Ram Datta Sita Ram Of Basti, In Re

1. This is a reference under Section 66, clause (3), of the Indian Income-Tax Act (Act XI of 1922).

2. The assessee in this case, namely Earn Datta Sita Earn of Basti, is a Hindu undivided family. It appears that in the year 1997-38 tax was assessed by the Income-Tax Officer of Basti on a total income of Rs. 2,476. The assessee appealed to the Assistant Commissioner and was exempted from taxation, on a finding that his total income was Rs. 792 only, which was below the minimum assessable income. When the assessment for the following year, namely 1938-39, was being proceeded with, the Income-Tax Officer discovered that there was an Amanat Khata in existence, showing large sums of cash receipts and withdrawals. The Income-Tax Officer scrutinized the account books of the previous years, and discovered that there was an excess of deposits over withdrawals in the Amanat Khata relating to successive preceding five years. The assessee was then asked by the Income-Tax Officer to explain the source from which all this surplus money came. His explanation was that it was brought from his private chest at home and from the wives of his brother and son. On being questioned further, the assessee, beyond making some other statements, presented applications in which he mentioned that he had to bring the money in excess of the withdrawals, both in the years 1937-38 and 1938-39, as the business was not in good condition, and also that money was required to make payments to a number of persons, who had their deposits with the assessee. The Income-Tax Officer, not being satisfied, called upon the assessee, by means of notices under Section 22, clause (4), of the Indian Income-Tax Act to produce the accounts which might show the source of the money deposited in the Amanat Khata. As no accounts were produced, on the ground that the assessee did not keep any such accounts, the Income-Tax Officer proceeded to make an assessment under Section 23, clause (4), of the Indian Income-Tax Act and added the surplus of deposits over withdrawals in both the relevant years to the other income of the assessee and assessed an Income-Tax on the composite amount.

3. The assessee then moved the Income-Tax Officer for cancellation of the assessments under Section 27 of the Indian Income-Tax Act. The In-come-tax Officer rejected these applications. The assessee then went up to the Assitant Commissioner in appeal but the latter, agreeing with the Income-Tax Officer, maintained his order rejecting the applications.

4. Thereupon the assessee filed revision petitions under Section 33 of the Act, in respect of the assessments for both the years and also disputed the order of the Income-Tax Officer under Section 27. The learned Commissioner, however, dismissed the revision petitions, without giving an opportunity to the applicant of being heard.

5. Being thus dissatisfied with the order of the Commissioner, the assessee on the 17th of May, 1940, presented an application to the Commissioner under Section 66, clause (2), of the Indian Income-Tax Act, asking him to refer to the High Court certain alleged questions of law, which were said to arise out of the order under Section 33. On the 5th of October, 1940, his application was rejected by the learned Commissioner. It was then that an application was presented to this Court, under Section 66, clause (3), of the Indian Income-Tax Act, asking this Court to require the Commissioner to state the case and to refer it. A Bench of this Court by an order, dated the 2nd of December, 1943, directed the Commissioner to state the case on three points of law mentioned therein. It was in pursuance of this order, dated the 2nd of December, 1943, that the Commissioner of Income-Tax has made the present reference and the questions of law formulated by him for decision by this Court are as follows:—

(1) Whether, in the circumstances of the case, the order of the Commissioner, dated the 29th March, 1940, rejecting the revision petitions of the assessee under Section 33 of the Act, is “otherwise prejudicial to him” (the assessee) within the meaning of sub-section (2) of Section 66 of the Act?

(2) Whether the order passed by the Commissioner under Section 33, without notice to the assessee and without giving him an opportunity to be heard, is an order without jurisdiction; and whether the validity of the said order is a question of law arising out of that order itself within the meaning of the first proviso to sub-section (2) of Section 66 of the Act?

(3) Whether there was evidence before the Income-Tax Officer from which it was permissible to draw the inference that some income or accounts had been necessarily suppressed or concealed by the assessee and it was open to the Income-Tax Officer to make a best judgment assessment?

6. The reference came up for hearing before a Division Bench, which was of opinion that the first and second questions referred to this Court were of considerable importance and on its recommendation the case has been laid before this Full Bench.

7. The first question of law referred to us turns on the interpretation of the words “otherwise prejudicial to him” occurring in Section 66, clause (2), of the Act.

8. Section 33 of the Indian Income-Tax Act as it stood before its amendment by the Indian Income-Tax (Amendment) Act, 1939, lays down:—

“(1) The Commissioner may of his own motion call for the record of any proceeding under this Act which has been taken by any authority subordinate to him or by himself when exercising the power of an Assistant Commissioner under sub-section (4) of Section 5.

