Case: State of Kerala Vs. C. Velukutty

The following facts relate to Civil Appeal No. 986 of 1964 in respect of the assessment year6 : The respondent has two offices, the head office is at Court Road and the branch office, at Big Bazaar. Both the offices are in Kozhikode. The branch office does wholesale business and the head office does retail business and they maintain separate accounts. The goods sent from the branch office to the head office are entered in the accounts as transfers. The head office maintains accounts disclosing the goods so transferred by the branch office and also the goods purchased by it locally. The branch office has also transactions with other customers. On April 6, 1957, the Deputy Commercial Tax Officer, Kozhikode, assessed the respondent on the net turnover of his business of Rs. 9, 30,5 for the assessment years. But later on, on a surprise inspection of the head office by the Intelligence Officer, North Zone, Kozhikode, some books of accounts and records were recovered. On October 27, 1958, on the basis of the said books and records, the Sales Tax Officer issued a notice to the respondent proposing to determine to the best of his judgment the turnover which had escaped assessment. The respondent agreed to the Sales Tax Officer assessing the turnover of the head office on the basis of the aforesaid secret books recovered from the shop, but objected to a fresh assessment being made in respect of the branch office at Big Bazaar. That objection was rejected and the Sales Tax Officer reassessed the turnover of the business of the respondent in the following manner : He found that in regard to the head office the transactions disclosed in the secret books were 135% of the turnover recorded in the regular accounts and on that basis added 135% to the turnover disclosed in the regular books of the said office. He then applied the same percentage in regard to the assessment of the turnover of the branch office. He added 135% to the turnover found in the regular accounts of the branch office. He assessed the total turnover of the two offices at Rs. 19, 71,. On the basis of the said total turnover the respondent was assessed to sales tax amounting to Rs. 16, 269.37. The respondent preferred an appeal against the said order of the Sales Tax Officer to the Appellate Assistant Commissioner without any success. The further appeal preferred by him to the Sales Tax Appellate Tribunal was also dismissed. The said order was taken in revision to the High Court of Kerala in T. R. C. No. 52 of 1960The facts of Civil Appeal No. 987 of 1964 relating to the assessment for the year7 are as follows : On the basis of the secret accounts discovered in the surprise inspection of the head office, the Sales Tax Officer issued a notice to the respondent proposing to determine to the best of his judgment the turnover which had escaped assessment. The respondent had no objection for a reassessment being made in respect of the turnover of the head office on the basis of the secret accounts discovered, but objected to the reassessment of the turnover of his branch office. The Sales Tax Officer applied the same principle in regard to the assessments of both the shops as he had adopted in the case of the turnover for the assessment year. Taking the head office he found in regard to the general goods that the escaped assessment was 200% of the turnover assessed ; and in regard to sugar, 500% of the assessed turnover. He, therefore, added 200% and 500% to the turnover of the general goods and the turnover of sugar respectively. In the same manner in regard to the turnover of the branch office, though no secret books were discovered in respect of that office, he added to the turnover already assessed 200% of the turnover of the general goods and 500% of the turnover of sugar. With the result he fixed the total turnover of the two offices at Rs. 39, 66,6 made up of the turnover of the head office at Rs. 2, 21,5 and of the branch office at Rs. 37, 45,. The respondent pursued the matter up to the High Court. T. R. C. No. 53 of 1960 was the revision filed by him in the High CourtThe High Court set aside the orders of the Sales Tax Tribunal in respect of both the assessment years on the ground that the finding of the escaped assessment so far as the branch office was concerned amounted to an error of law, because it was based on conjecture. Rejecting the plea of the State that the matter should be remanded for a fresh assessment, the High Court dismissed the revisions. Hence the present appeals

Reasoning: It is manifest that the jurisdiction of the High Court under section 15B is confined only to the question whether the Tribunal has either decided erroneously or failed to decide any question of law. As we will point out immediately, the Sales Tax Officer acted capriciously and arbitrarily in assessing the respondent, which he could not do under section 12(2)(b) of the Act and the Tribunal confirmed that order. It is a clear case where the Tribunal decided erroneously on a question of lawThe expression "to the best of his judgment" in the said clause is presumably borrowed from section 23(4) of thex Act. The said expression in thex Act was the subject of judicial scrutinyThe Privy Council, while recognizing that an assessment made by an officer to the best of his judgment involved some, emphasized that he must exercise his judgment after taking into consideration the relevant material. The view expressed by the Privy Council in the context of thex Act was followed when a similar question arose under the Sales Tax ActBut in this case there was no material before the assessing authority relevant to the assessment and the impugned assessments were arbitrarily made by applying a ratio between disclosed and concealed turnover in one shop to another shop of the assessee. It was only a capricious surmise unsupported by any relevant material. The High Court, therefore, rightly set aside the orders of the TribunalNor can we accede to the request of the learned counsel for the State to remand the matter to the Tribunal for fresh disposal. The sales tax authority had every opportunity to base its judgment on relevant material; but it did not do so. The department persisted all through the hierarchy of tribunals to sustain the impugned assessments. The High Court, having regard to the circumstances of the case, refused to give the department another opportunity. We do not think we are justified to take a different view