Commissioner of Income Tax vs Nabhinandan Digamber Jain and Another

These appeals impugn the correctness of two judgments of the High Court, one dismissing an application u/s 256(2) of the income tax Act, 1961, for referring a question of law pertaining to the assessment year 1988-89 and the other, dismissing an appeal u/s 260A of the income tax Act pertaining to the assessment year 1990-91.

By an application u/s 256(2) of the Act the Revenue sought a direction to the Tribunal for reference of the following question of law :

"Whether, on the facts and in the circumstances of the case, the income tax Appellate Tribunal is justified in holding that the agricultural income will not form a part of total income for the purpose of computing the accumulation of income in excess of 25 per cent, of the total income as laid down u/s 11 of the income tax Act, 1961 ?"

The main reason why the Revenue sought this question of law to be referred for the opinion of the High Court was because there was a conflict of views on this question between the view expressed by the Allahabad High Court in Commissioner of Income Tax Vs. Panchaiti Akhara Nirmal, and the view expressed by the Madras High Court in His Holiness Silasri Kasivasi Muthukumaraswami Thambiran and Another Vs. Agricultural Income Tax Officer, Kumbakonam and Others, .

The High Court, in the first impugned judgment, instead of deciding whether a question of law was required to be referred, disposed of the application u/s 256(2) by expressing its opinion that Section 10(1) of the Act excludes agricultural income and in that view of the matter the reference sought for was uncalled for. Having done so, the appeal u/s 260A on the substantial question of law pertaining to the next assessment year was also dismissed on the ground that the Revenue's application u/s 256(2) had been rejected previously.

In our view, the High Court erred on both counts. The fact that the question raised was a substantial question of law is incontrovertible. Instead of attempting to answer it while dealing with the application u/s 256(2), the High Court should have granted the application and directed the Tribunal to refer the question of law. Without a decision on the substantial question of law, the Revenue's appeal u/s 260A on a substantial question of law could not have been dismissed.

For the aforesaid reasons, we set aside both the judgments. The Tribunal is directed to draw up a statement of case and refer the question of law as mentioned above pertaining to the assessment year 1988-89 for the opinion of the High Court. Tax Appeal No. 15 of 2000 is restored to the file of the High Court, and admitted for hearing and disposal in accordance with law.

The appeals are accordingly disposed of with no order as to costs.