Commissioner Of Income-Tax, Assam v. Hanumanbux Inderchand.

Ibotombi Singh, J.:— The assessee, M/s. Hanuman Bux Inderchand, is a registered firm, carrying on business in Police Bazar, Shillong, dealing in cloth, wholesale and retail sale. For the assessment year 1958-59, it filed a return on July 28, 1960, disclosing an income of Rs. 65,668. It was, however, assessed by the ITO on February 28, 1963, under s. 23(3) of the Indian I.T Act, 1922, on a total income of Rs. 1,19,055. He included in the assessment a sum of Rs. 53,039 on the basis of the estimated turnovers and gross profits. The ITO included the said amount holding that the assessee carried on business benami in the names of Sri Keshardeo Agarwalla and Ram Narain Sharma. The assessee went in appeal to the AAC, who confirmed the said order of assessment, but no further appeal was taken to the Appellate Tribunal. The ITO, taking the view that the assessee had concealed particulars of his income, initiated penalty proceedings. As the minimum penalty exceeded Rs. 1,000, the ITO referred the matter to the IAC under s. 274(2) of the I.T Act, 1961, on November 30, 1964. The IAC, after hearing both the parties, passed an order on February 25, 1965, levying a penalty of Rs. 39,000 on the assessee under s. 271(1)(c) of the I.T Act, 1961.

2. The assessee preferred appeal, being ITA No. 8348 of 1965-66, to the Income-tax Appellate Tribunal which, by its order, dated November 24, 1967, set aside the order of penalty. In the appeal, two questions were raised; first, penalty under the Act of 1961 did not lie on the facts of the case; and, secondly, even if the penalty could be levied under the Act of 1961, the order was bad because the IAC had not commenced the penalty proceeding before completion of the assessment. The Tribunal held that the assessment having been completed under s. 23(3) of the Indian I.T Act, 1922, penalty could not be levied under s. 271(1)(c), read with s. 297(2)(g) of the I.T Act, 1961. Having held so, the Tribunal considered it not necessary to give findings on the other question and also on the merits as to whether the assessee had concealed its income and the penalty was justified or not. The Tribunal set aside the order of penalty solely on the question of law above. At the instance of the department, reference was made on two questions of law, which were said to arise out of the said order. This court, in Income-tax Reference No. 9/65, answered the first question in the negative and in favour of the department, the question being, whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that, for the assessment year 1958-59, penalty could not be effectively levied under s. 271(1)(c) read with s. 297(2)(g) of the I.T Act, 1961; but the court declined to answer the second question in the view that the Tribunal was not competent to refer it under s. 256(1) of the I.T Act, 1961. The matter came up before the Tribunal for re-hearing of the appeal. At the time of the hearing, the assessee did not press the issue that the penalty order was bad because the IAC had not commenced the penalty proceeding before completion of the assessment. It was as such decided against the assessee. A preliminary objection was raised on behalf of the department that the Tribunal was to pass order only to the effect that penalty could be legally levied by the IAC under s. 271(1)(c) read with s. 297(2)(g) of the Act, 1961, and that the Tribunal was not competent to decide the other ground on merits. It was urged that no finding could be given on the other ground for which there was no reference to the High Court and no direction had been given by the High Court, and that the Tribunal had to pass only such orders as were necessary to dispose of the case conformably to the opinion of this court. The Tribunal overruled the objection relying on the decision of the Bombay High Court in (i) Income-tax Appellate Tribunal v. S.C Cambatta & Co. Ltd., [1956] 29 ITR 118 and two decisions of the Supreme Court, (ii) Esthuri Aswathiah v. Commissioner Of Income Tax, Mysore, [1967] 66 ITR 478 and (iii) CIT v. Jubilee Mills Ltd., [1968] 68 ITR 630. It held that it was competent to decide on merits the other grounds which had not been disposed of by its earlier order and proceeded to decide the case on merits as to whether the assessee was guilty of concealment of income within the meaning of s. 271(1)(c) of the I.T Act, 1961.

