The New Jehangir Vakil Mills Ltd vs The Commissioner Of Income-Tax

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

Court: supreme-court

Case Number: Civil Appeal No. 50 of 1957

Decision Date: 12 May 1959

Coram: Natwarlal H. Bhagwati, M. Hidayatullah

The dispute was styled The New Jehangir Vakil Mills Ltd. versus The Commissioner of Income-Tax. The matter was decided by the Supreme Court of India on 12 May 1959. The judgment was authored by Justice Natwarlal H. Bhagwati, with Justice M. Hidayatullah also forming part of the bench. The petition was filed by The New Jehangir Vakil Mills Ltd. and the respondent was the Commissioner of Income-Tax for Bombay North, Kutch and Saurashtra. The case is reported in the 1959 volume of the All India Reporter at page 1177 and also in the 1960 Supplementary Court Reporter at page 249. The statutory provision at issue was section 66(4) of the Indian Income-Tax Act, 1922 (XI of 1922), together with the related provisions in sections 66(1) and 66(2).

The appeal, taken by special leave, challenged an order of the High Court that had directed the Income-Tax Appellate Tribunal, under section 66(4) of the Act, to file a supplementary statement of case on matters that had never been raised by the parties and that had not been decided by either the Income-Tax authorities or the Tribunal itself. The sole question originally before the Tribunal concerned whether certain cheques, which the assessee had received at Bhavnagar after being cleared in British India, could be said to have been received in British India. The Tribunal held that the monies were deemed to have been received at the time the cheques were presented in Bhavnagar, and therefore the receipt of the cheques at Bhavnagar amounted to receipt of the sale proceeds at Bhavnagar. The High Court, however, found that the mere postal receipt of the cheques at Bhavnagar was not conclusive without a further inquiry into whether the cheques had been posted without any request—express or implied—made by the assessee. The High Court observed that it could not “shut out the necessary inquiry” and that, under section 66(4), it possessed an independent right, irrespective of the parties’ conduct, to direct the Tribunal to state further facts so that the advisory jurisdiction of the reference could be properly exercised. The Supreme Court held that the High Court had misapprehended the scope of its powers under section 66(4). Reading section 66(4) together with sections 66(1) and 66(2) showed that the High Court was not empowered to raise a fresh question of law that did not arise from the Tribunal’s order, nor could it direct the Tribunal to investigate new facts or to prepare a supplementary statement of case on issues that had not been referred to it under sections 66(1) or 66(2). Consequently, the High Court’s order was set aside.

The Court examined whether the authority to issue a direction could be confined solely to facts that had already become part of the official record but which the Tribunal had failed to incorporate into its statement of the case. In doing so, it referred to a series of precedents, namely Craddock (H. M. Inspector of Taxes) v. Zevo Finance Co. Ltd. (1946) 27 T.C. 267; Commissioner of Income-tax, West Bengal v. State Bank of India [1957] 31 I.T.R. 455; Industrial Development and Investments Co., Ltd. v. Commissioner of Excess Profits Tax, Bombay [1957] 31 I.T.R. 688; Vadilal Ichhachand v. Commissioner of Income-tax, Bombay North, Kutch and Saurashtra, Ahmedabad [1957] 32 I.T.R. 569; and Commissioner of Income-tax v. Bhurangya Coal Co. [1955] 34 I.T.R. 802, all of which were cited for guidance. Additional authorities considered included Commissioner of Income-tax, Bihar & Orissa v. Visweshwar Singh [1939] 7 I.T.R. 536 and Sir Sunder Singh Majithia v. Commissioner of Income-tax, C. P. and U. P. [1942] 10 I.T.R. 457. The judgment that follows arose in Civil Appeal No. 50 of 1957, filed by special leave against the order dated 23 September 1955 of the Bombay High Court in Income-tax Reference No. 19 of 1955. Counsel for the appellant were R. J. Kolah and I. N. Shroff, while the respondent was represented by the Additional Solicitor-General of India, H. N. Sanyal, together with K. N. Rajagopala Sastri and D. Gupta. The decision was delivered on 12 May 1959 by Justice Bhagwati. This appeal arose from a High Court judgment that had, under section 66(1) of the Indian Income-tax Act XI of 1922, directed the Income-tax Appellate Tribunal—referred to as “the Tribunal”—to file a supplementary statement of case addressing specific points. The appellant was a limited liability company engaged in the manufacture of textile products at Bhavnagar, which at the relevant time constituted part of the Indian State. For the assessment years 1943-44 and 1944-45, the company was treated as a non-resident, its accounting periods being the calendar years 1942 and 1943 respectively. Under section 4(1)(a) of the Act, the Income-tax Officer assessed the company’s British-India income on a proportional basis for those years. In the accounting year 1942 the company’s total sales amounted to Rs 66,14,852, of which Rs 35,92,157 was held by the Officer to have been received in British India. The detailed breakdown was as follows: cheques on the Imperial Bank issued by the Supply Department of the Government of India amounting to Rs 2,58,987; sale proceeds received through Tri-Kainlal Mahasukhram totaling Rs 20,24,190; and other cheques received at Bhavnagar but drawn on banks in British India amounting to Rs 13,08,980, together summing to Rs 35,92,157. Accordingly, the Officer computed the appellant’s total income for the year at Rs 27,11,136, proportionately allocating the amount based on the share of sales occurring inside and outside British India, and concluded that Rs 14,72,267 of that income was attributable to receipts in British India.

