1963 (1) TMI 45 - SC - Income Tax

Whether the amount of Rs. 1, 38, 000 came out of the savings or withdrawals made by the appellant from her several businesses or was income from undisclosed sources? Held that - Appeal allowed. Set aside the order of the High Court by which it summarily rejected the application for a reference under section 66 of the Act - direct the High Court to do what it should have done under section 66(2) namely to require the Appellate Tribunal to state a case on the three questions of law referred to in this judgment and refer them to the High Court for decision.

Issues Involved:
1. Evidence or material to support the finding of the Tribunal that Rs. 1,38,000 represented the appellant's income from undisclosed sources.
2. Whether the conclusion of the Tribunal that Rs. 1,38,000 was the appellant's income from undisclosed sources was perverse.
3. Whether the said conclusion was based on conjecture, surmise, or suspicion and on a failure to consider relevant evidence in the record.

Issue-Wise Detailed Analysis:

1. Evidence or Material to Support the Finding of the Tribunal:
The appellant, a widow who inherited her husband's extensive businesses, was assessed for the year 1947-48. The Income-tax Officer added Rs. 1,38,000 as income from undisclosed sources due to the encashment of high denomination notes. The appellant's declaration cited various sources for the notes, but the Income-tax Officer only accepted Rs. 1,00,000 as savings, treating the remaining Rs. 1,38,000 as undisclosed income. The Tribunal upheld this finding, citing a lack of "positive and tangible proof" correlating the encashment with previous savings or withdrawals. The Supreme Court noted that the Tribunal did not provide clear reasons for distinguishing between Rs. 1,00,000 and Rs. 1,38,000 and failed to consider all relevant withdrawals and investments by the appellant.

2. Whether the Conclusion was Perverse:
The appellant argued that the Tribunal's conclusion was perverse, as no reasonable person could arrive at such a finding based on the materials on record. The Supreme Court acknowledged that a finding of fact could be attacked as erroneous in law if there was no evidence to support it or if it was perverse. The Court observed that the Tribunal's distinction between Rs. 1,00,000 and Rs. 1,38,000 lacked a clear basis and seemed to be based on conjecture and surmise. The Tribunal also failed to consider several crucial matters, such as the appellant's withdrawals from her businesses and fixed deposit accounts, which could account for the cash in her hands.

3. Whether the Conclusion was Based on Conjecture, Surmise, or Suspicion:
The Supreme Court found that the Tribunal's conclusion appeared to be based on conjecture and surmise. The Tribunal did not adequately consider the appellant's explanations and the evidence of her withdrawals and investments. The Tribunal's assumption that the appellant could not have kept a large sum of money uninvested was not supported by evidence. The Court emphasized that the Tribunal should have considered all relevant factors before arriving at its conclusion.

Conclusion:
The Supreme Court held that the three questions raised by the appellant were indeed questions of law arising from the Tribunal's order. The High Court was wrong in summarily rejecting the application for a reference under section 66 of the Income-tax Act. The Supreme Court allowed the appeal, set aside the High Court's order, and directed the High Court to require the Appellate Tribunal to state a case on the three questions of law and refer them to the High Court for decision. The costs of the appeal would abide by the decision on the reference.

Outcome:
The appeal was allowed. The High Court was directed to require the Appellate Tribunal to state a case on the three questions of law and refer them to the High Court for decision.

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