MEHROTRA C.J. - In compliance with the order of this court the following question has been referred to this court by the Income-tax Appellate Tribunal "A" Bench, Calcutta, for opinio :
"Whether, on the facts and in the circumstances of the case, there was any material before the Tribunal to hold that the sum of Rs. 20,000 represented the undisclosed income of the assessee firm for each of the assessment year 1954-55 and 1955-56?"
The assessee, Messrs. Raj Saha and others, is a registered firm with seven partners of whom Sri Raj Mohan Saha has the major share of 0-7-6 pies. The head office of the firm is at Agartala. The firm has various purchase centres and one is at 26A, Raja Rajendra Narain Street, Burrabazar, Calcutta. The assessee deals in seeds, oils, rice, dal and other miscellaneous goods. In the course of the assessment for the year 1954-55 the Income-tax Officer got information that huge sums of money were remitted through postal insurance covers from the assessees gaddi at Agartala to its purchasing centre at Calcutta and that these remittances have not been entered in the account books produced before him. On Shri Raj Mohan Saha, the managing partner of the firm, being asked to explain the reason for such omissions, he denied having made any remittances to the purchasing centre at Calcutta. The Income-tax Officer found that there were many remittances made by Raj Mohan Saha, the managing partner, himself and several others were made by Sukhan Lal Poddar and Makhan Lal Saha, both of whom were employees at the Agartala gaddi of the assessee. The payee in every case was Shri Benode Behari Saha, the manager of the purchasing centre of the firm at Burrabazar, Calcutta. The explanation given by Sri Raj Mohan Saha was not accepted and the Income-tax Officer held that the assessee firm was carrying on certain undisclosed business having a turnover of Rs. 4 lakhs. He estimated an income from such undisclosed business at 5% on the said turnover, thus estimating the income at Rs. 20,000 for each of the two assessment years. This amount was added to the total income of the assessee. The order of the Income-tax Officer was confirmed by the Appellate Assistant Commissioner in appeal. The matter was taken to the Tribunal in second appeal and the contention of the assessee that sufficient opportunity had not been given to it by the Income-tax Officer or by the Appellate Assistant Commissioner to produce evidence in support of its explanation in the matter was accepted by the Tribunal and the matter was remanded to the Income-tax Officer for investigation and for consideration of the several points raised by the assessee firm. The investigation was made by the Income-tax Officer after remand. He examined several witnesses under section 37 of the Indian Income-tax Act. Affidavits sworn by certain persons were also produced before him. The point taken before the Income-tax Officer after the remand was that the persons, namely, Raj Mohan èSaha, Sukhan Lal Poddar and Makhan Lal Saha, who remitted the money to Shri Benode Bihari Saha, are not the persons connected with the firm of the assessee. They were different persons. The Income-tax Officer did not accept the explanation given by the managing partner and he maintained his earlier order adding Rs. 20,000 to the income of the assessee on the basis that the turnover of the undisclosed business was Rs. 4 lakhs and the assessee had made a profit of five per cent. on the said turnover. The order of the Income-tax Officer was affirmed by the Tribunal.
The application made by the assessee for a reference to the High Court before the Tribunal was rejected. On an application to this court the Tribunal was asked to state the case and refer the question of law set out in the earlier part of its order to this court for opinion.
The contention of the assessee is that the assessment was under section 23(3) of the Indian Income-tax Act and there is no material from which the income-tax authorities could come to the conclusion that the remittances received by Benode Bihari Saha were sent by the assessee firm from Agartala. The income-tax authorities had based their conclusions on mere surmises. It is further contended that even if there may be some basis for coming to the conclusion that some remittances were made from the assessees gaddi at Agartala to its purchase centre at Calcutta, there is nothing in evidence from which the amount of the remittances could be ascertained. Further there is no material to show that the assessee was carrying on any undisclosed business, the turnover of which was Rs. 4 lakhs. Further, there is no material from which the income-tax authorities could come to the conclusion that the assessee had made a profit of five per cent. on the said turnover. It is contended that the income-tax authorities acted on suspicion and surmises and the postal records, on which the information to the department is alleged to be based, were never shown to the assessee and thus there was violation of the principles of natural justice in the investigation by the Income-tax Officer.
Mr. Choudhury, who appears for the department, has contended that no question of law arises out of the Tribunals order. The point was never taken before the Tribunal that there was no material from which it could be determined that the turnover of undisclosed business was Rs. 4 lakhs and that the profit from that turnover was five per cent., that is, Rs. 20,000. The finding of the Income-tax Officer and the Appellate Assistant Commissioner on these two facts was never challenged before the Tribunal and thus it cannot be allowed to be raised before th is court. It is lastly contended that there were materials before the income-tax authorities from which the Income-tax Officer has drawn the conclusion of fact and it cannot be said that there is no material before the income-tax authorities to hold that the sum of Rs. 20,000 represented the undisclosed income of the assessee firm.