In the assessment year 1944-45, which corresponded to the account year 1943, the Income-tax Officer concluded that the sale proceeds amounting to Rs 16,72,693, which the appellant said had been received by means of cheques issued by the Supply Department of the Government of India and drawn on banks located in British India, were taxable under section 4(1)(a) of the Act. The appellant asserted that the figure of Rs 16,72,693 was erroneous and that the correct amount should have been Rs 12,97,631. The appellant further maintained that the amounts in question had been received at Bhavnagar, although the cheques were drawn on banks in British India. The Revenue did not dispute that the cheques were physically received at Bhavnagar, but it argued that the receipt of payment by cheque should be regarded as occurring in British India at the time and place where the cheques were finally presented for cashing and honoured by the drawee banks, and that until such encashment the monies could not be said to have been received by the appellant.

The appellant appealed this assessment to the Appellate Assistant Commissioner of the Ahmedabad Range for both assessment years. By two separate orders, the Appellate Assistant Commissioner upheld the Income-tax Officer’s determinations. He held that cheques are not legal tender and do not constitute money or money’s worth in themselves, and that the mere receipt of cheques at Bhavnagar did not amount to receipt of money. According to his view, receipt of money occurred only when the drawee banks actually paid the amounts, and therefore the sums were taxable under section 4(1)(a) of the Act.

Subsequently, the appellant filed a further appeal to the Tribunal against the orders of the Appellate Assistant Commissioner. In a consolidated order dated 17 July 1952, the Tribunal examined both assessment years together and held that the cheques of Rs 2,58,987 and Rs 13,08,987 pertaining to the assessment year 1943-44 had been received at Bhavnagar, and that the corresponding sale proceeds were also received in Bhavnagar. The Tribunal expressly stated that there was no evidence to show that the government cheques had been received elsewhere. It observed that the department had not claimed that the assessee company possessed a registered office in any other location, and therefore, by presumption, the letters containing the cheques were addressed to the assessee company at Bhavnagar. Consequently, the Tribunal concluded that the government cheques were received from the Government at Bhavnagar and that the money itself was also received in Bhavnagar.

In reaching this conclusion, the Tribunal followed the judgment of the Bombay High Court in Kirloskar Brothers Ltd. v. Commissioner of Income-tax, Bombay. However, acknowledging that an appeal to this Court had been filed against that High Court decision (see [1952] 21 ITR 82), the Tribunal added a cautionary note stating that if the Supreme Court does not uphold the Bombay High Court’s decision in the Kirloskar case, an enquiry would be required to determine whether the assignee’s banks in Ahmedabad acted as agents of the assignee for the collection of the funds due on the cheques.

The Court observed that the Supreme Court had not affirmed the decision of the Bombay High Court in the Kirloskar case. Consequently, it was necessary to investigate whether the banks of the assessee located in Ahmedabad had acted as agents of the assessee for the purpose of collecting the sums due on the cheques.

Regarding the assessment year 1944-45, the Tribunal instructed the Income-tax Officer to determine the exact amount that had been received by the appellant through government cheques. The Officer was asked to decide whether the amount was Rs 12,97,631 as claimed by the appellant, Rs 16,72,693 as asserted by the Officer, or some other figure. After this inquiry, the Tribunal concluded that the cheques representing the amount in question had been received at Bhavnagar and that the corresponding money or sale proceeds had also been received in Bhavnagar. In addition, the Tribunal held that a further sum of Rs 5,53,447, which was the total of cheques received at Bhavnagar from other merchants during the same year, was likewise received in Bhavnagar.

