Supreme Court of India
M.B. ABDULLAversusCOMMISSIONER OF INCOME-TAX, KERALA
- Citation
- 1990 INSC 93
- Decided
- 19 March 1990
- Disposal
- Dismissed
- Bench
- SABYASACHI MUKHERJI
Holding
The question of treating the confiscated gold amount as a business loss is a separate legal issue from its taxability and was not canvassed before the Tribunal, so the petition for reference and relief is dismissed.
Summary
The petitioner was caught with contraband gold worth Rs 20 lakhs, which was confiscated by customs. The assessing officer added the value of the gold to the petitioner’s income under Section 69‑A of the Income‑Tax Act, treating it as income from an undisclosed source. The Appellate Assistant Commissioner reduced the income, holding the petitioner was not the owner, but the Tribunal restored the addition, finding the petitioner could not discharge the onus of proving non‑ownership. The petitioner then sought to treat the confiscated amount as a business loss under Section 254(1) and to refer the matter to the High Court under Section 256(1), both applications being rejected. The Supreme Court held that the question of whether the amount could be allowed as a business loss is a distinct legal issue from whether it is taxable income and that this issue was not raised before the Tribunal; consequently, the petition was dismissed. The Court affirmed that the Tribunal and High Court’s view, though only one possible view, was not erroneous for the purposes of Article 136.
Issues considered
- Whether the Rs 20 lakhs confiscated gold should be treated as income of the assessee under the Income‑Tax Act.
- Whether, assuming the amount is taxable income, it can be allowed as a business loss deduction in view of the Piara Singh decision.
- Whether the questions raised by the petitioner fall within the scope of the Tribunal’s order for reference under Section 256(1).
Legislation cited
- Income Tax Act, 1961s. 148, s. 254(1), s. 254(2), s. 256(1), s. 66(1), s. 66(5), s. 69-A
Subjects
Income taxUndisclosed incomeConfiscated propertyBusiness loss deductionSection 256 referenceSection 69-APiara Singh caseScindia Steam Navigation caseTaxability of illegal gainsAppellate Tribunal
Judgment
M.B. ABDULLA
A
v.
COMMISSIONER OF INCOME-TAX, KERALA
"'"tr
MARCH 19, 1990
[SABYASACHI MUKHARJI, C.J. AND M.M. PUNCHHI, J.J B
Income Tax Act, 1961: Section 256( 1)-Reference-Question
arising out of the order of the Tribunal-Value of gold worth Rs.20
Lakhs confiscated from the assessee added to the income-Application
r for treating the amount as business loss rejected-High Court dismissed
··,,
the application fdr reference-Whether Rs.20 Lakhs could be treated as
income of the assessee and whether that sum could be deducted as
c
--- business loss-Principles.
On November II, 1968 the Petitioner was apprehended carrying
J ,J,-.. contraband gold in a Maruti Car driven by him. He was taken into
custody and the seized gold was confiscated. For the assessment year D
1960-70 the Petitioner had filed a return declaring total income of
Rs.9,571. In fmalising the assessment the Income Tax Officer added
Rs.20 Lakhs being the price of the confiscated gold as income from
undisclosed source. The Petitioner went in appeal before the Appellate
Assistant Commissioner who reduced the income by that amount hold-
ing that the assessee was not the owner of the confiscated gold. On E
..A.
. second appeal by the revenue the Tribunal restored the order of the
I.T.O. The Petitioner then moved a Misc. Application under S. 254(1)
for amendment for treating Rs.20 Lakhs as business loss which was
rejected by the Tribunal. The Petitioner then moved a Petition u/s
256(1) of the Income Tax Act seeking reference to the High l:ourt raising
..--- certain questions, which was turned down by the Tribunal holding th:¥ F
~t
none of the questions sought to be raised was decided by the Tribunal
and as such did-not arise from its order. The High Court also declined
the application to direct the Tribunal to refer the questions and to state
:>--· the case to it.