3. The Tribunal came also to the finding, for reasons recorded in its order, that there were no cogent materials to hold that Sri Keshardeo Agarwalla and Sri Ram Narain Sharma were the benamidars of the assessee, and that the assessee was carrying on cloth business in their benami names. It also held that the department had failed to prove that the assessee had concealed any income. The Tribunal accordingly allowed the appeal by its order dated April 29, 1974. The department made an application under s. 256(1) of the I.T Act, 1961, raising the following three questions:

“(i) Whether, on the facts and in ???ircumstances of the case, the Income-tax Appellate Tribunal while ??? effect to the hon'ble High Court's judgment under section 260(1) o??? Income-tax Act, 1961, was justified in considering the case de novo, and on a point which was not the subject-matter of reference to the hon'ble High Court?

(ii) Whether, on the evidence available, the finding of the Tribunal that profits earned in the benami of Keshardeo Agarwalla and Ram Narain Sharma do not belong to the assessee is not perverse; and whether the conclusion of the Tribunal based on conjectures and surmises could reasonably be drawn?

(iii) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the penalty order under section 271(1)(c) of the Income-tax Act, 1961, cannot be sustained?”

4. The Tribunal by its order dated November 25, 1974, rejected the application under s. 256(1) of the I.T Act, 1961. In respect of the first question, it held that even though the question raised in an application for reference is a question of law arising out of its order dated April 29, 1974, the answer to it is evident and free from doubt; that when the High Court differed from the order of the Tribunal on the point of law, the Tribunal was bound to decide the appeal on merits and decide the question about the concealment of income; and that the Tribunal, which had decided one of the contentions raised by the assessee, could decide the other issues which were left undecided on the earlier occasion, without any direction of the High Court. It, therefore, held that the question could not be referred to this court. As regards the remaining two questions (ii) and (iii), the Tribunal held that they relate to findings of fact, and as such no question of law arose. It arrived at the finding that there were no cogent materials to hold that the assessee had concealed the income by carrying on business benami in the names of Keshardeo Agarwalla and Ram Narain Sharma. On the rejection of the application for a reference, the department has made this application under s. 256(2) of the I.T Act, 1961.

5. Learned counsel for the department reiterates the same submissions in regard to question No. 1, as were urged before the Tribunal. It is also urged that, in the absence of a finding by the Tribunal in the appeal by its earlier order and direction by this court in the reference, the Tribunal is precluded from giving a finding as to whether the assessee had concealed its income or not.

6. Learned counsel for the assessee, on the other hand, refutes the submissions above; and in support of his contention, learned counsel invites our attention to the principles of law laid down by the Supreme Court in (i) Esthuri Aswathiah, [1967] 66 ITR 478 and (ii) Jubilee Mills Ltd., [1968] 68 ITR 630, and in particular (iii) to the decision of the Andhra Pradesh High Court in CIT v. Hyderabad Deccan Liquor Syndicate, [1974] 95 ITR 130.

7. We find much force in the contention of the learned counsel for the assessee. In Esthuri Aswathiah, [1967] 66 ITR 478, the Supreme Court observed at page 482 as I

“But it is necessary to give certain effective directions, lest a bald order of dismissal of the appeal may result in injustice, especially when the assessee had not a fair trial of his case before the Tribunal. Section 66(5) of the Indian Income-tax Act, 1922, requires the Tribunal on receiving a copy of the judgment of the High Court to pass such orders as are necessary to dispose of the case conformably to such judgment. This clearly imposes an obligation upon the Tribunal to dispose of the appeal in the light of and conformably with the judgment of the High Court. Before the Tribunal passes an order disposing of the appeal, there would normally be a hearing. The scope of the hearing must of course depend upon the nature of the order passed by the High Court. If the High Court has agreed with the view of the Tribunal, the appeal may be disposed of by a formal order; if the High Court disagrees with the Tribunal on a question of law, the Tribunal must modify its order in the light of the order of the High Court; if the High Court has held that the judgment of the Tribunal is vitiated, because it is based on no evidence or that it proceeds upon conjectures, speculation or suspicion, or has been delivered after a trial contrary to rules of natural justice, the Tribunal would be under a duty to dispose of the case conformably with the opinion of the High Court and on the merits of the dispute. In all cases, however, opportunity must be afforded to the parties of being heard.”

