Citation Codes

Equivalent Citations

citation codes

Case Number

Income Tax Reference No. 34 of 1952

Advocates

Sir Nusservanji P. Engineer with G.N Joshi,
N.A Palkhivala with Sir Jamshedji B. Kanga, for the applicants.

Judges

Mr. M.C Chagla, C.J
Mr. Tendolkar, J.

Acts

s. 31 sub-s. (2a) of the Income Tax Act.
s. 6(1) of the Excess Profits Tax Act,

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Smart Summary

Structured Summary of the Opinion (Chagla, C.J.)

Factual and Procedural Background

This reference arises from assessments under the Excess Profits Tax Act for three accounting periods: 1 July 1943–31 March 1944; 1 April 1944–31 March 1945; and 1 April 1945–31 March 1946.

Key factual chronology contained in the opinion:

13 July 1935 — Raja Dhanrajgirji was appointed managing agent of Dhanraj Mills Ltd.
3 September 1937 — A tripartite agreement was concluded among the Mills, Raja Dhanrajgirji and the Hindu undivided family of Ramgopal; Raja Dhanrajgirji surrendered his managing agency and the Mills appointed the Hindu undivided family as managing agents under a fresh agreement.
23 June 1943 — The assessee company was incorporated; by agreement the managing agency of the Hindu undivided family was assigned to the company as from 1 July 1943.

Procedural history relevant to the reference:

The Excess Profits Tax Officer made assessments which the assessee company appealed to the Appellate Assistant Commissioner.
Before the Appellate Assistant Commissioner, the assessee sought to raise a contention of law (not pleaded in the grounds of appeal) concerning the date when managing agency commission became due (it alleged first commission payable 1 April 1944 and thus no liability for 1 July 1943–31 March 1944). The Appellate Assistant Commissioner refused to permit that contention; no reasons for refusal were recorded.
The assessee then appealed to the Tribunal, complaining that the Appellate Assistant Commissioner had disallowed the new ground; alternatively the assessee requested the Tribunal itself to consider the point. The Tribunal held that an assessee who did not challenge a particular assessment before the Excess Profits Tax Officer on a particular ground could not raise it subsequently before the Appellate Assistant Commissioner or the Tribunal.
The reference to this Court raises two sets of questions: those framed by the assessee and those by the Commissioner. The Court was also asked to decide whether the business of the assessee company for the purposes of proviso 2 to s.6(1) of the Excess Profits Tax Act commenced on or after 31 March 1936.

Attorneys named in the opinion: Manilal, Kher, Ambalal & Co. for the applicant (assessee); N.K. Petigara for the respondent (Commissioner).

Legal Issues Presented

Whether the Appellate Assistant Commissioner had jurisdiction to allow the assessee company to raise the additional ground of appeal referred to in the letter dated 23 September 1949.
Whether the Appellate Tribunal had jurisdiction to allow the assessee company to raise the ground of appeal before it in the appeals filed by it.
Whether, for the purpose of proviso 2 to s. 6(1) of the Excess Profits Tax Act, the business of the assessee company can be regarded as having commenced on or after 31 March 1936 (i.e., whether the relevant business was "new" as opposed to a succession from an earlier business beginning before that date).

Arguments of the Parties

Appellant (Assessee) — Primary contentions

The managing agency commission under the managing agency agreement became due on the 1st of April immediately following the accounting year, payable only after accounts were passed at the general meeting. Because the assessee company was incorporated on 23 June 1943, the first commission due to it would be 1 April 1944; therefore no commission accrued or was payable in the period 1 July 1943–31 March 1944 and no tax liability arose for that period on that ground.
The assessee claimed benefit under proviso 2 to s. 6(1) of the Excess Profits Tax Act; implicitly this required establishing that the relevant business commenced on or after 31 March 1936. The assessee’s case was that the business it succeeded (that of the Hindu undivided family) began on 3 September 1937.

Respondent (Commissioner) — Primary contentions

The Commissioner contended the business commenced earlier: initial managing agency began on 13 July 1935 with Raja Dhanrajgirji; the Hindu undivided family succeeded on 3 September 1937 and the assessee company succeeded them on 23 June 1943. From that vantage the business of the assessee company was said to have commenced on 13 July 1935 (i.e., prior to 31 March 1936) and therefore the proviso advantage would not apply.
On procedure, the Tribunal (supporting the Commissioner’s posture) treated it as impermissible for an appellant who failed to raise a ground before the Income/Excess Profits Tax Officer to raise it later before the Appellate Assistant Commissioner or the Tribunal.

