Mrs. Kusumben D. Mahadevia v. The Commissioner of Income-Tax, Bombay

Case Analysis

Mrs. Kusumben D. Mahadevia v. The Commissioner of Income-Tax, Bombay

June 18, 2025

A) ABSTRACT / HEADNOTE

The case Mrs. Kusumben D. Mahadevia v. Commissioner of Income-Tax, Bombay, Civil Appeal No. 507 of 1957, delivered by the Hon’ble Supreme Court of India, critically examined the jurisdictional limits of the High Court under Section 66 of the Indian Income-tax Act, 1922. The primary legal contention revolved around whether the High Court could adjudicate on a question of law which was not expressly decided by the Income Tax Appellate Tribunal (ITAT). The Tribunal had decided the issue concerning the territorial accrual of dividend income, but had not ruled on the applicability of the Merged States (Taxation Concessions) Order, 1949. Nonetheless, the Bombay High Court reframed the question to incorporate the applicability of the said Order and gave its decision, bypassing the question originally referred by the Tribunal. The Apex Court held that the High Court exceeded its jurisdiction by deciding a legal question not arising from the Tribunal’s order. This decision reiterates the strict procedural boundaries prescribed under Section 66 of the 1922 Act and reinforces judicial discipline in tax reference proceedings.

Keywords: Income Tax, Jurisdiction, Section 66, High Court, Tribunal, Taxation Concessions Order, Dividend Accrual, Merged States

B) CASE DETAILS

i) Judgement Cause Title
Mrs. Kusumben D. Mahadevia v. The Commissioner of Income-Tax, Bombay

ii) Case Number
Civil Appeal No. 507 of 1957

iii) Judgement Date
March 30, 1960

iv) Court
Supreme Court of India

v) Quorum
Hon’ble Justices S.K. Das, J.L. Kapur, and M. Hidayatullah

vi) Author
Justice M. Hidayatullah

vii) Citation
AIR 1960 SC 979; (1960) 3 SCR 417; [1960] 39 ITR 540 (SC)

viii) Legal Provisions Involved
Section 66 of the Indian Income-tax Act, 1922; Paragraph 4 of the Merged States (Taxation Concessions) Order, 1949

ix) Judgments overruled by the Case (if any)
None

x) Case is Related to which Law Subjects
Taxation Law, Administrative Law, Jurisdiction of Courts, Income from Dividends, Procedural Law

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The dispute in the case stems from an income tax assessment concerning the dividend income of a shareholder of a private limited company, Mafatlal Gagalbhai & Co. Ltd., whose business operations extended into the then Baroda State. The assessee, Mrs. Kusumben D. Mahadevia, argued that the dividend income accrued in the Baroda State and, hence, was protected under the Merged States (Taxation Concessions) Order, 1949. While the Income Tax Appellate Tribunal rejected the territorial claim, it did not adjudicate upon the applicability of the Concessions Order. However, the High Court reframed the legal issue, deciding the applicability of the Concessions Order itself. The Supreme Court intervened to set aside this judicial overreach, clarifying that courts cannot expand their jurisdiction beyond what the statute mandates under tax reference mechanisms.

D) FACTS OF THE CASE

The appellant was a shareholder in Mafatlal Gagalbhai & Co. Ltd., Bombay, holding 760 shares. In 1949, the company declared dividends drawn from profits earned partly in British India and partly in the former Baroda State. The dividends were paid from three distinct tranches of profits, and resolutions were passed explicitly stating that payments would be made at Navsari, out of funds maintained in the Baroda region. The appellant claimed that, since the dividends never entered British India, they were immune under Paragraph 4 of the Merged States (Taxation Concessions) Order, 1949, which provided tax exemptions for income accruing in former Indian States. The assessing officer included this income in her total taxable income. Upon appeal, the ITAT held that the income accrued in British India but left open the applicability of the Concessions Order. On further reference, the High Court chose to decide the Concessions Order issue, reframing the question. This act became the subject matter of the appeal to the Supreme Court.

