THE KESHAV MILLS CO. LTD. vs. COMMISSIONER OF INCOME-TAX, BOMBAY NORTH

908 THE KESHA V MILLS CO. LTD. v. COMMISSIONER OF INCOME-TAX, BOMBAY NORTH February 8, 1965 [P. B. GAJENDRAGADKAR, C.J;, K. SuBBA RAo, K. N. WANCHOO, M. HIDAYATULLAH, J.C. SHAH, S. M. S!KRI AND R. S. BACHAWAT, JJ.] Indian Income-tax Act (11 of 1922), s. 66(4)-Power of High Court to mk Tribunal to submit supplementary statement of case after further investigation of facts-Stare decisis-Power of Supreme Court to review and revise earlier judgments-'W_hen should be exercised. The appellant was a company registered in the erstwhile Baroda State. In connection with the assessment year 194243 the Income-tax Officer Ahemdabad held that certain sale proceeds were received by the appellant in British India and the profit thereon was taxable under the Indian Income-tax Act, 1922. One of the items in dispute related to the sale-proceeds collected by collecting cheques on British India Sbroffs and Merchants. In respect of the said item the Appellate Assistant Com- missioner as well as the Appellate Tribunal decided against the appellant, and thereafter, reference was made to the High Court. The High Court felt that it required further facts to decide the reference and twice remanded the case to the Tribunal for investigation of those facts. The Tribunal after takinjl evidence submitted a supplementary Statement of Case on each occasion. Finally the High Court decided the question against the appellant, but granted it a certificate of fitness to appeal to the Supreme Court. It was contended on behalf of the appellant that the High Court had no jurisdiction to direct the Tribunal to collect additional material and make it a part of the supplementary Statement of Case under s. 66( 4 fas had been decided by this Court in··. the cases of the Petlad Co. and the New Jahangir Mills. On behalf of;:the Revenue it w.S contended that these two cases required reconsideration. The Court therefore had to consider whether it should review and revise its earlier view taken in the said two cases. · HELD : (i) The JYiew contended. for on behalf of the Revenue namely, that the High Court had power to ask the Tribunal to investigate further facts and submit a supplementary Statement of Case was a reasonably possible vi~w. But on the other hand the opposite view taken by this Court in the Petlad Co. case and the New Jahangir Mi/18 case was also reasonably possible. The latter view had been follow- ed by this Court on several occasions and it had regulated the pro- cedure in reference proceedings in the High Courts ever since the decision in the New Jahangir Mills case was pronounced. Besides, no reported decision had been cited at the bar where the question about the construc- tion of s. 66( 4) was considered and decided in favour of the view con- tended for by the Revenue; No case therefore was made out for a re- vision or review of the Court's•decisions in the Pet/ad Co. and New Jahangir Mills cases. [928 C-F1 Case law discussed. The New Jahangir Vakil Mills Ltd. v. Commissimter of Income-tax, Iiombizy North, .. {1960] 1 S.C.R. 249 and The Pet/ad Turkey Red Dye B c D E F G H A B c D E F G H KESHAV MILLS v. C.I.T. (Gajendragadkar, CJ.) 909 Works Co. Ltd. Pet/ad v. Commissioner of Income-tax, Bombay, A.he,,,,U,.. bad, [1963] Supp. 1 S.C.R. 871, affirmed. (ii) The principle of stare decisis cannot be pressed into service In cases where the power of this Court to reconsider and revise its earlier decisions is invoked, because that power is inherent in this Court; but wvertheless the normal principle that judgments pronounced by !hi~ Court would be final cannot be ignored. Unless considerations of a subo- tantial and compelling character make it necessary to do so this Court should and would be reluctant to review and revise its earlier decisions. [923 B-Dl Bengal Immunity Company Ltd. v. State of Bihar [1955] 2 S.C.R. 603, distinguished. (iii) If the Court is satisfied that its earlier decision was clearly erroneous, it should not hesitate to correct the error; but before a previous decision is pronounced to be plainly erroneous, the Court must be satis- fied with a fair amount of unanimity amongst its members that a revision of the said view is fully justified. It is not possible or desirable, and in any case it would be inexpedient to lay down any principles which should govern the approach of the Court in dealing with the question