PUNJAB CO-OPERATIVE BANK LTD, AMRITSAR Vs. COMMISSIONER OF INCOME TAX, LAHORE

JUDGEMENT

(1.) This is an appeal from a judgment of the High Court of Judicature at Lahore dated 3 February 1938, delivered on a reference under S. 66 (2), Income-tax Act (11 of 1922), by the Commissioner of Income-tax, Punjab, North-West Frontier and Delhi Provinces. The appellant (hereinafter referred to as the Bank) is a joint stock company, incorporated in the year 1905, carrying on the business of banking. The objects for which the Bank was established are set out in para. 3 of its memorandum of association and include- (a) To carry on in India and elsewhere the trade or business of banking in all its branches, and to transact and do all matters and things incidental thereto, or which may at any time hereafter be usual in connexion with the business of banking or dealing in money or securities for money. Paragragh 82 (i) of the articles of association provides that the directors- may invest funds of the company upon such securities or investments as they may think advisable; from time to time, vary such securities and Investments, and convert the same, as occasion may require or as they may deem expedient, but they shall not invest or employ any part of the funds of the company in the purchase of its own shares.

(2.) The profits of the Bank derived from its business during the year 1935 were assessable to income-tax in the year 1936-7 which is the year of assessment involved in this appeal. The High Court on 3 February 1938, decided that on the facts stated in the statement of the case drawn up by the Commissioner of Income- tax under S. 66 (2), Income-tax Act, a question propounded by the Commissioner must be answered in the affirmative, with the result that the amount of Rs.1,42,588 realised by the Bank on the sale in 1935 of certain securities and shares over their cost price is taxable as part of the profits or gains of the business of the Bank which arose in 1935 (see S. 10, Income-tax Act). On 17 June 1938, the High Court certified under S. 66A, Income-tax Act, on the petition of the Bank that the case was a fit case for appeal to His Majesty in Council. As it happened the two learned Judges who gave this certificate were those who heard and decided the case on 3 February 1938. On the appeal coming on for hearing before their Lordships a preliminary objection to the appeal was taken which has been elaborately argued, and it seems desirable in the first place to deal with this objection. It is based on the contention that no direct appeal now lies to His Majesty in Council from any judgment, decree or final order made by any High Court in British India unless that Court has recorded that it withholds the giving of a certificate that a substantial question of law as to the interpretation of the Government of India Act, 1935, is involved. That is said to be the effect of S. 205 of the Act, and reliance is placed on a decision of their Lordships in a recent case which must be considered later. S.205 is in the following terms: (1) An appeal shall lie to the Federal Court from any judgment, decree or final order of a High Court in British India, if the High Court certifies that the case involves a substantial question of law as to the interpretation of this Act or any Order in Council made thereunder, and it shall be the duty of every High Court in British India to consider in every case whether or not any such question is involved and of its own motion to give or withhold a certificate accordingly. (2) Where such a certificate is given, any party in the case may appeal to the Federal Court on the ground that any such question as aforesaid has been wrongly decided, and on any ground on which that party could have appealed without special leave to His Majesty in Council if no such certificate had been given, and, with the leave of the Federal Court, on any other ground and no direct appeal shall lie to His Majesty in Council, either with or without special leave.

(3.) The object of this section is plain. It is to ensure that in every proceeding where a judgment, decree or final order is made by any High Court in British India which involves a substantial question of law as to the interpretation of the Act or any Order in Council made thereunder (which for brevity will be referred to hereafter as the "specified question of law") the appeal, if any, that is the direct appeal, shall lie to the Federal Court. The word " direct " is used; because S.208 makes provision for an appeal in such a case on certain conditions from a decision of the Federal Court to His Majesty in Council; but nothing turns on this for the present purpose. The means adopted in the section to carry out the above object are these : (1) The appeal is stated to lie to the Federal Court if the High Court certifies that the specified question of law is involved and is a substantial question. (2) A duty is imposed on the High Court of its own motion to give or to withhold a certificate that the specified question of law, being a substantial question, is involved. This part of sub-s. (1) contains some other important words which will be considered later. (3) Where such a certificate is given any party in the case may appeal to the Federal Court on defined grounds (sub-s. (2)) (4) Where such a certificate is given no (direct) appeal shall lie to His Majesty in Council even with special leave (sub-s.(2)). It is clear that the section does not provide for a case where no such certificate is given, however plain it may be that it ought to have been given. There is no provision, express or implied, taking away from His Majesty in Council the right to entertain a direct appeal in such case, and a fortiori there is nothing taking away the right of direct appeal to His Majesty in Council in a case where no substantial question of law of the specified character could by any reasonable possibility arise. What then is the position if it becomes manifest to the Board that, by some mischance or inadvertence or forgetfulness, the High Court has neglected its duty under the latter part of sub.s. (1) to give a certificate in a case where the specified question of law is or may reasonably be involved ? It is plain that it is for the High Court, not this Board to determine whether the question is involved and if so whether it is substantial. In such an event although the jurisdiction of His Majesty in Council has not been affected, since there has been no certificate, nevertheless there has been a dereliction of duty by the High Court, and the Board, in accordance with the principles on which it is accustomed to act in tendering advice to His Majesty, would not think it right to hear the appeal until a proper certificate has been obtained or it is on record that a certificate has been withheld.