The Tribunal noted that neither the Income-tax Officer, whether the proceedings were before him or before the Appellate Assistant Commissioner, nor the Revenue, when the matter was before the Tribunal, ever disputed that the cheques relating to the two years were received at Bhavnagar. No argument was advanced that the cheques were posted from British India, that they were sent by post, or that the post office acted as the appellant’s agent. This lack of objection persisted despite the existence of the Kirloskar Brothers Ltd. decision, which had already been pronounced and in which the question had been extensively debated by the Revenue. The only ground raised by the Revenue at every material stage was that the amounts received—whether from merchants or from the Government—were drawn on banks situated in British India and were ultimately encashed in British India. On that basis, the Revenue contended that the money could not be said to have been received in Bhavnagar, even though the cheques themselves had physically arrived there.

Feeling aggrieved by the Tribunal’s ruling, the respondent, the Commissioner of Income-tax, filed two applications under section 66(1) of the Act. In these applications, the respondent requested that the Tribunal prepare a statement of the case and refer the legal question emerging from the Tribunal’s order to the High Court. The applications set out the facts that the Tribunal had admitted or found and that were necessary for the statement of the case. Specifically, they stated that for the items amounting to Rs 2,58,987 and Rs 12,97,631, which were received from the Government of India in the accounting years relevant to the assessments for 1943-44 and 1944-45 respectively, the sums were received by cheques drawn on the Imperial Bank of India. The appellant had not produced any evidence at any stage, even before the Appellate Tribunal, to show that these cheques had been received at

In this case, the Court recorded that the record contained no evidence showing that the cheques of Rs 2,58,987 and Rs 13,08,980 were actually received in Bhavnagar, nor was any evidence produced to indicate that those cheques had been received as an unconditional discharge of the drawer’s liability. The factual finding was that the cheques had been collected by the company's bankers in British India. Accordingly, the Income-tax Officer concluded that the amounts represented by those cheques were received in British India, and the Appellate Assistant Commissioner affirmed the officer’s conclusion. Nevertheless, the Tribunal, relying on the Bombay High Court judgment in the Kirloskar Brothers case, held that the amounts were received in Bhavnagar.

The Court further noted that concerning the items of Rs 13,08,980 and Rs 5,53,447, which were received in the accounting years relevant to the assessments for 1943-44 and 1944-45 respectively, the company had received the cheques and forwarded them to its bankers in Ahmedabad for collection. The Tribunal, again following the Bombay High Court decision in Kirloskar Brothers, held that the sale proceeds were received at Bhavnagar without investigating whether the cheques had been received by the company as an unconditional discharge of the drawer’s liability. On the basis of these findings, the respondent submitted that two questions of law arose from the Tribunal’s order. The first question was whether any evidence existed on the record to justify the Tribunal’s finding that the mere receipt by the assessee of the cheques of Rs 2,58,987 and Rs 13,08,980 in Bhavnagar amounted to receipt of those sums in Bhavnagar, even though the cheques had actually been cashed in British India and the proceeds had been credited to the assessee’s accounts with banks in British India. The second question asked whether, in the circumstances of the case, the income, profits and gains arising from sales amounting to Rs 15,67,967 made to the Government of India and other customers were received in British India within the meaning of section 4(1)(a) of the Indian Income-tax Act.

A similar statement of facts, admitted or found by the Tribunal, was made with respect to the assessment year 1944-45, and analogous questions of law were referred for decision, differing only in the figures because of the variations in the amounts received. These reference applications, numbered 615 and 616 of 1952-53, remained pending until the Supreme Court delivered its judgment in Commissioner of Income-tax v. Kirloskar Bros. (1) and the companion appeal Commissioner of Income-tax, Bombay South v. Messrs Ogale Glass Works Ltd. (2) on 17 April 1954. After those decisions, the Tribunal finally heard and decided the reference applications on 3 November 1954. The Court observed that the earlier Supreme Court rulings were based on the specific facts that, in those appeals, the Post Office had acted as the assessee’s agent, and although the cheques were received by post outside British India, the circumstances of the agent relationship led to a particular interpretation of receipt under the statute.

In the earlier appeals, the assessees had expressly asked the Government to pay the amounts due to them by way of cheques. Consequently, the assessees had designated the Post Office as their agent to receive, on their behalf, those cheques which the Government dispatched from Delhi with the assessees’ names on the envelopes, even though the assessees were located outside British India. Although the Supreme Court had decided those earlier matters on the basis that the Post Office acted as the assessees’ agent, the Revenue did not press the Tribunal to refer the same point of law to the High Court for consideration in the present proceedings. The reference applications were therefore heard solely on the material that had already been placed before the Tribunal when it issued its orders on 17 July 1952. That Tribunal order rested on facts that the Tribunal either admitted to be true or found to be true, as set out in the reference applications filed by the Revenue. The specific issue of whether any part of the cheques had been received through the post, and, if so, whether the appellant had expressly or impliedly requested that the amounts be sent to Bhavnagar by post, had not been raised before any income-tax authority nor before the Tribunal. Consequently, that issue did not appear in the Tribunal’s order, and no question of law relating to it could be said to arise from that order.