(2) On receipt of the record the Commissioner may make such inquiry or cause such inquiry to be made and, subject to the provisions of this Act, may pass such orders thereon as he thinks fit:

Provided that he shall not pass any order prejudicial to an assessee without hearing him or giving him a reasonable opportunity of being heard.”

9. Section 66, clause (2), lays down:—

“Within sixty days of the date on which he is served with notice of an order under Section 31 or Section 32 or of an order under Section 33 enhancing an assessment or otherwise prejudicial to him, or of a decision by a Board of Referees under Section 33A, the assessee in respect of whom the order or decision was passed may, by application ……….require the Commissioner to refer to the High Court any question of law arising out of such order or decision, and the Commissioner shall, within sixty days of the receipt of such application, draw up a statement of the case and refer it with bis own opinion thereon to the High Court.”

10. As remarked by Pathak, J., in his order of reference:—

“The question what is the true meaning of the expression ‘otherwise prejudicial to him’ (the assessee) in Section 66 is beset with difficulty and there has been considerable divergence of opinion upon the point in the Courts in India.”

11. The learned Judge has discussed a number of rulings on the point. On a careful examination of the relevant authorities on the point, we have no hesitation in recording our agreement with the view expressed in the five Judges Full Bench case of Voora Sreeramulu Chetty v. Commissioner of Income-Tax, Madras, reported in 7 I.T.R, page 263, with which a Division Bench of this Court consisting of Collister and Bajpai, JJ., expressed their full agreement in the case of Income-Tax Commissioner v. Sir Iqbal Ahmad reported in 42 A.L.J, page 454, 10 I.T.R, page 152.

12. It has been argued that ordinarily it is always assumed that, unless there are some special reasons, a word used more than once in a statute is used in the same sense throughout. This view has been accepted by the referring Judge with the remarks:—

“In the present case, it must be so, because of the express reference in Section 66 to an order passed under Section 33.”

13. We may however point out that the word “prejudicial” has to be interpreted in each section having regard to the context in which it is used. In Section 33 the words used are “prejudicial to an assessee” while the words in Section 66, clause (2), are “enhancing an assessment or otherwise prejudicial to him.” If it were intended to convey identically the same meaning, it was absolutely unnecessary to superadd the words “enhancing an assessment or otherwise” in Section 66(2). To our mind this addition clearly indicates that it was intended to give a much wider scope to the word “prejudicial.”

14. The learned counsel for the Department has referred us to the two Nagpur rulings reported in 5 I.T.R 267 [Central India Spinning, Weaving and Manufacturing Co. Ltd., (Empress Mills) v. Commissioner of Income-Tax, C.P and U.P] and 596 (Trimbak Totaram v. Commissioner of Income-Tax, C.P and U.P) to support the proposition that the words “otherwise prejudicial” occurring in Section 66, clause (2), do not apply to an order under Section 33, which only confirms an order sought to be revised. In both these cases the three Judges Full Bench case of the Madras High Court reported in 3 I.T.R, page 55 (N.A.S.V Venkatachalam Chettiar v. Commissioner of Income-Tax, Madras) was followed, but as that case has, on a fuller consideration, been overruled by a subsequent Full Bench of the same Court reported in 7 I.T.R, page 263 (Voora Sreeramulu Chetty v. Commissioner of Income-Tax, Madras) these rulings do not deserve any serious consideration. Another case relied upon by the learned counsel is Amulkharai Chhotalal v. Commissioner of Income-Tax, Burma [1940] 8 I.T.R 382., in which case the Rangoon Court did not express its definite views on the matter. In the Lahore case reported in 8 I.T.R, page 437 (Nanhe Mai Janki Nath v. Commissioner of Income-Tax), Dalip Singh, J., held that as the original order itself was not prejudical there was no question of the order passed under Section 33 being so. In the Patna case reported in 10 I.T.R, page 296 (East Khas Jharia Colliery Co., Ltd. v. Commissioner of Income-Tax, Bihar and Orissa), the Court did not think it necessary to express an opinion on the point as the case was decided on a different issue. In Commissioner Of Income-Tax (Control), Bombay…Referor; v. Bishwambharlal Maheshwari…Assesses.* 1944 12 I.T.R 36., Beaumont, C.J, and Chagla, J., without expressing a decisive opinion on the matter acted on the assumption that the five Judges Full Bench case reported in 7 I.T.R, page 263 (Voora Sreeramulu Chetty v. Commissioner of Income-Tax, Madras) was correct. The latest case on the point appears to be reported in 12 I.T.R, page 370 (The Tribune Trust, Lahore v. Commissioner of Income-Tax, Punjab) in which Din Mohammad and Sale, JJ., after discussing all the authorities on the point, have come to the conclusion that the earlier Full Bench decision of Madras was overruled by a Full Bench of five Judges on good grounds. They have observed:—

