Full Judgment Text
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PETITIONER:
ESTHURI ASWANTHIAH
Vs.
RESPONDENT:
COMMISSIONER OF INCOME-TAX, MYSORE
DATE OF JUDGMENT:
18/04/1967
BENCH:
SHAH, J.C.
BENCH:
SHAH, J.C.
SIKRI, S.M.
RAMASWAMI, V.
CITATION:
1968 AIR 36 1967 SCR (3) 681
CITATOR INFO :
R 1968 SC 883 (8)
R 1970 SC 352 (8)
ACT:
Indian Income-tax Act, 1922-Cash credits-Income from
undisclosed sources-Appellate Tribunal adding such income on
concession from counsel-Duty to decide on evidence-
Tribunal’s duty when dealing with case after receiving
opinion of High Court in reference.
HEADNOTE:
On July 1, 1949 the assessee who carried on business in
Mysore State brought into his books of account an opening
cash balance of Rs. 1,87,000. The Income-tax Officer held
that out of the above sum Rs. 1,37,000 was the assessee’s
income from undisclosed sources. The assessee’s
explanations were rejected by the Income-tax Officer and in
appeal by the Assistant Commissioner. The Appellate
Tribunal considered that on the facts of the case it was not
unlikely that on the relevant date the assessee had some
cash but held Rs. 50,000 to be income from undisclosed
sources observing : "[Counsel] for the assessee also stated
that his client was prepared to be assessed on Rs. 50,000".
In reference the High Court held that the Tribunal’s
conclusion was based on no evidence. The assessee appealed.
HELD : The function of the Tribunal hearing an appeal is
purely judicial. It is under a duty to decide all question
of fact and law raised in the appeal before it : for that
purpose it must consider whether on the materials relied
upon by the assessee his plea is made out. The Tribunal
cannot make arbitrary decisions. Its order in the present
case without recording any reasons in support of the
estimate of unaccounted income could not, therefore, be
sustained. There was also substance in the assessee’s plea
that evidence in his favour had not been properly considered
and that his case had not been fairly tried. [684C-F; 685A-
B]
Income-tax Appellate Tribunal, Bombay & Ors. v. S. C.
Cambatta & Co. Ltd., 29 I.T.R. 118 and Rajkumar Mills Ltd.
v. Income-tax Appellate Tribunal, 33 I.T.R. 750, referred
to.
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JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 631 of 1966.
Appeal by special leave from the judgment and order dated
November 23, 1964 of the Mysore High Court in Income-tax
Revision Petition 6 of 1964.
K. Srinivasan and R. Gopalakrishnan, for the appellant.
S. T. Desai, A. N, Kirpal, S. P. Nayyar for R. N. Sachthey
for the respondent.
The Judgment of the Court was delivered by
Shah, J.-The appellant a trader in groundnuts and other
commodities in the State of Mysore was taxed under the
Mysore Income-tax Act, 1923, for the assessment years ending
with the assessment year 1949-50. On July 1, 1939, the
assessee brought
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into his books of account an opening cash balance of Rs.
1,87,000. In proceedings for assessment to ’tax for the
year which ended June 30, 1950 the assessee was called upon
to explain that entry and to produce his books of account of
the earlier years. The assessee pleaded that his books of
account upto June 30, 1949, were lost and that the amount of
Rs. 1,87,000 represented " cash brought from an iron safe
kept in his house". The Income-tax Officer found that in
each previous year when the assessee was assessed under the
Mysore Income-tax Act, he had pleaded that his books of
account were either lost or stolen in the succeeding year.
The Income-tax Officer was of the view that the assessee had
probably an amount of Rs. 50,000 on hand representing a cash
balance brought forward from the previous year, and that the
balance of Rs. 1,37,000 was the assessee’s income from
undisclosed sources. The order passed by the Income-tax
Officer assessing to tax the income of the assessee for the
year 1951-52 was set aside by the Appellate Assistant Com-
missioner on the ground that under S. 2(11) of the Income-
tax Act, 1922, the previous year for the income from other
sources could only be the financial year ending March 31,
1950. Giving effect to this finding, the Income-tax Officer
issued a notice of reassessment under s. 34 of the Indian
Income-tax Act for bringing to tax the amount disclosed by
the books of account of the assessee for the assessment year
1950-51.
