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Commissioner of Income-Tax, Madras Vs Kumbakonam Mutual Benefit Fund Ltd. 1964 INSC 156 7 May 1964 Judgments Supreme Court Judgments: May, 1964 Law Library

writ petition

Mutual Benefit Society-company engaged in banking business restricted to members-Not every member made deposits or loans-Profits mainly earned from loans to members-All members entitled to dividends-Whether requirement of mutuality between contributors and participators satisfiedTherefore whether company exempt under s. The Supreme Court while rejecting the contention of the appellant stated that the in order to be agricultural income, there should be direct association with land as defined in the Act. Rule 21 of the Indian Income Tax Rules,1922 states that income derived by growing and manufacturing tea shall be taxable as business income to the extent of 40 %. Income from agricultural activities is exempt from tax to the extent of 60 % to the company and not to the shareholders of the company. Dividend is received as a result of investing in shares of the company and not from engaging in agricultural activities.

Vii) It is a submission of the Revenue that there has been no change in the substantive law either by the amendments made by the Finance Act of 2002 or of 2003 or of 2008. A comparative chart showing how these provisions stood at different points of time is given as Annexure. Mr.Parasaran submitted that the liability under section 195 does not depend upon the outcome of the assessment proceedings and there cannot be one set of rules for a non resident and another set of rules for residents, on the ground of any administrative inconvenience. In any event to expand the horizons of international trade and commerce, the concept of national boundaries are becoming redundant and nations are coming together in assisting each other in collection of taxes for their mutual benefit. The argument that the scheme qua non resident is impracticable cannot be accepted. Section 1 of the Income Tax Act provides that the Act extends to the “whole of India”.

HTIL, by reason of this transaction, has earned income liable for Capital Gains Tax in India as the income was earned towards sole consideration of transfer of its business/economic interests as a group, in favour of the Petitioner. Mr.Parasaran further relied on the decision of the Gujarat High Court in the case of CIT Vs. Vijay Ship Breaking Corporation 261 ITR 113 (Guj.) The buyer, therefore, does not get absolved from his contractual liabilities under the contract of sale or from his statutory liabilities, such as, of making deduction of tax at source under section 195 of the Act while making payment by the mode of a letter of credit. It is well settled by a series of decisions of this Court that ordinarily no writ lies against a charge sheet or show-cause notice vide Executive Engineer, Bihar State Housing Board Vs. Ramdesh Kumar Singh and others JT SC 331, Special Director and another Vs. Mohd. Ghulam Ghouse and another AIR 2004 SC 1467, Ulagappa and others Vs. Divisional Commissioner, Mysore and others SCC 639, State of U.P. Vs. Brahm Datt Sharma and another AIR 1987 SC 943 etc. The learned Additional Solicitor General also submitted that the Constitutional validity of the provisions of the I.T.

  • It is not as though the FIPB approval was not required as stated by the Petitioner.
  • The provision for deduction and withholding are under the Chapter ‘COLLECTION AND RECOVERY OF TAX’.
  • The amendments must be read in the proper context and are only clarificatory.
  • A clarificatory notice is a mere addendum to the original notice and the effect of clarification is always retrospective so it must relate to the original notice.
  • Prima facie, the Petitioner has not only become the successor in interest in that Joint Venture to HTIL, but also has acquired a beneficial interest in the license granted by the Department of Telecommunications in India to its group companies, now known as Vodafone Essar Limited.
  • The Court pointed out that had the Bombay Act not provided these remedies and yet barred the resort to civil court, the constitutionality of Section 20 may have been in serious doubt, but since it does provide such remedies, its validity was beyond challenge, to repeat – and it is necessary to do so – so long as Section 11-B is constitutionally valid, it has to be followed and given effect to.

The difference between the face value and the auctioned value during every month is the gross dividend generated in that month. This amount of dividend gets distributed among all the members equally. The members need not pay the total monthly subscription and instead, they have to pay the monthly subscription after deducting the amount of dividend earned.

Petitioner’s rights are adequately safeguarded under Section 195, 195 and 197 of the Income Tax Act, and the only thing required to be done is to file an application before the Assessing Officer under those provisions. On the other hand, the debenture is an instrument of debt executed by the company acknowledging its receipt to repay the same at a specified rate and also carrying interest. It is in sum and substance a certificate of loan or a bond evidencing the fact that the company is liable to pay a specified amount with interest.

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The first Act was wholly bad in that it was a special direction to the judiciary as to the trial of particular prisoners who were identifiable and charged with particular offences on a particular occasion. The pith and substance of both Acts was a legislative plan ex post facto to secure the conviction and enhance the punishment of those particular individuals. It legalised their imprisonment while they were awaiting trial. It made admissible their statements inadmissibly obtained during that period. It altered the fundamental law of evidence so as to facilitate their conviction. And finally it altered ex post facto the punishment to be imposed on them.