“It is impossible to argue that merely because the Commissioner confirms an order made by the subordinate authorities, his order of confirmation cannot be treated as an order prejudicial to the assessee, and the fallacy underlying this law has been fully exposed by the Full Bench of Madras.”……. and also

“We cannot lose sight of the word ‘otherwise’ used by the Legislature to qualify the word ‘prejudicial.’ An order enhancing an assessment is no doubt prejudicial to an assessee but if the order is prejudicial in any other way it is still covered by this sub-section.”

15. We may add that the powers given to an appellate Court are mentioned in Section 31, clauses (a) to (g), of the Act, and the same powers are, mutatis mutandis, to be exercised by the Commissioner under Section 33. When an order of assessment is involved the only orders that can be passed would be to confirm, reduce, enhance, or annul the assessment or to set aside the assessment and direct the Income-Tax Officer to make a fresh assessment. The order enhancing the assessment would certainly be prejudicial and there could be no other order that can be placed in that category except possibly an order confirming an order prejudicial to the assessee. Thus the words “otherwise prejudicial” would be more or less meaningless unless we accept the view that the order confirming a prejudicial order is also prejudicial. If we may say so with respect, there is great force in the reasoning of Leach, C.J, in the Full Bench Madras case, Voora Sreeramulu Chetty v. Commissioner of Income-Tax, Madras, that in order to come within the purview of Section 66, clause (2), the Commissioner's order need not be more prejudicial. It was also remarked in the same case by the learned Chief Justice that there is no difference in this respect between the dismissal of an appeal and the dismissal of a revision application when the law permits such an application to be made.

16. Pathak, J., in his referring order to the Full Bench has observed:—

“It may be a matter of some argument that there is some difference between the confirmation of a decree in appeal and refusal to interfere in revision. In the former case the litigant has got a right to be heard, and in the latter case the power to be exercised is discretionary. Can it be said that if a discretionary power is not exercised, prejudice is caused to the party who has no right to be-heard?”

17. With great respect, we would point out that certainly there is a discretion in the revising authority to entertain a revision application or not, as it likes. But when once a revision application has been heard and the decision to be revised has been confirmed, that decision takes the place of the original one and the same results would follow which follow the decision of an appeal.

18. As such, our answer to the law point No. (1) would be in the affirmative.

19. On the second question it will be clear from the reading of Section 33 of the Act, that the Act dose not confer any right, as such, upon any assessee to move the Commissioner under Section 33. But that does not prevent a person aggrieved from petitioning the Commissioner to exercise his powers under that section. The proviso, in our opinion, only provides for a case in which the commissioner calls for the record on his own motion. In that case, if he thinks that it is not necessary to take any action, he drops the matter without proceeding further and no question of confirmation arises. But if he thinks it proper to reconsider the orders, he must give the assessee an opportunity of being heard, even when he ultimately confirms the order. As stated above, this provision is certainly not made for a case in which the aggrieved party himself petitions the Commissioner to revise or review the order of any authority subordinate to him. As such, it cannot be said that the Commissioner acted without jurisdiction in confirming the order without giving the applicant an opportunity to be heard.

20. Even if the Commissioner proceeds to pass an order prejudicial to the assessee on calling for the record on his own motion without giving him an opportunity to be heard it would only amount to an irregularity in the procedure and would not make his order ultra vires or without jurisdiction. It may however be pointed out, that on the analogy of the Civil Procedure Code, if an application for revision is not summarily dismissed and the record is called for at the instance of a party, it is always advisable to hear him. In the present case, the learned Commissioner has written out a long order and has given detailed reasons for agreeing with the conclusions of the Assistant Commissioner. He would have certainly found it very helpful if he had heard the applicant with reference to his objections on which his petition was based. This is our answer to the first part of the question.

21. As to the second part, we think that if the legality of an order is questioned, it is a question of law arising out of that order itself within the meaning of the first proviso to sub-section (2) of Section 66 of the Act.