The assessee submitted a petition to the High Court of
Mysore for a writ declaring that the notice under S. 34 of
the Act issued by the Income-tax Officer was without
jurisdiction, and for an order quashing the notice and
proceedings consequent thereon. This petition was dismissed
by the High Court of Mysore and the order was confirmed by
this Court in appeal.
In the meanwhile the Income-tax Officer completed the as-
sessment for the year 1950-51 and brought to tax Rs.
1,37,000 as income from undisclosed sources which had
escaped tax. The assessee’s contention that he had assets
on hand exceeding Rs. 1,55,000 from his share of the joint
family property, business income and other sources, and
those assets were brought into his books of account on July
1, 1949, was rejected by the Income-tax Officer. The order
passed by the Income-tax Officer was confirmed in appeal by
the Appellate Assistant Commissioner. The assessee appealed
to the Appellate Tribunal and contended, inter alia, that
the evidence produced by him showed that he had with him on
October 27, 1946, in his bank account Rs. 1,38,946 that he
had received Rs. 55,846 as his share on partition of the
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joint family of which he was a member, and that besides
these sources he had agricultural income. The Income-tax
Appellate Tribunal modified the order of the Appellate
Assistant Commissioner and brought to tax
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Rs. 50,000 as income from undisclosed sources. The reasons
recorded by the members of the Tribunal may be set out in
their own words
"It is clear that the assessee has not been
able to explain the source of Rs. 1,37,000
satisfactorily. But there have been trading
additions for the assessment years 1951-52 and
1952-53 of Rs. 27,899 and Rs. 85,000. But the
assessee has not proved that this amount was
all intact and besides, as pointed out by the
Departmental Representative, the bank balance
on 22-10-1946 would not have represented the
cash possessed by the assessee and at the same
time, it is not unlikely that the assessee had
some cash having regard to the trade in
jaggery, the assets got on partition in the
Hindu undivided family and other sources; the
Counsel for the assessee also stated that his
client was prepared to be assessed on Rs.
50,000. So we direct that the addition must
be confined to Rs. 50,000 only."
The Tribunal drew up a statement of the case under s. 66(2)
of the Income-tax Act and submitted three questions to the
High Court of Mysore, of which the second and the third
questions are relevant for the purpose of this appeal :
"2. Having found that the assessee was not
able to explain satisfactorily the source of
the credit of Rs. 1,37,000, whether the
Tribunal had any material to come to the
conclusion that the addition of Rs. 1,37,000
made by the Income-tax Officer as the income
from undisclosed sources should be reduced to
Rs. 50,000 only?
3. Whether on the facts and in the
circumstances of the case, the Tribunal was
justified in law in reducing the addition of
Rs. 1,37,000 to Rs. 50,000 as income from
undisclosed sources ?"
The High Court answered the two questions in the negative.
The High Court observed ’that the Tribunal’s conclusion that
out of the amount brought to tax by the Income-tax Officer
only Rs. 50,000 represented income from undisclosed sources
was based on no evidence. The High Court observed :
"The finding . . . . shows that, the Tribunal
also did not accept ’the explanation given by
the assessee as regards the cash credit entry
on 1-7-1949. But strangely enough, the
Tribunal, for no reason whatsoever, came to
the conclusion that the unaccounted income may
be estimated at Rs. 50,000. We do not
684
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know how the offer of the counsel for the assessee was at
all relevant. The Tribunal’s surmise about the assessee’s
income from jaggery trade and the receipt by him at the time
of the partition in his family is not based on any material.
Surmises have no place in judicial and quasi-judicial
proceedings."
The judgment recorded by the Tribunal has not the merit of
clarity or of consistency. The Tribunal commenced by disbe-
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lieving the explanation of the assessee relating to the
source of the credit entry. After some inconclusive
statements it proceeded to record that it was not unlikely
that the assessee had some cash on hand from profits earned
in the trade from jaggery, and from assets received on
partition of the joint family of which the assessee was a
member. In estimating Rs. 50,000 as the income from
undisclosed sources, ’the Tribunal merely relied upon the
offer made by counsel for the assessee. This was an
unsatisfactory way of disposing of the appeal. The function
of the Tribunal in hearing an appeal is purely judicial. It
is under a duty to decide all questions of fact and law
raised in the appeal before it : for that purpose it must
consider whether on the materials relied upon by the
assessee his plea is made out. Conclusive proof of the
claim is not predicated : the Tribunal may act upon
probabilities, and presumptions may supply gaps in the
evidence which may not on account of delay or the nature of
the transactions or for other reasons be supplied from
independent sources. But the Tribunal cannot make arbitrary
decisions it cannot found its judgment on conjectures,
surmises or speculation. Between the claims of the public
revenue and of the tax-payers, the Tribunal must maintain a
judicial balance. The order passed by the Tribunal without
recording any reasons in support of the estimate of
unaccounted income cannot, therefore, be sustained.
