Case: Bai Velbai Vs. Commissioner of Income Tax, Bombay City

1. This is an appeal by special leave. The appellant is the widow of one Kanji Jadhavji. Kanji Jadhavji had extensive businesses such as stevedoring, coal hauling, freight brokerage, clearing and forwarding of goods, loading and unloading of steamers, chartering of steamers, etc. These businesses the widow inherited on the death of her husband. For the assessment yearthe relevant accounting year being the calendar year 1946, the appellant was assessed on a total income of Rs. 3, 69, 371 which was subsequently reduced to Rs. 2, 99, 471 by the Appellate Assistant Commissioner. While assessing the appellant, theOfficer concerned added a sum of Rs. 1, 38, 000 being the amount of certain high denomination notes encashed by the appellant, as income from undisclosed sources. Being aggrieved by this addition, the appellant appealed to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner asked theOfficer to prepare from the records in the possession of the department statements of income returned and income assessed in the hands of the appellant for the years 1931 to 1945. These statements were duly prepared. TheOfficer also prepared statements of the capital accounts in the different books of the appellant and the amounts withdrawn by her therefrom, for the assessment years7. No books of account were, however, available for the yearand for the first four months ofsome of these books, it was stated, were destroyed as a result of an explosion which took place in the Bombay docks on April 14, 1944. By the time the appeal was heard the Appellate Assistant Commissioner who had called for the aforesaid statements was transferred. Hiswho dealt with the appeal held that theOfficer was justified in adding Rs. 1, 38, 000 as income from undisclosed sources. The appeal was accordingly dismissed. Then, there was an appeal to theAppellate Tribunal, Bombay. By its order dated May 6, 1959, the Appellate Tribunal held that there was "no positive and tangible proof to correlate the encashment of high denomination notes worth Rs. 2, 38, 000 with any previous savings or withdrawals of the appellant." It, therefore, dismissed the appeal. It may be stated here that the appellant had encashed 246 high denomination currency notes of the total value of Rs. 2, 46, 000 at the time when the High Denomination Notes (Demonetisation) Ordinance was promulgated in January, 1946. At that time the appellant made a declaration to the effect that the sources from which she had come into possession of the high denomination notes were (1) movable and immovable properties including cash left by her husband, (2) the profits which she had made from the business of her husband inherited by her, (3) rents and income from her landed properties, (4) the moneys she had withdrawn from the said businesses from time to time and (5) three fixed deposits which the appellant had in three banks, these deposits having been withdrawn in 1942 when there was a panic arising out of the Second World War. Out of the aforesaid 246 notes theOfficer held that eight notes formed part ofcash balance of the businesses of the appellant. As regards the remaining 238 notes, theOfficer held that a sum of Rs. 1, 00, 000 could at most be treated as representing the savings of the appellant from all sources; therefore, he held that the remaining sum of Rs. 1, 38, 000 was the appellants income from undisclosed sources The appellant then moved the Tribunal for referring certain questions of law which according to her arose out of the Tribunals order dated May 6, 1959, to the High Court under section 66(1) of theAct, 1922. In her application the appellant framed seven such questions. In their true scope and effect the questions really were three in number: (1) whether there was any evidence or material to support the finding of the Tribunal that the sum of Rs. 1, 38, 000 represented the appellants income from undisclosed sources; (2) whether the conclusion arrived at by the Tribunal that the sum of Rs. 1, 38, 000 was the appellants income from undisclosed sources was perverse in the sense that no reasonable man could come to it on the materials on record; and (3) whether the said conclusion was based on conjecture, surmise or suspicion and on a failure to consider relevant evidence in the recordThe Tribunal rejected the application holding that no question of law arose out of its order dated May 6, 1959. The appellant then moved the High Court under section 66(2) of the Act for an order directing the Tribunal to state a case on the questions of law which according to the appellant arose, out of the Tribunals order. This application was summarily dismissed by the High Court on March 27, 1961. The appellant then moved this court for special leave to appeal from the order of the High Court dated March 27, 1961. This court granted special leave and the present appeal has been preferred in pursuance of the leave so granted

Court's reasoning:
3. Prima facie, the question whether the amount of Rs. 1, 38, 000 came out of the savings or withdrawals made by the appellant from her several businesses or was income from undisclosed sources, would be a question of fact to be determined on a consideration of the facts and circumstances proved or admitted in the case. As this court observed in Sree Meenakshi Mills v. Commissioner ofa finding of fact does not alter its character as one of fact merely because it is itself an inference from other basic facts ; but a finding on a question of fact is open to attack under section 66 as erroneous in law when there is no evidence to support it or if it is perverse or has been reached without due consideration of the several matters relevant for such a determinationLearned counsel for the appellant has argued that the present case comes under the second category aforesaid and the High Court was wrong in summarily rejecting the application for a reference. We do not think that the assessment order in all its particulars can be said to come under the rule of "no evidence in support of the finding." Neither does learned counsel for the appellant so contend.We may first point out that the Tribunal has given no reasons of its own for making a distinction between the sum of Rs. 1, 00, 000 and the sum of Rs. 1, 38, 000 out of the sum of Rs. 2, 38, 000 received by the encashment of 238 high denomination currency notes. Assuming that the Tribunal adopted whatever reasons theOfficer had given in his assessment order, it prima facie appears to us that with regard to the sum of Rs. 1, 38, 000 theOfficer has not referred to any particular materials on which he made a distinction between Rs. 1, 38, 000 and Rs. 1, 00, 000. The Tribunal did indeed refer to the withdrawals which the appellant made from her fixed deposit amounts in the three banks, the withdrawals amounting to about Rs. 4, 00, 220 early in 1942. The Tribunal then pointed out that the appellant invested Rs. 2, 53, 980 in September, 1942, in municipal bonds and Rs. 70, 000 in shares in 1943. This was followed by a further investment in 1945 in the municipal debentures. This left a sum of a little over Rs. 76, 000 with the appellant. The Tribunal referred to a further investment in municipal debentures of about Rs. 20, 000. But the Tribunal did not consider the case of the appellant as regards her having the entire Rs. 76, 000 and odd nor her explanation as to the source from which the municipal debentures were acquired. What, however, the Tribunal failed to consider was the withdrawals which the appellant had made in cash from the capital accounts in her different businesses from6. TheOfficer referred to these withdrawals and disposed of them on the short ground that the capital accounts were maintained more for the purpose oftransfer of money than for her personalcounsel for the appellant has referred us to these capital accounts and has pointed out that though transfer entries occurred in the accounts of8, there were other entries in the books of the years46 which showed that the appellant had withdrawn various amounts in cash from herbusinesses. These withdrawals do not appear to have been considered by the Tribunal at all. If these withdrawals are added to what the appellant had withdrawn from her fixed deposit amounts in the three banks, learned counsel for the appellant contends that the total amount would come to about Rs. 6, 00, 000 or Rs. 7, 00, 000 and would satisfactorily account for the large amount of cash in her hands. The Tribunal pointed out that the appellant had to disburse legacies worth Rs. 2, 50, 000 under the will left by her husband. The Tribunal opined that these disbursements must have been spread over quite a long period. The complaint of learned counsel for the appellant is that there is no evidence that the disbursements were spread over a long period and the finding of the Tribunal was based on a mere surmise. Hisfurther contention is that if the total amount of withdrawals from the businesses and the fixed deposit accounts were taken into consideration, the appellant would still be left with a large sum of money in her handsLearned counsel for the appellant has also made a grievance of the fact that in calculating the withdrawals made by the appellant from her, businesses, ther had first excluded withdrawals on account of household expenses,c ; but later on he said that a portion of the cash withdrawals together with the income from properties and the cash left by the appellants husband must have gone to pay the legacies, household expenses, etc.This again is said to be based on surmise rather than on any evidence on record5. We do not think that it is necessary or advisable to consider in detail the various contentions urged on behalf of the appellant. These contentions will require a detailed consideration when the questions of law which arise out of the Tribunals order will fall for decision. It is sufficient for us to say at this stage that the three questions which the appellant has raised and to which we have made a reference earlier in this judgment are questions of law which do arise out of the Tribunals order dated May 6, 1959. In coming to this conclusion we have kept in mind the observations made by this court in Omar Salay Mahomed Sait v. Commissioner ofand Homi Jehangir Gheesta v. Commissioner ofWe have read the order of the Tribunal as a whole and we are not unmindful of the observation made in the case of Homi Jehangir Gheesta that in considering probabilities properly arising from the facts alleged or proved, the Tribunal does not indulge in conjectures, surmises or suspicions. We may perhaps add that what we have said in this judgment is meant only to show that certain questions of law arise out of the Tribunals order and the High Court was wrong in summarily rejecting the application for a reference. As to how the questions of law should be answered will be a matter for the High Court to decide when on the statement of the case filed by the Tribunal the reference is dealt with by itFor the reasons given above we allow this appeal and set aside the order of the High Court dated March 27, 1961, by which it summarily rejected the application for a reference under section 66 of the Act.