When the record as it then stood was considered, the Tribunal prepared on 5 November 1952 a detailed statement of case setting out all the facts and events previously mentioned. In paragraph 8 of that statement the Tribunal referred to two letters that were part of the record and demonstrated that the cheques issued by the Supply Department had been received by post. The Tribunal also attached a sample agreement form that existed between the appellant and its customers other than the Government, and it annexed copies of the Appellate Assistant Commissioner’s orders for the assessment years 1943-44 and 1944-45. The inclusion of the two letters showing that the Supply Department’s cheques were received by post was intended to support the Tribunal’s presumption that the letters containing the cheques were addressed to the appellant at Bhavnagar and that the cheques had indeed been received from the Government at Bhavnagar. No other purpose for introducing those letters can be discerned from the record as it then existed. From the facts presented, the Tribunal framed the following legal question: whether the receipt of the cheques in Bhavnagar amounted to receipt of the sale proceeds in Bhavnagar. This reference was heard by the High Court on 23 September 1955, and the High Court delivered its judgment on the same day, holding that it was not possible to answer the question on the material before it.

The Court observed that the matter before it could not be decided without evidence showing whether the cheques received in Bhavnagar had been sent by the Government at the appellant’s request. It noted that the Tribunal had asked whether the receipt of those cheques in Bhavnagar amounted to the receipt of sale proceeds in that place. The Court said this question neglected an important aspect that had been considered earlier both by the Court in the Kirloskar case and by the Supreme Court. Assuming for the sake of argument that the cheques did arrive in Bhavnagar, the Court explained that the next issue was to determine whether the post office, by delivering the cheques, acted as the agent of the assessee. The mere fact that the cheques were received through the post in Bhavnagar, the Court held, could not by itself answer the Tribunal’s question. It stressed that unless it could be shown that the cheques were mailed to Bhavnagar without any express or implied request from the assessee, the simple receipt of the cheques in that location could not be treated as receipt of the sale proceeds there. The Court further pointed out that the case record contained no reference to this crucial point. Consequently, the Court placed the burden on the Revenue to prove that the cheques delivered by post were received at the express or implied request of the appellant, thereby establishing that the post office functioned as the appellant’s agent. While making this observation, the Court also reminded itself of the authority granted by section 66(4) of the Income-Tax Act, which permits the Court, independently of the parties’ conduct, to direct the Tribunal to supply additional facts so that the Court may properly exercise its advisory jurisdiction.

Following this analysis, the Court directed that the Tribunal should file a supplementary statement of case addressing specific points. First, if the Tribunal found that all the cheques were indeed received in Bhavnagar, it must determine what portion of those cheques were received by post and whether there was any express or implied request by the assessee that the amounts represented by the cheques be sent to Bhavnagar by post. The Court noted that counsel for the appellant, Mr Johi, conceded that where the cheques were not sent by post but were delivered by hand, such receipt would be treated as receipt of the proceeds for tax purposes in Bhavnagar. After the Tribunal’s direction, the appellant filed a petition in the High Court on 22 November 1955 seeking a certificate under section 66A(2) of the Act to obtain permission to appeal the High Court’s judgment and order to this Court. The High Court dismissed the petition by an order dated 8 December 1955, thereby refusing to grant the certificate.

