Calcutta High Court
Commissioner Of Income-Tax vs Ruby Traders And Exporters Ltd. on 17 September, 2004
Equivalent citations: (2004)192CTR(CAL)618, [2004]270ITR526(CAL)
Author: D.K. Seth
Bench: D.K. Seth
JUDGMENT D.K. Seth, J.
1. Applicant's submission :
This application is for review of the ex parte judgment and order dated March 12, 2003, passed by this court in Income-tax Reference No. 78 of 1995 (see [2003] 263 ITR 300). Mr. Pratik Prakash Banerjee appearing for the applicant has urged that his client was unable to produce the documents which are annexures E and E-l to this review application, which are new and important matter of evidence on record not within the knowledge of the asses-see/applicant and could not be produced by it at the time of judgment despite exercise of due diligence. He pointed out that the subscription being less than Rs. 20,000, it was not compulsory for the subscribers to furnish their PAN numbers and, therefore, it was just not possible for the assessee to furnish PAN numbers of the subscribers. He had also pointed out that the letters and circulars issued by the Union of India being annexures E and E-l, which are binding on the Department were suppressed by the Department and were not placed before the court and if these documents were produced, the court would not have drawn the inference that has been drawn adverse to the asses-see. He then contended that the amount was not a cash credit but was share capital and as such it would not come within section 68 of the Act and thus the whole exercise of jurisdiction by the income-tax authority was incompetent and this court had omitted to note this important material fact. In support of his contention/ Mr. Banerjee had relied on the decisions in CIT v. Hunger-ford Investment Trust Ltd. [1935] 3 ITR 188 (Cal); CIT v. Bansi Dhar and Sons ; Additional CIT v. Hasmat Rai Raj Pal ; CIT v. Scindia Steam Navigation Co, Ltd. ; CIT v. Kundan Investment Ltd. and Hindustan Tea Trading Co. Ltd. v. CIT .
Opposite party/Department's submission :
On the other hand, Mr. Deb contended that the review is not maintainable. In support of his contention, he relied on CIT v. Hungerford Investment Trust Ltd. [1935] 3 ITR 188 (Cal); CIT v. Bansi Dhar and Sons ; Additional CIT v. Hasmat Rai Raj Pal , namely, the same decisions cited by Mr. Banerjee. He then contended that the circulars do not bind the courts. In support, he relied on Bengal Iron Corporation v. CTO ; CIT v. Hero Cycles Pvt. Ltd. and Hindustan Aeronautics Ltd. v. CIT . He then submitted that the jurisdiction under section 256 of the Income-tax Act, 1961, is a jurisdiction on reference, which is distinct and separate from the jurisdiction exercised by the court. It is a special jurisdiction in exercise whereof it cannot assume the jurisdiction to review. In support he relied on CIT v. Scindia Steam Navigation Co. Ltd. and CIT v. Bansi Dhar and Sons .
Facts :
Before we proceed to answer the questions raised by learned counsel for the respective parties, we may briefly refer to the facts of this case. The decision sought to be reviewed herein has since been reported in CIT v. Ruby Traders and Exporters Ltd. . In the case of the assessee the Assessing Officer disbelieved the genuineness of the subscription received by the assessee from its directors and promoters as well as from the public. On appeal, the Commissioner (Appeals) found that proper investigation was not made in respect thereof. Therefore, the matter was remanded to the Assessing Officer for enquiring into the matter afresh on the ground that the earlier enquiry was made in hot haste. On remand in the course of the enquiry, opportunity was given to the assessee. It was found that the income-tax file numbers of the promoters, and the directors were disclosed and all those payments were made by cheques except a sum of Rs. 20,000 subscribed in cash by Amarnath Gupta, who was not an income-tax assessee. The rest Rs. 90,88,750 was subscribed by the general public. Despite successive opportunity being given, nothing was disclosed about the identity of the subscribers except furnishing a list of subscribers. On appeal the Commissioner (Appeals) had again remanded the case in respect of shares worth Rs. 3,80,000 for investigation for ascertaining the creditworthiness of the subscriber and the genuineness of the transactions. Whereas the Commissioner of Income-tax (Appeals) disallowed Rs. 19,88,750 under section 68 on the basis of the findings of fact arrived at by him relying on the materials produced. On appeal, the Tribunal had held that since these were paid by cheques, therefore, this could not have been disallowed. In the facts and circumstances or the said case, we had answered question No. 1 in the affirmative, in favour of the Revenue and question No. 2 in the negative against the assessee.
