Chimmonlall Rameshwarlall vs C.I.T. (Central) Calcutta

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Appeal (civil) 241 of 1956

Decision Date: 1 May 1959

Coram: S.R. DAS (CJ), N.H. Bhagwati, S.J. Imam, J.L. Kapur, M. Hidayatullah

In this case the petitioner, Chimmonlall Rameshwarlall, appealed to the Supreme Court against the Central Income-Tax Board, Calcutta. The judgment was delivered on 1 May 1959 and is reported in AIR 1960 SC 280. The appeal was numbered 241 of 1956 and was placed before a bench comprising Chief Justice S.R. Das, Justice N.H. Bhagwati, Justice S.J. Imam, Justice J.L. Kapur and Justice M. Hidayatullah. Justice Bhagwati read the judgment. The four appeals had been granted special leave under article 136 of the Constitution. They were directed against the orders dated 8 June 1951 of the Income-Tax Appellate Tribunal, Bombay A, which had been issued in Reference Applications numbered 737, 738, 739 and 740 of the 1949-50 year.

The appellants were, at all material times, a Hindu undivided family with Rameshwarlal Ganeriwalla acting as the karta. By about 1928-29, through a series of transactions that need not be specified, Rameshwarlal Ganeriwalla became the creditor of the Nawab Bahadur of Murshidabad for a sum exceeding Rs 6,38,000. In 1933 the Murshidabad Estate Administration Act, 1933 (XXIII of 1933) was enacted, and the estate of the Nawab Bahadur was placed under the control of an authorized manager. The Board of Revenue admitted that the Nawab Bahadur owed Rs 5,42,173 to Rameshwarlal Ganeriwalla as of 1 April 1934, and the manager subsequently paid amounts to the appellants in the form of dividends, indicating in accompanying letters the manner in which the payments should be appropriated. For the assessment years 1938-39 to 1941-42 the appellants filed income-tax returns; in the return for 1938-39 they omitted any reference to the money received from the manager, while in the later returns they disclosed certain amounts that they claimed to have received. When the Income-Tax Officer learned of the receipt of money from the manager, he issued a notice under section 34 of the Income-Tax Act for the assessment year 1938-39. After reviewing the returns, the Officer concluded that the sums received from the manager represented interest and therefore were taxable. Consequently, he incorporated those sums in the assessment orders dated 20 March 1943, 31 March 1944, 30 November 1944 and 31 October 1945. The appellants appealed against each of these orders, filing Income-Tax Appeals numbered 2/CC-II/43-44, 8/CC-II/44-45, 22/CC-II/44-45 and 13/CC-II/45-46. The Appellate Assistant Commissioner disposed of all four appeals by his orders dated 13 June 1947 and 18 July 1947, confirming the assessments that had been made.

The orders that had been issued by the Income-tax Officer were subsequently challenged by the appellants. They filed further appeals against the orders of the Appellate Assistant Commissioner by presenting four appeals before the Income-tax Appellate Tribunal, identified as Appeals Nos. 1896, 1895, 1897 and 1898 of the assessment year 1947-48. The Tribunal, by an order dated 3 December 1949, dismissed Appeal No. 1895 of 1947. Subsequently, Appeal No. 1896 of 1947-48 was dismissed on 7 November 1949, and the remaining two appeals, namely Appeals Nos. 1897 and 1898 of 1947-48, were also dismissed on 3 December 1949.

After these dismissals, the appellants sought to compel the Tribunal to formulate the factual questions and refer certain points of law to the Calcutta High Court for its opinion. They pursued this purpose under section 66(1) of the Income-tax Act by filing Reference Applications Nos. 737 to 740 of 1949-50. The Income-tax Appellate Tribunal considered these applications and, by an order dated 8 June 1951, rejected them.

Undeterred, the appellants then approached the Calcutta High Court under section 66(2) of the Income-tax Act, requesting that the respondent be required to show cause why the Tribunal should not be ordered to state the cases and refer the identified legal questions to the High Court. The High Court issued the requested rules. However, when the Income-tax References Nos. 90, 91, 92 and 93 of 1951 were scheduled for hearing, the High Court, by an order dated 15 June 1953, discharged those rules.

