories - HC had no jurisdiction to go beyond the findings recorded in the original judgment - appeals, accordingly, are held to be not maintainable and are dismissed

Issues Involved:
1. Preliminary Objection to the Maintainability of Appeals
2. Receipt of Profits and Gains in Taxable Territories
3. Posting of Cheques and Presumption under Section 114, Illustration (f), of the Evidence Act

Detailed Analysis:

1. Preliminary Objection to the Maintainability of Appeals:
The preliminary objection raised by the assessee's counsel was that the certificates granted by the High Court were not proper, making the appeals not maintainable. The Supreme Court accepted this objection, stating that the High Court's jurisdiction at the stage of granting certificates is limited to considering whether any substantial question of law arises based on the material on record and the discussion on facts and law contained in the judgment of the High Court.

The Supreme Court noted that the High Court, in granting the certificates, appeared to be sitting in appeal over its own judgment or dealing with the reference afresh, which was not within its jurisdiction. The High Court's role was confined to determining if a substantial question of law arose based on the existing material, not to re-evaluate the findings.

2. Receipt of Profits and Gains in Taxable Territories:
The core question was whether the profits and gains from sales to the Government of India were received by the assessee in the taxable territories. The High Court had answered this in favor of the assessee, stating that the profits and gains must be deemed to have been received outside the taxable territories.

The revenue's contention was that the amounts covered by the cheques, realized in Bombay (a taxable territory), should be taxable. The High Court, referencing certain decisions, held that the mere realization of cheques in Bombay was inconsequential. Since the cheques were received by the assessee in Jaipur (outside the taxable territories), the amounts were considered received there.

3. Posting of Cheques and Presumption under Section 114, Illustration (f), of the Evidence Act:
The revenue argued that the cheques should be considered received in Delhi (a taxable territory) where they were posted, implying that the post office acted as the assessee's agent. The High Court found no evidence that the cheques were sent by post, noting that the Appellate Tribunal had recorded no material showing the mode of despatch.

The High Court's decision was based on the absence of evidence that the cheques were sent by post, thus rejecting the revenue's contention. However, the High Court, while granting certificates, inferred that cheques are commonly sent by post and that the Government of India would likely use postal services for such transactions, referencing certain English decisions and section 114 of the Indian Evidence Act.

The Supreme Court criticized this approach, stating that the High Court ignored the Appellate Tribunal's finding that no evidence was provided regarding the posting of cheques at Delhi. The Supreme Court emphasized that the High Court should not have entertained the presumption under section 114, illustration (f), of the Evidence Act, given the specific findings against the revenue.

Conclusion:
The Supreme Court concluded that the High Court's certificates were improperly granted, as they were based on a question that did not arise from the material on record. Consequently, the Supreme Court canceled the certificates and dismissed the appeals as not maintainable, awarding costs to the assessee.

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