On 22 December 1955 the appellant filed a petition in this Court requesting special leave to appeal against the judgment of the High Court dated 23 September 1955. The petition sought to overturn the order of the High Court. By an order dated 12 March 1956 this Court granted the petition for special leave to appeal, but limited the leave to the singular issue of whether the High Court possessed jurisdiction under section 66(4) of the Income-Tax Act to require a supplemental statement of case from the Tribunal. Consequently the present appeal has been brought before this Court for hearing and final disposal. The Court has set out in detail the facts and events that gave rise to the appeal so that a clear perspective and proper background are available for understanding the circumstances under which the High Court directed the Tribunal to submit a supplementary statement of case on the specific points identified. The appeal therefore raises a significant question concerning the nature, scope and extent of the jurisdiction conferred on the High Court by section 66(4) of the Act, and the Court will now consider that question. The relevant provision of section 66 of the Act may be quoted as follows: “66. (1) Within sixty days of the date upon which he is served with notice of an order under sub-section (4) of section 33 the assessee or the Commissioner may, by application in the prescribed form, accompanied where application is made by the assessee by a fee of one hundred rupees, require the Appellate Tribunal to refer to the High Court any question of law arising out of such order, and the Appellate Tribunal shall within ninety days of the receipt of such application draw up a statement of the case and refer it to the High Court: Provided that, if, in the exercise of its powers under sub-section (2), the Appellate Tribunal refuses to state a case which it has been required by the assessee to state, the assessee may, within thirty days from the date on which he receives notice of the refusal to state the case, withdraw his application and, if he does so, the fee paid shall be refunded. (2) If on any application being made under sub-s. (1) the Appellate Tribunal refuses to state the case on the ground that no question of law arises, the assessee or the Commissioner, as the case may be may, within six months from the date on which he is served with notice of the refusal, apply to the High Court, and the High Court may, if it is not satisfied of the correctness of the decision of the Appellate Tribunal, require the Appellate Tribunal to state the case and to refer it, and on receipt of any such requisition the Appellate Tribunal shall state the case and refer it accordingly........................................ (4) If the High Court is not satisfied that the statements in a case referred under this section are sufficient to enable it to determine the question raised thereby, the Court may refer the case back to the Appellate Tribunal to”

The Court explained that a plain reading of section 66(1) shows that the only question of law which the assessee or the Commissioner may ask the Tribunal to refer to the High Court is a question of law that arises out of the Tribunal’s own order. Consequently, if the question of law that the assessee or the Commissioner seeks to have referred does not arise from the Tribunal’s order, the Tribunal is under no obligation to refer that question. The first step, therefore, is to determine whether the questioned law indeed arises out of the Tribunal’s order. The Tribunal, of course, has before it the facts which it has either admitted or found and which are necessary for preparing a statement of the case. Those admitted or found facts constitute the foundation on which the statement of case is drafted and on which any reference of a question of law to the High Court is based. If such facts are absent—either in the Tribunal’s order or in the record before it—there can be no basis for raising any question of law, whether in the abstract or otherwise. Only a question of law that emerges from those admitted or found facts can form the substratum of a reference to the High Court. Hence, the facts admitted and/or found by the Tribunal are the real basis for any legal question, and neither party may compel the Tribunal to refer to the High Court a question of law that does not arise from the Tribunal’s order.

Section 66(2) gives the High Court the power to require the Tribunal to state the case and to refer the question of law to it, but this power operates on the same principle. Even when the High Court exercises its authority under section 66(2), it may only require the Tribunal to state the case on a question of law that arises out of the Tribunal’s order. Thus, the scope and subject-matter of a reference made under section 66(2) are co-extensive with those of a reference made under section 66(1). The High Court does not acquire any power or jurisdiction under section 66(2) to go beyond the limits set by section 66(1). Section 66(2) becomes relevant only when the Tribunal refuses to state the case on the ground that no question of law arises. In such a situation, if the High Court is not satisfied with the Tribunal’s decision, it possesses the power and jurisdiction to compel the Tribunal to state the case and to refer the appropriate question of law to the High Court.

In this matter, the Court explained that once the conditions laid down in sections 66(1) and 66(2) of the Act have been fulfilled, the Tribunal is required to prepare a statement of case. That statement must set out the facts that the Tribunal has either admitted or found, and the legal question that arises from the Tribunal’s order must then be referred to the High Court for its opinion. The Court observed that the statement of case prepared by the Tribunal, being based solely on the admitted or found facts, may sometimes lack enough material for the High Court to answer the legal question. When such a situation occurs, section 66(4) gives the High Court the authority to send the case back to the Tribunal and order the Tribunal to make additions to, or alterations in, the statement of case, but only to the extent necessary for determining the question that has been referred. The Court further noted that if the question originally referred does not clearly highlight the real dispute between the parties, the High Court may rewrite or reframe the question so that the true issue that was contested before the Tribunal can be presented before the High Court. However, the Court stressed that section 66(4) does not allow the High Court to introduce a completely new question of law that does not arise from the Tribunal’s order. The High Court also cannot direct the Tribunal to investigate new facts or to prepare a supplementary statement of case for a question that was never referred under sections 66(1) or 66(2). The Court emphasized that the power conferred by section 66(4) must be exercised strictly within the limits of section 66. Since sections 66(1) and 66(2) require the statement of case to be based only on the facts admitted or found by the Tribunal, and because paragraph 3 of the prescribed form imposes the same requirement, the scope of the statement cannot be expanded by the High Court’s power under section 66(4). The jurisdiction granted to the High Court by section 66 is merely consultative or advisory. To fulfil this advisory role, the High Court must have before it the complete set of facts that the Tribunal has admitted or found, as they are properly recorded in the statement of case. Only when the statement of case referred under sections 66(1) and 66(2) is insufficient for the High Court to resolve the legal question does the Court have the authority to refer the matter back to the Tribunal, directing the Tribunal, still within the confines of sections 66(1) and 66(2), to make the necessary additions or alterations. Even though the language of section 66(4) is broad enough to include “such additions thereto or"