E) LEGAL ISSUES RAISED

i) Whether the High Court, under Section 66 of the Indian Income-tax Act, 1922, had the jurisdiction to adjudicate upon a legal question not decided by the Income Tax Appellate Tribunal?

F) PETITIONER/ APPELLANT’S ARGUMENTS

i) The counsels for the appellant contended that the Tribunal had consciously abstained from deciding the question relating to the applicability of the Taxation Concessions Order. Therefore, such an issue was outside the scope of the High Court’s jurisdiction under Section 66 of the Income-tax Act, 1922. They argued that the only question validly referred was whether the income accrued in Baroda or British India. The counsel stressed on the Supreme Court’s ruling in New Jehangir Vakil Mills Ltd. v. Commissioner of Income-tax, [1959] 37 ITR 11 (SC) which held that the High Court cannot decide new questions of law not arising from the Tribunal’s order[1]. They insisted that the legal doctrine of procedural limitation curtailed the jurisdiction of the High Court from venturing beyond the referred question. Furthermore, they argued that the dividends were declared from profits lying outside British India and never entered the territory, giving rise to a valid claim under the Taxation Concessions Order.

G) RESPONDENT’S ARGUMENTS

i) The counsels for the respondent (Commissioner of Income-tax) argued that the ultimate question involved was whether the appellant could claim tax immunity for her dividend income. In their view, this necessitated a comprehensive adjudication of the applicability of the Taxation Concessions Order. They contended that determining the place of accrual (British India vs. Baroda) was only ancillary. Therefore, they defended the High Court’s decision to reframe and answer the more central question concerning the Concessions Order. Citing precedents such as Scindia Steam Navigation Co. Ltd. v. CIT, [1954] 26 ITR 686 and Ismailia Grain Merchants Association v. CIT, [1957] 31 ITR 433, they submitted that courts have previously taken a broader interpretive approach to references under Section 66[2].

H) RELATED LEGAL PROVISIONS

i) Section 66 of the Indian Income-tax Act, 1922: Provides for a reference to the High Court on questions of law arising from Tribunal orders. The section restricts the High Court from enlarging its jurisdiction to unrelated issues not forming part of the Tribunal’s order[3].

ii) Paragraph 4 of the Merged States (Taxation Concessions) Order, 1949: Grants exemption for income accruing in merged States if such income is not brought into British India during the year of accrual[4].

I) JUDGEMENT

a. RATIO DECIDENDI

i) The Supreme Court held that the High Court cannot entertain a legal question which does not arise out of the order of the Tribunal. Section 66 provides a reference procedure, not an appellate review. Since the Tribunal had not ruled on the applicability of the Concessions Order, the High Court exceeded its jurisdiction by addressing that issue. The Court found that both the Tribunal and the High Court had decided unrelated issues leading to procedural disarray. Citing New Jehangir Vakil Mills Ltd. v. CIT and distinguishing Scindia Steam Navigation Co. Ltd. v. CIT, the Court emphasized that the scope of the reference must align strictly with the Tribunal’s decision[5].

b. OBITER DICTA

i) The Supreme Court opined that while the High Court may amplify a legal question referred to it, such amplification cannot introduce a completely new legal dimension not considered by the Tribunal. The reference jurisdiction is not plenary and must be confined to what is already part of the Tribunal’s record.

c. GUIDELINES

The High Court must restrict itself to legal questions expressly decided by the Tribunal.
Reframing of questions is permissible only within the contours of the Tribunal’s findings.
Courts cannot bypass procedural limits under the guise of interpretive flexibility.

J) REFERENCES

a. Important Cases Referred

i) New Jehangir Vakil Mills Ltd. v. Commissioner of Income-tax, [1959] 37 ITR 11 (SC)[1]
ii) Scindia Steam Navigation Co. Ltd. v. Commissioner of Income-tax, [1954] 26 ITR 686[2]
iii) Commissioner of Income-tax v. Breach Candy Swimming Bath Trust, [1955] 27 ITR 279
iv) Ismailia Grain Merchants Association v. Commissioner of Income-tax, [1957] 31 ITR 433
v) Mash Trading Co. v. Commissioner of Income-tax, [1956] 30 ITR 388