Commissioner Of Income Tax vs Scindia Steam Navigation Company LTD.

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

1961 Supreme(SC) 166

SUPREME COURT OF INDIA
6th April, 1961
S.K. DAS, J.L. KAPUR, M. HIDAYATULLAH, J.C. SHAH AND T.L. VENKATARAMA AYYAR, JJ.
Commissioner of Income-tax, Bombay, Appellant
Versus
Scindia Steam Navigation Co. Ltd., Respondents.
Civil Appeal No. 501 of 1957.
Advocates appeared
Mr. K. N. Rajagopal Sastri, Senior Advocate (Mr. D. Gupta, Advocate, with him) for Appellant; Mr. A. V. Viswanatha Sastri, Senior Advocate (M/s. J. B. Dadachanji, S. N. Andley, Rameshwar Nath and P. L. Vohra, Advocate of Rajinder Narain & Co., with him), for Respondents.

Advocates:
A.V.VISHWANATHA SASTRI, D.GUTPA, J.B.DADACHAN, K.N.RAJAGOPAL SASTRI, P.L.VOHRA, RAJINDAR NARAIN, RAMESHWAR NATH ROY, S.N.ANDLEY

Headnote:
INCOME TAX - Reference under S. 66(1) - Question of law arising out of order of Tribunal - Scope of - Question not raised before Tribunal but arising out of its order - Whether can be entertained by High Court - Held, yes.
Fact of the Case:

The respondents were the owners of a steam ship called "El Madina". That was requisitioned by the Government during the last world war, and was lost by enemy action on March 16, 1944. As compensation therefor, the Government paid the respondents Rs. 20,00,000 on July 17, 1944; Rs. 23,00,000 on December 22,1944; and Rs. 33,333 on August 10, 1946. The original cost of the ship was Rs. 24,95,016 and its written-down value at the commencement of the year of account was Rs. 15,68,484. The difference between the cost price and the written-down value viz., Rs. 9,26,532 represents the deductions which had been allowed year after year on account of depreciation. As the total compensation received exceeded the cost price, the respondents have recouped themselves all the amounts deducted for depreciation.
Finding of the Court:

The question whether the amount sought to be taxed was properly included did arise out of the order of the tribunal, the tribunal having held that the amount of compensation was taxable by virtue of S. 10, sub-s. (2), cl. (7), proviso IV. The question whether the statutory provision relied upon to tax the assessees was applicable to the amount sought to be assessed as income was as much a question arising out of the order of the tribunal as the question whether the interpretation placed by the tribunal upon that proviso was correct, may be.
Issues: Whether 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.
Ratio Decidendi: The question must be one of law and not of fact and not merely academic; it must be a concrete problem bearing directly on the rights and obligations of the revenue or of the assessees. The power of the High Court is to require the tribunal to state a case only if it is satisfied that the view of the tribunal (not on the merits of the order under S. 33, cl. (4) ) but on the application under S. 66(1) is erroneous. If the tribunal is not called upon to refer a question, the High Court cannot arrogate to itself the power to call upon the tribunal to refer questions which arise out of the findings recorded by the tribunal but which the tribunal was not called upon to refer.
Final Decision: Appeal dismissed.

Judgment

VENKATARAMA AIYAR, J. : The respondents were the owners of a steam ship called "El Madina". That was requisitioned by the Government during the last world war, and was lost by enemy action on March 16, 1944. As compensation therefor, the Government paid the respondents Rs. 20,00,000 on July 17, 1944; Rs. 23,00,000 on December 22,1944; and Rs. 33,333 on August 10, 1946. The original cost of the ship was Rs. 24,95,016 and its written-down value at the commencement of the year of account was Rs. 15,68,484. The difference between the cost price and the written-down value viz., Rs. 9,26,532 represents the deductions which had been allowed year after year on account of depreciation. As the total compensation received exceeded the cost price, the respondents have recouped themselves all the amounts deducted for depreciation.

2. On these facts, the point in controversy between the respondents and the Department is whether the amount of Rs. 9,26,532 is liable to be included in the total income of the company for the year of assessment which is 1946-47. The provision of law under which the charge is sought to be imposed is S. 10(2) (vii) of the Indian Income-tax Act, 1922, hereinafter referred to as the Act, and that is, omitting what is not relevant, as follows:-

"(2) Such profits or gains shall be computed after making the following allowances, namely:-

...... ......... ...... ...... ...... ...... ......

(vii) in respect of any such building, machinery or plant which has been sold or discarded or demolished or destroyed, the amount by which the written down value thereof exceeds the amount for which the building, machinery or plant, as the case may be, is actually sold or its scrap value:

...... ......... ...... ...... ...... ...... ......

Provided further that where any insurance, salvage or compensation moneys are received in respect of any such building, machinery or plant as aforesaid, and the amount of such moneys exceeds the difference between the written down value and the scrap value no amount shall be allowable under this clause and so much of the excess as does not exceed the difference between the original cost and the written down value less the scrap value shall be deemed to be profits of the previous year in which such moneys were received:"

3. It is not disputed by the respondents that the sum of Rs. 9,26,532 would be profits liable to be taxed under this proviso, if it applies. Equally it is not disputed by the appellant that apart from this proviso the amount in question could only be regarded as capital receipt, not liable to be taxed. Before the income-tax authorities, the respondents sought to avoid the application of this proviso on the ground that on representations made by them with reference to this very matter, the Board of Revenue had directed that for the purpose of Rule 4, Schedule II, of the Excess Profits Tax Act, 1940, the amount payable as compensation (both the initial advance as well as any further payment that may be made) should be taken into account as though it had actually been received within thirty days of the date of the loss of the ship; and that in consequence the amount should be deemed to have been received on April 16,1944. If that contention is correct, the amounts would have been received, not in the year of account which was July 1, 1944, to June 30, 1945, but in the year previous thereto, and they could not therefore be included in the income of the company for the year of assessment. This contention, however, was rejected by all the income-tax authorities. Dealing with it, the Appellate Tribunal observed in its Order dated July15, 1953, that the concession which the Board of Revenue had intended to give was limited to excess profits tax, and could not in any event be relied on for the purpose of cutting down the operation of the statutory provision enacted in the relevant proviso in S. 10(2)(vii); and that the material date was when the compensation was in fact received - and that w

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1961 Supreme(SC) 166

Cases Referred (13)