Appellate Assistant Commissioner / Tribunal positions (as set out in the record)

The Appellate Assistant Commissioner refused to allow the assessee to raise the additional ground of law (no reasons recorded in the opinion for that refusal).
The Tribunal held that it was not open to an assessee who had not challenged a particular assessment before the Excess Profits Tax Officer on a particular ground of law to challenge it subsequently before the Appellate Assistant Commissioner or before the Tribunal. The Tribunal relied in part on the existence of a provision in the Income Tax Act (s.31(2a)) governing allowance of new grounds on appeal, and took that as supporting its view restricting the raising of new grounds.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The Court's analysis proceeds in two main strands: (A) jurisdictional principle as to appellate courts deciding grounds not raised below; and (B) the factual-legal question whether there was a succession of business or a discontinuance followed by a new business.

A. Jurisdictional analysis (grounds of appeal not taken in the Court below)

The Court framed the issue as one of competency and jurisdiction, distinguishing it from the discretionary question whether an appellate court should permit a new ground to be taken.
General principle stated: where a statute confers a right of appeal and an order of a trial court/tribunal is before an appellate body, the appellate court has full jurisdiction to reverse or modify that order on any ground of law which is open to it — even if that ground was not taken in the court below. The appellate court may even raise and decide a point of law suo motu.
The Court rejected the Tribunal’s reasoning that because the trial authority could have decided the point if it had been taken there, the appellant is therefore barred from pressing it on appeal. Success below that would have obviated the appeal does not deprive the appellate forum of jurisdiction.
The Court specifically examined s. 31(2a) of the Income Tax Act (which allows the Appellate Assistant Commissioner to permit an appellant to go into any ground of appeal not specified in the grounds of appeal if omission was not wilful or unreasonable). The Court concluded that s.31(2a) governs the discretion of the Appellate Assistant Commissioner in deciding whether to allow a new ground — it does not create the substantive competency question and does not support the Tribunal’s view that an appellant is categorically barred where a ground was not taken below. In short, s.31(2a) controls discretion, not jurisdiction.
The Court therefore held that both the Appellate Assistant Commissioner and the Tribunal were competent to entertain and decide grounds of law arising out of the order before them even if those grounds had not been taken in the subordinate forum; although an appellate court may have a discretion to refuse to admit the new ground in appropriate circumstances, competency exists as a legal matter.

B. Analysis of the "succession" / commencement question under proviso 2 to s.6(1)

The legal question was whether the business of the assessee company can be said to have commenced on or after 31 March 1936 so as to qualify under proviso 2 to s.6(1) of the Excess Profits Tax Act.
The Commissioner’s contention: the managing agency business began on 13 July 1935 (with Raja Dhanrajgirji), then the Hindu undivided family succeeded on 3 September 1937 and the assessee company succeeded the family on 23 June 1943 — hence the business did not begin after 31 March 1936.
The Court examined the contractual and factual sequence and concluded that on 3 September 1937 the managing agency of Raja Dhanrajgirji was cancelled and a fresh managing agency agreement was entered into with the Hindu undivided family. The Court emphasized that when one speaks of succession there must be a subsisting business capable of being handed down; if the prior business ceased on termination of the managing agency, there was nothing to succeed to.
The Court rejected the argument that similarity in nature of activity (both parties acting as managing agents) equates to legal identity of the business. The mere similarity in nature does not mean the same business continued. The Court characterized the change as a discontinuance of Raja Dhanrajgirji’s business and the commencement of a new business by the Hindu undivided family on 3 September 1937.
The Court also observed that the tripartite agreement actually supports the view of a new party being introduced (the Hindu undivided family) and that Raja Dhanrajgirji was making room for the new managing agents — further supporting discontinuance and a fresh start rather than legal succession.
The Court declined the assessee's application for remand to the Tribunal for further fact-finding on this point, reasoning that the Tribunal had already dealt with the question and that all necessary facts were before the Court in the statement of the case submitted by the Tribunal.

Holding and Implications

Core holdings (as answered by the Court):

First question: The Appellate Assistant Commissioner had jurisdiction to allow the assessee company to raise the additional ground of appeal referred to in the letter dated 23 September 1949 — answered in the affirmative.
Second question: The Appellate Tribunal had jurisdiction to allow the assessee company to raise the ground of appeal before it in the appeals filed by it — answered in the affirmative.
With regard to question 3(a): The Court answered it in the affirmative. (The opinion states that the rest of the related questions do not arise.)
Costs: Commissioner to pay the costs.

