The Commissioner Of Income Tax, Delhi And Rajasthan v. M/S. National Finance Ltd

2 9.C.R. SUPREME COURT REPORTS THE COMMISSIONER OF INCOME TAX, DELHI Al\fD RAJASTHAN M/S. NATIONAL FH{ANCE LTD. (S.K. DAs, M. HIDAYATULLAH and J.C. SHAH, JJ.) Income Taa:-OapUal WBB or trading /,ass-Dealer in sparea-Acquisition . of shares tc get agency of company -Sublequent sale of share& incurring loas-Whetlier trading loss -Application to Tribunal dismissed as ba"ed by limitati01&-Reference to High Court dismissed-Appeal by Special Leave against Trtbunal's decision-Maintainability. The respondent was a company dealing in . shares and securities and belonged to a group of companies all controlled by the same persons. In the year of account, corresponding to the assessment year 1951-52, the respondent sold the shares relating to Madhusudan Mills Ltd., which it had acquired sometime earlier, suffering a loss for which it claimed a set-off against the profits in that year. The Income-tax Officer found that the shares in question had been purchased by J, a company belonging to the group, at a price which wa1 almost double the current market price, that it was so done with a view to removing the sellers from their managing agency and to securing for the respondent the purchasing and selling agency of the Mills, and that after the purchase J achieved the purpose in view of its controlling interest and the purchasing and selling agency of the Milla was given to the respondent, though the latter had done no more than give a loan to J. It was aim found that soon after the plll'Chasc the shares in question came into the possession of the respondent and that when the shares were sold it ~ not in the market but at a loss to another company belonging to the same group. The Income tax Officer came to the conclusion that in getting the shares the respondent did not deal with them as stock-in-trade but was acquiring a capital asset of an enduiing nature. Accordingly, he disallowed the claim holding the loss to be a a capital loss. The Appellate Tribunal, however, held in favour of the respondent on the view that a distinction must be made between the respondent company and J. The Commissioner of Income·tax moved the Tribunal for a reference to the High Court, but it was dismissed on the ground that though it was barred only by one day and there was no negligence on the part of the Commissioner, the Tri-bunal had no power to extend time. An application to the High Court was also dismissed. The Commissioner of Incomc-tax then applied for and got special leave to appeal against J~a n, C-iJsU... of lltl#trla, Dtllti ad Rajaslhan v. M/1. ~ati.ruJl FiJUllfci Ltd. 861) SUPREME COURT REPORTS (1962] SUPP. the order passed by the Tribunal. When the appeal came on for hearing in due coune the respondent raised an objection that the appeal was not maintainable bec.ause no appeal was filed against the order of the High Court, and relied on the decision in Chandi PrMad Chokani v. State of Hihar, ( 1962) 2 S.C.R. 276. Held, that the appeal was maintainable because there was no question of by·passing the order of the High Court which only related to the correctness of the decision of the Tribunal on the question of limitation which was not the subj.ct of the prrsent appeal. Held, further, that there were special circumstances which justified the grant of special leave. RalJ.v Si7111h v. Commissioner of Income-tax ( 1960), 4-0 I.T.R. 605, applied. Chan di Prasad ChoH111ni v. State of Bihar ( 1962), 2 S.C.R. 276, distinguished. l/elrl, al~n. that, on the facts, the object was tn purchase a largr block rof shares at a much larecr price than the market value to acquire certain agenries of a profitable character, that the purchase of the shares by J was mf'rely a device but the controllinl( interest wa• acquirerl by the respondent, and that the tranc;action must be regarded as one on the capital side. 29[th] January, 1962 R~mnarain Sons (P.)l.td v. Commi•sioner of Tnwme-taz, (1961) 2 S.C:.R. 904- and Oriental lnvutment Co. lid. v. Com-mi•.