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1967 Supreme(SC) 416
SUPREME COURT OF INDIA
J.C. Shah, S.M. Sikri and V. Ramaswami, JJ.
Commissioner of Income Tax, Madras (In All The Appeals) - Appellant
Versus
S. Nelliappan (Dead) By His Legal Representatives (In All The Appeals) - Respondents
Civil Appeals Nos. 527 to 530 of 1966
Decided On : 05-05-1967
For the Appellant :Veda Vyasa, Senior Advocate (A.N. Kirpal and R.N. Sachthey, Advocates.
For the Respondent:S.T. Desai, Senior Advocate (T.A. Ramachandran, Advocate, and O.C. Mathur, Advocate of J.B. Dadachanji and Co.
A question of fact cannot be referred to the High Court under Section 66 of the Income Tax Act.
Headnote:
INCOME TAX - Reference to High Court - Question of fact - Tribunal's finding that cash credits represented income from business withheld from books - Not a question of law - Not referable under Section 66.
Fact of the Case:
The assessee, a bus and lorry operator, challenged the income tax and excess profits tax assessments for the years 1946-47 and 1947-48. The assessing officer rejected the assessee's books of account and made several additions to the profits disclosed by them. The Appellate Assistant Commissioner confirmed the assessing officer's orders. The Appellate Tribunal dismissed the assessee's appeals, holding that the final computation of profits gave an average rate much less than Rs 4000 per vehicle and that the assessments at rates less than those uniformly followed in other bus and lorry cases could not be said to be excessive or unreasonable. The Tribunal declined to deal with the individual items since the assessee had failed to discharge the primary onus to show that the overall quantum was excessive. The High Court held that the Tribunal was bound to determine whether the purchase price of charcoal and the estimate of gross receipts by the Appellate Assistant Commissioner were excessive and should have determined the contentions raised by the assessee individually. The Tribunal, on remand, deleted the additions for cash credits, holding that they had become redundant since additions to the book profits had been accepted in excess of the amounts of cash credits.
Finding of the Court:
The court held that the Tribunal's finding that the cash credits represented income from the business withheld from the books was a question of fact and could not be referred under Section 66 of the Income Tax Act. The court also held that the second question, whether the Tribunal was right in making out a new case for the assessee inconsistent with the assessee's own plea, was academic since the first question was not allowed to be raised.
Issues: 1. Whether the Tribunal was right in law in deleting the addition to the extent of Rs 19,796 in the assessment for the year 1946-47? 2. Whether the Tribunal is right in law in making out a new case for the assessee inconsistent with the assessee's own plea and interfering with the assessment?
Ratio Decidendi: 1. The Tribunal's finding that the cash credits represented income from the business withheld from the books was a question of fact and could not be referred under Section 66 of the Income Tax Act. 2. The second question, whether the Tribunal was right in making out a new case for the assessee inconsistent with the assessee's own plea, was academic since the first question was not allowed to be raised.
Final Decision: The appeals were dismissed with costs.
JUDGMENT :
Shah, J.
1. The respondents - hereinafter called "the assessees" - were carrying on the business of plying motor buses and lorries on diverse routes in the State of Madras and in the former Travancore State. In proceedings for assessment to income tax for the years 1946-47 and 1947-48 and for excess profits tax for the accounting periods August 17, 1944 to August 16, 1945 and August 17, 1945 to March 31, 1946, the assessing officer rejected the books of account maintained by the assessee and made several additions to the profits disclosed by them and brought the profits so computed to income tax and excess profits tax. The orders of the assessing officer were confirmed by the Appellate Assistant Commissioner. The Appellate Tribunal dismissed the appeals against those orders observing that the final computation of the profits made by the Income Tax Officer gave an average rate very much less than Rs 4000 per vehicle, and that the final assessments at rates less than the rates "uniformly followed in other bus and lorry cases could not be said to be excessive or unreasonable". The Tribunal declined to deal with the contentions raised in the appeals about the individual items since in their view those contentions had "a direct bearing on this final quantum" and the assessees had failed to discharge "the primary onus" on them "to show that the overall quantum is excessive". The Tribunal submitted a statement of the case under Section 66(2) of the Indian Income Tax Act to the High Court of Madras and referred the question whether the Tribunal was justified in estimating the income of the assessees and refusing to consider the contentions put forward by them. The High Court held that the Tribunal was bound to determine whether the purchase price of charcoal and the estimate of gross receipts by the Appellate Assistant Commissioner were excessive, and that the Tribunal should, instead of determining whether the gross amount of the estimated income was excessive, have determined the contention raised by the assessees individually. Counsel for the assessees urged before the High Court that when specific additions were made in the total profits on the grounds of "suppressed income and inflated expenditure", the Appellate Assistant Commissioner could not add other items under the head "Unexplained cash credits". The High Court declined to pronounce their opinion on that contention, and observed that it would be open to the Tribunal to consider that contention in deciding what should be the ultimate estimate of additions to be made to the disclosed income of the assessees in the relevant years. The High Court answered the question referred in favour of the assessees, and observed that the "appeals will have to be disposed of afresh and in accordance with the law by the Tribunal".
2. At the hearing before the Tribunal pursuant to the order of the High Court, counsel for the assessees abandoned the contentions "relating to the amounts adjusted in the computation of profits under the heads of operating expenses and additions for low collections" and urged that cash credits of Rs 19,796 for Assessment Year 1946-47 and Rs 32,700 for Assessment Year 1947-48 should be deleted. The members of the Tribunal held that they had examined the ledger accounts of the assessees and that the credits remaining outstanding till the end of the previous year relating to Assessment Year 1947-48 and the explanation furnished by the assessees was unconvincing, and that the cash credits deserved to be treated as the income of the assessees in the respective years in which they had been brought into the books of the business in fictitious names. But, the Tribunal observed, since in each of the two years under appeal additions to the book profits had been accepted in excess of the amounts of cash credits "additions of these credits had become redundant", and should be deleted, and the assessing officer should amend the assessments and adjust the tax liabili