In that case the Court explained that the power given to the High Court by section sixty-six of the Act to order additions or alterations to the statement of case must be understood together with the provisions of sections sixty-six-one and sixty-six-two. The Court said that, under this power, the High Court could not send the matter back to the Tribunal in order to discover new facts or to start a fresh line of enquiry that had not been raised during the proceedings before the income-tax authorities or the Tribunal. The Court stressed that the only purpose of a direction under section sixty-six-four was to permit the inclusion of facts that were already part of the record before the tax authorities or the Tribunal but that had not been incorporated in the statement of case prepared by the Tribunal. Such omissions could arise because the Tribunal had not found those facts or had chosen not to include them in its statement. The Court therefore described the jurisdiction of the High Court under section sixty-six-four as limited to adding or modifying facts that were already present in the material before the Tribunal, and not to allowing either the assessee or the Commissioner to raise a brand-new case that had never been presented earlier. The Court further noted that this limited scope was consistently supported by earlier judicial decisions.

The Court illustrated its position by referring to the authority in Craddock (H. M. Inspector of Taxes) v. Zevo Finance Co. Ltd., where Lord Greene, Master of the Rolls, observed at page two hundred seventy-seven that the Crown had failed before the Commissioners to establish the sole measure of value it claimed. He explained that it would have been improper to return the matter to the Commissioners to give the Crown an opportunity to set up a different measure of value supported by fresh evidence. Lord Greene remarked that the Crown’s contention rested on a factual failure and that it must accept the result, because allowing a new line of evidence would contravene fundamental principles. The Court also cited Commissioner of Income-tax, West Bengal v. State Bank of India, where Chief Justice Chakravartti, speaking at page five hundred fifty-one, warned that a party could not be permitted to raise a point that had never been presented before the Department or the Tribunal. He emphasized that such a point could not arise from the Tribunal’s order, reinforcing the principle that the High Court’s advisory function is confined to matters already framed before the Tribunal.

In this matter, the Court explained that a point which did not arise from the Tribunal’s order could not be treated as if it had originated there. The Court further stated that, in references made under section 66(1) of the Income-Tax Act, the established practice was always to confine the party making the reference to the issues that had been raised and argued before the Tribunal. The Court cited earlier authorities, namely Questions (1) (1946) 27 T.C. 267, 277 and Questions (2) [1957] 31 I.T.R. 545, 551, to illustrate that questions are frequently framed in a broad manner, for example, asking whether an assessment for a particular year made in a certain way was valid under a specific provision of the Act. Although a question presented in such a general form might appear to encompass every conceivable contention that could be derived from the language of the relevant provision, the Court emphasized that it has consistently refused to treat matters arising from broadly framed questions as being unlimited in scope. The Court adopted this approach because it regarded itself solely as an advisory body; consequently, the advice it could properly render was limited to matters that had actually been contested before the Tribunal and that had been decided in some fashion. Such advice was sought so that the interested parties could determine whether the decisions on those contested points had been made in accordance with law.

The Court further clarified that, when hearing a reference under section 66(1), it does not sit in appeal of the assessment and it is not required to give advice on issues that the Tribunal was never asked to decide, nor on issues that the Tribunal neither decided nor included in the statement of case for the Court’s opinion. The Bombay High Court expressed a concordant view in Industrial Development and Investments Co., Ltd. v. Commissioner of Excess Profits Tax, Bombay (1), where Chief Justice Chagla observed the correct procedure for submitting a statement of the case. He acknowledged that the Tribunal often does not refer to all evidence and facts in its appellate order, recognizing the difficulty faced by the Tribunal in dealing with a large volume of cases, which sometimes leads to a short order when the decision appears obvious. He noted that when a statement of the case is subsequently requested, the Tribunal would naturally wish to elaborate its decision by pointing out additional materials and pieces of evidence that were not mentioned in the appellate order, as reflected in [1957] 31 I.T.R. 688, 695. However, the Court stressed that only those materials and evidence that were before the Tribunal at the time it heard the appeal may be referred to in the statement of the case. The statement of the case is not intended to buttress or further reinforce the Appellate Tribunal’s order by introducing new evidence that was not part of the original proceedings.

