1962 (2) TMI 67 - HC - VAT and Sales Tax

Issues Involved:
1. Rejection of accounts based on non-compliance with rules.
2. Validity of the formula used to estimate turnover.
3. Determination of feeding charges for hotel servants.

Issue-wise Detailed Analysis:

1. Rejection of Accounts Based on Non-Compliance with Rules:

The petitioner challenged the rejection of his accounts by the Commercial Tax Officer, who based his decision solely on the ground that the books and documents were not maintained according to the Rules prescribed under the Mysore Sales Tax Act, 1957. The Commercial Tax Officer noted that not all purchases were supported by vouchers and the sales were not backed by bills, which contravened Section 27 of the Act. This section mandates that dealers with a turnover exceeding Rs. 20,000 must issue bills or cash memoranda for all goods sold and maintain counterfoils or duplicates for five years.

The Court observed that the rejection of accounts on this sole ground was arbitrary. It emphasized that Section 12(3) of the Act allows the assessing authority to assess the assessee to the best of his judgment if the return appears incorrect or incomplete, but this must be done by recording reasons. The Court found that the Commercial Tax Officer did not consider whether the accounts were otherwise acceptable. The Court cited precedents, including the Lahore High Court's decision in M/s. Ganga Ram Balmokand v. Commissioner of Income-tax, which held that the unreliability of accounts is a factual question primarily for the tax authorities to decide, provided their decision is not capricious or unjudicial.

The Court concluded that the Commercial Tax Officer acted arbitrarily by refusing to examine the books of account solely because they were not maintained according to rules. This arbitrary action invalidated his opinion that the turnover shown was incorrect.

2. Validity of the Formula Used to Estimate Turnover:

The petitioner contended that the formula adopted by the Commercial Tax Officer, which involved multiplying the working expenses by five to determine the turnover, was arbitrary. The Court referred to the Patna High Court's observation in M.A. Rauf v. Commissioner of Income-tax, which stated that there is no rule of law dictating the correct way to make an estimate; the goal is to ascertain true gains as accurately as possible.

The Court noted that while the assessment must involve some guesswork, it must be honest guesswork. The principle of assessment at a flat rate, such as multiplying working expenses, cannot be deemed arbitrary. The Court cited its own previous judgment in Anwari Hotel v. State of Mysore, which supported the use of such a formula by the Commercial Tax Officer, especially given his experience in the hotel business.

The Court concluded that the formula used by the Commercial Tax Officer was not arbitrary or capricious, as it was based on his experience and judgment, and thus should be upheld.

3. Determination of Feeding Charges for Hotel Servants:

The petitioner argued that the Commercial Tax Officer's conclusion that the feeding charges for each hotel servant would be about Rs. 30 per month was arbitrary. The Court held that determining feeding charges is a question of fact and falls within the expertise of the Commercial Tax Officer, who is best positioned to make such assessments based on his experience with hotel businesses.

The Court did not find any arbitrariness in the determination of the feeding charges and upheld the Commercial Tax Officer's assessment on this point.

Conclusion:

The Court found that the Commercial Tax Officer had acted arbitrarily in rejecting the accounts solely based on non-compliance with the rules without considering their overall reliability. Consequently, the case was remanded back to the Mysore Sales Tax Appellate Tribunal for a fresh decision in accordance with the law as interpreted by the Court. The formula used for estimating turnover and the determination of feeding charges were upheld as valid and not arbitrary. The costs of the petition were ordered to be costs in the cause, with an advocate's fee of Rs. 100.

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