9911796707
TMI Blog1980 (4) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) H. R. Karandikar 2,92,000 (2) D. B. Phatak 2,39,000 (3) M. G. Desai 4,24,000 Desai was a director in a company named Shree Laxmi Textile Mills Limited, which is a public limited company at Bhor. Bhor was an Indian State and did not form a part of British India at the relevant time. Desai held shares worth Rs. 5,000 in the Laxmi Textile Mills. Another company, the Bhor Mercantile Agency Limited, was a private limited company, also in the Bhor State. This company was the managing agent of the Laxmi Textile Mills Limited, and Desai held one-third of the shares of this company, of the value of Rs. 700. The two other assessees, Phatak and Karandikar, were also shareholders of this managing agency company to the extent of Rs. 700 each. The Laxmi Textile Mills was only a spinning mill. Desai had income from cloth business carried on at Bhor and dividends on certain shares of companies in Billimora and share in a firm at Bombay The assessee, Phatak, was a partner in a firm called Pioneer Dyeing House, Poona, which is engaged in the business of dyeing yarn and cloth, and selling it after dyeing and printing. He also held shares in the Laxmi Textile Mills Limited of the value of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce, which was a penalty section, provided that " Whoever knowingly makes in any declaration under section 6 any statement which is false or only partially true or which he does not believe to be true, or contravenes any provision of this Ordinance or the Rules made thereunder, shall be punishable with imprisonment for a term which may extend to three years or with fine or with both." On 21st January, 1946, high denomination bank notes of the total value of Rs. 10,55,000 came to be submitted to the Treasury Officer at Bhor. These high denomination notes were submitted for exchange in three lots. One declaration (Annex. ' K'), signed by the assessees, Phatak and Karandikar, as directors of the managing agency company acting for Shree Laxmi Textile Mills Limited was in respect of an amount of Rs. 9,69,000. The Laxmi Textile Mills was shown as the declarant and the owner of the currency notes. The source from which this money was supposed to have come was " from depositors from time to time ". The second declaration (annex'L') is in the name of Laxmi Trading Company, which is shown to be a proposed private limited company. It was stated that the company was not registered. The dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed profits of the Laxmi Textile Mills, and considering the fact that the Bhor Mercantile Agency was entirely under the control of the three assessees, the remaining amount of Rs. 8,65,000, which was shown to have been paid through the Bhor Mercantile Agency was treated as having been paid jointly by all the three assessees. He thus found that the amounts directly withdrawn and the amounts withdrawn through the Bhor Mercantile Agency by Phatak and Karandikar came to Rs. 2,39,000 and Rs. 2,92,000, respectively, and the amount withdrawn by Desai came to Rs. 3,38,000, to which he added Rs. 86,000 in respect of which Desai alone had made a statement before the Treasury Officer. Taking these amounts into consideration as well as the earlier original assessments made, the ITO on reassessment computed the total taxable income of Karandikar, Phatak and Desai at Rs. 3,20,162, Rs. 2,58,141 and Rs. 4,46,432, respectively. All these additions were upheld by the AAC while dismissing the three appeals filed by them. In the meantime, the three assessees came to be prosecuted under s. 7 of the Ordinance on the charge that the assessees had split up the high denomination notes of the value of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the true state of affairs with regard to the said deposits, we cannot say that the view taken by the learned trial Magistrate that Karandikar believed the statement in the declarations in question to be true, is incorrect and unreasonable. " By the time the assessments came to the Tribunal in appeal by all the three assessees, the criminal proceedings had come to an end. The revenue, wanting to make use of the material collected in the course of investigation which led to the prosecution of all the three assessees, pleaded before the Tribunal that they would be relying upon the material gathered in the criminal proceedings in support of the assessments. It appears that the evidence collected for, the prosecution, including the evidence recorded during the prosecution, was agreed to be referred to for the purpose of deciding the appeals. The Tribunal in its order has positively mentioned that " all parties were agreed that this evidence, documents and materials gathered in the criminal proceedings could also be relied upon and used in the present proceedings. " The Tribunal posed for its determination the question as to whom the high denomination notes of the value of Rs. 10,55, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Bhor State Bank on February 4, 1946 ; Rs. 55,000 were paid to M. G. Desai on Febuary 4, 1946; Rs. 5 lakhs were deposited in the Presidency Industrial Bank Limited, Poona, on February 4, 1946; and Rs. 2 lakhs were paid into the Bhor State Bank, Poona Branch, on February 6, 1946. The Tribunal found that though the overdraft standing in the name of Phatak and Karandikar in the Presidency Industrial, Bank was squared off by issuing a cheque on a separate account in which Rs. 5 lakhs were deposited, subsequently Phatak and Karandikar raised moneys and repaid the amount adjusted against the overdraft amounts. The Tribunal also found that the agency company, in whose account the exchange amount of Rs. 10,55,000 had ultimately found its way, issued several bearer cheques periodically in the name of Desai and were encashed, and the proceeds were said to have been utilized for the purpose of paying off the owners of the high