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The learned counsel appearing on behalf of the petitioners could not seriously dispute the plenary power of Parliament to make a law as regard constitution of courts but as noticed supra, merely urged that it did not have the competence to create parallel civil courts. All other decisions of these Tribunals, rendered in cases that they are specifically empowered to adjudicate upon by virtue of their parent statutes, will also be subject to scrutiny before a Division Bench of their respective High Courts. We may add that the Tribunals will, however, continue to act as the only courts of first instance in respect of the areas of law for which they have been constituted. By this, we mean that it will not be open for litigants to directly approach the High Courts even in cases where they question the vires of statutory legislations by overlooking the jurisdiction of the concerned Tribunal. Any scheme of decentralisation of administration of justice providing for an alternative institutional mechanism in substitution of the High Courts must pass the aforesaid test in order to be constitutionally valid.

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Thus the Tribunal is the substitute of the High Court and is entitled to exercise the powers thereof. Clause of this article provides that a law made by Parliament under clause may exclude the jurisdiction of courts, except the jurisdiction of the Supreme Court under Article 136, with respect to the disputes or complaints referred to in clause . The exclusion of the jurisdiction of the High Court under Articles 226 and 227 by any law made by Parliament under clause of Article 323-A is, therefore, specifically authorised by the constitutional amendment enacted in clause of that article. A region of law, in contrast to the tyranny of power, can be achieved only through separating appropriately the several powers of the Government. If the lawmakers should also be the constant administrators and dispensers of law and justice, then, the people would be left without a remedy in case of injustice since no appeal can lie under the fiat against such a supremacy.

power of judicial

Highly qualified persons should be appointed as judges of the Central Tax Court, from among persons who are High Court judges or who are eligible to be appointed as High Court judges. In the matter of conditions of service, scales or pay and other privileges, judges of the Central Tax Court should be on par with the High Court judges. In the light of the foregoing discussions, we recommend that the Government should take steps for this early establishment of a Central Tax Court with all-India jurisdiction to deal exclusively with litigation under the direct Tax laws in the first instance, with provisions for extending its jurisdiction to cover all other Central Tax laws, if considered necessary in the future. We suggest that such a court should be constituted under a separate statute. The answer to these problems, in our view, is the establishment of a Central Tax Court with all-India jurisdiction to deal with such litigation to the exclusion of High Courts.

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To qualify for appointment as a Judicial Member, it was essential that the incumbent had held a judicial office in India for a period of 10 years, or had practiced as an Advocate for a similar period. It is the above qualification, which enabled the enactments to provide, by a fiction of law, that all the said Appellate Tribunals were discharging “judicial proceedings”. This Court, however cautioned, that it was imperative to ensure, that the alternative arrangement, was no less independent, and no less judicious, than the High Court itself. The Concurrent List enumerates the matters with respect to which Parliament and the Legislature of a State will have concurrent power to make laws. Entry 11-A of List III refers to administration of justice, constitution and organization of all courts except the Supreme Court and the High Courts. Entry 46 of List III refers to jurisdiction and powers of all courts, except the Supreme Court, with respect to any of the matters in List III.

If there is amendment of some provision of the Constitution and the amendment deals with matters which constitute constitutional law, in the normally accepted sense, the court while deciding the question of the validity of the amendment would have to find out, in view of the majority opinion in Kesavananda Bharati’s case , as to whether the amendment affects the basic structure of the Constitution. The question as regards the applicability or otherwise of Articles 323-A and 323-B of the Constitution in the matter of constitution of such Tribunals came up for consideration before this Court in L. This Court therein clearly held that the constitutional provisions vest Parliament and the State Legislatures, as the case may be, with powers to divest the traditional courts of a considerable portion of their judicial work. The manner in which a dispute is to be adjudicated upon is decided by the procedural laws which are enacted from time to time. It is because of the enactment of the Code of Civil Procedure that normally all disputes between the parties of a civil nature would be adjudicated upon by the civil courts.


There is no ambiguity or conflict between the said expressions with any other provision. Further the virus of Section 195 is also not under challenge and therefore there is no occasion for reading down Section 195. Mr.Parasaran submitted in relation to a foreigner, jurisdiction can be exercised by the executive, legislature and judiciary in India, if either the foreigner is actually present in the Indian Territory or if any interest in any of his property is within the Indian Territory. A foreigner cannot enter into a transaction which has an effect on Indian properties and still contend that the executive, legislature or judiciary in India cannot exercise extra territorial jurisdiction.

This decision has not considered the judgment of the Division Bench of this Court in CDS Financial Services Ltd. Cases 374 which rejected the contention that the business of the subsidiary is the business of the holding company, and also held that the sale of shares cannot be equated with the sale of undertaking or any part thereof. Vs. T.C. Lakshmaiah Setty & Sons AIR 1994 SC 2377, the above decision was reiterated by the Supreme Court and it was observed that the orders of assessment rendered under tax laws should be tested under the relevant Act and in no other way. In Shyam Kishore Vs. Municipal Corporation of Delhi AIR 1992 SC 2279, it was observed that recourse to writ petition is not proper, when more satisfactory solution is available on the terms of the statute itself. The position is, therefore, clear that extraordinary and discretionary power under writ jurisdiction should be exercised with caution when statutory remedy is sought to be by-passed. Mr.Parasaran submitted that the transaction in question is prima-facie chargeable to tax in India since it amounts to transfer of a Capital Asset in India.