of reviewing and revising its earlier decisions. It would always depend upon several relevant considerations-What is the nature of the infirmity or error on which a plea for a review and revision of the earlier view is based ? On the earlier occasion, did some patent aspects of question 1'1>- main unnoticed, or was the attention of the Court not drawn to any rele- vant and material statutory provision, or was any previous decision of this Court bearing on the point not noticed ? Is the Court hearing such plea fairly unanimous that there is such an error in the earlier view? What would be the impact of the error on the general administration of law or on public good ? Has the earlier decision been followed on suboe· quent occasions either by this Court or by the High Courts ? And, would the reversal of the earlier decision lead to public inconvenience, hardship or mischief ? These considerations become still more significant when the earlier decision hal'J>CUS to be a unanimous decision of a Bench of 11ve learned Judges of this Court. [922 B-F] CML APPELLATE JURISDICTION: Civil Appeal No. 1017 of 1963. Appeal from the judgment and order dated March 30th and 31st, 1960 of the Bombay High Court in Income-tax Reference No. 2 of 1949. N. A. Palkhivala and I. N. Shroff, for the appellant. C. K. Daphtary, Attorney-General, R. Ganapathy Iyer, R. H. Dhebar and R. N. Sachthey, for the respondent. The Judgment of the Court was delivered by Gajendragadkar, C.J. When this appeal was argued before a Division Bench of this Court on October 23, 1964, it was urged on behalf of the appellant, the Keshav Mills Co. Ltd., that fo view of the present decisions of this Court in The New Jehangir 910 SUPl.BMB C:OtlllT IU!POlt.TS [1965) 2 S.C.ll. Vakil Mills Ltd. v. The Commissioner of Income-tax, Bombay A North, Kutch and Saurashtra('), and The Petlad Turkey Red Dye Works Co. Ltd., Petlad v. The Commissioner of Income-tax, Bombay, Ahmedabad('), the appeal must be allowed and the case sent back to the Bombay High Court for disposal in accOrd- ance with the principles laid down in the latter decision. At that stage, the learned Attorney-General for the respondent, the B COmmissioner of Income-tax, Bombay North, Ahmedabad, urged that he wanted this Court to reconsider the said two decisions. He fairly conceded that if the said two decisions wem to be followed, the appeal would have to be allowed and sent back as suggested by the appellant. The learned Judges constituting the C Division Bench took the view that an opportunity should be given to the learned Attorney-General to press his contention, and so, they directed that the appeal be placed before a Bench of five Judges. Thereafter, this appeal came on for hearing before the Constitution Bench on November S, 1964. On this occasion again, the same contentions were raised on behalf of the appellant D and the respondent respectively. Mr. Palkhivala for the appellant urged that it would be inappropriate to reconsider the recent deci- sions on which he relied, and he argued that on the merits, the view taken by this Court in the said two decisions was sound and correct. On the other hand, the learned Attorney-General contended that he wanted this Court to reconsider the said two I: decisions, and he pointed out that the matter was of importance, and so, the appeal shoµld be referred to a larger Bench in view -Of the fact that the decision in the case of the Petlad Co. (1) was a unanimous decision of a Bench consiSting of five Judges of this Court. It was under these circumstances that the Court directed that the appeal should be placed before a Special F Bench of seven Judges. That is how it has come on for a final dcci- ·sion before a Bench of seven Judges; and the only point which has been raised for the decision of the Special Bench is whether the two decisions in question should be reviewed and revised. Let us begin by stating the relevant facts leading up to the G main point of controversy between the parties. The appellant is a company registered in the Baroda State as it then was. The assessment year with which the proceedings giving rise to this appeal are concerned is 1942-43 (the accounting year being -calendar year 1941 ) . During the said year, the appellant was H a 'non-resident'. It carried on business of manufacturing and (1) (1960) I S. C. 1l. 249. (2) (1963) Supp. 1 S. C. ll. 871. KESHAV MILLS v. C.I.T. (Gajendragadkar, C.J.) 