(a) Income-tax--

----Reference---Unless a question of law arises out of the order of the Tribunal, High Court has no power to decide the same.

(b) Income-tax---

----Reference---Question of law---Whether a question of law formulated arises out of the order of the Tribunal itself and calls for decision of the High Court is to be seen by the High Court---If the High Court finds that the questions as formulated arise out of the order of the Tribunal and are questions of law and call for decision, reference is competent.

(c) Income-tax---

----Double taxation ---Assessee, a limited company and subsidiary of a Government Corporation carrying on business of marketing petroleum products of the said Government Corporation---Assessing Officer treating the amount representing the price differential surplus resulting from refixation of the price of petroleum products by the Government as would fall profit of the assessee-company and made addition of the said amount to the total income of assessee---Validity---Government Corporation through notification directed that such surplus was normal income of the assessee--Transfer of the amount thus was by way of diversion of income of the assessee under overriding title-- Amount in question having been earned by assessee due to rectification of price of the stock and the stock belonged to assessee, the profit, assessee earned was its profit and was taxable in the hands of assessee---Merely because the amount was to be paid to the Corporation on the direction of the Government the nature of, the expenditure would not change and did not assume the character of revenue expenditure---Profit in question being income of the assessee and on subsequent payment of the same to the Corporation it entered upon a different passage and the Corporation being a separate anti distinct entity unit of assessment from the assessee contention on double taxation by the assessee was repelled.

Where under the obligation the income is-diverted to before it reaches the hand of the assessee it is a revenue expenditure and merits deduction. But where the income is applied to discharge the obligation of the assessee after it reaches the assessee it is a revenue expenditure and is not a deductible amount. In the present case amount in question was earned due to refixation of price of the stock. The stock of the petroleum products belonged to the assessee and the profit it earned was its profit and was taxable in the hand of the assessee.

The Corporation through notification directed that such surplus is "normal income of the company". In other words the transfer of the amount was by way of diversion of income of the assessee under overriding title.

Merely because, in this case, the amount was to be paid to the corporation on the direction of the Government the nature of the expenditure did not change and it did not assume the character of revenue expenditure, as the payment was made out of the income of the assessee it was not a revenue expenditure.

As the surplus in the case did not remain "in one passage of money in the form of one sort of income" even if accepted the same money entered in another passage in another form of income in the hands of the Corporation, the said amount can be taxed twice as payment to the Corporation is its income and the Corporation is , a different unit of taxation. As the profit in question was income of the assessee-company and on subsequent payment of the same to the Corporation it entered upon a different passage and the Corporation being a separate and distinct unit of assessment from the assessee-company the contention of the assessee on double taxation failed.

CIT v. Sitaldas Tirathdas 41 ITR 367; Pondichery Railway Co. v. CIT, AIR 1931 PC 165; S. Naseem Anwar v. Income Tax Officer 15 DLR 414; Tata Iron & Steel Co. Ltd. v. N.C. Upadhaya and another 96 ITR 1; Navnitlal C. Javeri v. K.K. Sen, Appellate Commissioner of Income Tax 56 ITR 198 ref.

CIT v. Travancore Sugar and Chemical Ltd. 90 ITR 307 distinguished.

(d) Interpretation of statutes---

---- Taxing statute is not to be so interpreted that its effect should cast a burden twice over payment of tax on the tax payer.

Tata Iron & Steel Co. Ltd. v. Union of India and others 75 ITR 676 ref.

(e) Income-tax---

----Reference---Documents placed before the High Court were not produced before the Tribunal and thus were not considered by it---High Court declined to accept such documents at reference stage being beyond the order of the Tribunal.

Rafique-ul Haq with Mustafa Adil and Md. Shorful Islam Khan for Applicant.

Md. Moksudur Rahman for Respondent.

JUDGMENT

A.M. MAHMUDUR RAHMAN, J.---In this reference application an important question of law has been formulated by the assessee-company.

2. In order to appreciate the question and to answer the same it is necessary to state the facts in short. The assessee, a limited company, carries on business of marketing petroleum products.. It is a subsidiary company of Bangladesh Petroleum Corporation hereinafter shall be called "the corporation". The Corporation was established under the Petroleum Corporation Ordinance 69 of 1974. The assessee for the assessment year 1981-82 was assessed to tax by the Deputy Commissioner of Taxes; Companies Circle-III, Dhaka (East Zone), Dhaka on total income of Taka 10,80,03,751.00. The said amount was computed on the basis of the books of accounts produced by the assessee supported by audited balance-sheet, the trading and the profit and loss account. The Deputy Commissioner of Tax while making the assessment treated a sum of Taka 8,15,79,411.00 representing the price differential surplus resulting from refixation of the price of petroleum products by the Government as windfall profit of the assessee-Company and made addition of the said amount to the total income.