denomination notes. The Tribunal also found that sum of Rs. 2,16,455 was transferred to the joint account of Desai, Phatak and Karandikar some time in 1949. Having thus reviewed the entire evidence, the Tribunal recorded certain findings. It took the view that the evi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of three questions. In the first question the finding that the currency notes belonged to the assessees was being put in issue. In the second question the quantum of remuneration as determined by the Tribunal was itself put in issue ; and in the third question the apportionment of the amount of Rs. 1,05,500 was being put in issue. There can hardly be any doubt that these three questions would have covered the entire controversy in relation to the reassessment proceedings relating to the undisclosed income of the three assessees, as alleged by the revenue. The Tribunal, however, rejected this application holding on the first question that it had accepted the explanation of the assessees and that the finding recorded was a finding of fact arrived at on appreciation of the evidence on record. With regard to the second and the third questions also, the findings were held by the Tribunal to be findings of fact. The revenue then approached this court under s. 66(2) of the Indian I.T. Act, 1922, in which reference of some of the questions was again sought. The rule was, however, made absolute in respect of the question as reframed. The present question, which is now the subject of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 66(2). Now, so far as the power of the court to reframe the question is concerned, the scope and extent of this power is now well settled, as will be clear from the decision of the Supreme Court in the case of CIT v. Smt. Anusuya Devi [1968] 68 ITR 750, where the Supreme Court has pointed out that the power to reframe a question may be exercised to clarify some obscurity in the question referred, or to pinpoint the real issue between the taxpayer and the department or for similar other reasons ; and that it cannot be exercised for reopening an enquiry on questions of fact or law which are closed by the order of the Tribunal (p. 757 of 68 ITR). It is, therefore, clear that the power to reframe a question cannot be so exercised as to put in issue a controversy settled or a finding recorded by the Tribunal in respect of which no reference was ever sought by a party, and consequently the finding on the said issue had become final. Whether the question reframed has traversed beyond the scope of the question originally sought to be referred will be discussed later. There can also be no dispute that the jurisdiction of this court under s. 66 of the Indian I.T. Act, 1922, and under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the parties or though referred by the Tribunal, does not arise out of its order. The High Court may also decline to answer a question arising out of the order of the Tribunal, if it is unnecessary or irrelevant or is not calculated to dispose of the Teal issue between the taxpayer and the department. If the power of the High Court to refuse to answer questions other than those which are questions of law directly related to the dispute between the taxpayer and the department, and which, when answered, would determine qua that question, the dispute be granted, we fail to see any ground for restricting that power when by an erroneous order the High Court has directed the Tribunal to state a case on a question which did not arise out of the order of the Tribunal. We are unable, therefore, to hold that at the hearing of a reference pursuant to an order calling upon the Tribunal to state a case, the High Court must proceed to answer the question without considering whether it arises out of the order of the Tribunal, whether it is a question of law, or whether it is academic, unnecessary or irrelevant." These observations leave no room for doubt that the High Court at the stage of a h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Tribunal is challenged or put in issue in the form of a question under s. 66(1), all the grounds on which that challenge is sought to be made must necessarily be formulated in the form of a question of law or in given case where a finding is challenged, it is permissible for the court to allow the assessee to urge that the finding is vitiated by any particular error of law. Under s. 66(1) it is for the assessee or the Commissioner to make an application requiring the Appellate Tribunal to refer to the High Court " any question of law arising out of such order ". Such an application was then required to be made in the prescribed form. This form, it is not in dispute, is identical to Form No. 37 under rule 8 of the I.T. Rules, 1962. It requires in para. (4) of the application that the questions of law are to be stated. Paragraph (4) of the application states " that the following questions of law arise out of the order of the Appellate Tribunal ". Now nothing prevents an assessee or the revenue to urge that what the Tribunal holds to be a finding of fact gives rise to one or more questions of law depending on the nature of the challenge that can be made to such a finding. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vitiated the finding of fact, is, in the view of the Tribunal, not an error of law, then the party aggrieved has the right to approach this court under s. 66(2). The power of this court under s. 66(2) is co-extensive with the power of the Tribunal under s. 66(1). When the matter is brought to this court under s. 66(2) putting a particular finding, which apparently is a finding of fact, in issue which, according to the applicant, gives rise to a question of law, this court will not be entitled to shut out the applicant by merely reading the finding. The applicant will be entitled to urge before this court also that a particular finding is vitiated by an error of law. Such a process is implicit, in our view, in the determination as to whether the question proposed is question of law arising out of the order of the Tribunal or is a question of fact. When a party comes before this court under s. 66(2), or goes to the Tribunal under s. 66(1), the questions, which are suggested by the party, are questions of law, according to it. Indeed, as pointed out, that is how the application is worded and such an application cannot be thrown out on the form of the question which has been framed. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the meaning of s. 4(1)(a) of the Act. The argument of the assessee was that it had received payments for goods supplied by it when it received cheques at Aundh, and that the cheques were accepted in full satisfaction and discharge of the claim under the contract. According to the assessee, as the cheques were received at Aundh, the payments were received there and consequently the assessee, which was a non-resident company, did not receive any income, profits or gains in British India within the meaning of s. 4(1)(a) of the I.T. Act. The facts found indicate that the cheques, when received by the assessee, used to be endorsed by the Ogale Glass Works in favour of Aundh Bank Ltd., Ogalewadi branch, which in its turn used to endorse them in favour of the Bombay Provincial Co-operative Bank Ltd., Bombay. This Bombay bank cleared the cheques through the clearing house in Bombay. The Aundh Bank used to credit the assessee's account on the very day on which the cheques were received from the assessee. The contention of the revenue was that the question whether the assessee accepted the cheques unconditionally and in full satisfaction of its claim under the contract was concluded by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leaving out all other facts appearing on the record and have been referred to in the Tribunal's order and the statement of case could not be accepted. The Supreme Court pointed out that the language of the question clearly indicated that the question of law had to be determined " on the facts of this case " and to accede to the contention of the assessee will involve undue cutting down of the scope of the question by altering its language. A similar question was referred in Zoraster Company v. CIT [1960] 40 ITR 552, as follows: "Whether, on the facts and circumstances of the case, the profits and gains in respect of the sales made to the Government of India were received by the assessee in the taxable territories ? " The Supreme Court held that the question referred by the Tribunal to the High Court was wide enough to include the alternative line of approach whether there was a request, express or implied, to send the amount due under the bills by cheque, the post office would be the agent of the assessee, and the income was received in the taxable territories when the cheques were posted. The following observations from Kusumben D. Mahadevia v. CIT [1960] 39 ITR 540 (SC) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court cannot direct the Tribunal to refer a question unless it is one which arises out of the order of the Tribunal and was specified by the applicant in his application under section 66(1). Now, if we are to hold that the court can allow a new question to be raised on the reference, that would in effect give the applicant a right which is denied to him under sections 66(1) and (2), and enlarge the jurisdiction of the court so as to assimilate it to that of an ordinary civil court of appeal. " These observations appear to be the sheet-anchor of the elaborate argument advanced before us on behalf of the assessee that if the power of the Tribunal under s. 66(2) is co-extensive with the power of the Tribunal under s. 66(1), then unless a party asks for a reference of question under s. 66(1) a direction under s. 66(2) cannot be given to the Tribunal in respect of a new question. As already pointed out, this proposition can hardly be disputed. But the question which will have to be considered on the facts of each case will be whether, as pointed out in Zoraster Company's case (1960] 40 ITR 552 (SC), the question decided by the Tribunal would admit the consideration of the new point ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der though it be one of law." Observing that there was considerable force in the argument that the language of s. 66(1) is wide enough to admit of questions of law which arise on facts found by the Tribunal and there is no justification for cutting down its amplitude by importing in effect words into it which are not there, the Supreme Court referred to certain distinguishing features of the jurisdiction under s. 66.. The Supreme Court then observed as follows (p. 612): " Section 66(1) speaks of a question of law that arises out of the order of the Tribunal. Now a question of law might be a simple one, having its impact at one point, or it may be a complex one, trenching over an area with approaches leading to different points therein. Such a question might involve more than one aspect, requiring to be tackled from different standpoints. All that section 66(1) requires is that the question of law which is referred to the court for decision and which the court is to decide must be the question which was in issue before the Tribunal. Where the question itself was under issue, there is no further limitation imposed by the section that the reference should be limited to those aspec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... declaration that this amount was made over and/or directed to be made over by her deceased husband, Amritlal Ojha, in April, 1944, some time before his death for her benefit and for the benefit of her eight minor sons. In reassessment of the estate of the deceased, Amritlal Ojha, Anusuya Devi's attorneys had stated that during the last thirty years Amritlal had been giving gifts to his wife and also setting apart moneys exclusively for the benefit of