91 l A ·selling textile goods in the Baroda State. The operations in relation to all sales of goods manufactured by the appellant's Mills were completed at the appellant's premises at Petlad on the footing of ex-Mill delivery in every case. It appears that on March 22, 1947, the Income-tax Officer, B E.P.T. Circle, Ward B, Ahmedabad, passed an order under sec- tions 23 (3) and 34 of the Indian Income-tax Act, 1922 (No. 11 of 1922) (hereinafter called 'the Act') and held that sale pro- ceeds in respect of the sales aggregating each of the following th!ee items were received by the appellant in British India. These c D items were: (i) Sal.,.procecds actually received in the accounting Year through M/s 1•1· moh•ndas Ramanlal & Co. (ii) Sal.,.procoeds throush British Indian •Banks throullh Drafts: . . . . . . (iii) Salo procoeds collected by collcctin~ choquoa on British Indian Banko and Hundis on British Indian Shorft's and Morchanta .. Ri. 12,68,460 Rs, 4,40,878 Rs. 6,71,735 It is with this last item that the present appeal is concerned. Aggrieved by the order thus passed by the Income-tax Officer, E the appellant preferred an appeal before the Appellate Assistant Commissioner of Income-tax, Ahmedabad Range. The Appellate Authority held that the Income-tax Officer was in error in not excluding items (i) aqd (iii) respectively from computation of the taxable profits of the appellant. Thus, the appellant succeed- ed before the appellate authority in respect of the item in dispute. F This decision of the ,appellate authority led to two cross- appeals, one by the Income-tax Officer and the other by the appellant before the Income-tax Appellate Tribunal-hereafter called the Tribunal. The Tribunal dismissed the appellant's appeal in respect of Rs. 4,40,878/- and allowed the Income-tax G Officer's appeal in part and held that the item of Rs. 12,68,460/- had been wrongly excluded by the Appellate Authority. In respect of item (iii) relating to Rs. 6,71,735/-, the Tribunal hcld that in the circumstances of the case the sale proceeds represented by the .said item were not received in British India but in the State itself. H This decision of the Tribunal led to two cross-applications by the appellant and the Income-tax Officer for raising tlle ques- tions of law before it in rdation to the items in respect of wkich 912 SUPREME COUllT REPORTS [!96SJ 2 S.C.ll they had respectively failed. As a result of these proceedin~, A the Tribunal drew up the statement of the case on November 5, 1948, and raised the following question to the Bombay High Court:- "Whether on the facts and in the circumstances of the case, the sums of Rs. 12,68,460/-, Rs. 4,40,878/- B and Rs. 6,71,735/-, or any of them, which represents receipts by the assessee company of its sale-proceeds in British India, include any portion of its income in British India?" In other words, all the three items in dispute between the appeal- c lant and the Income-tax Officer formed the subject-matter of the question raised by the Tribunal before the Bombay High Court. This reference was registered as Income-tax Reference No. 2 of 1949. By its judgment and order delivered on the 14th/15th Sep- tember, 1949, in relation to items (i) and (ii) the High Court D held that the two sums in question were not debts due from British Indian Merchants but sale proceeds of the goods sold by the appellant to merchants in British India and that such sale proceeds were received by the appellant in British India. In other words, the answers rendered by the High Court in respect E of the said two items were against the appellant The appellant came to this Court in appeal against the decision of the High Court, but its appeal failed and the view taken by the High Court was affirmed ( vide Keshav Mills Ltd. v. Commissioner of Income-tax, Bombay)('). In the result, the controversy between the appellant and the Income-tax Officer in respect of the said items F has been finally decided against the appellant. Reverting then to item (iii) with which the present appeal is concerned, the High Court took the view that before it could render an answer to the question in relation to the said item, it would like the Tribunal to furnish to the High Court further facts. G Accordingly, the High Court directed that the Tribunal should submit a supplementary statement of case and state therein as to whether there was any arrangement or agreement between the Assessee and the merchants that the giving of cheques or hundis by the merchants to the Assessee would result in an uncondi- tional discharge of the liability of the merchants. The High Court H also issued some other directions asking the Tribunal to clarify (I) (1953] S. C. R .. 