In the case of Dhakeswari Cotton Mills Ltd. v. Commissioner of Income-tax the law has been enunciated as èfollow :
"In making an assessment under section 23(3) of the Indian Income-tax Act, the Income-tax Officer is not fettered by technical rules of evidence and pleadings, and he is entitled to act on material which may not be accepted as evidence in a court of law, but the Income-tax Officer is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. There must be omething more than bare suspicion to support the assessment under section 23(3)."
The law on the subject as stated in the case of Seth Gurmukh Singh v. Commissioner of Income-tax was approved. On the facts of this case it was held that the Appellate Tribunal in estimating the gross profit rate on sales of the assessee did not act on any material but acted on pure guess and suspicion.
In the case of Sree Meenakshi Mills Ltd. v. Commissioner of Income-tax their Lordships of the Supreme Court have set out the grounds on which this court has to act under section 66 of the Income-tax Act as follow :
"Under section 66(1) it is only a question of law that can be referred for decision of the court. A finding on a question of fact is open to attack as erroneous in law only if it not supported by any evidence, or if it is unreasonable and perverse; but where there is evidence to consider, the decision of the Tribunal is final even though the court might not, on the materials, have come to the same conclusion if it had the power to substitute its own judgment.... Where a finding is given on a question of fact based upon an inference from facts, that is not always a question of law. The proposition that an inference from facts is one of law will be correct in its application to mixed questions of law and fact but not to pure questions of fact. Inferences from facts may themselves be inferences of fact and not of law, and such inferences are not open to review by the court....
Inference from facts would be a question of fact or of law according as the point for determination is one of pure fact or mixed question of law and fact."
The position that emerges on the authorities may thus be summed u :
"(1) When the point for determination is a pure question of law such as construction of a statute or document of title, the decision of the Tribunal is open to reference to the court under section 66(1).
(2) When the point for determination is a mixed question of law and fact, while the finding of the Tribunal on the facts found is final its decision as to the legal effect of those findings is a question of law which can be reviewed by the court.
(3) 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.
(4) When the finding is one of fact, the fact that it is itself an inference from other basic facts will not alter its character as one of fact."
The same principle has been reiterated in the case of Oriental Investment Co. Ltd. v. Commissioner of Income-tax.
In the case of Narayandas Kedarnath v. Commissioner of Income-tax certain amounts standing to the credit of some of the partners of the assessee firm were found to be amounts actually brought in by them from their native place by means of bank drafts. The partners contended that they had brought the moneys to meet losses of the firm. They, however, failed to explain how these moneys were available to them in their native place. The income-tax èauthorities treated the moneys as undisclosed profits of the firm. The High Court on a reference held that there was no material on which the Tribunal could come to the conclusion that the credits represented undisclosed profits of the firm. By proving that the money was brought from the native place the assessee had discharged its burden and it was on the department if they wanted to assess the income from undisclosed source to establish that the money did not belong to the partners.
There is thus no doubt as to the law on the subject. The only question is how far the principles enunciated above apply to the facts of the present case. The case of the assessee, as I have already indicated, is that the finding on the Tribunal that the money was remitted by the assessee from Agartala to Calcutta is based on no evidence and, secondly, that even if it be assumed that some money was sent from Agartala to Calcutta which has not been accounted for in the account books, there is no evidence to prove that the assessee carried on undisclosed business the turnover of which was Rs. 4 lakhs; nor is there any evidence to show that from the said turnover there will be a profit of Rs. 20,000.
Mr. Choudhuri has urged that the questions as to what was the turnover from the undisclosed business and what will be the percentage of profit from that turnover were not raised before the Tribunal and as such they do not arise out of the order of the Tribunal and cannot be raised before this court. Reliance is placed on the case of Commissioner of Income-tax v. Scindia Steam Navigation Co. Ltd. In this case their Lordships of the Supreme Court have summarised the points which can be said to arise out of the order of the Tribunal as follow :
"(1) When a question is raised before the Appellate Tribunal and is dealt with by it, it is clearly one arising out of its order.
(2) When a question of law is raised before the Tribunal but the Tribunal fails to deal with it, it must be deemed to have dealt with by it, and is, therefore, one arising out of its order.
(3) When a question is not raised before the Tribunal but the Tribunal deals with it, that will also be a question arising out of its order.
(4) When a question of law is neither raised before the Tribunal nor considered by it, it will not be a question arising out of its order notwithstanding that it may arise on the findings given by it."