Hence this special leave petition directed againsfboth the order of G
the Tribunal as well as the High Court. Dismissing the Special Leave
Petition, the Court,
1
HELD: The_ real and .substantial question posed and canvassed
'y- before the Tribunal in its appellate order and in the appeal was'whether
the sum of Rs.20 Lakhs be c1111Sidered .as part of the income of the h
5
6 SUPREME COURT REPORTS [ 1990] 2 S.C.R.
A assessee and as such suffer taxation. The question sought to be raised is
whether in view of the decision of the Court in Piara Singh's case this
amount could be treated as legitimate business loss of the assessee. It is
possible to take the view that this is substantially a different question,
namely whether an amount is a business loss even assuming that it was
B the income. It is possible and conceivable to consider two different
questions, namely whether a certain sum of money is the income of the
assessee and secondly, whether even a.•suming that such was. the
income, was that income liable to be deducted in view of the provisions
of the Act. Considerations which g0 into determination whether an
amount should be treated as income and considerations which are rele-
vant to determine whether even assuming that, that was the income the
C amount was deductible, are different. The question in this form was not
canvassed before the Tribunal. The view taken by the Tribunal and the
High Court is a possible view and they have borne in mind the principles ot
law laid down by the Court in Scindia Steam JV.avigation's case. [UB-E; 12E]
D C.I. T., Patiala v. Piara Singh, 124 ITR 40 2 and C./. T., Bombay
v. Scindia Steam Navigation Co. Ltd., [1961] 42 ITR 586, referred to.
CIVIL APPELLA1E JURISDICTION: Special Leave Petition
(Civil) Nos. 4973/89 and 12763/89.
Ftom the Judgment and Order dated 31. 1.1989 of the Kerala
E High Court in O.P. No. 3218/88 and dated 25.3.82 of the Income Tax
~-
Appellate Tribunal, Cochin in LT.A. No. 302/Coch/1977-78.
K.K. Venugopal and K.R. Nambiar for the Petitioner.
Soli J. Sorabjee, Attorney General, S. Ganesh and Ms. A.
F Subhashini for the Respondents.
The Judgment of the Court was delivered by
SABY ASACHI MUKHAR.11, CJ. This is a petition under artide
G 136 of the Constitution for leave to appeal against the orders of the
tribunal and the High Court. The High Court vide its order dated 31st
January, 1989 had dismissed the application for reference. There is
. also an order of the tribunal refusing to make a reference under
section 256(1) of the Income Tax Act, 1961 (hereinafter called 'the
Act'). This petition also seeks leave to appeal directly from the said
H order of the tribunal.
M.B. ABDULLA v. C.I.T. [MUKI!ARJI, CJ.] 7
However, in order to appreciate the controversy in this case the
A
facts reiterated by the High Cpurt of Kerala in its said judgment and
order are important, it had observed as follows:
"For the assessment year 1969-70 the petitioner· filed a
return declaring a total income of Rs.9,571. In cbrnpleting
the assessment the assessing authority proceeded on the B
basis that the assessee was the owner of the gold seized on
9.11.68 and confiscated by the Customs authorities worth
I . Rs.20 lakhs and accordingly the Income-tax Officer treated
·.,. the sum of Rs.20 lakhs as income from undisclosed source
applying the provisions of Section 69-A of the Income-tax
Act, 1961. On appeal, the Appellate Assistant Commis-
sioner held that the assessee was not the owner of the c
contraband gold seized by the Central Excise Authority and
therefore reduced the. assessee's total income by Rs.20
lakhs. The Revenue filed a second appeal before the
Appellate Tribunal, Cochin Bench. After going through
the evidence the Tribunal came to the conclusion that the D
car belonged to the assessee and the special places of con-
cealment had been provided by design in the car. Further
the assessee himself was driving the car in which the gold
was found. The assessee also has not attributed the owner-
ship to anybody else. The assesee also has not established
that the gold was given to him by any third party. In view of E
all these, the addition of Rs.20 lakhs made by the Income-
tax Officer but deleted by the Appellate Asst!. Commis-
sioner was restored. The additional ground raised by the
Revenue that the appeal is not maintainable before the
Appellate Asstt. Commissioner was rejected. The assessee
thereafter filc<1 a Miscellaneous Petition for rectification of F
the order of the Tribunal. The rectification sought to be
made are:-
(1) Business loss to-the tune of Rs.20,00,000 incurred by
the assessee due to investment in gold and the confiscation
-· of the gold by the Customs authorities be allowed for the
assessment year 1969-70, in view of the decision of the
Supreme Court in CITv. Piara Singh, decided on 8-5-1980
and reported in 124 ITR 40,
G
(2) the income tax and special surcharge amounting to
Rs.16, 19,395, Rs.20,00,000 and H
8 SUPREME COURT REPORTS [1990] 2 S.C.R.
A (3) as the tax has already been collected from the amount
of Rs.20,00,000 no interest was payable."
The High Court noted that the tribunal could not accede to the
requests of the petitioner as these could not be considered as mistakes
apparent from records. The points had not been raised by way of
B cross-appeal or cross-objections. Thereafter, the assessee filed a peti-
tion u/s 256 of the Act seeking reference of the following questions of
law:
"1. Whether the Tribunal is right in law in its view that the
right to file an application under Section 254(2) of the •
Income-tax Act, 1961 is open to be exercised only by the
c applicant and not by the respondent in the appeal before
it?
