Case: Messrs Mehta Parikh & Co Vs. The Commissioner Of Income-Tax,Bombay

Bhagwati, J. (with him S.R. Das, CJ.) :1. Two questions were referred by the Income-tax Appellate Tribunal to the High Court of Bombay under S. 66 (1) Income-tax Act.1. Whether there is any material to justify the assessment of Rs. 30,000 (Rupees thirty thousand) from out of the sum of Rs. 61,000 (Rupees sixtyone thousand) (for Income-tax and Excess Profits Tax and Business Profits Tax purpose) representing the value of high denomination notes which were encashed on the eighteenth day of January one thousand nine hundred and fortysix, and 2. Whether in any event by reason of the orders of the Revenue Authorities not having found that the alleged item was from alleged undisclosed business profits the assessment of Rs. 30,000 (Rupees thirty thousand) is in law justified for Excess Profits Tax and Business Profits Tax purposes?2. The High Court answered the first question in the affirmative but refused to answer the second question, being of the opinion that even though it had asked the Tribunal to refer that question under S. 66(2) of the Act, it had no jurisdiction to do so inasmuch as the appellants had not asked the Tribunal to refer the second question and, therefore, no question arose of the Tribunal refusing to raise that question or to submit it for the decision of the High Court.3. The appellants are a partnership firm doing business in Mill Stores at Ahmedabad. Their head office is in Ahmedabad and their branch office is in Bombay. The Governor-General on 12-1-1946 promulgated the High Court Denomination Bank Notes (Demonetisation) Ordinance, 1946 and High Denomination Bank Notes ceased to be legal tender on the expiry of 12th day of January 1946. Pursuant to clause 6 of the Ordinance the appellants on 18-1-1946 encashed high donomination notes of Rs. 1,000 each of the face value of Rs. 61,000. This was done in the calender year 1946 being the account year corresponding with assessment year 1947-48.4. During the assessment proceedings for the year 1947-48 the Income-tax Officer called upon the appellant to prove from whom and when the said high denomination notes of Rs. 61,000 were received by the appellants and also the bona fides of the previous owners thereof. After examining the entries in the books of account of the appellants and the position of the Cash Balances on various dates from 20-12-1945 to 18-1-1946 and the nature and extent of the receipts and payments during the relevant period, the Income-tax Officer came to the conclusion that in order to sustain the contention of the appellants he would have to presume that there were 18 high denomination notes of Rs. 1,000 each in the Cash. Balance on 1-1-1946 and before 13-1-1946 were received in currency notes of Rs. 1,000 each, a presumption which he found impossible to make in the absence of any evidence. He, therefore added a sum of Rs. 61,000 to the assessable income of the appellants from undisclosed sources.5. On appeal to the Appellate Assistant Commissioner the appellants produced before him affidavits of three persons to show that the appellates had received Rs. 20,000, in 1,000 rupees currency notes on 28-12-1945, Rs. 15,000 in 1,000 rupees currency notes on 6-1-1946 and Rs. 8,500 in 1,000 rupees currency notes (making Rs. 8,000) on 8-1-1946, thus aggregating to Rs. 43,300 during the relevant period. The Appellate Assistant Commissioner did not accept the statement contained in the said affidavits and dismissed the appeal and confirmed the order of the Income-tax Officer.6. An appeal was taken by the appellants before the Income-tax Appellate Tribunal. The Tribunal after taking into consideration all the materials which had been placed before the Appellate Assistant Commissioner including the said affidavits, was of the opinion that if it was to accept the appellants contention, it would mean that practically every payment above Rs. 1,000 was received by the appellants in high denomination notes, which was almost impossible. The Tribunal could not say that the appellants had no high denomination notes with them. It accepted the books of account of the appellants but though that the cash balance on 18-1-1946 could not have sixty-one high denomination notes. It came to the conclusion that the appellants appeared to have put in high denomination notes in the cash balance and taken the other notes away. It accepted the appellants explanation only in regard to 31 notes and directed that the appellants assessment for the year under reference be reduced by that amount and dismissed the rest of the appeal.7. The appellants applied to the Tribunal for stating a case and referring the first question of law to the High Court for its opinion under S. 66(1) of the Act. The Tribunal rejected the said application holding that no question of law arose from its order. The appellants thereupon applied to the High Court under S. 66(2) of the Act for an