JUDGMENT
K.L. Roy, J.
1. This is a reference under Section 27(1) of the Wealth Tax Act, hereinafter referred to as the Act.
2. The assessee is an Individual and the assessment year concerned is 1958-59 for which relevant valuation date is March 31, 1958. On the valuation date, the assessee was the registered holder of 650 ordinary shares of the face value of Rs. 1,000/- each in Messrs. Indra Singh, and Sons Private Limited. The Wealth Tax Officer valued these shares at Rs. 3884/- per share as on March 31, 1958 on the basis of the assets and liabilities as disclosed by the balance sheet of that company on that date. The Wealth Tax Officer rejected the assessee’s claim for deduction of various amounts in computing the net assets of the company on the basis of its balance-sheet. The assessee’s appeal to the Appellate Assistant Commissioner against the order of assessment failed. On further appeal to the Tribunal, the assessee contended that the levy of wealth tax was unconstitutional and beyond the legislative competence of the Parliament and in particular violative of Articles 14, 19, 31 and 265 of the Constitution and the entries in the legislative list of the Union. It was further contended that in determining the break-up value of the shares of Messrs. Indra Singh and Sons Private Limited the following deductions should have been allowed, namely:–
i) Rs. 9,50,000/-, being the estimated tax liabilities on the profits earned by the assessee for the year ending March 31, 1958, in addition to the provision for taxation already made in the balance-sheet.
ii) Rs. 3,87,500/- being the uncalled liability on shares of certain companies which were only partly paid up.
iii) A sum of Rs. 2,47,912/- in respect of the claim pending against the company in certain suits which had been instituted against the company and had not yet been finally decided.
iv) A sum of Rs. 11,40,776/- on account of the aggregate profits deemed to have been declared under the provisions of Section 23A of the Indian Income-tax Act, 1922, relating to the years ending March 31. 1952 and March 31, 1953 and a further sum of Rs. 2,36,336/- on account of penal tax under Section 23A on
the company for the year ending March 31 1955
(v) A sum of Rs. 6,23.736/- being 10% of the sum of Rs. 62,37,363/- shown in the company’s balance-sheet as loans and advances which the assessee estimated to be doubtful or bad.
3. The Tribunal rejected the assessee’s claim for deduction of any of the aforesaid items. It also did not accept the assessee’s contention that the Wealth Tax Act was in any way ultra vires the constitution.
4. At the instance of the assessee the following questions of law have been referred to this Court by the Tribunal:
“1, Whether, the levy of Wealth-tax was unconstitutional and beyond the legislative competence of the Parliament and violative of Articles 14, 19, 31 and 265 of the Constitution of India and the entries in the Legislative List of the Union?
2. Whether, on the facts and in the circumstances of the case, in determining the break up value of the shares held by the assessee in M/s. Indra Singh & Sons Pvt. Ltd., the following amount should have been deducted from the assets shown in the balance-sheet of the said company as on 31st March 1958:–
(i) Estimated tax liability amounting to Rs. 9,50,000/- which was not provided for in the balance-sheet?
(ii) Rs. 3,87,500/- on account of uncalled liability on the shares of certain companies held as investments?
(iii) Rs. 2,47,912/- on account of claims in certain suits pending against the company?
(iv) Rs. 11,04,776/- representing profits deemed to have been declared as dividend under Section 23A of the Income-tax Act for the years 31st March, 1952 and 31st March, 1953?
(v) Rs. 2,36,336/- on account of penal tax under Section 23A for the year ending 31st March, 1955?
(vi) Rs. 6,23,736/- representing 10% of the total loans and advances for possible bad and doubtful debts?”
5. Mr. S.R. Banerji, the learned Counsel appearing for the assessee, conceded that in view of the decision of this Court in Tax Reference No. 286 of 1962, Re: Sardar Sarjit Singh v. Commissioner of Wealth Tax, the questions Nos. 2 (i), 2 (ii), 2 (iii), 2 (iv) and 2 (v) must be answered in the negative and against the assessee. _The said questions are answered accordingly.