Implications — direct effects stated in the opinion:

The appellate forum (Appellate Assistant Commissioner and Tribunal) possesses the legal competency to decide points of law arising out of an order before it even when those points were not raised in the subordinate forum. While an appellate body retains a discretion to refuse allowance of a new ground in appropriate cases, that discretion is distinct from lack of jurisdiction. The Income Tax Act provision s.31(2a) regulates discretion to permit new grounds but does not negate jurisdiction.
On the facts before the Court, the arranging of the managing agency on 3 September 1937 represented a discontinuance of Raja Dhanrajgirji’s managing agency business and the commencement of a new business by the Hindu undivided family on that date. The Court regarded the factual materials before it as sufficient to reach that conclusion without remand.
The Court did not purport to decide detailed assessment computations; it emphasized that its function is advisory on questions of law and that taxing authorities must apply the legal answers in making assessments.
No other broader legal consequences or new binding precedents beyond the holdings stated were set out in the opinion; the direct consequence recorded is the disposition of the specific jurisdictional questions and the answer to question 3(a), plus the costs order.

Answer accordingly.

End of summary based strictly on the contents of the provided opinion.

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Ramgopal Ganpatrai And Sons Ltd. v. Commissioner Of Excess Profits Tax, Bombay City, Bombay

Chagla, C.J:—

Two sets of questions have been submitted to us on this reference; one set raised by the assessee and the other set by the Commissioner; and a few facts may be stated in order to understand how these questions arise. Raja Dhanrajgirji was appointed the managing agent of the Dhanraj Mills Ltd. on July 13, 1935. On September 3, 1937 a tripartite agreement was arrived at between the Mills, Raja Dhanrajgirji and the Hindu undivided family of Ramgopal. By this tripartite agreement Raja Dhanraj girji gave up his managing agency of the Mills and Raja Dhanrajgirji requested the Hindu undivided family to accept the managing agency on certain terms and conditions. The Mills thereupon cancelled the managing agency of Raja Dhanrajgirji and by a fresh managing agency agreement appointed the Hindu undivided family as the managing agents. On the June 23, 1943 the assessee company was incorporated and the managing agency of the Hindu undivided family was assigned to it by an agreement as from July 1, 1943.

The assessments we are concerned with are under the Excess Profits Tax Act and the three periods in question are the chargeable accounting period from July 1, 1943, to March 31, 1944, April 1, 1944, to March 31, 1945, and April 1, 1945, to March 31, 1946. After the Excess Profits Tax Officer had made his assessment, the assessee company appealed to the Appellate Assistant Commissioner and before the Appellate Assistant Commissioner it wanted to raise a certain contention of law which had not been stated in the grounds of appeal to the Appellate Assistant Commissioner, and the question of law was that under the managing agency agreement the managing agency commission was due on the 1st of April immediately next ensuing the accounting year of the company and is payable after the accounts were passed at the general meeting of the company and therefore it was contended that as the assessee company was incorporated on July 1, 1943, the first commission that was due to them would be on April 1, 1944. Therefore according to this contention there was no liability whatever to pay any tax with regard to the period July 1, 1943 to March 31, 1944, because according to the assessee company no commission either accrued or became payable to the assessee company during this period. The Appellate Assistant Commissioner did not permit the assessee company to raise this contention. The Appellate Assistant Commissioner gave no reason why he refused the assessee company to raise this question of law. The assessee company then went in appeal to the Tribunal and it made a grievance that the Appellate Assistant Commissioner had not allowed the company to raise this question of law, and in the alternative it urged upon the Tribunal itself to consider this question of law, and the view taken by the Tribunal was that it is not open to an assessee, who has not challenged a particular assessment before the Excess Profits Tax Officer on a particular ground of law, to challenge it subsequently either before the Appellate Assistant Commissioner or before the Tribunal, and the first two questions arise out of this decision of the Tribunal.