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There is nothing in the Indian law to warrant the assumption that a shareholder who buys shares buys any interest in the property of the company which is a juristic person entirely distinct from the shareholders. He also relied on A.P.State Road Transport Corporation Vs. I.T.O. 52 ITR 524 , The corporation, though statutory, has a personality of its own and this personality is distinct from that of the State or other shareholders. It cannot be said that a shareholder owns the property of the corporation or carries on the business with which the corporation is concerned. The doctrine that a corporation has a separate legal entity of its own is so firmly rooted in our notions derived from common law that it is hardly necessary to deal with it elaborately; and so, prima facie, the income derived by the Appellant from its trading activity cannot be claimed by the State which is one of the shareholders of the corporation.

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When Section 18 of the Act specifically states that “shall not be liable to be called in question in any Court of law” except in the manner provided under Section 20, it cannot be said that the High Court which is a court of law and which is a civil court under the CPC under Section 115 of the CPC could revise again an order once again after revision under Section 20 of the Act. That would mean there would be a trial by four courts that would be repugnant to the scheme manifest in the different sections of the Act in question. Public policy or public interest demands curtailment of law’s delay and justice demands finality within quick disposal of case.

Section 9 of the Act is a complicated provision applying to all income accruing or arising whether directly or indirectly, through or from a business connection in India; and money lent at interest and brought into India in cash or in kind; a transfer of a capital asset situated in India. This being a deeming provision, it is not enough merely to say that the income does not arise directly through or from any of the sources mentioned in the section. The words of the Section are of the widest amplitude, namely accruing directly, accruing indirectly, arising directly or arising indirectly. The Petitioner has tried to sever the two transaction, namely, the transaction of the loan and the transaction of the transfer. Mr.Gupta contended that the interest arising from the unsecured loan stock may be held to arise from either a business connection in India or from the transfer of a capital asset in India.


Ii) the transaction of sale of the share capital of CGP Investment Ltd. would give rise to a charge to tax in India. I) the writ petition is not maintainable as it purports to challenge a show cause notice and the discretion under Article 226 should not be exercised. Xxv) The tax deduction at source, from the very beginning, has been a effective took in timely collection of taxes.

The first controversy arose with reference to the Administrative Tribunals Act, 1985, which was enacted under Article 323A of the Constitution. In S.P. Sampath Kumar case , it was sought to be concluded, that the power of “judicial review” had been negated by the aforementioned enactment, inasmuch as, the avenue of redress under Articles 226 and 227 of the Constitution before the High Court, was no longer available. The basis of attack in regard to Parts I-B and I-C of the Companies Act and the provisions of the NTT Act are completely different. The challenge to Parts I-B and I-C of the Companies Act, 1956 seeks to derive support from Article 323-B by contending that Article 323-B is a bar for constitution of any tribunal in respect of matters not enumerated therein. On the other hand the challenge to the NTT Act is based on the challenge to Article 323-B itself.

Also discussed, briefly, the enforceability of shareholders’ economic profits. It was submitted, that if Chartered Accountants are competent to canvass complicated disputes which arise under the provisions referred to hereinabove, there should be no difficulty in allowing them to appear before the NTT, as also, to consider them eligible for being appointed as Members of the NTT. It was therefore asserted, that Section 13 of the NTT Act rightly permitted Chartered Accountants to represent a party to an appeal before the NTT. The submission on behalf of the Institute of Chartered Accountants was, that Company Secretaries were not comparable with them, and therefore, as a matter of policy, they had no legitimate claim for being allowed to represent a party before the NTT. It is to be stated here that there is also no challenge as to the validity of the said Central Act, 1970.

If the need arises, there can be separate umbrella organisations at the Central and the State levels. Such a supervisory authority must try to ensure that the independence of the members of all such Tribunals is maintained. To that extent, the procedure for the selection of the members of the Tribunals, the manner in which funds are allocated for the functioning of the Tribunals and all other consequential details will have to be clearly spelt out. The situation at present is that different Tribunals constituted under different enactments are administered by different administrative departments of the Central and the State Governments. The problem is compounded by the fact that some Tribunals have been created pursuant to Central Legislations and some others have been created by State Legislations. However, even in the case of Tribunals created by parliamentary legislations, there is no uniformity in administration.

This is what happened when the Central Administrative Tribunal was established. All cases pending in the High Courts stood transferred. Now that exclusive jurisdiction is vested in the Banking Tribunal, it is only in that forum that bank cases can be tried and, therefore, a provision like Section 31 was enacted. It was also the claim of those who raised the said challenge, that the enactment was beyond the legislative competence of the Parliament.

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