6. So far as Question No. 2 (vi) Is concerned, Mr. Banerji submitted that though the company in its balance-sheet had considered the whole amount of Rs. 62,37,363/-, being the total loans and advances outstanding, as good, if the
assessee wanted to sell these shares in the open market any prudent buyer would take into account the possibility of a portion of these loans and advances not being realizable. It was, therefore, argued that as under the provisions of the Wealth Tax Act the assets are to be valued at the market value as on the valuation date a reasonable proportion of the loans and advances in the balance-sheet of the company should be allowed as deduction on estimate on the possibility of the loans and advances not being realized in full. We are entirely unable to accept this contention. As pointed out by the Tribunal, the assessee was not in a position to indicate to the Tribunal whether any particular item of such loans and advances had in fact become bad or doubtful. In the balance-sheet itself the company had not made any provision whatsoever for any bad or doubtful debts, which meant that according to the company the loans and advances were realizable in full. In the break-up value method adopted by the Wealth Tax Officer, in valuing these shares what has to be done is to find out the net value of the assets of the company and deduct therefrom the liabilities of the company. In determining the net value of the assets such adjustments should be made in the balance-sheet as the circumstances of the case might require. In this case, as the company itself considered the amount of loans and advances due to it to be good and no part of it was considered to be bad or doubtful, the assessee could not claim that in computing the value of the shares of the company on the break-up value method, deduction should be made on an estimate of a portion of such loans and advances on the ground of its possible non-realization. This question must also be answered in the negative and against the assessee. So far as Question No. 1 is concerned, Mr. S. Mukherjee, learned Counsel for the Revenue, drew our attention to a recent decision of the Supreme Court in K.S. Venkataraman and Co. (P) Ltd. v. State of Madras, and to the observations therein at p. 130 (of ITR)=(at p. 1098 of AIR). That was a case under the Madras General Sales Tax Act and their Lordships had to consider the question as to whether a suit could be filed in a Civil Court claiming refund of sales tax paid in spite of the bar to such suit contained in Section 18A of the said Act. Subba Rao, J., (as he then was), delivering the majority judgment of the Court, referred to the provisions in the Indian Income-tax Act, 1922, regulating functions and the jurisdictions to be exercised by the Income-tax Officer, the Appellate Assistant Commissioner and the Tribunal and observed as follows:–
“Up to this stage all the three authorities are the creatures of the Act and they function thereunder. They cannot ignore any sources of income on the ground that the relevant provisions offend the fundamental rights or are bad for want of legislative competence. The Act does not confer any such right on them. Their jurisdiction is confined to the assessment of the income and the tax under the provisions of the Act. Whether the provisions are good or bad is not their concern. But, it is said that Section 66 of the Act makes all the difference. Section 66 is in two parts. Under Section 66 (1), within the prescribed time on an application made by an asses-see or the Commissioner, the Appellate Tribunal shall refer to the High Court any question of law arising out of such order; if the Appellate Tribunal refuses to state a case, on an application filed by either of them the High Court may require the Appellate Tribunal to state the case and to refer the same to it accordingly. On a reference made by the Appellate Tribunal to the High Court, the High Court shall decide the questions of law raised thereby and pass its judgment thereon and thereafter the Appellate Tribunal may pass such orders as are necessary to dispose of the case conformably to such judgment. It has been held by this Court that the jurisdiction conferred upon the High Court by Section 66 of the Income-tax Act is a special advisory jurisdiction and its scope is strictly limited by the section conferring the jurisdiction. It can only decide questions of law that arise out of the order of the Tribunal and that are referred to it. Can it be said that a question whether a provision of the Act is ultra vires of the legislature arises out of the Tribunal’s order? As the Tribunal is a creature of the statute, it can only decide the dispute between the assessee and the Commissioner in terms of the provisions of the Act. The question of ultra vires is foreign to the scope of its jurisdiction. If an assessee raises such a question, the Tribunal can only reject it on the ground that it has no jurisdiction to entertain the said objection or decide on it. As no such question can be raised or can arise on the Tribunal’s order, the High Court cannot possibly give any decision on the question of the ultra vires of a provision. At the most the only question that it may be called upon to decide is whether the Tribunal has jurisdiction to decide the said question. On the express provisions of the Act I can only hold that it has no such jurisdiction. The appeal under Section 66A (2) to the Supreme Court does not enlarge the scope of the said jurisdiction. This Court can only do what the High Court can.”
7. Mr. Mukherjee submitted that in view of the aforesaid observations of the Supreme Court, this Court, must decline to answer question No. 1 on the ground that the Tribunal was not competent to refer the said question to this Court and this Court, under Section 66, could not possibly give any decision on that question.