But counsel for the assessee said that the case of the
assessee had not been fairly tried. He said that there was
on the record evidence that in a partition suit between the
assessee and his brother the assessee received on June 30,
1949 an amount of Rs. 48,500 and Rs. 14,647 and Rs. 13,116
representing "money bonds". He also said that the assessee
bad made a profit of Rs. 70,000 in his business in jaggery,
that between November 18, 1946 and December 16, 1948, the
assessee had drawn cheque "to self" on the Mysore Bank for
Rs. 1,67,800, and between January 18, 1947 and November 25,
1947 the assessee had drawn cheques "to self" for Rs.
52,255, and that on October 22, 1946 the assessee had in his
Bank Account a balance of Rs. 1,39,946: Counsel contended
that the assessee had at the material time large funds which
could have been brought into the books of account on July 1,
1949, but the Tribunal failed to consider the evidence
685
and had merely accepted the offer made by counsel for the
assessee that lie should be assessed in the sum of Rs.
50,000.
For the reasons already recorded, we agree with the answers
recorded by the High Court on the two questions.
But it is necessary to give, certain effective directions,
lest a bald order of dismissal of the appeal may result in
injustice, especially when the assessee had not a fair trial
of his case before the Tribunal. Section 66(5) of the
Indian Income-tax Act, 1922, requires the Tribunal on
receiving a copy of the judgment of the High Court to pass
such orders as are necessary to dispose of the case
conformably to such judgment. This clearly imposes an
obligation upon the Tribunal to dispose of ’the appeal in
the light of and conformably with the judgment of the High
Court. Before the Tribunal passes an order disposing of the
appeal, there would normally be a hearing. The scope of the
hearing must of course depend upon the nature of the order
passed by the High Court. If the High Court has agreed with
the view of the Tribunal, the appeal may be disposed of by a
formal order : if the High Court disagrees with the Tribunal
on a question of law the Tribunal must modify its order in
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the light of the order of the High Court : if the High Court
has held that the judgment of the Tribunal is vitiated,
because it is based on no evidence or that it proceeds upon
conjectures, speculation or suspicion, or has been delivered
after a trial contrary to rules of natural justice, the
Tribunal would be under a duty to dispose of the case
conformably with the opinion of the High Court and on ’the
merits of the dispute. In all cases, however, opportunity
must be afforded to the parties of being heard.
Income-tax Appellate Tribunal, Bombay & Ors. v. S. C.
Canbatta & Co. Lid. (1) the Bombay High Court explained the
procedure to be followed in the disposal of an appeal
conformably to the judgment of the High Court. Chagla, C.
J., in delivering the judgment of the Court observed
". . . . when a reference is made to the High
Court either under s. 66(1) or section 66(2)
the decision of the Appellate Tribunal cannot
be looked upon as final; in other words, the
appeal is not finally disposed of. It is only
when the High Court decides the case,
exercises its advisory jurisdiction, and gives
directions to the Tribunal on questions of
law, and the Tribunal reconsiders the matter
and decides it, that the appeal is finally
disposed of....... it is clear that what the
Appellate Tribunal is doing after the High
Court has heard the case is to exercise its
appellate powers under section 33. . . . . The
shape that the appeal would ultimately take in
the decision that
(1) 29 I.T.R. 118.
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the Appellate Tribunal would ultimately give
would entirely depend upon ’the view taken
by the High Court."
A similar view was expressed by the Bombay High Court in
Rajkumar Mills Ltd. v. Income-tax Appellate Tribunal(1).
The High Court has held, and we agree with the High Court,
that the judgment of the Tribunal is based on no reasoning
and is on that account speculative. But by recording that
answer, it is not to be implied that the order of the
Appellate Assistant Commissioner is confirmed. It will be
the duty of the Tribunal, conformably with the judgment of
the High Court, to dispose of the case after hearing the,
assessee and the Commissioner in the light of the evidence
and according to law.
Subject to this direction, the appeal is dismissed. The
appellant will pay the costs of the Commissioner in this
appeal.
G.C. Appeal
dismissed.
(1) 33 I.T.R. 750.
687