Commissioner Of Income-Tax v. Kum. Satya Setia.

1. This is a reference under Section 256(1) of the I.T. Act at the instance of the Revenue.

2. The assessee had purchased a plot of land at Than a (Maharashtra) in 1955 for a sum of Rs. 6,000, on November 10, 1961. She entered into an agreement for its sale with M/s. Bharat Stores Ltd. Agra, for a sum of Rs. 1,39,500. The sale was to be completed by 3'lst December, 1962. On default it was agreed that the assessee was entitled to charge interest at 6% per annum for a period of two years and thereafter she was at liberty to rescind the agreement and forfeit the earnest money which was fixed at Rs. 40,000. The purchasers neither paid the earnest money nor ' the purchase price within the stipulated period. However, on October 8, 1965, they assigned certain decrees passed in their favour by the Allahabad High Court to the assessee. The purchasers under the said decrees were entitled to recover a sum of Rs. 89,000 with future interest and this right was assigned to the assessee for a consideration of Rs. 60,000. Rs. 15,000 were paid in cash by the purchasers and the balance of Rs. 45,000 was described as earnest money in respect of the sale agreement dated November 10, 1961, The assessee, being the assignee of the decrees, recovered a sum of Rs. 87,071 on May 13, 1967, out of which she transferred a sum Rs. 50,000 to the credit of the purchasers (M/s. Bharat Stores Ltd., Agra). For the assessment year 1968-69, the ITO held that this amount of Rs. 50,000 was assessable as the income of the assessee. On appeal, the AAC not only confirmed the order of the ITO but he added further a sum of Rs. 31,000 also. On the same ground a sum of Rs. 49,820 received by the assessee in execution of the decrees was taxed as income from other sources for the assessment year 1973-74.

3. The assessee preferred a second appeal. Before the Appellate Tribunal the assessee explained the transactions between her and the purchasers. Before the Appellate Tribunal it was pleaded that actually the sum of Rs. 50,000 was credited to the account of the purchasers and the receipt, annex 4-A, was produced for the purpose. It was further explained that the earlier contract had been modified by another agreement dated November 15, 1967 (annex. 1-A). In accordance with the subsequent agreement the consideration for the land was raised from Rs. 1,39,500 to Rs. 2,40,000. There were certain other conditions also. The Appellate Tribunal allowed the assessee to produce the modified agreement dated November 15, 1967. The Tribunal thereafter set aside the orders of the AAC and the ITO and directed that fresh assessment should be made for the assessment years in question in the light of the new agreement dated November 15, 1967, which was later adjusted between the parties by an arbitration award dated April 20, 1978.

4. The Revenue felt aggrieved by this order because, according to the Department, the Appellate Tribunal erred in law in taking on record the agreement dated November 15, 1967, which was not produced by the assessee before the ITO or the AAC. At the instance of the Revenue, the following questions of law have been referred to us for opinion :

"1. Whether, on the facts and in the circumstances of the case, the A.T. was justified in law in holding that the amount received by the assessee-lady from M/s. Bharat Stores Ltd., Agra, would be taxable by way of interest or capital gains only and no part of it would be treated as forfeiture of earnest money ?

2. Whether, on the facts and in the circumstances of the case, the A.T. was correct in law in admitting fresh evidence in the form of subsequent agreement dated November 15, 1967, particularly when this document was not produced before the lower authorities and in further holding that it did not appear to be a fabricated document ?

3. Whether, on the facts and in the circumstances of the case, the A.T. was correct in law in setting aside the AAC's order dated Decem ber 14, 1976?"

5. It was admitted before us that question No. 1 was consequential to question No. 2 inasmuch as if question No. 2 was decided against the Revenue then the direction of remand by the Appellate Tribunal for deciding the nature of the receipt would be justified.

6. Learned standing counsel for the Revenue invited our attention to Rule 29 of the Appellate Tribunal Rules, 1963, This rule is in pari materia with 0. 41, Rule 27 of the CPC. It is within the discretion of the appellate authority to allow production of additional evidence if the said authority requires any document to enable it to pass orders or for any other substantial cause. Therefore, even if the assessee had failed to file the said agreement before the ITO and the AAC, the Appellate Tribunal had the jurisdiction in the interest of justice to allow production of a crucial document. In Kali Charan Ram Chander v. CIT [1978] 112 ITR 405, the Calcutta High Court held that where the Tribunal is of the opinion that the appeal cannot be properly decided without taking into account further evidence, it has jurisdiction to admit further evidence and either to decide the appeal itself or to remand it to the authorities below for deciding the matter afresh after taking into account the additional evidence produced before it.

7. Learned standing counsel for the Revenue referred to a decision of the Allahabad High Court in Ram Prasad Sharma v. CIT [1979] 119 ITR 867. The case is not in point because in the cited case the Allahabad High Court held that the Appellate Tribunal was right in refusing to exercise its discretion to allow or disallow production of further evidence be fore it.

8. The Appellate Tribunal is the final fact-finding body under the scheme of the I.T. Act. Powers, therefore, have necessarily to be exercised by it for deciding the questions of fact and while exercising its powers, if the Tribunal is of opinion that additional evidence is material in the interest of justice for deciding the particular issue, its discretion cannot be interfered with unless it has been exercised on non-existing or imaginary grounds.

9. Our answer to question No. 2, therefore, is that on the facts and in the circumstances of the case, the Appellate Tribunal was correct in law in admitting fresh evidence in the form of the subsequent agreement dated November 15, 1967, even though this document was not produced before the lower authorities and in further holding that it did not appear to be a fabricated document.

10. In view of our answer to question No. 2, it is not necessary to answer question Nos. 1 and 3, which are consequential in nature and which will be decided after a fresh enquiry by the authorities below as directed by the Appellate Tribunal.

11. Costs of this reference will be borne by the Revenue. Advocate's fee Rs. 150.