Points for consideration:
In this review application, two hurdles have been raised by way of preliminary objection by Mr. Deb, namely, first, the High Court has no jurisdiction to review its order passed on reference; second even if it is assumed for argument's sake that the High Court has jurisdiction to review, it can be exercised within the limited scope of review as available within the scope of the 1961 Act and not beyond; third, in exercise of such jurisdiction to review the High Court cannot correct any mistake which is not apparent on the face of the record but requires long drawn argument to establish the same in respect whereof two opinions are possible.
If these hurdles are crossed then we may look into the other questions raised by Mr. Banerjee. Admittedly, the point that the amounts disallowed are share capital and not cash credits in respect whereof section 68 cannot be invoked is surely a question which stares on the face with regard to assumption of jurisdiction and could be a ground for rectification if it is so established provided the High Court can assume power to review such a question.
Scope of jurisdiction of High Court under section 256:
Section 256 is a special jurisdiction conferred on the High Court under the Income-tax Act, 1961. It is not within the ordinary jurisdiction exercised by the High Court falling within the appellate or original jurisdiction. The High Court does not exercise jurisdiction conferred upon it by the Code of Civil Procedure (CPC) or the charters or the Act by which the High Court is established. The High Court has to keep in mind that it is separate from the concept of inherent powers or incidental powers in exercising jurisdiction under section 256. It is a special jurisdiction of limited nature conferred not by the CPC nor by the charters nor by the Acts establishing the High Court but by the special provision of the 1961 Act for the limited purpose of obtaining the opinion of the High Court on a question of law. True it is that in giving an opinion properly if any question of incidental or ancillary power arises, namely, giving opportunity or restoring a dismissed reference without hearing or allowing additional time to file paper book, etc., inhere in the jurisdiction conferred upon it. When a power is granted to a court by a statute, the court must remain within the jurisdiction that has been conferred on it. It cannot stretch such jurisdiction beyond such statutory provision and assume jurisdiction of its own.
This question has cropped up in various decisions before different High Courts as well as the Supreme Court. The law is, by now, settled. The High Court, while exercising jurisdiction under section 256, has no power of review. At the same rime, the High Court cannot exercise its inherent power as conceived within the meaning of section 151 of the CPC. Though, however, it can rectify mistakes, which is a power ancillary to the exercise of jurisdiction under section 256 or such limited powers in order to enable the High Court to exercise the jurisdiction properly. The example being orders of adjournment, restoration of matters dismissed in default, extension of rime for filing paper book, etc. But it does not include grant of stay of recovery of taxes, etc. It was so held in CIT v. Bansi Dhar and Sons . In CIT v. Scindia Steam Navigation Co. Ltd. , it was held that the High Court hearing a reference does not exercise appellate, revisional or supervisory jurisdiction. It acts purely in an advisory capacity. It can decide only questions referred to it and not any other question.
Thus, we find that the High Court while exercising jurisdiction under section 256 has no power to review and the limited power within which the High Court can exercise power of rectification is very limited. In CIT v. Hungerford Investment Trust Ltd. [1935] 3 ITR 188 (Cat), this court had held that the jurisdiction conferred upon this court under section 66 of the 1922 Act (now section 256) was a special jurisdiction and forms no part of the court's original or appellate jurisdiction. Its functions are confined strictly to the disposal of reference on points of law. In Additional CIT v. Hasmat Rai RaJ Pal , the Allahabad High Court had held following Hun-gerford Investment Trust Ltd. [1935] 3 ITR 188 (Cal) that the jurisdiction under section 256 is only an advisory jurisdiction and not that of original, appellate or revisional jurisdiction. Whether the grounds of review taken justify the exercise of the limited power : The circulars to which now reference is being made even if not referred to by the Department or placed for consideration before this court at the time when the judgment in Ruby Traders and Exporters Ltd. [2003] 263 ITR 300 was delivered, now let us examine how far it would afford a ground for review to the assessee-Ruby Traders. Admittedly, circulars have no statutory force. These are issued only in discharge of executive function. These are merely guidelines. This may be binding on the Department. A circular though binding on the Department is not binding on the courts. Non-consideration of such circulars, therefore, in our view, would not afford a ground of review even if it is omitted to be considered by the Department unless it is found that by reason of such omission/ a wrong decision has been arrived at by reason of certain error or mistake which is apparent on the face of the record and to establish which no long drawn argument is necessary and in respect whereof no two opinions can be formed. The effect of circulars was considered in Bengal Iron Corporation v. CTO . In the said decision, it was held that the clarification or circulars issued by the Central Government or the State Government are issued merely for the understanding of the statutory provisions. Those are not binding on the courts. The circulars cannot be treated in such a manner contrary to the provisions of law. There cannot be any estoppel against the statute.
