High Court Declines Tax Appeal Reference

Birla Cotton Spinning And Weaving Mills Limited Versus Commissioner Of Income-Tax, Rajasthan

Birla Cotton Spinning And Weaving Mills Limited Versus Commissioner Of Income-Tax, Rajasthan - [1980] 123 ITR 354, 17 CTR 177, 4 TAXMANN 225 Issues Involved:
1. Validity of ITO's proceedings under Section 23A of the Indian Income-tax Act, 1922.
2. Whether charitable trusts are 'persons' under Explanation 1(b)(iii) of Section 23A.
3. Liability of Birla Cotton Spinning and Weaving Mills Ltd. to pay super-tax as the legal representative of the dissolved companies.

Detailed Analysis:

1. Validity of ITO's Proceedings under Section 23A:
The primary issue was whether the Income Tax Officer (ITO) could validly initiate proceedings under Section 23A of the Indian Income-tax Act, 1922, against two dissolved companies, Merchandise and Stores Ltd. and Rajputana General Dealers Ltd., which had amalgamated with Birla Cotton Spinning and Weaving Mills Ltd. The ITO issued notices to the dissolved companies and subsequently passed orders demanding additional super-tax. The Appellate Assistant Commissioner (AAC) and the Appellate Tribunal upheld these orders, reasoning that the proceedings were effectively against the Birla company as the legal representative of the dissolved companies. The Tribunal held that the amalgamation did not amount to winding up and that the Birla company was liable for the obligations of the dissolved companies. However, the High Court found that the appeals before the AAC and the Tribunal were incompetent as they were filed by non-existent entities, thus rendering the reference to the High Court invalid.

2. Whether Charitable Trusts are 'Persons' under Explanation 1(b)(iii) of Section 23A:
This issue was not elaborated upon in the judgment, as the primary focus was on the validity of the proceedings under Section 23A and the jurisdictional matters.

3. Liability of Birla Cotton Spinning and Weaving Mills Ltd.:
The Tribunal held that Birla Cotton Spinning and Weaving Mills Ltd. was liable to pay the super-tax levied under Section 23A as the legal representative of the dissolved companies. It was argued that the amalgamation order required the Birla company to discharge all liabilities and obligations of the transferor companies. However, the High Court found that the appeals and subsequent references were incompetent as they were filed by non-existent entities. The court concluded that the proper remedy for the Birla company would have been to seek quashing of the orders through appropriate proceedings, rather than filing appeals on behalf of non-existent companies.

Jurisdictional Issues:
The High Court also addressed a significant jurisdictional issue. It held that the reference to the Delhi High Court was incompetent as the original assessment orders were passed by the ITO in Jaipur, and the appeals were heard by the AAC in Jaipur. According to the court, the appropriate jurisdiction lay with the Rajasthan High Court, not the Delhi High Court. This conclusion was based on the precedent set by the decision in Seth Banarsi Dass Gupta v. CIT [1978] 113 ITR 817, which determined that the jurisdiction of the High Court is based on the location of the assessing officer and the AAC.

Conclusion:
The High Court ultimately declined to answer the reference, holding that the appeals before the AAC and the Tribunal were incompetent and that the Delhi High Court lacked jurisdiction to entertain the reference. The court emphasized that the proper forum for such matters was the Rajasthan High Court and that the appeals should have been filed by the Birla company directly if it had any grievance regarding the tax demands. The reference was returned unanswered as incompetent, with no order as to costs.