his wife, and that this amount so accumulated had remained in a cupboard and was found after his death. Disbelieving this explanation, the amount of Rs. 5,84,000 was brought to tax in the year of account, viz., 1944-45. When the appeal was taken to the Tribunal against the order of the AAC, who had confirmed the assessment, an affidavit by Anusuya Devi came to be filed stating that this amount was the stridhan property. The Tribunal, while admitting this evidence, declined to admit an affidavit by Gunvantary, one of the sons of Amritlal, because in the opinion of the Tribunal large number of new facts were attempted to be brought on record which were never disclosed before the departmental authorities. The Tribunal upheld the assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion in Anusuya Devi's case [1968] 68 ITR 750 (SC), which turned on its own facts, does not, therefore, render any assistance to us in deciding the controversy involved in the reference before us. A reference to the decision in Lakshmiratan Cotton Mills Co. Ltd. v. CIT [1969] 73 ITR 634 (SC) may be justified in so far as the argument of the learned counsel goes that in an application under s. 66(2) of the I.T, Act, the High Court cannot order that the case be stated on a question which had not been included in the application submitted under s. 66(1), but that decision is not of any assistance to the assessee in determining what was the scope of the question originally sought to be referred. It may, however, be pointed out that the earlier decision of the Supreme Court in Scindia Steam Navigation Company's case [1961] 42 ITR 589 was cited with approval, and no departure has been made from the observations in Scindia Steam Navigation Company's case [1961] 42 ITR 589, in which the Supreme Court had observed that it could not be held that each aspect of the question is itself a distinct question for the purpose of s. 66(1) of the Act. The learned counsel for the assessee has place ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r there was evidence as to finding must be specifically raised in a reference. The Supreme Court has in the same decision referred to the case of India Cements Ltd. v. CIT [1966] 60 ITR 52 (SC), and has later observed thus: " ........ in a reference under the Income-tax Act the High Court must accept the findings of fact made by the Appellate Tribunal, and it is for the person who has applied for a reference to challenge those findings first by an application under section 66(1). " Therefore, as observed by the Supreme Court, if a person is aggrieved by a finding of fact, it must be challenged as such. When the Supreme Court in that case did not allow the question as to whether the finding given by the Tribunal was not supported by evidence to be canvassed, it was because such a question about the validity of the finding of fact was not expressly raised by an application under s. 66(1). The question raised was whether the sale proceeds were of the nature of revenue. The ratio of that decision is not attracted in the present case. The other decision relied upon is the one in CIT v. Imperial Chemical Industries (India) (P.) Ltd. [1969] 74 ITR 17 (SC), in which, at the instance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 66(1). It is difficult for us to see how these observations can be of any help to the assessees in the instant case. On facts, it is obvious that the proof of the agreement on the basis of which deduction was claimed was a material question, and if on that material question, no question of law was raised, permitting such a question to be argued without the question being raised and referred, would be clearly contrary to the scope of the provisions of s. 66(1) of the Act. It is obvious that in that case the assessee was required to positively put in issue the validity of the finding with regard to the agreement or with regard to the agreement being acted upon. Mr. Pandit has also relied upon a decision of the Supreme Court in Aluminium Corporation of India Ltd. v. CIT [1972] 86 ITR 11, and particularly on the observations which were made in the context of the question involved in that case, where it was pointed out that the words " on the facts and in the circumstances of the case " meant " the facts and circumstances found by the Tribunal ". The question referred in that case was : " Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt was merely giving the grounds on which a finding of fact could be challenged. In any case, as observed by the Supreme Court in Scindia Steam Navigation Company's case, it does not appear to us that each aspect of a question of law has to be raised as an independent question of law. That brings us to a decision of this court on which apparently the contention raised on behalf of the assessee is founded. Both Mr. Inamdar and Mr. Pandit have relied on this decision in support of their contention that the question in the present form is really a conversion of a question of fact into a question of law. The ITO in that case had held that the sum of Rs. 1,35,000 standing in the name of Ramsaran Pyarelal in the books of account of the assessee-company was income from undisclosed sources belonging to the assessee-company. This finding was confirmed by the AAC. The matter was remanded by the Tribunal for examination of certain witnesses, and after receiving the remand report, the Tribunal held that the amount of Rs. 1,35,000 represented secreted cash of one or the other of the shareholders of the company, and refused to add that amount in the income of the assessee-company. A reference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s will be clear from the following observations (p. 471 of 81 ITR): " On inquiries repeatedly made by us, Mr. Joshi has not been able to submit that in connection with the question of the cash credit in respect of the sums of Rs. 1,00,000 and Rs. 35,000 evidence was not on record. He was unable to state