22. On the third question we have come to the conclusion that there was no evidence before the Income-Tax Officer from which it was permissible to draw the inference that some income or accounts had been necessarily suppressed or concealed by the assessee, and it was not open to the Income-Tax Officer to make a best judgment assessment. It has beeen vigorously contended by Mr. Brij Lai Gupta that it is not open to this Court to examine the evidence on the point and to draw our own inferences from it. He contends that if there is any evidence at all from which the Income-Tax Officer has drawn a certain inference, that is a finding of fact and cannot be questioned on a reference under Section 66, clause (3), of the Act. The learned counsel has taken great pains to develop this point and has cited certain authorities to show that in similar circumstances the inference drawn by the Income-Tax Officer was accepted by certain High. Courts. We may however refer to the order made by the Bench of this Court on the 2nd of December, 1943, requiring the Income-Tax Officer to state the case, in order to show that it has been treated as question of law and not of fact:—

“The assessee further contends that there was no evidence before the Income-Tax Officer from which it was permissible to draw the inference that some income or accounts had been necessarily suppressed or canceal-ed by the assessee and it was not open to the Income-Tax Officer to make a best judgment assessment, in the circumstances of the case. This again, in our opinion, is a question of law.”

23. We think, we are not entitled to cancel this decision that it was a question of law. It has also been held in the case of Kanhaiya Lal Umrao Singh v. Commissioner of Income-Tax, reported in 9 I.T.R, page 225, that the sufficiency of evidence is a question of fact, but the question whether there is evidence at all from which an inference can be drawn is a question of law. The learned counsel argues that if there is any evidence at all from which an inference can possibly be drawn this Court is not empowered to question the decision of the Income-Tax Commissioner. We do not agree-with this view of the matter. In every case the evidence apart from the sufficiency or otherwise, shall have to be examined in order to find out whether, in the circumstances of the case, a reasonable man would draw the inference from that evidence which has been drawn by the Income-Tax Officer.

24. In our judgment, there was no evidence worth the name from which an inference could be drawn that the assessee kept any account books for his private chest and which he refused to produce. We are of opinion that the existence of an Amanat Khata was not sufficient to excite any suspicion and it, as a matter of fact, did not excite any suspicion during the preceding five years. What is very significant in this case is, that in the year 1937-38 the Income-Tax Officer made an assessment on a total income of Rs. 2,476 but on appeal, the Assistant Commissioner set this assessment aside, and came to the conclusion that the income of the assessee was only Rs. 792 which was below the assessable minimum. In the following year it suddenly dawned upon the Income-Tax Officer that the assessee had an Amanat Khata which disclosed large sums of cash receipts and withdrawals and therefore he must have concealed some source of income; and he started proceedings under Section 34 of the Act and issued notices under Section 22, clause (4), and Section 23, clause (2). The Income-Tax Officer did then put certain questions to the assessee to which he replied that the money came from his private chest and some of it belonged to the wives of his brother and son. He however gave a written explanation in the petitions which are printed at pages 21. and 23 of the statement of the case. They read as follows:—

“(3) That the Amanat Khata in the account book of the assessee is a Khata under which the assessee enters the amount which he brings from his private chest whenever there is a shortage of money in the shop and withdraws money whenever there is excess of money in the shop.”

“That in the years 1937-38 and 1938-39 it so happened that he had to bring Rs. 18,342 and Rs. 2,832 respectively in excess to the withdrawal as the business of the assessee was not in good condition, and also money was required to pay to a number of persons who had their deposits with the assessee.”

25. The only reason advanced by the Income-Tax Officer for rejecting this explanation in his assessment order (printed at page 14) is:—

“The number of entries is quite large and there must be an account of private chest which the assessee is withholding. The books as they are do not disclose assessee's total capital and consequently income cannot be deduced therefrom. They are incomplete and rejected. Assessee has not complied with the notice under Section 22, clause (4), in respect of accounts of private chest.”

26. We do not see any force in this reasoning. The entries may be quite large but they appear under the heading of Amanat Khata and there seems to be no reason why a separate account should be kept of the money of the private chest, from which it was brought and to which it was sometimes taken back. The assessee has, after all, not a very big business and he could calculate the amount of his private money from the entries under the heading Amanat Khata. Then the explanation given by the assessee in his application does not appear to be inherently open to any grave objection. The Appellate Assistant Commissioner has analysed this explanation. He had statements A and B prepared and on a comparison of those statements came to the conclusion:—

“The deposits in assessee's Amanat Khata thus exceeded the deposits of outsiders by Rs. 27,536 and the withdrawls from the Amanat Khata came to only Rs. 7,915 whereas the money withdrawn by the depositors amounted to Rs. 16,608. If the increase or decrease in the Amanat Khata had depended on the deposits and withdrawals made by the depositors the figures quoted above by way of comparison would have differed within narrow limits and not by thousands.”