2. Whether the Tribunal is right in law in rejecting the
application under Section 254(2) on the ground that the
D . applicant was not the appellant before it and that he had
also not filed any memo of Cross-objections in the appeal
against him?
3. Whether on the facts and in the circumstances of the
case the assessee was bound to raise before the Tribunal, at
E the stage when he was only supporting the order appealed
against him, of his case for deduction which he was legally
entitled to claim in case of allowance of the appeal against
him?
4. Whether on facts and circumstances of the case the
F Tribunal was right in law in holding that the claim of loss on
account of confiscation of the gold was not the subject
matter of the appeal?" ·
The tribunal dismissed the petition holding that none of the
questions sought to be raised was decided by the tribunal and as such
G . did not arise out of the order of the tribunal. Aggrieved by these two
orders, one being refusal by the tribunal to refer the question as
aforesaid u/s 256( 1) and the other of the High Court directing the
tribunal ,to refer the questions and state the case to the High Court, the · -r'
petitioner has come up to this Court. We find that it can legitimately
be argued in the facts and the circumstances of the case that the ques-
H tion which essentially arose, which had to be borne in mind and which
M.B. ABDULLA v. C.l.T. [MUKHARJI, CJ.] 9
was argued before the tribunal was, whether the sum of Rs.20 lakhs
A
could be subject to taxation in the context as found by the trjbunal as
the income of the assessee. The assessee's further contention was that
in view of the decision of this Court in C.I. T. Patiala v. Piara Singh,
125 ITR 40 even if Rs.20 lakhs could be treated as the income of t\le
assessee inasmuch as this has been ordered to be confiscated, there
was a business loss as held in the said decision of this Court. Therefore, B
this question should have been gone into which was sought to be raised
by a Miscellaneous Application before the tribunal after disposal of
..,..r the appeal by the tribunal.
The principle by which this should be determined has been fairly
laid down b_y this Court in C.J. T., Bombay v. Scindia Steam Naviga-
tiim Co. Ltd., (1961) 42 ITR 589 wherein this Court at page 612 had c
observed as follows:
"Section 56(1) speaks of a question of law that arises out of
the order of the Tribunal. Now a question of law might be a
simple one, having its impact at one point, or it may be a D
complex one, trenching over an area with approaches lead-
ing to different points therein. Such a question might
involve more than one aspect, requiring to be tackled from
different standpoints. All that section 66(1) requires is that
the question of law which is referred to the court for deci-
sion and which the court is to decide must be the question E
which was in issue before the Tribunal. Where the question
itself was under issue, there is no further limitation
imposed by the section that the reference should be limited
to those aspects of the question which had been argued
befo;e the Tribunal. It will be an over-refinement of the
position to hold that each aspect of a question is itself a F
distinct question for the purpose of section 66(1) of the Act.
That was the view taken by this Court in Commissioner of
Income-tax v. Ogale Glass Works Ltd., (1954) 25 ITR 529
and in Zoraster & Co. v. Commissioner of Income-tax,
(1960) 40 ITR 552, and we agree with it. As the question on
which the parties were at issue, which was referred to the G
court under section 66(1), and decided by it under section
66(5) is whether the sum of Rs.9,26,532 is liable to be
included in the taxable income of the respondents, the
ground on which the respondents contested their liability
before the High Court was one which was within the scope
of the question, and the High Court rightly entertained it. H
10 SUPREME COURT REPORTS [1990] 2 S.C.R.
It is argued for the appellant that this view would
A
have the effect of doing away with limitations which the
Legislature has advisedly imposed on the right of a litigant
to require references under section 66(I), as the question
might be framed in such general manner as to admit of new
questions not argued being raised. It is no doubt true·that
B sometimes the questions are framed In such general terms
that, construed literally, they might take in questions which
were never in issue. In such cases, the true scope of the
reference will have to be ascertained and limited by what
appears on the statement of the case. In this connection, it
is necessary to emphasise that, in framing questions, the
Tribunal should be precise and indicate the grounds on
c which the questions of law are raised. Where, however, the
question is sufficiently specific, we are unable to see any
ground for holding that only those contentions can be
argued in support of it which had been raised before the
Tribunal. In our opinion, it is competent to the court in
D such a case to allow a new contention to be advanced,
provided it is within the framework of the question as
referred."