<ioner nf Income-taz, (1958) S.C.R. 49, applied. Salomon v. Salomon & Co. Ltd. (lll97) A.C. 22, distin. guished. C1v1L APPELLATE Jr.RISDICTION : Civil Appeal No. 559 of 1960. Appeal by special leave from the judgment and ord1>•dated May 1/14, 1957, of the Income Tax A ppella•c Tribunal of India (Delhi Bench) in I.T.A. ~o. 2070 of 1956-57. K.S. Ra,ia.gopal Saslri and D. Gupta, for the appellant. Rodhey J,al Aaarwal and P.C. Aaanml. for the respourleuts. 867 1962. January 29. The Judgment of the Court was delivered by HrnAYATULLAH. J.-This is an appeal against the order of the Income-tax Appellate Tribunal, Delhi Bench, dated May I/ 14, 1957, by which the tribunal, reversing the order of the A pvellate Assis-tant Commissioner, held that a loss arising from the sale of certain shares by the respondent Com-pany was a capital loss. Subsequent to the order of the Tribunal impugned here, the Commissioner of Income-tax, New Delhi, who is the appellant before us, had moved the Tribunal for a reference to the High Court on certain questions of law said to arise out of the order of the Appellate Tribunal. That application was found to be barred by one day, and since, under the law, the Tribunal had no jurisdiction to extend the time, the application was dismissed. Against the decision of the Tribunal, an application was filed in the High Court under s. 66(3) of the Income. tax Act; but the High Court dismissed the application, agreeing with the Tribu-nal that the application to the Tribunal for a ref-erence was barred bv time. The Commissioner of Income-tax then applied for special leave against the order passed by the Tribunal in ~he appeal before it, and the present appeal, with special leave, has been filed. Before we examine the merits of the case, we shall deal with a preliminary objection raised on behalf of the respondent that the appeal is income· petent, in view of the decision of this Court in Ohandi Prasad Chokhani v. State of Bihar (') where it was held that this Court would not entertain an appeal directly from an order of the Tribunal by-passing the decision of the High Court, except in very exceptional circumstances. The appellant relies upon th~ decision of this Court in Baldev Singh v. Commissiunrr·of Inrome tax ([2 ]', and contends (I) [1962] 2 S.C.R. 2iG. (2) [1960] 40 l.T.R. 605. 1962 The Co111mi.uianer of Jmome-tlx, Dtlhi and RcjOJth!ln •• Mfr. Notional Finance :.td. Hida-vatttUah J. 190 TAIO-UriMdof r--.IHllli ""' a.;.,,,_ v. JIA~:.·tt Bilo!lo"""'""' J. 868 SUPREME COURT REPORTS [1962] SUPP. that the exooptional circumstances existing in the latter case and adverted to in the former, govern the present oaae. The fsoti:i relating to the filing of the a.ppli- 2 S.C.R. SUPREME COURT REPORTS 867 SUPREME COURT REPORTS [1962] SUPP. 2 S.C.R. 870 SUPREME COURT REPORTS 871 (4) (1955] l S.C.R. 941. 1962 oa.tion for reference together with the relevant dates are these: The Tribunal's order was pa.seed by two learned Members, who signed their respec-tive orders on different dates. The Aooountant Member signed his order on May 1, 1957, and the Judioia.I Member, on May 14,1957. The notice of the order was sent to the CommiBBioner of Income-tax, Now Delhi, and reached his office by registe-red post on July '15, 1957. It was received by one Motilal Pathak, a clerk in the office of the Commis-sioner. Motilal's affidavit shows that he suddenly fell ill, and had to take casual ieave for the day. He returned to the offioe the next day, and dealt with tho notice received from the Tribunal. By a mischanoe, which is easy to appreciate, the date stamp of the receipt of the ·papers was affixed on the 16th, and bore that date instead of the real date, viz., the 15th, on which the papers had actu-ally been received. Relying upon the date stamp, everybody took it for granted that limitation would expire on the 60th day, counting time from July 16, 1957. The application was filed on the last day of limitation on that supposition. Actually. the application was barred by a day. The Inoome-tax Tribunal, therefore, dismissed the application on Deoomber 4, 1957. The