Tax reference limited to referred questions under section 256(1); no expansion from section 45(1) to section 48

SC dismissed the assessee's appeal, holding that the HC's advisory jurisdiction in a tax reference is confined strictly to the specific questions actually referred under section 256(1) of the Income-tax Act. The assessee could not expand a question framed with reference to section 45(1) to introduce issues relating to deductions under section 48, particularly where the Tribunal had expressly declined to refer that question and the assessee had not pursued a remedy under section 256(2). Although SC observed that the assessee appeared to have a strong case on the merits, it declined relief on technical grounds and only indicated recourse to administrative relief before the Central Board of Direct Taxes.

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Issues:
1. Whether the assessee's right of tenancy constitutes a capital asset under the Income-tax Act.
2. Whether there was a transfer of the assessee's right of tenancy within the meaning of the Act.
3. Whether the sum received by the assessee represented capital gains assessable under the Act for a specific assessment year.

Analysis:
The case involved an appeal from a judgment of the Calcutta High Court concerning the Income-tax Act. The assessee, a tenant in Calcutta, transferred his tenancy rights to a new lessee in exchange for a sum of Rs. 4,50,000. The Income-tax Officer treated a portion of this amount as capital gains for the assessment year 1967-68. The High Court upheld this treatment, leading to the present appeal before the Supreme Court.

The Tribunal had referred three questions to the High Court, primarily focusing on whether the tenancy right was a capital asset, whether there was a transfer, and if the sum received constituted capital gains. The assessee contended, based on precedent, that the entire sum should not be taxed as capital gains as the actual cost of the asset was not ascertainable. However, the Tribunal rejected this argument as the assessee had not provided evidence of the actual cost.

The Supreme Court noted that the assessee had not raised the specific argument regarding actual cost before the High Court. As such, the Court could not entertain this argument as it was not presented at the earlier stage. The Court emphasized that the jurisdiction of the High Court in an income tax reference is advisory and limited to issues raised at the appropriate time. Despite acknowledging the strength of the assessee's argument, the Court could not consider it due to procedural reasons.

Ultimately, the Supreme Court dismissed the appeal, citing the technicalities that prevented them from addressing the substantive merits of the case. However, the Court suggested that the assessee could seek administrative relief from the Central Board of Direct Taxes to potentially avoid the tax levied on the disputed amount. No costs were awarded in the case.

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