1960 (11) TMI 4 - SC - Income Tax

Whether there was any material to hold that the Bombay branch of your petitioner sold 1,66,188 pieces of sovereign to the Karachi branch at market rates? Held that - The order passed by the Income-tax Officer does not refer to any evidence in support of the assertion made by him that the Bombay branch of the appellant sold sovereigns to the Karachi branch.The criticism of the Appellate Assistant Commissioner about the unsatisfactory character of the evidence has a bearing on the local sales and not on the despatches to Karachi. The Tribunal merely accepted the conclusion of the Appellate Assistant Commissioner ; it gave no independent reasons in support of its order. The income-tax authorities did not find that on a comparison of the rates at which the sovereigns are debited in the Bombay branch and the rates at which they were credited in the Karachi branch, any profit was earned by the Bombay branch. In our view, a question of law arises from the judgment of the Tribunal which confirmed the order of the Appellate Assistant Commissioner. We accordingly direct that the Tribunal do draw up and submit a statement of the case on the following question which arises from the order of the Tribunal Whether there was any material to hold that the Bombay branch of the assessee sold 1,66,188 pieces of sovereigns to the Karachi branch ?

Issues:
1. Refusal to state a case under section 66(1) of the Indian Income-tax Act, 1922.
2. Dismissal of an application under section 66(2) of the Income-tax Act for a direction to the Appellate Tribunal to state a case.
3. Assessment of total income derived from transactions in sovereigns.
4. Estimation of profits on total sales of sovereigns.
5. Rejection of application to refer questions to the High Court.
6. Interpretation of transactions in sovereigns between Bombay and Karachi branches.
7. Question of law regarding the sale of sovereigns from Bombay to Karachi.
8. Verification of evidence and accounting practices in assessing profits.

Analysis:

The judgment pertains to two appeals filed with special leave under article 136 of the Constitution. The appeals concern the refusal to state a case under section 66(1) of the Income-tax Act and the dismissal of an application under section 66(2) for a direction to the Appellate Tribunal to state a case. The main issue revolves around the assessment of total income derived from transactions in sovereigns, particularly focusing on transactions between the Bombay and Karachi branches of the appellant.

The appellant, a dealer in gold and silver, contested the Income-tax Officer's assessment of income from sovereign transactions. The Officer estimated profits on total sales of sovereigns at a certain rate, leading to a dispute regarding the accuracy of the assessment. The Appellate Assistant Commissioner and the Tribunal upheld the Officer's decision, citing unreliable evidence and accounting practices by the appellant.

The appellant argued that the despatch of sovereigns from Bombay to Karachi did not constitute sales to the Karachi branch but were for commission. The Tribunal, however, did not provide independent reasons for its decision, merely echoing the Assistant Commissioner's conclusion. The judgment highlights the lack of evidence supporting the assertion that sovereigns were sold from Bombay to Karachi, raising a question of law regarding this specific issue.

The Court directed the Tribunal to submit a statement of the case on the question of whether the Bombay branch sold sovereigns to the Karachi branch. It emphasized the need for clarity on this matter, distinct from the assessment of local sales in Bombay. The judgment focused on the interpretation of transactions between branches and the importance of verifying evidence and accounting practices in assessing profits accurately.

Ultimately, the Court allowed one of the appeals, emphasizing the need for a clear determination on the specific issue of whether the Bombay branch sold sovereigns to the Karachi branch, separate from other aspects of the income assessment. The judgment underscores the importance of legal clarity and evidence-based decision-making in tax assessments.

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