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1933 Supreme(SC) 39
PRIVY COUNCIL [ON APPEAL FROM THEEAST INDIES]
LORD BLANESBURGH, LORD ATKIN, AND LORD MACMILLAN.
FEROZ SHAH - Appellant
Versus
COMMISSIONER OF INCOME-TAX, PUNJAB AND N.W. PROVINCE FRONTIER - Respondents
On Appeal from the High Court at Lahore.
Decided On : June 26, 1933.
Solicitors for appellant :Lewis & Yglesias. Solicitor for respondent: Solicitor, India Office.
Findings regarding an assessee's method of accounting and the determination of a flat rate of profit for tax assessment are findings of fact, provided they are supported by evidence, and are not questions of law subject to judicial review.
Headnote:(A) Indian Income-tax Act, 1922 - Sections 13, 66(2) and 66(3) - Computation of profits - Method of accounting - Flat rate of profit - Findings of fact vs. questions of law - Whether the determination of the method of accounting employed by an assessee and the application of a flat rate of profit to estimate business income constitute findings of fact or questions of law - If there is evidence to support the conclusion that certain sales were excluded from accounts arbitrarily, such a finding is one of fact and not a question of law - Similarly, where the principle of assessment at a flat rate is not contested, the determination of the specific percentage to be applied is a matter for the tax officer and constitutes a finding of fact.
(B) Competency of Appeal - Refusal by a High Court to require a statement of case under section 66(3) of the Act - Whether such refusal constitutes a final judgment or order in the exercise of original jurisdiction - Issue not decided as the appeal failed on merits.
Facts of the case:
An assessee engaged in the timber business was assessed to income-tax based on total sales, which included certain sales that the assessee had omitted from his books for the previous year, recording them instead in the subsequent year. The tax officer applied a flat rate of 32.5% to determine the profits, as no profit and loss account had been prepared. The assessee challenged these findings, arguing that his accounting system justified the exclusion of the sales and that the flat rate applied was excessive.
Findings of Court:
The court found that there was sufficient evidence to support the conclusion that the disputed sales were excluded from the accounts of the previous year for reasons not justified. Regarding the flat rate, the court held that since the principle of using a flat rate was not contested, the specific percentage was for the tax officer to determine.
Issues: Whether the findings regarding the system of accounting and the application of a flat rate of profit were findings of fact beyond judicial review or questions of law requiring a statement of case.
Ratio Decidendi: Findings based on evidence regarding the method of accounting and the appropriateness of a flat rate of profit are findings of fact. If evidence exists to support the tax officer's conclusion that sales were omitted arbitrarily, the court will not interfere. The determination of the specific percentage for a flat rate assessment is a factual determination for the tax officer.
Result: Appeal dismissed with costs.
Legal Category Hierarchy
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taxation
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income tax
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assessment
- accounting methods
- profit estimation
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assessment
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income tax
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practice and procedure
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appeals
- jurisdiction
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appeals
Judgement
Appeal (No. 26 of 1932) from a refusal by the High Court (November 28, 1929) to make an order
Law Rep. 60 Ind. App. 325 ( 1932- 1933) Feroz Shah V. C ommissioner of Income-Tax, Punjab
139
under s. 66, sub-s. 3, of the Indian Income-tax Act, 1922, requiring the Commissioner of Income-tax to state a case.
The appeal arose out of an assessment upon the appellant to income-tax for the year 1927-8 under the above Act in respect of the profits of his business as a timber merchant.
The material facts and provisions of the Act appear from the judgment of the Judicial Committee.
An application by the appellant to the High Court for a certificate that the matter was a fit one for appeal to the Privy Council was referred to a Full Bench. Broadway J., with whose judgment Dalip Singh and Tapp JJ. agreed, held that the decision of the High Court refusing to require the statement of a case was a final judgment passed by the Court in its original jurisdiction, and that, as the amount in dispute exceeded Rs. 10,000, the applicant had a right of appeal to the Privy Council under clause 29 of the letters patent of the High Court. The judgment is reported at I. L. R. 12 Lah. 166.
1933. Jan. 26, 27 ; April 5. Wallach for the respondent. The appeal is not competent under clause 29 of the letters patent or otherwise. The judgment of the Board in Tata Iron and Steel Co. v. Chief Revenue Authority, Bombay (( 1923) L. R. 50 I. A. 212.) establishes that a decision of the High Court upon a case stated under s. 66 of the Indian Income-tax Act, 1922, is merely advisory and is not a " final judgment, decree or order." The High Court in dealing with the application under s. 66, sub-s. 3, was merely exercising an incident of its advisory jurisdiction. Secondly, the High Court was not exercising its original jurisdiction, which is that given by clauses 9, 24 and 25 of the letters patent. [See also the Punjab Courts Act, 1918, ss. 24, 25.] Further, s. 106, sub-s. 2, of the Government of India Act, 1915, excludes the jurisdiction of the High Court in revenue matters ; s. 131, sub-s. 3, and Sch. V., reserve power to the Indian Legislature to alter that provision. Sect. 66, sub-s. 3, of the Act of 1922, however, merely authorizes the High Court to require a case to be stated if the High Court " is not satisfied " with the Commissioners refusal to do so, and gives no right of appeal from a refusal by the High Court to exercise that discretionary power. Sect. 66a, enacted in 1926, first gave a right of appeal from decisions under s. 66 ; the right of appeal is confined to that thereby given. Alcock, Ashdown & Co. v. Chief Revenue Authority, Bombay (( 1923) L. R. 50 I. A. 227.) does not apply, because that decision was based upon s. 45 of the Specific Relief Act, 1877, which applied only to the High Courts at Calcutta, Madras and Bombay, but was extended to Rangoon in 1923. The High Court at Rangoon held in E. M. Chettyar Firm v. Commissioner of Income-tax (( 1930) I. L. R. 8 Ran. 435.) that under clause 37 of the letters patent of that Court (which is the same as clause 29 here in question) no appeal lay to the Privy Council from a refusal to order a case to be stated under s. 66 of the Act of 1922.
Roland Burrows K.C. and R. P. Hills for the appellant. Under clause 37 of the letters patent the Indian Legislature had power to extend the original jurisdiction of the High Court, and by s. 66, sub-s. 3, of the Act of 1922 it did so. Even if a decision by the High Court upon a case stated is merely advisory, a decision whether it shall or shall not require the Commissioner to exercise his power under
s. 66, sub-s. 2, is of a different nature and is a final judgment or order within clause 29 of the letters patent Alcock, Ashdown & Co.s case. (( 1923) L. R. 50 I. A. 227.) It is true that that case was decided under s. 45 of the Specific Relief Act, but the duty of the Commissioner to state a case under
s. 66, sub-s. 2, is similar to the duty thereby conferred.