3. The assessee-Company took appeal against the order of assessment to the Appellate Joint Commissioner of Taxes. The Appellate Joint Commissioner of Taxes deleted the addition from the total income holding that "the windfall gain from price differential surplus was transferred in the hands of the Corporation who is separately assessed by the Department".

4. The Revenue against the order of the Appellate Joint Commissioner of Taxes deleting the amount appealed before the Appellate Tribunal, Bangladesh, Additional Bench, Dhaka-3, Dhaka. The tribunal, however, upon an elaborate discussion of the order of the assessment took the view that the addition of Taka 8,15,79,411.00 was windfall profit arising out of the re-fixation of the price of stock of petroleum products of the assessee and held that the Deputy Commissioner of Taxes was justified in adding the amount to total income of the assessee.

5. The assessee against the order of the Tribunal filed this reference referring the following questions of law said to have arisen out of the order of the Tribunal to the High Court Division for decision:

"(i) Whether in the facts and circumstances of the case the Tribunal was legally justified in holding that the difference arising out of re-fixation of price of stock of petroleum products is windfall profit of the applicant and not in the hands of the BPC though the said profit was transferred and paid to the BPC?

(ii) Whether in the facts and circumstances of the case the Tribunal was justified in holding that the transfer of price differential in favour of the BPC is a clear case of diversion of income by overriding title and as such the applicant is liable to be taxed though the Government direction is to treat the same as revenue expenditure"?

6. Mr. Rafique-ul-Haq first, contends that the Tribunal was not justified in holding that the addition in the trading accounts the excess amount as windfall income inasmuch as the sum of Taka 8,15,79,411.00 was paid to the Corporation and such payment was a revenue expenditure. Secondly, the Tribunal was not justified in holding that the said amount on its coming into existence attracts tax in the hand of the assessee. He submits that as the Corporation received the profit it was to be assessed to tax in hand of the Corporation. Thirdly, he submits that Circular No.9, IT, dated 10-8-1976 which was relied upon by the Tribunal was superseded by the decision of the Ministry of Finance, dated 17th November, 1979 which was communicated by the National Board of Revenue to the various tax authorities, the Tribunal was not justified in holding that on the face of the circular of 1976 no circular having been issued, the addition of the amount was justified. Lastly, contends that the Tribunal was not justified in holding that transfer of the amount in question was a "clear case of diversion of income by overriding title" as the assessee is being controlled and supervised by the Corporation and it acts under the direction of the Corporation as a subsidiary company the amount paid in question was paid in its business exigencies and such payment satisfies the character of revenue expenditure and the Tribunal was not justified in holding that the amount is the profit of the assessee.

7. The Revenue vehemently submitted before us that the questions formulated must arise out of the order of the Tribunal and if the questions do not so arise the reference to this Court shall fail. Mr. Rahman submits that the questions formulated are not question of law arising out of the order of the Tribunal. True, unless a question of law arises out of the order of the Tribunal this Court has no power to decide the same. But whether a question of law formulated arises out of the order of the Tribunal itself and calls for decision of this Division is to be seen by this Division. The questions as formulated, seems to us, to arise out of the order of the Tribunal and are questions of law and call for decision and the reference is competent. Hence the first contention of the Revenue fails.

8. It was contended by the Revenue that what assessee transferred is its profit which the assessee earned as a result of re-fixation of the price of stock of petroleum products of the assessee by the Government and as -such the Tribunal was justified in holding that the payment under the direction of the Government was clear case of diversion of income by overriding title. It was further argued by the Revenue that there is no finding of the Tribunal that the said amount was paid to the Corporation and even then if question. are treated to be questions of law but the Tribunal having had correctly decided the points raised before it the question should be answered in the affirmative.