decision of the Tribu-nal waa unsuooessfully challenged before the High Court. It is evident that the decision of the Tri-bunal was quite correct, and the Tribunal had no option but to diamiss the application, since the law gives no jurisdiction to the Tribunal to extend limitation, as is done under s. 5 of the Indian Limi-tation Act. This Court then granted special leave against the order of the Tribunal passed in the appeal 869 1116S TM C....issiolur •/ 1neo..,.tax,D.W and Rajtu'h°" v. MJs. NatNruil Finone1 Ltd •. Hidoyotulloh J. 1,60,035 872 SUPREME COURT REPORTS [1962] SUPP. SUPREME COURT REPORTS 873 869 before it, and the question is whether the appeal should be heard or the leave revoked, in view of the decision in Clwkhani's case ([1]). In Chokha.ni's case (I), the attempt was to bypass the decision of the High Court on a question referred to the High Court for decision and also another decision of the High Court that no other point of law arose from the order of the Tribunal. It was held that this Court would not allow the High Court to be by-passed, and that an appeal from the decision of the Tribunal in the circumstances was incompe-tent. A similar view was again expressed in two other cases, viz., ln®an Aluminium Co. Ltd. v. Commissioner of Income-tn.x ('}and Kanhaiyalal Lohia v. The Commissioner of Income-W.x ('). In all the three cases, reliance was placed by the appellants therein upon the decisions of this Court in Dha.kes· wari Cotton Mills, Ltd. v, Commissioner of Income-tn.x (4) and BaUlev Singh v. Commissioner of Income-tax (') It was pointed out in the judgments of this Court that the two cases relied upon were decided on t.he special circumstances existing there. In the first, there was a question of breach of the princi-ples of natural justice, which could not be raised otherwise than by an appeal with the special leave of this Court. In the second case, it was pointed out that limitation was lost by the party ~hrough no fault of his, inasmuch as a letter was unduly de'.J.yed in post. In our opinion, in the present case also, special circumstances which justified the grant of special leave in Balde'V Singh's case ('), exist. There was a combination of cireums~ances which Jed to the filing of the application a day late, but in circumstances showing that the default was not due to any negligence on the part of the Commissio-ner of Income-tax. The receipt of the notice on July 15 is admitted; but the affixing of the date stamp on the 16th was due to the failure of the ( l) [1962] 2 S.C.R. 276. (2) C.A. No. 176of1959, decided on April 24, 1961. (3) [1962] 2 S.C.R. 839. 141 (1955] l S.C.R. 941. (5) (1960] 4-0 l.T.R. 605. 1!132 n. c....,;,,;.,.., of 1 M11111-l4c, D1l.Ai ai Rajoslh .. v. M/1. Notidcl i'u-u LJd, H~rJ.IJll J. 870 SUPREME OOURT REPORTS [1962) SUPP. clerk to dea.I with the notice on the 15th because be fell ill and ba.d to lea.ve the office. It is com· mon knowledge tba.t da.te stamps a.re altered every da.y in the offrne, and this is done mostly by a very junior employee. The affixing of the date stamp on Ute Jtith a.nd tho notice consequently bearing tha.t d~te went uunoticed, a.nd relying upon the date starnp, the appeal was filed, though on the la.st day of limitation but within time. In these circumstances, it is difficult to say that the Commi· ssioaer of Income-tax was negligent. and the negl!-gence, 1f any, on the part of the clerk in affixing a wrong date st11.mp is oxousa.ble, if one considers his illness and bis absence from the office on the 15th. In our opinion, this ca.se comes within the rule of llaldev Singh's case ([1]) and an appeal direct to this Court from the Tribunal's order is justified by the special circum~ta.nces. By this appeal, no decision of the High Court can be said to be bypa.ssed, because the decision of the High Court rela.ted to the correctnesa of the decision of the Tribunal on the question of limitation, which is not a question which is sought to be raised in an indirect way by the pre&lnt appeal. We, therefore, overrule the preliminary objection.