Mr. Venugopal, appearing for the petitioner, drew our attention
to the observations of Justice Shah, as the learned Chief Justice then
E was, at p. 617 which are to the following effect:
"The source of the question must be the order of the
Tribunal; but of the question it is not predicated that the
Tribunal must have been asked to decide it at the hearing
of the appeal. It may very well happen and frequently cases
F arise in which the question of law arises for the first time
out of the order of the Tribunal. The Tribunal may wrongly
apply the law, may call in aid a statutory provision which
has no application, may even misconceive the question to
be decided, or ignore a statutory provision which expressly
applies to the facts found. These are only illustrative case:
G analogous cases may easily be multiplied .. It would indeed .,
be perpetrating gross in justice in such cases to restrict the
assessee or the Commissioner to the questions which have
been raised and argued before the Tribunal and to refuse to
take cognisance ofquestion which arise out of the-order of
· tl!_e Tribun~. but which were notarg11ed, because they could
H not (in the absence of any indication as to what the
M.R ABDULLA v. C.I.T. [MUKHARJI, CJ.] 11
Tribunal was going to decide) be argued."
A
As mentioned hereinbefore, this is an application for leave to
appeal from the decisions of the tribunal and the High Court under
Article 136 of the Constitution. The real and substantial question posed
and canvassed before the tribunal in its appellate order and in the
appeal, as is manifest from the facts stated before, was, whether a'sum B
of Rs.20 lakhs could in the facts and the circumstances be considered
,. as part of the income of the assessee and as such suffer taxation. Now
'
the question sought to be raised is, whether in view of the decision of
this Court in Piara Singh's case (supra) the amount of Rs.20 lakhs
' could be treated as legitimate business loss of the assessee.
It is possible to take the view that this is substantially a different C
question, namely, whether an amount is a business loss even assuming
that it was the income. It is possible and conceivable to consider two
different questions, namely, whether a certain sum of money is the
income of the assessee, and secondly, whether even assuming that such
was the income, was that income liable to be deducted in view of the D
provisions of the Act. It is possible to take the view that these are
substantially different questions and not merely different aspects of
the same question. Considerations which go into determination of
whether an amount should be treated as income and the considerations
" , which are relevant to determine whether even assuming that, that was
the income the amount was deductible, are different. The question in
--',_
E
this form was not canvassed before the tribunal at any point of time in
the alternative.
--- It may be reiterated that the Central Excise Officers at Valayar
check-post seized gold weighing 16,000 gms. from Car No. MYX 9432,
which was being driven by the petitioner along with the documents and F
>- took the petitioner into custody. The Collector of Central Excise,
Madras had confiscated the gold in question and found that the
petitioner was in possession of the gold. The assessment of the
petitioner for the year in question was originally completed at a total
income of Rs.1,571. Subsequent to the completion of the original
assessment, the petitioner filed a return declaring a-total income of G
Rs. 9 ,571. The Income Tax Officer issued notice under section 148 of
the Act.
The Tribunal ultimately had accepted the revenue's contention,
restored the addition of Rs.20 lakhs made by the assessing authority,
inter alia, holding that the onus was on the petitioner to prove that the H
12 SUPREME COURT REPORTS [1990] 2 S.C.R.
A gold was not owned by him which onus the petitioner had failed to
discharge. The Tribunal had gone into and adjudicated the question
substantially raised by the petitioner that the confiscated gold could
not be treated as the income of the petitioner. The Tribunal rejected
the application of the petitioner on the ground that the claim of loss on
account of the confiscation of the gold was not the subject-matter of
B the appeal. The principles of law have been discussed by this Court in
Scindia Steam Navigation Co. Ltd's case (supra}.
In the facts and the circumstances of the case, the Tribunal and
the High Courts have taken the view that whether certain sum of
money can be treated as the income of an assessee and whether that
c sum of money could be deducted as loss are different question of law
and not different aspects of the same question. The Tribunal and the
High Court have taken a particular view. They have borne in mind the
correct principles that are applicable in the light of the law laid down
by this Court in Scindia Steam Navigation's case (supra).
D In the background of the facts and the circumstances of the case,
as mentioned hereinhefore, if the aforesaid view of the Tribunal and
the High Courts is a possible view, we are not inclined to interfere with
that view under Article 136 of the Constitution in the light of the facts
and the circumstances of this case. We are not prepared to say that
in justice has been done to the petitioner. The view taken by the
E Tribunal and the High Courts is a possible view. The Tribunal and the
High Courts have borne in mind the principles of law laid down by this
Court.
In the aforesaid view of the matter; in the facts and the cir-
cumstances of the case, this application is rejected and aceordingly
F dismissed.
R.N.J. Petition dismissed.
•.•
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