Following the discharge, the appellants filed four petitions for special leave to appeal against the Tribunal’s order of 8 June 1951, which related to Reference Applications Nos. 737 to 740 of 1949-50. The Supreme Court granted this special leave by an order dated 27 September 1954, thereby allowing the appeals to proceed.

After the appeal paper book and the statements of case had been filed by the respective parties, the respondent, on the eve of the hearing—that is, on 19 February 1959—made an application before this Court seeking permission to file a supplementary statement of case. The Court granted that permission at the hearing. In the supplementary statement, the respondent argued that the appellants had not filed any appeals against the Tribunal’s orders made under section 33(4) of the Income-tax Act nor against the High Court’s orders made under section 66(2) of the Act, which had refused the appellants’ applications to compel the Tribunal to state the case. Consequently, the respondent contended that the appellants could not be permitted to maintain the present appeals. The respondent further submitted that the appellants were effectively attempting to challenge the correctness of the High Court’s decision under section 66(2) by directly appealing to this Court against the Tribunal’s rejection of their applications under section 66(1), without first appealing the High Court’s orders made under section 66(2).

In this case, the Court observed that regardless of the possible scope of a special-leave appeal directly against an Income-tax Tribunal order made under section 33(4) of the Act, the appellants were not permitted to challenge the legal or factual correctness of that tribunal order in an appeal that was filed against an order made under section 66(1) of the Act refusing to state the case. The only issue that could be examined, if any, was whether a question of law arose for determination from the tribunal’s order under section 33(4). The appeals were scheduled for hearing and final disposal before a Division Bench on 24 February 1959. At the very beginning of the hearing, the learned Solicitor-General, appearing for the respondent, raised a preliminary objection to the consideration of the appeals on their merits. Counsel for the appellants, Mr A. Vishwanath Sastry, responded to that objection. After hearing both sides, the Court ordered that the preliminary objection be referred to a larger bench to be constituted by the Chief Justice, noting that the question had been raised repeatedly. The appeals thus came before the present Bench for final disposal. It was significant that the special-leave appeals had been filed not against the tribunal’s orders under section 33(4) nor against the High Court’s orders under section 66(2) refusing a statement of the case, but only against the tribunal’s orders dated 8 June 1951 in Reference Applications Nos. 737-740 of 1949-50, which were orders refusing to state a case on applications made under section 66(1). The procedure laid down in the Income-tax Act provides that a party aggrieved by a tribunal order under section 66(1) may apply to the High Court under section 66(2). Consequently, the Court considered it extremely doubtful that an appeal against such a section 66(1) order could be entertained, even under the broad jurisdiction exercised under article 136 of the Constitution. Nevertheless, the Court did not wish to decide the matter solely on that point. In the present case, the appellants faced a highly material and significant circumstance: the High Court had already delivered a considered judgment on the appellants’ applications under section 66(2), concluding that no question of law arose from the tribunal’s order. That High Court judgment remained unappealed by the appellants.

The appellants had not pursued any further appeal in any form. If this Court were to examine the present appeals on their substantive merits, the possible outcomes would be limited to either confirming the judgment already rendered by the High Court or reaching a conclusion that differs from it. Should the Court affirm the High Court’s decision, the appellants would effectively be left without any further remedy. Conversely, if the Court were to conclude that the High Court had erred in refusing to grant the appellants’ applications under section 66(2) of the Act, the result would be two contradictory rulings – one issued by the High Court and another by this Court – and, in effect, this Court would be setting aside the High Court’s judgment without the appellants having followed the proper procedural route required for such a challenge. The prospect of arriving at such a situation was found to be unsettling and inconsistent with the principle of judicial comity. Although this Court possesses, in certain circumstances, the authority to overturn decisions of a High Court, it cannot disregard the established procedural steps and achieve the same result indirectly, as suggested by the appellants. Consequently, the Court determined that, given the surrounding circumstances, it would be inappropriate to proceed to a merits-based adjudication of the appeals. The appeals were therefore dismissed without further consideration. However, recognizing the unusual facts of this case – namely that the appeal papers, books of records, and statements of case had already been filed and both parties were prepared to argue the merits before this Court prior to the respondent’s raising of the preliminary objection – the Court ordered that each party bear its own costs of the proceedings, deeming that such an order would serve the interests of justice.