In this passage the Court explained that a statement of the case could not be used to strengthen the Tribunal’s order by bringing in material and evidence that were not before the Tribunal at the time it heard the appeal, even if such material was discovered later through investigation. The Court further observed that the situation would be even more inappropriate when, at the time the High Court exercised its powers under section 66(4) of the Income-tax Act, no such material or evidence existed at all, yet the High Court referred the matter back to the Tribunal and directed it to make additions or alterations so that it could determine the question raised. The Court held that adopting that procedure would in effect introduce new issues and require fresh evidence in order to discover new facts, facts which were not present when the matter was originally considered by the Income-tax authorities or by the Tribunal in the first instance. The Court then referred to two additional authorities to illustrate the principle. The first authority was a decision of the Bombay High Court in Vadital Ichhachand v. Commissioner of Income-tax, Bombay North, Kutch and Saurashtra, Ahmedabad (1) where Justice Tendolkar dealt with an argument that the Court should send the case back to the Tribunal to determine the quantum of penalty, and observed: “Then Mr. Palkhivala says that we should, therefore, send this matter back to the Tribunal for determining that question. We do not find any power in this Court under the provisions of section 66 of the Income-tax Act to remand a matter back to the Tribunal for determining what might have been left undetermined by them, because they took a particular view of the law. We have merely the jurisdiction to answer the question of law referred to us, and we are not concerned with any questions which are pure questions of fact or its determination by the Tribunal.” 34 (1) [1957] 32 I.T.R. 569, 573. The second authority was the Supreme Court’s decision in Commissioner of Income-tax v. Bhurangya Coal Co. (1) where Justice Venkatarama Aiyar dealt with a similar submission. The Court noted that the matter had come before the High Court of Patna on a reference under section 66(1) of the Act, and that the appellant argued that the Tribunal’s judgment rested on a distinction between movable and immovable property which had never been examined in the earlier proceedings, and that fresh evidence was required to ascertain the parties’ intention. The Court recorded that the learned Judges rejected this contention because no application for such enquiry had been made to the Tribunal, and because allowing the High Court to consider a point for the first time would be impermissible.

The appellant contended that the issue of distinguishing immovables from movables could arise only after the Tribunal rendered its judgment, and therefore an opportunity should be provided to investigate this aspect. The Court was not persuaded by this contention. It held that before the Tribunal a discussion must necessarily have taken place regarding the status of the property as movable or immovable under the transaction. If the appellant, on the basis of that distinction, believed that further enquiry was required, the appellant was obliged to make an application to the Tribunal itself seeking such an order. Because the appellant had not made any such application to the Tribunal, it possessed no right to ask the High Court to remand the matter for that purpose. Consequently, the High Court was justified in refusing to entertain the appellant’s submission.

The Court observed that, since the High Court lacked authority to remit a case to the Tribunal for fresh factual findings in the manner proposed, it could not, under section 66(4) of the Income-tax Act, refer the case back to the Tribunal for additions or alterations that would compel the Tribunal to undertake a new line of enquiry never previously considered by the Income-tax authorities or the Tribunal. The Revenue drew the Court’s attention to the observations of Justice Fazl Ali, then serving as a judge, in Commissioner of Income-tax, Bihar & Orissa v. Visweshwar Singh, reported in [1939] 7 I.T.R. 536, 554. In that case, the procedure adopted by the Commissioner of Income-tax involved sending up the reference in question, after which the High Court returned the matter to the Commissioner for a restatement of the statement of case. When the matter returned to the Commissioner, he issued a restated case without hearing the assessee. The High Court again sent the restated case back, directing that the Commissioner should restate it with any further findings of fact he considered necessary after hearing the assessee. Subsequently, a different Commissioner, instead of complying with the High Court’s order, sent a letter asserting that he had not heard the party concerning the Commissioner’s opinion and that, in any event, section 66(4) did not empower him to vary an opinion given under section 66(2) in the absence of new admitted facts. The learned judge emphasized that the Commissioner was bound to obey the High Court’s direction, to rehear the parties, to admit any further evidence deemed relevant on the point in issue, and to restate the case together with his opinion based on those findings.

The Commissioner examined the evidence that he deemed relevant to the point in dispute and then restated the case together with his opinion on that point. However, the record does not make clear whether the re-hearing of the parties and the recording of any additional findings that were considered relevant introduced an entirely new line of enquiry that had never been considered at any earlier stage, or whether it merely clarified the same issues that had already been canvassed but not fully resolved and properly reflected in the Tribunal’s findings. The citation (1) [1939] 7 I.T.R. 536,554 appears in this context. In our view, these observations do not alter the position we have adopted. Specifically, it is not within the High Court’s power, when exercising its jurisdiction under section 66(4) of the Act, to raise a fresh question and compel the Tribunal to undertake a new line of enquiry, to hear the parties again on that new issue, and to record fresh factual findings that would enable either the assessee or the Commissioner to advance a case that had never been presented before the income-tax authorities or the Tribunal. Such a case could not be said to arise out of the Tribunal’s original order.