8. In S.C Cambatta & Co. Ltd., [1956] 29 ITR 118, the Bombay High Court has explained the procedure to be followed in the disposal of an appeal conformably to the judgment of the High Court. It observed (p. 120):

“…when a reference is made to the High Court either under section 66(1) or section 66(2), the decision of the Appellate Tribunal cannot be looked upon as final; in other words, the appeal is not finally disposed of it is only when the High Court decides the case, exercises its advisory jurisdiction, and gives directions to the Tribunal on questions of law, and the Tribunal reconsiders the matter and decides it, that the appeal is finally disposed of…It is clear that what the Appellate Tribunal is doing after the High Court has heard the case is to exercise its appellate powers under section 33…The shape that the appeal would ultimately take and the decision that the Appellate Tribunal would ultimately give would entirely depend upon the view taken by the High Court.”

9. The passage above was quoted with approval by the Supreme Court in Esthuri Aswathiah, [1967] 66 ITR 478. In Jubilee Mills Ltd., [1968] 68 ITR 630 (SC) and CWT v. Tungabhadra Industries Ltd., [1970] 75 ITR 196 (SC), the Supreme Court, while affirming the principle of law above, held that if the High Court has held that the judgment of the Tribunal is vitiated or because the judgment proceeds upon a misconception of the statute, the Appellate Tribunal would be under a duty to dispose of the case conformably to the opinion of the High Court and on the merits of the dispute, and rehear the appeal after giving notice to the parties and redetermine it in accordance with law.

10. In view of the principles of law above, in our opinion, it cannot be said that the Tribunal has no power to hear the appeal on merits on the questions which were left undecided by the Tribunal in its earlier order. It has been laid down by the Supreme Court in Udhavdas Kewalram v. CIT, [1967] 66 ITR 462, that the Income-tax Appellate Tribunal, which is invested with authority to decide finally all questions of fact, must, in deciding an appeal, consider with due care all the material facts, and record its findings on all the contentions raised by the parties in the light of the evidence and the relevant law. No doubt, normally, the Tribunal is not to decide only one issue arising out of many issues and decline to go into the other issues raised before it on the ground that further issues will not arise in view of the finding on the issue decided by it. The observation of the Supreme Court in Indian Molasses Co. (P.) Ltd. v. CIT, [1959] 37 ITR 66, at page 72, is relevant:

“We cannot help saying that though the Tribunal may be at liberty to decide a case as appears best to it, there is considerable hardship to the taxpayers, if questions of law are decided piecemeal and repeated references to the High Court are necessary. The jurisdiction of the High Court is advisory and consultative, and questions of interpretation of law in this attenuated form can well be avoided. This will tend to cut down the duration of litigation.”

11. The observation above of the Supreme Court throws a flood of light on this question. To avoid multiplication of proceedings under the Act, it is desirable that the Tribunal should not decide the issues in an appeal piecemeal, i.e, should avoid disposing of an appeal on the preliminary issue alone without deciding all the issues raised before it. However, the Tribunal does not lose its authority to decide any issue left undecided in its earlier order on rehearing the appeal without any direction of the High Court; indeed, the Appellate Tribunal would be under a duty to dispose of the case on all issues conformably to the opinion of the High Court and on the merits of the dispute. We are in respectful agreement with the view expressed by the Andhra Pradesh High Court in Hyderabad Deccan Liquor Syndicate, [1974] 95 ITR 130, wherein it was held that the Tribunal at the rehearing of the case is competent to decide the other issues raised by the assessee in such circumstances without any direction of the High Court.

12. We bear in mind the principles of law laid down by the Supreme Court in dealing with an application for reference under s. 256(2) of the I.T Act, 1961. In such an application, the High Court is not called upon at this stage do decide whether the question may ultimately be decided in favour of the assessee or the department; and the High Court has only to consider whether fairly or reasonably arguable questions of law arise out of the order of the Tribunal. If such questions of law arise, the High Court is to direct the Tribunal to state the case and refer the questions to the High Court. See CIT v. Shri Govind Commercial Co. P. Ltd., [1966] 61 ITR 169 (SC) and CIT v. Managing Trustee, Jalakhabai Trust, [1967] 66 ITR 619 (SC).