order directing the Tribunal to state a case and refer the questions set out in the application. The High Court directed the Tribunal to state a case and refer the two questions of law set out hereinabove to it for its decision under S. 66(2) of the Act. In stating the case and referring the said questions of law to the High Court the Tribunal pointed out that the second question was not urged before the Tribunal at any stage and hence it was not dealt with by it in its original order.8. The reference was heard by the High Court and the High Court answered the first referred question in the affirmative, but did not answer the second referred question. The High Court held that there were materials before the Tribunal to hold that the sum of Rs. 30,000 represented the income of the appellants from undisclosed sources and that the finding of the Tribunal was a finding of fact based on materials before it and even if it was an inference drawn by the Tribunal, the inference was based on the facts and materials before the Tribunal. The High Court observed that it was impossible to say that the inference drawn by the Tribunal from the circumstances was an unreasonable inference or an arbitrary and capricious inference or an inference, which no judicial tribunal could ever draw. It, therefore, answered the first referred question in the affirmative.9. As regards the second referred question, the High Court held that the question was not raised by the appellants in their application for reference under S. 66(1) of the Act and, therefore, it had no jurisdiction to ask the Tribunal to state a case on a particular question of law, where the appellants themselves had never asked the Tribunal to refer such a question to the High Court and that even though it had directed the Tribunal under S. 66(2) to refer the said question, as it had no jurisdiction to ask the Tribunal to refer the said question, it was not open to it to answer the second question which had been raised by the Tribunal at its instance and refused to answer it.10. On a petition made by the appellants for leave to appeal to this court, the High Court granted a certificate that this was a fit case for appeal to this court and hence this appeal.11. It may be mentioned at the outset that the assessment of the appellants by the Income-tax Officer was under S. 23(3) and S. 26-A of the Act. The books of account of the appellants were accepted by the Income-tax Officer and the only scrutiny made by the Income-tax Officer was whether at the relevant date, i.e. on 12-1-1946, the appellants had in their cash 61 notes of high denomination of Rs. 1,000 each. The cash book entries from 20-12-1945 up to 18-1-1946 were put in before the Income-tax Officer and they showed that on 28-12-1945 Rs. 20,000 were received from the Anand Textiles, and there was an opening balance of Rs. 18,395 on 2-1-1946. Rs. 15,000 were received by the appellants on 7-1-1946 from the Suschico Textiles and Rs. 8,500 were received by them on 8-1-1946 from Maniben, widow of Shah Maneklal Nihalchand. Various other sums were also received by the appellants from 2-1-1946 up to and inclusive of 11-1-1946, which were either multiples of Rs. 1,000 or were over Rs. 1,000 and were thus capable of having been paid to the appellants in high denomination notes of Rs. 1,000. There was a cash balance of Rs. 69,891-2-6 with the appellants on 12-1-1946, when the High Denomination Bank Notes (Demonetisation) Ordinance 1946 was promulgated and it was the case of the appellants that they had then in their custody and possession 61 high denomination notes of Rs. 1,000, which they encashed through the Eastern Bank on 18-1-1946. The appellants further sought to support their contention by procuring before the Appellate Assistant Commissioner the affidavits of Kuthpady Shyama Shetty, General Manager of Messrs. Shree Anand Textiles, in regard to the appellants of a sum of Rs. 20,000 in Rs. 1,000 currency notes on 28-12-1945, Govindprasad Ramjivan Nivetia, proprietor of Messrs. Shusiko Textiles, in regard to payment to the appellants of a sum of Rs. 15,000 in Rs. 1,000 currency notes on 6th January 1946 and Bai Maniben, widow of Shah Maneklal Nihalchand, in regard to payment to the appellants a sum of Rs. 8,500 (Rs. 8,000 there out being in Rs. 1,000 currency notes) on 8-1-1946. The appellants were not in a position to give further particulars of Rs. 1,000 currency notes received by them during the relevant period, as they were not in the habit of noting these particulars in their cash book and therefore relied upon the position as it could be spelt out of the entries in their cash book coupled with these affidavits in order to show that on 12-1-1946 they had in their cash balance of Rs. 69,891-2-6, the 61 high denomination currency notes of R. 1,000 each, which they encashed on 18-1-1946 through the Eastern Bank.12. Both the Income-tax Officer and the Appellate Assistant Commissioner discounted