9. On reference to the order of the assessment we find that the Deputy Commissioner of Taxes stated that the assessee in the books of account credited Taka 8,13,79,411.00 and he treated this amount a windfall profit of the assessee due to re-fixation of the price of petroleum products by the Government on 21-7-1980, 3-5-1981 and 4-6-1981. It also appears that a written explanation was submitted by the assessee before him stating that the Corporation through a Notification advised the assessee to treat all the surplus on account of price differential" as normal income of the company and thereafter such surplus to be considered as payable to Bangladesh Petroleum Corporation". (The emphasis added). The Deputy Commissioner of Taxes also found that the amount was not covered by the circular dated 25-10-1982 which was relied upon by the assessee-Company and as the same does not relate to the accounting year in question cannot be given retrospective effect to cover the accounting year in question. Mr. Rafique-ul-Huq submitted' that this is not correct as the agreement referred to the period on November 17, 1979. This contention of Mr. Huq finds answer in the finding of the Tribunal which, as a matter of fact, found "so it is apparent that no agreement was executed during the accounting year covering the period 1-7-1980 to 30-6-1981. Such post-dated agreement can have no validity in the eye of law as it was not executed during the accounting year under review as per decision, dated 17-11-3979 as claimed by the assessee-Company". So far as the first contention of Mi. Huq is concerned, my opinion is that the amount in question is profit earned by the assessee-company arising out of re-fixation of the stock of petroleum products of the assessee and as the same reached the hands of the assessee as profit and the subsequent payment of the amount to the corporation was not revenue expenditure for carrying out the business of the assessee but it was a diversion of income of the assessee. In order to decide whether amount is the income of assessee or not, the true test is whether the amount reached the hand of the assessee. In the case before us the surplus was no doubt to be paid to the Corporation under the direction of the Government and there seems to arise an obligation. But each obligation is not the decisive factor. Where under the obligation the income is diverted to before it reaches the hand of the assessee it is a revenue expenditure and merits deduction. But where the income is applied to discharge the obligation of the assessee after it reaches the assessee it is a revenue expenditure and is not a deductible amount. In this case before us the amount in question was earned due to refixation of price of the stock. The stock of the petroleum products belonged to the assessee and the profit it earned was its profit and was taxable in the hand of the assessee. We find support of our view in the case of CIT v. Sitaldas Tirathdas 41 ITR 367. After reviewing a large number of decisions the Supreme Court of India observed:

"In our opinion, the true test is whether the amount sought to be deducted, in truth, never reached the assessee as his income. Obligations no doubt, there are in every case, but it is the nature of the obligation, which is the decisive fact. There is a difference between an amount, which a person is obliged to apply out of his income and an amount, which by the nature of the obligation cannot be said to be a part of the income of the assessee. Where by the obligation income is diverted before it reaches the assessee, it is deductible but where the income is required to be applied to discharge an obligation after such income reaches the assessee, the same consequence, in law, does not follow. It is the first kind of payment which can truly be executed and not the second. The second payment is merely an obligation to pay another a portion of one's own income, which has been received and is since applied. The first is a case in which the income never reaches the assessee, who even if he were to collect it, does so, not as part of his income, but for and on behalf of the person to whom it is payable".

Again the case of Pondichery Railway Co. v. CIT, AIR 1931 PC 165 Lord Macmillan, speaking for the Judicial Committee, observed:

"A payment out of profits and conditional on profits being earned cannot accurately be described as a payment made to earn profits. It assumes that profits have first come into existence. But, profits on their coining into existence attract tax at that point and the revenue is not concerned with the subsequent application of the profits."

It is also found that the Corporation through notification directed that such surplus is "normal income of the company". (Emphasis added). In other words, the transfer of the amount was by way of diversion of income of the assessee under overriding title. The Tribunal did not accept the decision made in ITA No. 4142 of 1982-83 cited by the assessee in respect of the assessment year 1980-81 wherein the addition made by the DCT on account of windfall profit due to price re-fixation was deleted and we think that the Tribunal has correctly done so.

