SALEM COOPERATIVE CENTRAL BANK LIMITED versus COMMISSIONER OF INCOME TAX, MADRAS

Citation: [1993] 2 S.C.R. 997 · Decided: 06-04-1993 · Supreme Court of India · Bench: B.P. JEEVAN REDDY · Disposal: Dismissed

Judgment (excerpt)

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SALEM COOPERATIVE CENTRAL BANK LIMIJ'ED 
A 
v. 
COMMISSIONER OF INCOME TAX, MADRAS' 
APRIL 6; 1993 
[B.P. JEEVAN REDDY AND N. VENKATACHALA, JJ.) 
• 
B 
Income Tax Act, 1961: 
Sections 86(i) and 256--Cooperative Society carrying on banking busi-
ness--Business income exempt from income·t~nterest 011 Security Deposit C 
for supply of electricity-Whether additio11al surcharge leviable-'-Tribunal 
holding interest to be business income-Reference to High Court-High CouTt 
returning reference and directing Tribunal to consider all poin.ts whether 
additional surcharge attracted--Whether High CouTt exceeded the reference 
jurisdiction. 
· 
D 
The appellant-assessee was. a cooperative society engaged in the 
business or banking. The previous year relevant to the assessment year 
19634i4 was the year ending June 30, 1962. The business income or the 
assessee was exempt under the provisions or Section 80(1) as it then stood. 
During the aforesaid accounting year, th.e assessee received a sum or Rs. E 
19 being the interest on the deposit made by it with an Electricity Distribo· 
tioo Company. This deposit had to be made by the assessee as it was 
required by the conditions notified by the electricity company for supply 
of energy, and it carried interest. It was on account or the said deposit that 
the sum or Rs. 19 was received by the assessee, by way of interest. 
The Income-tax Officer treated the amount or Rs. 19 as income from 
other sources, and on that basis, he levied additional surcharge, in a sum 
of Rs. 81,920. 
F 
The assessee appealed to the Appellate Assistant Commissioner who G 
upheld the assessee's contention that the said sum of Rs. 19 constituted 
its business income and, was therefore, exempt. He held that the levy of 
surcharge was unsustainable.-
The Revenue appealed to the Appellate Tribunal which held that it 
was 'income from business', and accordingly dismissed the Revenue's H 
997 
·1 
998 
SUPREME COURT REPORTS 
(1993) 2 S.C.R. 
1 \
A appeal. At the instance of the Revenue, the Tribunal referred the question 
to the High Court. 
"
The High Court held, that the assumption made by the Appellate 
f
Assistant Commissioner and the Tribunal that the liability of surcharge 
)I. 
B 
was not attracted in case the said sum of Rs; 19 represented business 
income may not be warranted and that in such a situation the High Court 
( • 
does possess the power to correct the error so long· as the point arose out 
J.
of the Tribunal's order. It returned the reference unanswered and directed 
the Tribunal to consider the case on all poiPts that require consideration 
of the question whether additional surcharge was attracted. 
c 
In the assessee's appeal to this Court, it was submitted that the 
High Court exceeded its jurisdiction in making the aforesaid direction, 
that the High Court widened the scope of enquiry which it was not 
empowered to do in a reference under Section 256 and that the matter 
i
should be sent back· to the High Court for answering the question of law 
D as stated by the Tribunal. 
l
Dismissing the appeal, this Court, 
HELD : All that the High Court has asked the Tribunal to do is to 
E 
consider whether the liahiliiy of surcharge is not attracted even if the said 
sum of Rs. 19 is treated as income from business. The fact that the 
revenue was also a party to the said en-oneous assumption before the 
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Tribunal cannot stand in the way of the Revenue resiling from an er· 
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roneous assumption of law. (1004 D-F] 
[
F 
In the instant case, the question was whether additional surcharge 
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was leviable for the assessment year 1963-64 under the relevant Finance 
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Act. The assessee's contention was that it had no income which was liable 
to be assessed to income-tax inasmuch as its entire income was exempt 
under Section 81(1)(a), and it was submitted that the sum of Rs. 19 was 
( 
G 
also a business income and, therefore, the liability of additional surcharge 
did not attach to the assessee. The l.T.O. took the view that the said sum 
of Rs. 19 represented income from other sources and, therefore, liability 
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of additional surcharge was attracted. The Appellate Assistant Commis· 
sioner upheld this contention. The High Court, however, thought that 
having-regard to the language of the provisions of the relevant Finance 
t 
H Act, the Tribunal ought to examine whether the liability to additional 
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SALEM CO-OP. BANK v. C.l.T. [REDDY, J.] 
999 
surcharge was attracted even if the said 

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