27. It seems to us that the Assistant Commissioner did not give any weight to the statement of the assessee, in his applications, that the excess of the withdrawals was due to two causes namely that the business of the assessee was not in good condition and so he had to bring more capital, and also that the money was required to pay a number of persons who had deposits with the assessee. As such it was not possible for him to show that the entries in the Amanat Khata exactly tallied or even within a narrow limit with the deposits and withdrawals of the depositors. We are certainly of opinion that there was not sufficient material for drawing a definite inference, and suspicion was allowed to do duty for evidence. We are also influenced by the fact that the action of the Income-Tax Officer appears to he vindictive, as, soon after the reversal of his decision about assessment of the year 1937-38 by the Appellate Assistant Income-Tax Commissioner he brought this Amanat Khata into prominence and drew adverse inferences from it, although it was there at the time of the original assessment and many years before that. It also appears necessary to mention at this stage that by an order dated the 7th of July, 1933, it was clearly held by the Assistant Commissioner that the Khata was not open to any suspicion. It is no doubt true, that in Income-Tax matters, the decision concerning a particular year is not res judicata and does not create an estoppel. But all the same, it has to be seen if there was any good and valid ground for taking a different view in 1938-39 from that taken in 1933. The learned counsel has referred us to the case of Kanhaiya Lal Umrao Singh v. Commissioner of Income-Tax, reported in 9 I.T.R page 225, and has pointed out to the similarity of circumstances in the two cases. He has argued that in the case cited, the assessee had a number of businesses as in the present case, and transferred money from one business to the other, that he had constructed a house for which be kept no accounts, and that certain items of advance and receipt from certain persons were not shown in the accounts, and from this it was inferred that the assessee had a set of head accounts. In the present case however, although it has been stated in the statement of the case that the assessee was carrying on business in grain, cloth, yarn, gold and silver besides money-lending and running a liquor shop, it must be pointed out that dealing with grain, cloth, yarn, and gold and silver did not mean five different businesses; he was only dealing with those five commodities in one business. As a matter of fact, all the business was at Basti and the neighbouring village Naraharia, and there was only one set of accounts. The extent of business can be judged from the fact that an Income-Tax was assessed only on Rs. 4,227 in one year and on Rs. 19,134 in another year, whereas in the case of Kanhaiya Lal Umrao Singh v. Commissioner of Income-Tax, the business was carried on in several towns, namely Lucknow, Cawnpore and Rupadia, and the capital involved was many lacs of rupees. In the other case reported in 9 I.T.R, page 286 (Chaturbhuj v. Commissioner of Income-Tax, C.P and U.P), there was only an expression of opinion. When the case came up before a Bench of the Oudh Chief Court for an order under Section 66, clause (3), requiring the Commissioner to refer the case, the Bench, while refusing to entertain the application, remarked that no useful purpose would be served in directing the Commissioner to state the case and then proceeded to make certain observations. That case however is also distinguishable from the one before us because there were certain features in that case, such as advancing of money by the father of the assessee for which he kept no accounts, and it being admitted that he had no source of income except the joint family business and that he advanced money for the joint family business. In the particular circumstances of that case, it was considered that there was sufficient evidence to hold that the accounts were withheld. Reference has also been made to a case of this Court reported in 10 I.T.R, page 386 (Rahomal Kannomal v. Commissioner Of Income-Tax, U.P, U.P). In that case an application under Section 66, clause (3), was thrown out on the ground that it was a question of fact whether the assessee had another set of account books which he did not produce. It was not argued in this case that a wrong inference was drawn from a set of evidence. That case is not of any help to us in the present case. The last case that we would like to mention is the Privy Council case reported in 5 I.T.R, at page 170 (Commissioner of Income-Tax, C.P and U.P v. Laxminarain Badridas), but that case is not very much to the point as it only indicates among other things, the manner in which best judgment assessment can be made by an Income-Tax Officer. It does not deal with the point, as to the circumstances in which an inference can be drawn that the assessee had account books in his possession which he did not produce. We would, therefore, answer this question in this way that there was no evidence before the Income-Tax Officer from which it was permissible to draw the inference that some income or accounts had been necessarily suppressed or concealed by the assessee and it was not open to the Income-Tax Officer to make a best judgment assessment. The assessee shall get his usual costs from the Income-Tax Department.

28. We must in the end record our appreciation of the ability and thoroughness with which the counsel for the parties have put their respective cases before us. We certify Rs. 500 as the fee of Mr. Brij Lal Gupta the counsel for the Department for the hearing of this reference.

29. A copy of this judgment shall be sent to the Commissioner of Income-Tax under the seal of the Court and signature of the Regitrar. Mr. Brij Lal Gupta is allowed two months time to file the necessary fee certificate.

Reference answerea accordingly.