Now, the right of appeal under the Excess Profits Tax Act is given under s. 17 and the right is given to any person who is aggrieved by a decision made in pursuance of s. 8 or who is objecting to the amount of excess profits tax for which he is liable as shown by the Excess Profits Tax Officer or denies his liability to be assessed under the Act, and for other grounds with which we are not concerned, and the appeal lies to the Appellate Assistant Commissioner. In this case the assessee company appealed to the Appellate Assistant Commissioner objecting to the amount of excess profits tax for which it was made liable and it was that order of the Excess Profits Tax Officer that was being challenged before the Appellate Assistant Commissioner. It is difficult to understand how it is possible to contend that an Appellate Tribunal has not the jurisdiction to deal with an order which is in appeal before it on any ground, even though such a ground was not taken in the trial Court. If the appellant challenges the order of the trial Court and wishes to contend that the order is wrong by certain provisions of the law, even though he had not taken that contention in the Court below, it is impossible to urge that the appellate Court has no jurisdiction to reverse that order on the ground urged by the appellant. We are not suggesting that the appellate Court has no discretion to refuse the appellant to urge a ground not taken in the Court below, but what we are concerned with in this reference is not the discretion of the Appellate Court but the competency and the jurisdiction of the Appellate Court to allow a point of law to be taken before it which was not taken in the Court below. It must be borne in mind that when a statute confers a right of appeal and permits an order of a trial Court to be challenged, the appellate Court has full jurisdiction to reverse or modify that order on any ground which is open to it in law. The appellate Court may even reverse or modify the order on a point of law taken by itself suo motu without being asked to do so by the appellant. The Tribunal has taken the view that because the Excess Profits Tax Officer could have dealt with the point if it was taken and possibly given relief to the appellant, therefore there would have been no occasion for an appeal at all, and therefore it was not competent to the appellant to raise the question which he had not raised in the Court below. With respect, we find it difficult to understand or appreciate this argument. Merely because an appellant would have succeeded on a question of law before the Court below can surely be no ground for debarring him from taking that ground before the appellate Court, and therefore in our opinion, apart from any statutory restriction, it is the inherent jurisdiction of every Appellate Tribunal to decide any question of law arising out of an order of the subordinate Court or Tribunal, which order is before it in appeal, and if that be the true position, then once the right was given to the assessee company to appeal against an order of the Excess Profits Tax Officer, the Appellate Assistant Commissioner had every jurisdiction to deal with that order on any ground of law which applied to the facts on which that order was based.

The Tribunal has suggested another reason why this procedure is not permissible to an appellant. It draws attention to s. 31 sub-s. (2a) of the Income Tax Act. That sub-section deals with appeals from the Income Tax Officer to the Appellate Assistant Commissioner and it provides:

“The Appellate Assistant Commissioner may, at the hearing of an appeal, allow an appellant to go into any ground of appeal not specified in the grounds of appeal, if the Appellate Assistant Commissioner is satisfied that the omission of that ground from the form of appeal was not wilful or unreasonable.”

Now, it would be erroneous to contend that s. 31(2a) confers a power upon the Appellate Assistant Commissioner to permit an appellant to raise a ground not specified in the grounds of appeal. Sub-s. (2a) must be rather looked upon as controlling the discretion of the Appellate Assistant Commissioner with regard to his right to refuse an appellant to raise a new ground, and the Legislature suggests that ordinarily the Appellate Assistant Commissioner should allow a new ground to be taken unless he is satisfied that the omission on the part of the appellant was wilful or unreasonable. But even this sub-section does not deal with a case where an appellant takes a ground in the grounds of appeal. According to the Tribunal, even though the appellant may take a ground in the grounds of appeal to the Appellate Assistant Commissioner, if he had not taken that ground before the Income Tax Officer, he would be debarred from doing so. Therefore, in our opinion s. 31(2a) does not in any way help the discussion on the rights of an Appellate Court to hear an appeal on grounds not taken in the Court below. In our opinion the Tribunal was in error in holding that the assessee company was not permitted in law to take a new ground or that either the Appellate Assistant Commissioner or the Tribunal was debarred from deciding the point which the assessee company wanted to raise.