950. ' . - A B KESHAV MILLS v. C.I.T. (Gajendragadkar, C.J.) 913 some of its :relevant findings which appeared to the High Court to be somewhat confused. As a result of this order, the case went back to the Tribunal which in tum remanded it to the Income-tax Officer for getting the requisite information. On receiving the report of the Income- tax Officer, the Tribunal submitted its Supplementary Statement of Case to the High Court on August 13, 1954. Whilst these proceedings were thus pending in the High Court, the decision of this Court in The Commissioner of Income-tax, Bombay South, Bombay v. Messrs. Ogale Glass Works Ltd., Ogale Wadi(') was pronounced. In that case, one of the points C which arose for decision was whether the Post Office which takes the cheque from the sender to the addressee is the agent of the sender or the addressee; and on this point, the Court held that as between the sender and the addressee, it is the request of the addressee that makes the post-office, the agent of the addressee and after such request, the addressee cannot be heard to say that D the post-office was not his agent. On the other hand, if there is no such request by the addressee, express or implied, then on delivery of the letter or the cheque to the post office by. the sender, the post-office acts as the agent of ,the sender. This decision had a significant impact on the further progress of the E present dispute. After receiving the Supplementary Statement of Case from the Tribunal, the mattc;r was argued before the High Court on the 15th February, 1955. On this occasion, the High Court referred the matter back again to the Tribunal with the direction : "that the Tribunal will determine on the evidence led by both i' parties whether the sum in question was paid by various merchants by sending drafts, hundis or cheques by post and that if the Tri- bunal found that in some cases the amount was not sent by post, then the Tribunal should determine what amount was sent other- wise than by post and the Tribunal should then submit a Supple- mentary Statement of the Case". It would be noticed that this G direction was given by the High Court obviously because the High Court wanted to deal with the question referred to it in the light of the decision of this Court in the case of Ogale Glass Works Ltd. ( '). In fact, in giving this second direction, the High Court observed that when it had called for the first Suprlementary State- ment of the Case, it did not have the benefit of the decision of H this Court in the case of Ogale Glass Works Ltd., (1) and that after the said decision was pronounced, the position with regard (I} (1955] l S. C.R. 185. 914 SUPIU!ME COUllT llEPORTS (1965] 2 S.C.R. .to receipt of the cheque by the appellant had been considerably A simplified. Pursuant to the second order of remand made by the High Court, the Tribunal submitted its second Supi)lementary State- ment of the Case on the 26th October, 1959. After receipt of the second Supplementary Statement, the Reference again came up B for hearing before the High Court. After hearing the parties, the High Court has rendered its answer against the appellant on the question in relation to the item in dispute. It is against this order passed by the High Court on the 30th and 31st March, 1960, that the appellant has come to this Court with a certificate granted by the High Court; and on its behalf, Mr. Palkhivala has urged c that in view of the decisions of this Court in the New J ehangir Mills(') case and Petlad Co.