13. It has, however, been held by the Supreme Court in CIT v. Chander Bhan Harbhajan Lal, [1966] 60 ITR 188 (SC), that where the question of law raised is not substantial and the answer to the question is self evident, the High Court is not bound to require the Tribunal to refer the question.

14. In view of the discussions above, we are satisfied that question No. 1 is not a substantial question of law, and that the answer to it is self-evident. We decline to direct the Tribunal to state a case and refer it to this court.

15. Dealing with the two questions II and III, we are of the opinion that from the findings of the Tribunal no questions of law arise. The issue as to whether or not the assessee has concealed the income is purely a finding of fact which has to be decided on the facts of the case. The decision of the Tribunal is based on the materials on record.

16. It is well settled that a finding given in the assessment proceedings for determining or computing the taxation is not conclusive, although it is good evidence; and the penalty proceeding being separate and distinct from the assessment proceeding, the assessee is entitled to lead additional evidence to show that the assessee had not concealed its income as to justify imposition of penalty under s. 271(1)(c) of the I.T Act, 1961. See Commissioner Of Income Tax, West Bengal v. Anwar Ali , [1970] 76 ITR 696 (SC) and CIT v. Ashoka Marketing Ltd., [1976] 103 ITR 543 (SC).

17. In arriving at the finding that the assessee had not carried on business benami and had not concealed income, it took into consideration the following circumstances and materials, viz., (a) it could not be doubted that many cloth dealers would be purchasing cloth goods from Begmal & Sons; no circumstances could be shown that the two persons were benamidars of the assessee-firm, as all the three were receiving goods from Begmal & Sons; (b) if the articles were delivered at the shop of the assessee by the postal department, it could not be said that they were delivered to the assessee; the letter to the postal department only showed that the goods were to be delivered to Keshardeo Agarwalla at the shop of the assessee; (c) simply because Keshardeo Agarwalla requested that delivery be made to him at the shop of the assessee, it could not be said that the delivery was made to the assessee; (d) one of the partners of the assessee-firm stated that Keshardeo Agarwalla was a man of his village, and in that circumstance, the assessee-firm allowed Keshardeo Agarwalla to take delivery of the goods at the shop, but it could not be said that Keshardeo Agarwalla was the benamidar of the assessee; (e) counsel for the department conceded that there was no evidence on record to show that the assessee-firm actually took delivery of the goods in the name of Keshardeo Agarwalla; (f) the ITO never asked the assessee to produce Keshardeo Agarwalla and he has also not examined Keshardeo Agarwalla; (g) there was no material to hold that Ram Narain Sharma was an employee of the assessee; the statements of the employees of the assessee filed before the ITO, on the contrary, revealed that he was not an employee of the assessee; and (h) the ITO has not examined Ram Narain Sharma to disprove the case of the assessee that he was not the employee of the firm; but the IAC has simply relied on the assessment order.

18. The elaborate discussion of the order of the Tribunal makes it clear that all the relevant materials, which had been referred to it, have been taken into account; it has not omitted to consider any material fact or any material piece of evidence. In our view, it cannot ba said that the finding of the Tribunal is such as cannot be reasonably reached. As has been held by the Supreme Court in Sree Meenakshi Mills Ltd. v. CIT, [1957] 31 ITR 28, such a finding as to whether the assessee carried on cloth business benami is a finding of fact; the determination of such a fact does not involve the application of any legal principle to the facts established by the evidence; and where the finding is one of fact, the fact that it is an inference from other basic facts does not alter its character as one of fact. See also Rai Bahadur Mohan Singh Oberoi v. CIT, [1973] 88 ITR 53 (SC).

19. In view of the above conclusions, we hold that no question of law arises out of the order of the Tribunal passed on April 29, 1974. We, therefore, decline to give a direction to the Appellate Tribunal to state a case and refer the three questions above under s. 256(2) of the I.T Act, 1961. We reject the application and discharge the rule. In the circumstances of the case, we make no order as to costs.

Baharul Islam, A.C.J:— I agree.