The question referred for opinion requires that this court should go into the question as to whether the circumstances and the materials justify the addition of Rs. 20,000 representing the undisclosed income of the assessee firm and it cannot be said that the question does not arise out of the order. From the perusal of the orders of the Tribunal, the Income-tax Officer and the Appellate Assistant Commissioner it will be clear that the point raised before the Tribunal was whether the materials justify the finding of an addition of Rs. 20,000 as the undisclosed income of the assessee. The question necessarily includes a finding as to whether there are materials on the record which will go to make up the alleged income of Rs. 20,000 from the undisclosed business and it cannot be said that the question of law referred to us for opinion does not arise out of the order of the èTribunal. The case referred to by Mr. Choudhuri does not apply to the facts of the present case. The finding that the assessee has made an income of Rs. 20,000 from the undisclosed business is a finding of fact based on certain facts. The income-tax authorities have found that some remittances were sent from the Agartala gaddi of the assessee to its Calcutta branch which have not been accounted for in the accounted for in the account books. From this fact the authorities have drawn the inference that the assessee was carrying on some undisclosed business. The Tribunal has further drawn an inference that the turnover of the undisclosed business was Rs. 4 lakhs and further that this turnover resulted in an income of Rs. 20.000 per year on the basis that the profit will be five per cent. of the total turnover.
Before the matter was remanded to the Income-tax Officer for further investigation and before he examined witness under section 37 of the Income-tax Act, the Income-tax Officer in his order had referred to certain items which were sent from the Agartala gaddi to Calcutta and which had not been included in the account books. The Income-tax Officer further observed in his order as follow :
"He at this stage declared in writing that no such remittances (which have not passed through books of accounts) have been made by him or by the firm and if any remittances were made by others it was done without his knowledge. This version of the assessee cannot be accepted in view of the fact that I am in possession of documentary evidence to prove the facts as otherwise."
What the documentary evidence is, is not referred to in the order itself. If the Income-tax Officer wanted to rely upon certain postal records, they should have been brought to the notice of the assessee before any reliance could be placed on them. The Appellate Assistant Commissioner dealing with the addition of Rs. 20,000 has stated that the Income-tax Officer has definitely stated in the assessment order that he detected various amounts of cash remittances which were not passed through the books of accounts produced before him. The Income-tax Officers detection of such omission of cash relating in each of the years amounts to about four lakhs. The Income-tax Officer instead of treating the entire sum of four lakhs has estimated profits only at five per cent., viz., Rs. 20,000, although the assessment order does not give any indication as to how the entire sum of Rs. 4 lakhs has been arrived at. These observations go to show that the Appellate Assistant Commissioner accepted the figure of Rs. 20,000 arrived at by the Income-tax Officer, firstly, on the ground that the Income-tax Officer appears to be in possession of materials from which he could come to the conclusion that various amounts of remittances have been received by the Calcutta branch of the assessee from Agartala which have not been accounted for, although he himself was of opinion that there was no indication in the order to show how the sum of Rs. 4 lakhs had been arrived at; and, secondly, on the ground that the profit of five per cent. on a total turnover of Rs. 4 lakhs cannot be said to be unreasonable. The matter was remanded by the èTribunal and after remand the Income-tax Officer has not referred to any materials which will go to show that the turnover of the assessee in the undisclosed business was Rs. 4 lakhs and that the assessee had made a profit of five per cent. on the total turnover. The case set up by the assessee was that the remittances were not sent from the Agartala gaddi of the assessee and the persons who are alleged to have remitted the amounts were not connected with the assessees firm. That part of the case has been disbelieved by the income-tax authorities and it may be legitimately argued that there were circumstances from which it could be inferred that some remittances were made by the assessee firm from its Agartala gaddi to its Calcutta branch and to that extent it may be contended that the finding that some remittances were sent cannot be said to be based on no evidence. It may even be accepted that this was a sufficient basis for the income-tax authorities to come to the conclusion that the assessee was carrying on some undisclosed business or to come to the conclusion that the amounts received at Calcutta were income of the assessee from an undisclosed source. But there is no material from which the Tribunal could come to the conclusion that the assessee was carryingon some undisclosed business with a turnover of Rs. 4 lakhs, nor is there any material to support the finding that the income from the said turnover of Rs. 4 lakhs will be five per cent. of the said turnover. The question has thus to be answered in the negative and thus on the facts and the circumstances of the case there is no material before the Tribunal to hold that the sum of Rs. 20,000 represented the undisclosed income of the assessee firm. The assessee will be entitled to its costs of this reference, which we assess at Rs. 100.
S.K. DUTTA J. - I agree.
Question answered in the negative.