10. Mr. Rafique-ul-Huq also cited the decision in the case of S. Naseem Anwar v. Income Tax Officer, 15 DLR 414, the case of Tata Iron and Steel Co. Ltd. v. NC Upadhaya and another 96 ITR 1 and the case of Navnitlal C Javeri v. K.K. Sen, Appellate Commissioner of Income Tax 56 ITR 198 to contend that circular of the National Board of Revenue has binding force on the income of the authority. We do not doubt about the proposition of law. But each case has to be decided on its own peculiar facts, more so in income-tax matters. Merely because, in this case, the amount was to be paid to the corporation on the direction of the Government the nature of the expenditure did not change and it did not assume the character of revenue expenditure. Here as the payment was made out of the income of the assessee it was not a revenue expenditure. We are to answer the questions as formulated arising out the order of the Tribunal. On a careful examination of the order of the Tribunal we are unable to find that there is any finding that Taka 8,15,79,411.00 was transferred to the Corporation before it became the income of the assessee. Therefore, the contention that the amount was paid on the direction of the Government and there was violation of circular of the National Board of Revenue has little force. The Tribunal stated the facts of the case. On the facts as emerged from the order of the Tribunal we are unable to agree with the learned counsel for the applicant that even after determining the amount as profit, the same was revenue expenditure and not income of the assessee. The learned counsel for the applicant cited the decision in the case of CIT v. Travancore Sugar and Chemical Ltd. 90 ITR 307. The fact of the case is that the assessee, a limited company, carried on the business of manufacturing sugar, running a distillery and a tincture factory. It entered into an agreement with the Government whereby the Government agreed to sell certain of its business assets to the assessee. According to the agreement, the Government would be entitled to ten percent. of the net profits of the company every year. Net profits, according to the term of agreement, would mean the amount for which the company audited profits in any year were to be assessed to income tax. The assessee, according to the terms of the agreement, paid certain sums to the Government and claimed deduction of the same for the assessment year in question:. On interpretation of the agreement it was held by the High Court that net profits referred to in the agreement was not profits and gains of business within the meaning of the Income Tax Act but the amount payable to the Government was for the purpose of earning net profits by the assessee. Taking such view the High Court of Kerala held that the payments to the Government were liable to be deducted. The facts of the said case are quite distinguishable from the facts of the instant case before us. Therefore, we hold that the principle laid down in that case has no manner of application to the facts of the instant case.

11. It was further contended on behalf of the applicant that as the amount in question suffered tax also in the hand of the Corporation the Tribunal was wrong to hold that the addition made by the Deputy Commissioner of Taxes was justified. In so contending he cited the decisions in the case of Jain Brothers and others v. Union of India and others 77 ITR 107 (SC), and the case of Tata Iron & Steel Co. Ltd. v. Union of India and others 75 ITR 676. In Jain Brothers the Supreme Court has referred to the classic dictum of Rowlatt J. only, in Commissioner of Inland Revenue v. Frank Bernard Sanderson, 8 TC 44 that "in income-tax same income is not taxed twice". But on facts in Jain Brothers the Supreme Court observed: "If any double taxation is involved the legislature itself has, in express words, sanctioned it. It is not open to anyone thereafter to invoke the general principles that the subject cannot be taxed twice". In Tata Iron & Steel Co. Ltd. it was held that a taxing statute should not be so interpreted that its effect will be to cast a burden twice over payment of tax on the taxpayer. A close examination of the dictum of Rowlatt, J., in Sanderson's case is attracted to the facts of the instant case. We may profitably quote the relevant portion of the judgment:

"It is often said, but not always understood, that in income-tax the same income is not taxed twice. That means that you cannot tax it more than once on one passage of the money in the form of one sort of income. If a man earns 100 pounds by his profession and gives it to his son to clothe himself, or to his daughter, of the year, the son or the daughter does not pay income-tax; there is only one passage of the money in the form of that income. If a man earned 100 pounds and pays it to somebody else for services rendered in a trade or profession by that other person the sum of 100 pounds enters upon another passage in another form of income, and therefore, attracts income-tax gain."

At the time of hearing both revenue and the assessee produced before us documents to show that amount was taxed twice. In the light of the dictum of Rowlatt, J., we are of the opinion that as the surplus in the case did not remain "in one passage of money in the form of one sort of income, "if even accepted, the same money entered in another passage in another form of income in the hands of the Corporation, the said amount can be taxed twice as payment to the Corporation is its income and the Corporation is a different unit of taxation. As the profit in question was income of the assesee-Company and on subsequent payment of the same to the Corporation it entered upon a different passage and the Corporation being a separate and distinct unit of assessment from the assessee-company the contention of the applicant on double taxation fails. Again, as the documents produced before us were not placed before the Tribunal and was not considered, we are unable to accept those papers at this stage as that would tantamount to travel beyond the order of the Tribunal without sanction of law. Moreover, whether the amount already suffered tax at hands of the Corporation was not agitated before the Tribunal and it did not decide the same.

12. Therefore, in view of the aforesaid discussion, we answer the questions 1 and 2 in the affirmative and against the assessee. The order of stay granted by the Court on 29-10-1992 is hereby vacated.

The parties are to bear their respective costs although.

M.B.A./411/T.F. Questions answered.