(2) case, the appeal must be allowed and the case remitted to the High Court to be dealt with in accordance with the principles laid down by this Court in the latter case. It is common ground that as a result of the two orders of D remand passed by the High Court in the present Reference pro- ceedings, some material evidence which was not on the record when the question was framed by the Tribunal and sent to the High Court under s. 66( 1) of the Act, has been collected and made a part of the Supplementary Statement of the Case; and basing himself on this fact, Mr. Palkhivala contends that the E High Court had no jurisdiction to direct the Tribunal to collect additional material and form it a part of the Supplementary State- ment under s. 66 ( 4) of the Act. It is in support of this conten- tion that reliance ill placed on the two decisions in question. Before addressing ourselves to the problem as to whether the F view taken by this Court in the said two decisions needs to be reconsidered and revised, it is necessary that we should refer to the said two decisions as well as other decisions on which both the parties have relied before us in the course of the arguments. The first decision on which Mr. ·Palkhivala relies is the New Jehangir Mills(') case. In that case, the question which was G referred by the Tribunal to the High Court was whether the receipt of the cheques in Bhavnagar amounted to receipt of sale- proceeds in Bhavnagar. Before rendering its answer to this ques- tion, the High Court had directed the Tribunal to furnish a "Supplementary Statement of the Case on the following points :- "On the finding of the Tribunal that all the cheques -~received in Bhavnagar, lhe Tribunal should find (1) (1960] 1 S. C.R. 249. (2) (1963] Supp. I S. C.R. 871. H ., - KESHA v MILLS v. C.I. T. ( Gaiendragadkar, C.J.) 915 A what portion of these cheques were received by post, whether there was any request by the assessee, express or implied, that the amounts which are the subject- matter of these cheques should be remitted to Bhav- nagar by post". B It would be noticed that as a result of this direction, the question which would really have to be considered by the High Court would be 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. It was urged by the appellant in that case that as a result of the direction issued by c the High Court calling for a supplementary "statement of the case, the nature of the question formulated by the Tribunal had· been altered, and that was beyond the competence of the High Court under s. 66 ( 4). In substance, this plea was upheld by this Court and it was held that in calling for the supplementary state- ment of the case, the lligii Court had misconceived its powers D under s. 66 ( 4) of the Act According to this decision, s. 66 ( 4) must be read with s. 66 ( 1) and s. 66 (2), and so read, it did not empower the High Court to raise a new question of law which did not arise out of the Tribunal's order or direct the Tribunal to investigate new and further facts necessary to deter- E mine the new question which had not been referred to it under s. 66(1) ors. 66(2) of the Act and direct the Tribunal to submit supplementary statement of case. The additions and alterations in the statement of case which can be directed under s. 66 ( 4) could, in the opinion of this Court relate only to such facts as already formed part of the record but were not included by the Tribunal in the statement of the case. Mr. Palkfilvala contends F that in the light of the decision, we ought to hold that in so far as the two orders of reinand passed by the High Court in the present Reference proceedings have led to the collection of additional material and evidence and their inclusion in the supplementary statemCQts of the case, the High Court has exceed- ed its jurisdiction under s. 66 ( 4). G The other case on which Mr. Palkhivala strongly relies is the decision of this Court in the Pet/ad Co. Ltd.(')·. In that cas.e. one of the points decided by this Court had reference to the extent of the powers and authority of the High Court under s. 66( 4). It was held that though the High Court had power H to direct a &upplemental statement to be made, it was beyond its competence .to direct additional evidence to be taken. In other (I) (1963] Supp. 1 S. C.R. 871. 916 SUP RB ME COURT llllPOll TS [ 1965] 2 S.C.R.. words, this Court took the view that when the High Court makes A an order of remand under s. 66( 4) and directs the Tribunal to furnish a supplemental statement of the case, it can require the Tnbunal to include in such supplemental statement material and evidence which may already be on the record, but which had not been included in the statement of the case initially made under s. 66 (1). The result of this decisioµ is that s. 66 ( 4) does not B confer on the High Court power to require tho Tribunal to take additional evidence before it renders its answers on the questions formulated under s. 66(1) ors. 66(2). In accordance with the view thus taken by this Court, the direction issued by the High .Court to submit a supplemental statement of the case after taking .additional evidence was reversed, and following the precedent in C the New Jehangir Mills(') case, an order was passed that the appeals should be allowed and the matter remitted to the High -Court to give its decision on the question of law referred to it as required under s. 66( 5) of the Act. Before the decision of this Court in the Pet/ad Co. Ltd.