that the finding of the Tribunal rejecting the inclusion of the sum of Rs. 1,35,000 in the assessable income of the assessee-company was not in respect Of a question of fact." The Division Bench pointed out that in refusing to hold the sums in dispute to be the income of the assessee-company, the Tribunal was not called upon to apply any principles of law, and that the Tribunal had considered a plethora of evidence which was on record. It was pointed out that the Tribunal discussed the facts in respect of the ledger accounts in question, and it had also referred to other relevant facts. It was observed that on the basis of the evidence on record and the facts, the Tribunal found it difficult to accept the contention of the revenue that this money was the income of the assessee-company from undisclosed sources. The Division Bench pointed out that (p. 472 of 81 ITR): " Having re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... controversy before us, where the main question is whether the reframed question is only one of the aspects of the question which was originally sought to be referred. The learned counsel for the revenue has then referred us to the decision of the Supreme Court in Bhanji Bagawandas v. CIT [1968] 67 ITR 18 where the Supreme Court has expressly followed the decision in Scindia Steam Navigation Company's case [1961] 42 ITR 589 and found that the legal effect of the Amending Act of 1959 was within the framework of the question already referred to the High Court in that case, and, therefore, it was competent for the Supreme Court to allow a new contention to be advanced in that case. It, however, appears that these observations are of limited application, because the Supreme Court has made it clear that a new contention could be advanced " in a case of this description" . In CIT v. Indian Molasses Co. P. Ltd. [1970] 78 ITR 474 (SC), the question referred to the High Court of Calcutta at the instance of the Commissioner of Income-tax was: " Whether, on the facts and in the circumstances of the case, the sum of Rs. 1,83,434 was an expenditure effectively laid out or expended during t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stricted to an inquiry that the expenditure was of a capital nature. Having considered the decisions, which are cited on both sides, it is not possible for us to accept the contention advanced on behalf of the assessee that we must decline to answer the question referred under s. 66(2) on the ground that this was not a question on which the Tribunal was brought to bear its attention in the application under s. 66(1). The question as reframed is merely an aspect or a facet of question No. 1, which was intended to put in issue the validity of the finding regarding the ownership of the high denomination currency notes. We, therefore, proceed to decide the contentions advanced on behalf of the revenue as well as on behalf of the assessee on merits. If the question referred is properly construed, the only controversy which it brings into focus is whether there was any evidence at all for the Tribunal to come to a finding that the high denomination notes did not belong to the three assessees. It is obvious that the question was so reframed in order to put in issue the finding of fact. While the validity of the finding of fact that the amounts did not belong to the three assessees is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erests of Laxmi Textile Mills Company. According to Phatak, Desai was the main person managing the affairs of Laxmi Textile Mills and the Bhor Mercantile Agency, and unless instructed by Desai, he did not do any work. Even according to him, the currency notes were from 48 depositors, and it was only later that he came to know that there were no depositors. Desai himself admitted the encashment, of the currency notes of Rs. 86,000, but was not able to say from whom this amount was received and from what account. According to him, the moneys were of the depositors. Now, when the matter came to be decided at the appellate stage before the Tribunal, this was not the only material before the Tribunal. As already pointed out, both the revenue and the assessees agreed that the evidence recorded in the course of the trial of the three assessees for breach of the provisions of the Ordinance should be treated as evidence. The Tribunal was called upon to deal with the question as to whether these currency notes represented the undisclosed source of income of the assessees. Once the parties had agreed for the consideration of the material in the prosecution as a part of the record dealing wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who had those notes, gave them to Desai for encashment of the same as the Ordinance was first promulgated in British India. The circumstance that the resources of these three persons who had nominal investments to the extent of Rs. 5,000 each in the Laxmi Textile Mills and Rs. 700 each in the Bhor Mercantile Agency were not sufficient to bring them an income of such large amount as a result of accumulation of large sums of the value of more than Rs. 10,00,000 was clearly a very relevant circumstance for the Tribunal to take into account. Similarly, the fact that no investments by any one of the three assessees were found was also material fact. As against encashment of Rs. 10,55,000, the possession by the assessees of a sum of Rs. 2,16,455 was a circumstance on which it was open to the Tribunal to draw the inference that the moneys s to somebody else, to whom they have been paid off. It is no doubt true that if the matter had rested merely on the declaration made by these three persons, there would have been some case for the revenue, but the fact that the declaration for Rs. 9,66,000 was signed by Karandikar and Phatak by itself would not be, in the present state of the record wh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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