The questions raised by the Commissioner are rather detailed and go into various computations, and we must point out to the Tribunal that the form of questions raised is not the proper form. Some of the questions almost require this Court to assist the taxing officers or to point out to the taxing officers how they should assess the profits of the assessee company. That is not the function of this Court. The function of this Court is an advisory function, to advise on questions of law, and the questions of law should be so framed as to be capable of a simple answer, and once the answer is given by this Court it is for the taxing department to tax and to assess in accordance with the answers given by this Court. But fortunately it is not necessary for us to go into these rather labyrinthine details which have been attempted to be expounded before us by Mr. Joshi, because these questions are being capable of shortly disposed of on a very narrow point urged by Mr. Palkhivala. The real question that arises is this. The assessee company claimed the benefit of proviso 2 to s. 6(1) of the Excess Profits Tax Act, and that benefit is only permissible to a business which commenced on or after the March 31, 1936. We are not concerned with the exact nature of the concession allowed to such a business under this proviso, and the question that we have to decide is whether for the purpose of this proviso it could be said that the business of the assessee company commenced on or after March 31, 1936. The contention of the assessee company is that its business commenced on or after March 31, 1936, and the contention of the Commissioner is that it commenced prior to March 31, 1936. The facts on this point are very clear. It is not disputed that the assessee company, which was incorporated on June 23, 1943, succeeded to the same business that was carried on by the Hindu undivided family. Therefore what we have to consider is whether the business that was started by the Hindu undivided family as managing agents on September 3, 1937, was a new business or whether that family in its turn succeeded to some earlier business, and the contention of the Commissioner is that the business really commenced on July 13, 1935, when Raja Dhanrajgirji was appointed the managing agent, that the Hindu undivided family succeeded on September 3, 1937, and the assessee company in its turn succeeded the Hindu undivided family on June 23, 1943. It is from this point of view that it is contended that the business of the assessee company was not commenced after March 31, 1936, but was commenced on July 13, 1935. In our opinion the contention of the Commissioner is entirely untenable. It is clear that on September 3, 1937, the Dhanraj Mills cancelled the managing agency agreement in favour of Raja Dhanrajgirji and Raja Dhanrajgirji ceased to be the managing agent. It was by a new agreement and by a fresh appointment that Hindu undivided family came to be the managing agents on September 3, 1937. When one talks of a succession, there must be a subsisting business which can be handed down to a successor. If Raja Dhanrajgirji's business ceased to exist by his managing agency being cancelled, there was nothing he could hand down to the Hindu undivided family and there was nothing which the Hindu undivided family could succeed to. Mr. Joshi says that both Raja Dhanrajgirji and the Hindu undivided family were doing the same business, viz. the business of the managing agents. That again is fallacious. The mere fact that the nature of the business is the same does not mean that in law the businesses are the same. Clearly there was a discontinuance of the business which Raja Dhanrajgirji was doing when his managing agency was terminated and the business which the Hindu undivided family started was a new business and they did not continue the same business which Raja Dhanrajgirji was doing. Mr. Joshi relies on the tripartite agreement to show that the Hindu undivided family really succeeded to the business of Dhanrajgirji. Far from the tripartite agreement supporting the case of the Commissioner, it supports the case of the assessee company, because the tripartite agreement clearly shows that a new party was being brought in, viz. the Hindu undivided family, and the new party was being induced to accept the managing agency and was also being induced to advance moneys to the Mills which was in a bad way and for this purpose Raja Dhanrajgirji was going out and making room for the new managing agents.

Therefore, in our opinion, on the facts on the record and on the documents on the record, it is clear that the Hindu undivided family did not succeed to the business of Raja Dhanrajgirji, but that there was a discontinuance on September 3, 1937, and a new business was commenced. Mr. Joshi has applied that we should remand the matter back to the Tribunal to find the necessary facts on this particular aspect of the matter. In our opinion the Tribunal has dealt with this question, the contention was raised by the assessee company that they came under the second proviso to s. 6(1), and all the facts necessary to decide this question are before us in the statement of the case submitted by the Tribunal.

The result therefore is that the first question as reframed will read as follows:

“Whether the Appellate Assistant Commissioner had jurisdiction to allow the assessee company to raise the additional ground of appeal referred to in the letter dated September 23, 1949.”

We answer it in the affirmative. The second question will read:

“Whether the Appellate Tribunal had jurisdiction to allow the assessee company to raise the ground of appeal before it in the appeals filed by it.”

We answer it in the affirmative. With regard to question 3(a) our answer is in the affirmative. The rest of the questions do not arise. Commissioner to pay the costs.

Attorneys for applicant: Manilal, Kher, Ambalal & Co.

Attorney for respondent: N.K Petigara.

Answer accordingly.

P.M.P

Ramgopal Ganpatrai And Sons Ltd. v. Commissioner Of Excess Profits Tax, Bombay City, Bombay

Structured Summary of the Opinion (Chagla, C.J.)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant (Assessee) — Primary contentions

Respondent (Commissioner) — Primary contentions

Appellate Assistant Commissioner / Tribunal positions (as set out in the record)

Table of Precedents Cited

Court's Reasoning and Analysis

A. Jurisdictional analysis (grounds of appeal not taken in the Court below)

B. Analysis of the "succession" / commencement question under proviso 2 to s.6(1)

Holding and Implications

Ramgopal Ganpatrai And Sons Ltd. v. Commissioner Of Excess Profits Tax, Bombay City, Bombay

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