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

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,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 ownersexamining 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 almostTribunal 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 notesaccepted 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 theHigh 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 theHigh 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.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.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.

Reasoning: 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.