this suggestion of the appellants by holding that it was impossible that the appellants had on hand on 12-1-1946, the 61 high denomination currency notes of Rs. 1,000 each, included in their cash balance of Rs. 69,891-2-6-. The calculations, which they made involved taking into account of all payments received by the appellants from and after 2-1-1946, which were either multiples of Rs. 1,000 or were over Rs. 1,000. There was a cash balance of Rs. 18,395-6-6- on hand on 2-1-1946, which could have accounted for 18 such notes. The appellants received thereafter as shown in their cash book several sums of monies aggregating to over Rs. 45,000 in multiples of Rs. 1,000 or sum of over Rs. 1,000, which could account for 45 other notes of that high denomination, thus making up 63 currency notes of the high denomination of Rs. 1,000 and these 61 currency notes of Rs. 1000 each, which the appellants encashed on 18-1-1946 could as well have been in their custody on 12-1-1946. This was, however, considered impossible by both the Income-tax Officer and the Appellate Assistant Commissioner as they could not consider it within the bounds of possibility that each and every payment received by the appellants after 2-1-1946 in multiples of Rs. 1,000 or over Rs. 1,000 was received by the appellants in high denomination notes Rs. 1,000 each. It was by reason of their visualisation of such an impossibility that they negatived the appellants contention.13. It has to be noted, however, that beyond these calculations of figures, no further scrutiny was made by the Income-tax Officer or the Appellate Assistant Commissioner of the entries in the cash book of the appellants. The cash book of the appellants was accepted and the entries therein were not challenged. No further documents or vouchers in relation to those entries were called for, nor was the presence of the deponents of the three affidavits considered necessary by their party. The appellants took it that the affidavits of these parties were enough and neither the Appellate Assistant Commissioner, nor the Income-tax Officer, who was present at the hearing of the appeal before the Appellate Assistant Commissioner, considered it necessary to call for them in order to cross-examine them with reference to the statements made by them in their affidavits. Under these circumstances it was not open to the Revenue to challenge the correctness of the cash book entries or the statements made by those deponents in their affidavits.14. This being the position, the state of affairs, as it obtained on 12-1-1946, had got to be appreciated, having regard to those entries in the cash books and the affidavits filed before the Appellate Assistant Commissioner, taking them at their face value. The entries in the cash books disclosed that, taking the number of high denomination notes at 18 on 2nd January 1946, there came in the custody or possession of the appellants after 2nd January 1946 and up to 12-1-1946, 49 further notes of that high denomination, making 67 such notes in the aggregate, out of which 61 such notes could be encashed by the appellants on 18th January 1946 through the Eastern Bank. A mere calculation of the nature indulged in by the Income-tax Officer or the Appellate Assistant Commissioner was not enough, without any further scrutiny, to dislodge the position taken up by the appellants, supported as it was, by the entries in the cash book and the affidavits put in by the appellants before the Appellate Commissioner.15. The Tribunal also fell into the same error. It could not negative the possibility of the appellant being in possession of a substantial number of these high denomination currency notes. It, however, considered that it was impossible for the appellants to have had 61 such notes in the cash balance in their hands on 12-1-1946 and then it applies a rule of the thumb treating 31 out of such 61 notes as within the bounds of possibility excluding 30 such notes as not covered by the explanation of the appellants. This was pure surmise and had no basis in the evidence, which was on the record of the proceedings.16. The High Court treated this finding of the Tribunal as a mere findings of fact. The position in regard to all such findings of fact, as to whether they can be questioned in appeal, is thus laid down by the House of Lords in Cameron v. Prendergast (1940) 8 ITR (Sup) 75 (81) (A)."Inference from facts stated by the Commissioners are matters of law and can be questioned on appeal. The same remark is true as to the construction of documents. If the Commissioners state the evidence and hold upon that evidence that certain results follow, it is open to the Court of differ from such a holding."To the same effect are the observations of the House of Lords in Bomford v. Osborne (1942) 10 ITR (Sup) 27 (34) (B)."No doubt there are many cases in which Commissioners, having had proved or admitted before them a series of facts, may deduce