8. Mr. Banerjee submitted that the aforesaid observations of the Supreme Court are obiter as in that case the Supreme Court was only concerned with deciding the question of the maintainability of a suit in a Civil Court challenging an assessment under the Madras Sales-Tax Act irrespective of the bar against such suits contained in that statute. The Supreme Court was not required to pronounce on the scope and jurisdiction of the Tribunal or the High Court under the provisions of Section 66 of the Income-tax Act. He further submitted that an observation of the Supreme Court which was obiter was not binding on this Court and in support of this proposition he cited a decision of the Supreme Court in Moti Ram v. N.E. Frontier Railway, . There is a paragraph in the Headnote of the Report to the effect that the observations in the judgment of the Supreme Court which are in the nature of obiter dicta cannot be relied upon solely for the purpose of showing that certain Statutory Rules should be held to be valid as a result of the said observations. But in the body of the judgment we could find no authority for the proposition so baldly stated in the Headnote. All that we could find was a reference to another decision of the Supreme Court in paragraph 46 of the Report and the following observations:
“In dealing with this aspect of the matter, this Court no doubt came to the conclusion that the termination of Balakotaiah’s services under Rule 3 did not amount to his removal or dismissal; but since no argument was urged before the Court in respect of Rule 148 (3), the reference to the said Rule made by the judgment is purely in the nature of an obiter, and so, we are not prepared to read that statement as a decision that Rule 148 (3) is valid. To read the said statement in that manner would be to ignore the fact that this Court had reversed the conclusion of the High Court that the impugned order was valid under Rule 148 (3) specifically on the ground that that case had not been made out by
the Union of India and should not have been adopted by the High Court.”
9. It does not appear that their Lordships held that an observation which was obiter was not binding. On the contrary what their Lordships said was that as the Court in the previous decision had no occasion to consider that particular Rule, that decision would be in the nature of obiter and would not be binding on the Supreme Court itself in interpreting another Statutory Rule. That case is no authority for the proposition that the observations of the Supreme Court, even if obiter, are not binding on this Court. On the other hand, the observations of the Supreme Court, though obiter, are binding and must be given effect to by the High Courts.
10. Mr. Banerjee next argued that under Section 66, the High Court is bound to answer any question of law referred to it by the Tribunal under the provisions of that section. As in this case, the Tribunal has referred question No. 1, which is undoubtedly a question of law to this Court under Section G6 (1), this Court is obliged to answer that question. In support of this proposition various decisions of the Supreme Court were cited. In Sardar Baldev Singh v. Commissioner of Income-tax, Delhi and Aimer, , the Supreme Court itself decided the validity of Section 23A of the Income-Tax Act but that was an appeal to the Supreme Court by special leave under Article 136 and the issue before us was not in issue in that case.
11. In Commissioner of Income-tax, Bombay v. Scindia Steam Navigation Co. Ltd., , the Supreme Court had occasion to construe the expression ‘any question of law arising out of such order’ in Section 66 of the Income-tax Act, 1922. In enumerating what such question could be, the Supreme Court pointed out that when a question is raised before the Tribunal and is dealt with by it is clearly one arising out of its order. Mr. Banerji submitted that as in this case the question of vires of the Wealth Tax Act was not only raised before the Tribunal but was dealt with by it, is a question of law arising out of its order and as such the High Court is bound to answer it under Section 66 (3). We cannot also accept this proposition. Undoubtedly, before the decision of the Supreme Court in Venkataraman’s case, (supra) it was generally considered that the Tribunal was competent to decide questions challenging the validity of the Taxing Statute under which the Tribunal was constituted and a decision of the Tribunal on such a question raised a question of law which
could be referred to and be answered by the High Court under Section 66. The decision of the Supreme Court in Venkataraman’s case must be held to have laid down the correct state of the law and we have to accept the position that the Tribunal was not competent to entertain a challenge as to the vires of the Wealth Tax Act and also that it did not have the jurisdiction to refer Question No. 1 to this Court and this Court could not possibly answer such a question which has become merely academic. Mr. Mukherji did not contest the jurisdiction of this Court to entertain any challenge to the validity of any Taxing Statute in some other jurisdiction, as for instance the Writ Jurisdiction. He submitted that the jurisdiction of the High Court under Section 27 of the Act, being a limited jurisdiction, namely, a special advisory jurisdiction, in the exercise of such jurisdiction the High Court is not entitled to entertain such a question. Mr. Banerji cited several other cases in support of his contention which, in our opinion, are not material for the purpose of deciding this issue. Following the observations of the Supreme Court in Venkataraman’s case, (supra), we decline to answer Question No. 1.
12. The assessee is to pay the costs of this reference.
13. Banerjee, J.
I agree.