TMI Blog1940 (7) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... r be usual in connection with the business of banking or dealing in money or securities for money. Paragraph 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. 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 3rd February 1938, decided that on the facts stated in the statement of the case drawn up by the Commissioner of Income- tax under Sec. 66(2) of the Income-tax Act a question propounded by the Commissioner must be answered in the affirmative, with the result that the amount of ₹ 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich 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 Section 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 pur- pose. 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-section (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-section (2)]. (4) Where such a certificate is given no (direct) appeal shall lie to His Majesty in Council even with special leave [sub-section (2)]. It is clear that the section does no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but for the more general reason indicated above. They will add that the course taken of dismissing the appeal was no doubt to some extent due to the circumstances that the Board entertained little doubt that the certificate would be given. If the case had been one in which there was a real doubt whether the certificate would be given or withheld, a more lenient course might have been taken, and the appeal might have been directed to stand over until the High Court had either given a certificate or decided to withhold it. It remains to consider what the position is and what course should be taken by the Board when the appeal is from the High Court and no such specified question of law can with any reasonable probability be thought to be involved, and where, not unnaturally, the High Court have neither granted a certificate nor recorded that a certificate is withheld. The first question here is whether in such a case Section 205 applies at all, and at this point it is necessary to examine the language in the latter part of sub- section (1) in order to determine the nature of the duty imposed upon the High Court. The language is of a very comprehensive kind. The duty is to be that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... doing so only in cases where there is a reasonable possibility that the specified question arises or may arise, or, alternatively, the duty is one which need only be complied with in such a case. It is plain that in the vast majority of cases no such question can arise. It seems to their Lordships most difficult to believe that the Legislature was intend- ing to lay on the Judges of every High Court an obligation as part of their judicial duties to record their intention to withhold a certificate in such cases as an ordinary judgment on a criminal trial or in a libel action or a decree or judgment in an everyday case for the recovery of a trifling sum of money, for example, in a normal action for a debt. Their first duty is to consider ; but only it would seem when there is in fact something to consider. Their Lord- ships have come to the conclusion that the duty imposed on the Judges by words of a directory character is one which arises only in a case where there is some reasonable ground for thinking that the specified question may be involved. The conclusions on this matter of the construction of SecTion 205 are accordingly these: First, no question of the jurisdiction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und for thinking that any question, still less a substantial one, as to the interpretation of the Government of India Act, 1935, can be involved. Two other matters were argued on the preliminary objection, first, whether a decision on a reference under Section 66(2), Income- tax Act, is a judgment, decree, or final order within the meaning of those words in Section 205: secondly, whether the certificate given as above mentioned on the 17th June 1935 under S. 66-A of the Income-tax Act is not a sufficient proof that the certificate under S. 205 of the Government of India Act (if the section was applicable) had been withheld. On these two questions their Lordships do not think it necessary to express any opinion. Coming now to the appeal by the Bank it may be observed that the High Court rightly appreciated that the question was ultimately one of fact to be decid- ed on the findings of the Commissioner under S. 66(2) of the Income-tax Act, and that the appellant Bank had to establish either that the Commissioner had misdirected himself on some question of law or that there was no sufficient evidence to justify his findings. Their Lordships note that the High Court, in deciding t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... position since 1932 as on the 31st December of each year can be gathered from a table contained in the statement which is as follows: Accounting year Assessment year Deposits in thousands. Investments in thousands. Total reserves in thousands. Rs. Rs. Rs. 1932 1933-4 11,543 4,584 997 1933 1934-5 12,361 4,931 1,041 1934 1935-6 11,882 5,088 1,043 1935 1936-7 11,310 3,859 1,234 It is apparent that the decrease of deposits in the year 1935 as compared with the previous year is roughly 5 per cent. while the decrease in investments as between the two years is more than 20 per cent. So far from there being a finding that the sales of shares and securities were due to any speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but it may be very undesirable to use this second line of defence. If as in the present case some of the securities of the Bank are realised in order to meet withdrawals by depositors, it seems to their Lordships to be quite clear that this is a normal step in carrying on the banking business, or, in other words that it is an act done in what is truly the carrying on of the banking business. This, it appears to their Lordships, is the more appropriate and satisfactory ground for dealing with the question arising in the present case. It accords exactly with one of the findings in the statement of the Commissioner agreeing with the views both of the Income-tax Officer who first dealt with the case and of the Assistant Commissioner. He observed that the purchase and sale of shares and securities are so much linked with the deposits and withdrawals of clients that with the existing articles of association the purchase and sale of shares and securities are as much part of the assessee's business as receiving deposits from clients and paying them off are, and therefore, the profits which arise from the former transactions are as much business profits as the profits arising from th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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