(Appeal from the judgment and order, dated August 27, 1998, of the Andhra Pradesh High Court in I.T.C. No. 15 of 1993).

Income-tax---

----Reference---Search and seizure---Law applicable---Explanation added with effect from April 1, 1989, enabling examination of person not merely in respect of books, documents or assets found in premises searched---Whether applicable where search conducted before that date and no such books, etc., found---Question relating to scope and ambit of provisions and whether Explanation is merely procedural---Are questions of law---High Court---Application for calling for reference-- Determination of such questions on merits---Not proper---Indian Income Tax Act 1961, Ss. 132(4), Expln. & 256(2).

On an application by the Department for calling for a reference of the question, inter alia, (i) whether the interpretation of the Tribunal regarding the scope and ambit of section 132(4) of the Income Tax Act, 1961, was correct, and (ii) whether the Explanation added to section 132(4) with effect from April 1, 1989, was prospective in nature though it laid down only a rule of evidence, the High Court held (i) that section 132(4), as it existed at the relevant time in 1988 when the persons were examined, would arise only when they were found to be in possession of money or books of account, (ii) that the Explanation came into force after their examination, and (iii) that the Tribunal had recorded a finding that the statements of the persons examined had no evidentiary value as they were not supported by any documentary proof; and, that, therefore, no question of law arose (see (1999) 238 ITR 177). On appeal to the Supreme Court:

Held, setting aside the decision of the High Court. that the two questions dealt with (i) 'the scope and ambit of section 132(4) and the Explanation thereto and (ii) whether the Explanation was prospective in nature or not. The High Court had in effect interpreted section 132(4) and its Explanation, which the High Court could not have done without calling for a reference.

The Supreme Court accordingly set aside the decision of the High Court, allowed the application of the Department in relation to the two questions and directed the Tribunal to state a case to the High Court on those two questions.

CIT v. Shri Ramdas Motor Transport (1999) 238 ITR 177 set aside.

M.L. Verma, Senior Advocate (Preetesh Kapar, B.V. Balaram Das and Ms. Sushma Suri, Advocates with him) for Appellant.

K. Parasaran, Senior Advocate (V. Balachandran, Advocate with him) for Respondent.

ORDER

The Revenue moved the High Court under section 256(2) of the Income Tax Act, 1961, seeking a reference of eleven questions. The High Court (see (1999) 238 ITR 177), disposed of the application by a lengthy judgment that concluded by saying that no question of law was found. Among the eleven questions, were questions Nos. 3 and 4, which read thus (page 179):

"3. Whether the interpretation of the Appellate Tribunal as, regards the scope and ambit under section 132(4) is correct?

4. Whether the Appellate Tribunal is justified in holding that Explanation to section 132(4) is prospective in nature; though the said Explanation laid down only rule of evidence and in that sense it is only procedural in nature?

In this appeal by the Revenue, leave has been granted restricted to Questions Nos.3 and 4.

As will be seen, these questions deal with the scope and ambit of section 132(4) of the Act and the Explanation thereto and whether or no: it is prospective in nature. In its long judgment declining to call for a reference, the High Court has, in effect, interpreted section 132(4) and its Explanation, which it could not have done without calling for a reference of the concerned questions and hearing it. On this short ground alone, the judgment and order under challenge needs to be set aside.

Mr. K. Parasaran, learned counsel for the assessee, submitted that instead of sending the matter back to the High Court for considering these questions on reference, we should deal with them ourselves because there was a difference of opinion among certain High Court with regard of the provisions of section 132(4) and the Explanation thereto. We are disinclined to do so. The High Court itself must consider the questions and, in doing so, the judgments of the High Courts that deal with section 132(4) and its Explanation.

Should the High Court come to the conclusion that the Explanation to section 132(4) is retrospective in nature, it should consider whether the Tribunal was right in the order that it passed having regard to the evidence on record.

The civil appeal is allowed. Tie judgment and order under challenge is set aside. The application of the Revenue for a reference under section 256(2) is allowed insofar as it relates to Questions Nos. 3 and 4 aforementioned. The Tribunal shall refer those questions to the High Court for consideration, after drawing up a statement of case.

No order as to costs.

M.B.A./1082/FCAppeal allowed.