(') o was pronounced, a similar point had been raised in the case of M/s. Zoraster and Co. v. The Commissioner of lncome-t~. Delhi, Ajmer, Rajasthan and Madhya Bharat (now Madhya Pradesh)('). In this latter case, the question referred to the High Court for its decision was whether on the facts and circums- tances of the case, the profits and gains in respect of the sales J: made to the Government of India were received by the assessee in the taxable territories ? While dealing with this question, the High Court thought it necessary to remand the case to the Tribunal for a supplemental statement of the case calling for a finding on the question whether the cheques were sent to the assessee firm by post or by hand and what directions, if any, had the assassee F firm given to the department in the matter ? The validity and correctness of this direction was challenged by the appellant before this Court in view of the decision of this Court in the case of New Jehangir Mills('). While dealing with this objection raised by the appellant, this Court held that the question as it was framed, was wide enough to include an enquiry as to whether G there was any request, express or implied, that the amount of the bills be paid by cheques so as to bring the matter within the dicta of this Court in the Ogale Glass Works(') case or in Shri Jagdish Mills Ltd. v. The Commissioner of lncome-t~. Bombay North, Kutch and Saurashtra, Ahmedabad(6 ) and since it did not appear H (I) [1960] I S. C. R. 249. (2) [1963] Supp. I S. C.R. 871. (3} (1961) l S. C.R. 210. (4} (19SS] 1S.C.R.185. (S) (1960] I S. C. R. 236. I j Kl!SHAV MU.LS v. C.I;T. {Gaj~ndmgllllkar, C.J.) 917 A ftoJn die . or.dcr . of remand passed by the High Coun that the High Court intended that the Tribunal should admit fres~ evidence Wore submitting its supplemental statement, the impugned direction could not be said to be invalid. This decision shows that when a question is framed for the decision of the High Court in wide terms, and the High Court finds that before rendering its B answer on the said question some new aspects have to be con- sidered and it feels that for dealing with the said new aspects of the matter, a .supplemental statement of the case should be called for, the Hjgh Court is authorised to call such a supplemental statement, provided, of course, the High Co_urt does not require the Tribunal to collect additional material or evidence before C submitting its supplemental statement. The same view has been expressed by this Court in the case of Commissioner of Income-tax, Madras v. M. Ganapathi Muda- lit11'('). According to this decision, a supplementary statement of case may contain such alterations or additions as the High D O>urt may direct, but the statement must necessarily be based on facts which are already on the record. While exercising its jurisdiction under s. 66 ( 4), the High Court has no power to ask for a fresh statement of case with a direction that the Tribunal should go into the matter again and record further evidence. E Th.etc is one more decision to which reference may inciden- tally be made before we part with the series of decisions on which Mr. Palkhivala relies. In the Commissioner of Income-tax, Bombay v. The Scindia Steam Navigation Co. Ltd.,(') this Court had occasion to consider the scope and denotation of the expres- s.ion "any question of law arising out of such order" occurring in F s. 66(1) of the Act. The majority decision has summed ap the result of the discussion as to the scope and effect of the provi- lions of s. 66 in these words : (1) When a question is raised before the Tribunal and is dealt with· by it, it is clearly one arising out of its order. (2) When a question of law is raised before the Tribunal but G the Tribunal fails to deal with it, it must be deemed to have been dealt with by it, and is, therefore, one arising out of its order. (3) When a question is not raised before the Tribunal but the Tribunal deals with it, that will also be a question arising