therefrom further conclusion which are themselves conclusions of pure fact. But in such cases the determination in point of law is that the facts proved or admitted provide evidence to support the Commissioners conclusions."The latest pronouncement of the House of Lords on this question it to be found in Edwards v. Bairstow (1955) 28 ITR 579 (C) Viscount Simonds observed at page 586 :-"For it is universally conceded that, though it is a pure, finding of fact, it may be set aside on grounds which have been stated in various ways but are, I think, fairly summarised by saying that the court should take that course if it appears that the Commissioners have acted without any evidence or upon a view of the facts which could not reasonably be entertained."and Lord Radcliffe expressed himself as under at page 592 :-"If the case contains anything ex facie which is bad law and which bears upon the determination, it is obviously erroneous in point of law. But, without any such misconception appearing ex facie, it may be that the facts found are such that no person acting judicially and properly instructed as to the relevant law should have come to the determination under appeal. In those circumstances, too, the court must intervene."17. It follows, therefore, that facts proved or admitted may provide evidence to support further conclusion to be deduced from them, which conclusions may themselves be conclusions of fact and such inferences from facts proved or admitted could be matters of law. The court would be entitled to intervene if it appears that the fact finding authority has acted without any evidence or upon a view of the facts, which could not reasonably be entertained or the facts found are such that no person acting judicially and properly instructed as to the relevant law would have come to the determination in question.18. The High Court recognised this position in effect but went wrong in applying the true principles of interference with such findings of fact to the present case. The attempt which was made by the High Court to probe into the mind of the Tribunal by trying to discard the affidavit of Govindprasad Ramjivan Ninetia in regard to the payment of Rs. 15,000 to the appellants in 15 currency notes of Rs. 1,000 each on 6-1-1946 and thus reducing the aggregate sum of Rs. 43,500 to Rs. 28,500 and justifying the figure of Rs. 31,000 arrived at by the Tribunal was really far-fetched and contrary to the terms of the Tribunals order itself, the Tribunal not having given any inkling, whatever, of what was at the back of its mind when it fixed upon the figure Rs. 31,000. Really speaking the Tribunal had not indicated upon what material it held that Rs. 30,000 should be treated as secret profit or profits from undisclosed sources and the order passed by it was bad. The appellants had furnished a reasonable explanation for the possession of the high denomination notes of the face value of Rs. 61,000 and there was no justification for having accepted it in part and discarded it in relation to a sum of Rs. 30,000. The case was analogous to the one before the Patna High Court in Chunilal Tichamchand Coal Co. Ltd. v. Commissioner of Income-tax, Bihar and Orissa, 1955 Pat. 185 (AIR V 42) (D), and should have been similarly decided in favour of the appellants.19.For the reasons indicated above, we are of the opinion that the High Court was in error in answering the first referred question in the affirmative. It ought to have answered it in the negative and held that there were no materials to justify the assessment of Rs. 30,000 from out of the sum of Rs. 61,000, for Income-tax and Excess Profits Tax and Business Profits Tax purposes representing the value of the high denomination notes which were encashed on 18-1-1946.20. In view of the above it is not necessary for us to go into the question whether the High Court ought to have answered the second referred question also. The answer to the first referred question being in the negative, the very basis for Excess Profits Tax and Business Profits Tax disappears and the second referred question becomes purely academical.

Decision:
1[ds]19.For the reasons indicated above, we are of the opinion that the High Court was in error in answering the first referred question in the affirmative. It ought to have answered it in the negative and held that there were no materials to justify the assessment of Rs. 30,000 from out of the sum of Rs. 61,000, for Income-tax and Excess Profits Tax and Business Profits Tax purposes representing the value of the high denomination notes which were encashed on 18-1-1946.20. In view of the above it is not necessary for us to go into the question whether the High Court ought to have answered the second referred question also. The answer to the first referred question being in the negative, the very basis for Excess Profits Tax and Business Profits Tax disappears and the second referred question becomes purely academical.