The Revenue also referred to the Privy Council decision in Sir Sunder Singh Majithia v. Commissioner of Income-tax, C. P. and U. P. (1). In that case the question of law framed was: “In all the circumstances of the case, having regard to the personal law governing the assessee and the requirements of the Transfer of Property Act (IV of 1882) and the Stamp Act (II of 1899), does the deed of partnership dated February 12, 1933, create a genuine firm entitled to registration under the provisions of section 26-A of the Act?” The High Court, in answering this question, failed to address the relevant aspect of the question. This failure resulted because the Commissioner had detailed certain matters at length, yet he had not identified the material facts as he was required to do. The essential facts were neither found nor set out by the Commissioner, and the Privy Council observed that the referred question could not be answered until the High Court exercised its powers under sub-section 4 of section 66 of the Act, leaving it to the Court’s discretion to specify the particular additions and alterations that the Commissioner should be directed to make. The later citation (1) [1942] 10 I.T.R. 457,461 notes that the nature, scope and extent of the High Court’s jurisdiction under section 66(4) were not specifically discussed, and the only order made was that the case be remanded to the High Court for disposal after taking such action under the provisions of the Act.

Sub-section (4) of section 66 of the Income-Tax Act could be exercised by the High Court in whatever manner it thought appropriate in view of the judgment that had been rendered. The observations made earlier by the Court while discussing Commissioner of Income-Tax v. Visweshwar Singh (1) were equally applicable to the present matter, and the observations of the Privy Council did not oppose the position that the Court had already set out.

The facts of the case showed that the only issue that had been argued before the income-tax authorities and before the Tribunal, which delivered its order on 17 July 1952, concerned the character of the cheques that were received at Bhavnagar and subsequently encashed in British India. The question was whether the monies arising from those cheques should be treated as having been received in British India. The Tribunal, following the reasoning in the Kirloskar Brothers’ case, held that the cheques were received from the Government at Bhavnagar and that the receipt of money from banks in British India was merely the actualisation of the receipt of the cheque at Bhavnagar; consequently, the proceeds were deemed to have been received in Bhavnagar.

At no stage was the issue of posting the cheques in British India (Delhi) at the request—express or implied—of the appellant, and the consequent receipt of sale proceeds in British India, raised before the income-tax authorities or before the Tribunal when it issued its order of 17 July 1952. The same question was absent from the reference applications filed on 15 September 1952 and was not mentioned when the Tribunal heard the reference and prepared the statement of case on 5 November 1954, even though this Court had already decided Kirloskar Brothers’ case (1) and Commissioner of Income-Tax, Bombay South v. Messrs. Ogale Glass Works Ltd. (2) on 19 April 1954. The facts admitted or found by the Tribunal, as recorded in those reference applications, reflected the position already adopted by the Revenue in all the proceedings. No imagination could lead one to contend that the Revenue had ever contemplated the new question now being suggested.

The question of law that the Tribunal referred to the High Court for determination was whether the receipt of the cheques at Bhavnagar amounted to the receipt of sale proceeds in Bhavnagar. That referral was based solely on the facts admitted or found by the Tribunal, which were relevant only to that specific issue and not to the question that the High Court attempted to introduce in its appellate judgment. If the latter question were permitted to be considered, it would have to be restated as follows: “Whether the posting of the cheques in British India at the request, express or implied, of the appellant amounted to receipt of sale proceeds in British India.”

In this case the question whether an expression or implication on the part of the appellant amounted to receipt of sale proceeds in British India was presented. That question was entirely different from the question of law that the Tribunal had actually referred to the High Court in the statement of case prepared on 5 November 1954. The Court observed that the High Court had erred by failing to determine the reference that had been placed before it and by addressing the issue on the basis of facts set out in the statement of case. Moreover, the Court held that, given the circumstances of the present proceedings, the High Court did not possess jurisdiction under section 66(4) to order the Tribunal to file a supplementary statement of case covering the points that the High Court had identified in its judgment. Consequently, the Court concluded that the appeal was to be allowed and that the matter should be sent back to the High Court for it to decide the specific question of law that had been referred to it in the original statement of case already furnished by the Tribunal. The Court further directed that the respondent should bear all costs incurred by the appellant throughout the litigation. Accordingly, the appeal was allowed.