Admittedly, the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal Act in a quasi-judicial and judicial capacity, respectively, while deciding the appeals against the assessment. While exercising any quasi-judicial or judicial capacity the authorities under the statute are bound by law and not by any administrative instructions, opinions, clarifications or circulars. Law is what is declared by the Supreme Court or the High Court. It is for the court to declare what a particular provision of the statute says and not for the executive. However, this proposition has been observed to be doubtful in Bengal Iron Corporation v. CTO [1993] 90 STC 47 (SC). In any event circulars cannot be utilised for altering the provisions of the Act. It is normally used for the purpose of giving effect to the provisions of the Act. Therefore, omission to consider the circular cannot afford a ground for review to the assessee. In Hindustan Aeronautics Ltd. v. CIT , it was held that the circulars or instructions given by the Board are no doubt binding in law on the authorities under the Act but when the Supreme Court or the High Court has declared the law on the question arising for consideration, it will not be open to a court to direct that a circular should be given effect to and not the .view expressed in a decision of the Supreme Court or the High Court. Thus, the existence of the circular will not enable the court to retract or reverse its decision when it feels that the law is otherwise. Therefore, the omission to consider this circular would not be a ground for review. Then again, how far circulars would help the assessee/applicant is a question, which requires to be established by long drawn argument and with regard to which it cannot be said that there is no scope for forming two opinions. In CIT v. Hero Cycles Pvt. Ltd. , the apex court had held that the circular can bind the Income-tax Officer but it will not bind the appellate authority or the Tribunal or the courts, In our view, a circular is definitely binding on the Income-tax Officer or the Assessing Officer. But how far it is binding on the Commissioner of Income-tax (Appeals) or the Tribunal is a question, which is not free from doubt. In any event, when the circular conforms to the law, then it is definitely binding on the Commissioner of Income-tax (Appeals) or the Tribunal; but when it does not conform to law, then in our view, the Commissioner of Income-tax (Appeals) and the Tribunal are at liberty to examine the applicability of the circular and if it contradicts the law declared by the courts or it appears to it that it is contrary to law, then it is not binding on the Tribunal which exercises definitely a judicial function and the Commissioner of Income-tax (Appeals) discharging quasi-judicial function. In any event, we are not supposed to give any opinion with regard thereto in the present case since these circulars have been referred to for the first time before this court and with regard to which our opinion is that the circular does not point out to any error apparent on the face of record. Therefore, as already observed, the omission to consider the circulars does not afford any ground for review to the assessee in the present case and is not an error rectificable within the limited scope within which the High Court can act under section 256. Whether section 68 applies to issue of share capital:
The last question that was raised by Mr, Banerjee, though not the least, is that this is not a cash credit but a share capital, therefore, the authority could not resort to section 68, which deals with cash credit. Therefore, the whole exercise is without jurisdiction, which can be corrected by this court. This contention cannot be accepted for two-fold reasons. First that in order to establish that this particular transaction is not a cash credit, but a share capital, long drawn argument is necessary and there is possibility of forming two opinions, therefore, this cannot form a ground for review. Secondly, the transaction was given a colour of issue of share capital, but if it is found on fact that the transaction could not be established as a subscription to share capital, though admitted to be so shown, then the entries made in the books of account would not be a share capital. If it is not a share capital, then it would definitely be an entry in the book, which is a credit entry and a credit entry to be treated as cash since it does not form part of the share capital on account of absence of proof of the three ingredients with regard to the identity of the subscriber, its creditworthiness and the genuineness of the transaction. In the present case, on the facts, it was apparent that the assessee failed to establish these three ingredients. Therefore, it is nothing but cash credit. Thus, this ground also is not a ground for review.
Effect of non-requirement of furnishing PAN for transaction below 20,000 :
If the transaction is within Rs. 20,000, in that event, the subscriber is not supposed to disclose PAN. But that does not mean that when section 68 is resorted to the burden that lay on the assessee would be discharged simply on the disclosure of the list of subscribers without establishing his creditworthiness even if the identity is established. Therefore, non-requirement of furnishing FAN in respect of subscription for Rs. 20,000 or less would not amount to, even if supported by circulars, a mistake apparent on the face of the record. In a case under section 68 after the initial burden is discharged and the Department has returned a finding and unless the assessee proves otherwise after such finding is returned, the Department is entitled to treat the transaction within the scope of section 68. Therefore, this ground also is not available to the assessee for seeking review of the order we had passed.
Conclusion:
Thus from the above discussion it appears that the scope of review or rectification in this given case within the limited advisory power conferred upon the High Court under section 256 does not permit us to review the order on account of the reasons given above.
Order:
In the result, the application for review fails and is accordingly dismissed. There will, however be no order as to costs.
Xerox certified copy of this judgment be made available to the parties, if applied for, on usual undertakings.
R. N. SINHA J.
I agree.