1. The question which has been referred to us under s. 256(2) of the I. T. Act, 1961 (hereinafter referred to as 'the Act'), is as follows :
'Whether there was any evidence in support of the Tribunal's finding that the high denomination notes did not belong to the three assessees, Karandikar, Phatak and Desai and in support of the finding that they belonged to outside parties ?'
2. This reference arises out of the assessment proceedings for the year 1946-47, in relation to the assessment under the Act made on the three assessees, Karandikar, Phatak and Desai. Their income as originally assessed was Rs. 28,162, Rs. 19,141 and Rs. 22,432, respectively. All these three assessments were, however, reopened under s. 34 (1) (a) of the Indian I. T. Act, 1922, and in reassessment proceedings certain amounts were added as undisclosed income of the three assessees as follows :
Rs.(1) H. R. Karandikar 2,92,000(2) D. B. Phatak 2,39,000(3) M. G. Desai 4,24,000
3. Desai was a director in a company named Shree Laxmi Textile Mills Limited, which is public limited company at Bhor. Bhor was an Indian State and did not form a part of British Indian at the relevant time. Desai held shares worth Rs. 5,000 in the Laxmi Textile Mills. Another company, the Bhor Mercantile Agency Limited, was a private limited company, also in the Bhor State. This company was the managing agent of the Laxmi Textile Mills Limited, and Desai held one-third of the shares of this company, of the value of Rs. 700. The two other assesses, Phatak and Karandikar, were also shareholders of this managing agency company to the extent of Rs. 700 each. The Laxmi Textile Mills was only a spinning mill. Desai had income from cloth business carried on at Bhor and dividends on certain shares of companies in Billimora and a share in a firm at Bombay.
4. The assessee, Phatak, was a partner in a firm called Pioneer Dyeing House, Poona, which is engaged in the business of dyeing yarn and cloth, and selling it after dyeing and printing. He also held shares in the Laxmi Textile Mills Limited of the value of Rs. 5,000, and he was also a director of the Bhor Mercantile Agency Limited. He was also a director of the Raja Raghunathrao Mills Limited, a textile mill at Bhor, where only weaving operations were carried on.
5. The third assessee, Karandikar, had a cloth shop in Poona. His shares in the Laxmi Textile Mills were also worth Rs. 5,000 and the shares in the Bhor Mercantile Agency were worth Rs. 700. He was also a director of the Raja Raghunathrao Mills Limited.
6. Originally, the managing agency business of Bhor Mercantile Agency was started by Desai along with some Bombay party. But the interest of the Bombay party was taken over by the three assessees, and the assessees, Phatak and Karandikar had obtained an overdraft from the Presidency Industrial Bank, Poona, for paying off the Bombay party. Thus, in January 1946, which is the crucial period so far as the reference is concerned, the three assessees were the directors of the Laxmi Textile Mills Limited and the Bhor Mercantile Agency, and Karandikar and Phatak were the directors of the Raja Raghunathrao Mills Limited. The Bhor Mercantile Agency Limited held shares of Rs. 5 lakhs, out of Rs. 8 lakhs paid up capital of the Laxmi Textile Mills Limited.
7. The Governor-General of India had promulgated the High Denomination Bank Notes (Demonetisation) Ordinance, 1946, on 12th January, 1946. This Ordinance did not immediately become applicable to the Bhor State, but by an Ordinance issued on 19th January, 1946, by the Bhor authorities the said Ordinance was, however, made applicable retrospectively from 12th January, 1946, in the Bhor State. Under this Ordinance, high denomination bank notes of the value of Rs. 500, and Rs. 1,000 and Rs. 10,000 could be exchanged only on the tender of the notes for exchange by the owner thereof in the manner provided under s. 6. Under sub-s. (2), a declaration had to be made by the owner of the high denomination bank notes, and that declaration required several particulars to be given, and the said declaration had to be submitted along with the high denomination notes to the Reserve Bank or to a Scheduled Bank or to a Government Treasury. Under sub-s. (9) of s. 6 of the Ordinance, it was provided that no high denomination bank notes exceeding a value of Rs. 10 lakhs held by any person shall be exchangeable except at the Reserve Bank at Bombay, Calcutta or Madras. Section 7 of the Ordinance, which was a penalty section, provided that -
'Whoever knowingly makes in any declaration under section 6 any statement which is false or only partially true or which he does not believe to be true, or contravenes any provision of this Ordinance or the Rules made thereunder, shall be punishable with imprisonment for a term which may extend to three years or with fine or with both'.
8. On 21st January, 1946, high denomination bank notes of the total value of Rs. 10,55,000 came to be submitted to the Treasury Officer at Bhor. These high denomination notes were submitted for exchange in three lots. One declaration (Annex.' K ') signed by the assessees, Phatak and Karandikar, as directors of the managing agency company acting for Shree Laxmi Textile Mills Limited was in respect of an amount of Rs. 9,69,000. The Laxmi Textile Mills was shown as the declarant and the owner of the currency notes. The source from which this money was supposed to have came was 'from depositors from time to time '. The second declaration (annex 'L') is in the name of Laxmi Trading Company, which is shown to be a proposed private limited company. It was stated that the company was not registered. The declaration is in respect of high denomination notes of the value of Rs. 62,000, and the source has been stated to be 'from the shareholders from time to time'. This declaration is signed only by Desai. The third declaration (annex.' M ') is made in the name of Desai himself and is signed by him. He was described himself as the 'sole importer of cloth' in Bhor State. The value declared is Rs. 24,000, and the amount is said to have been received from sales. These high denomination notes came to be encashed on 4th February, 19946.
9. A duplicate cash book was seized by the police from the mills' premises, and this book related to the period from 1st December, 1945, to the end of February, 1946. The original rough cash book which was maintained by the mills did not show any sum of Rs. 15,91,000 as deposits made by 48 persons, but these deposits were shown in the duplicate cash book. This sum of Rs. 15,91,000 included the sum of Rs. 10,55,000 in respect of which high denomination notes were submitted to the treasury and an amount of Rs. 5,36,000 which, it is now no longer in dispute, was never actually received as deposits. These deposits were shown on record to have been paid to different depositors on different dates through one or the other of the assessees for the Bhor Mercantile Agency, with the result that before 30th April, 1946, which is the last date of the accounting year of the mills, all the deposits were shown to have been returned. The repayment of these deposits were shown to have been made to the extent of Rs. 2,08,000 through Desai, to the extent of Rs. 1,09,000 through Phatak, to the extent of Rs. 1,62,000 through Karandikar, and the balance of Rs. 11,12,000 through the Mercantile Agency Limited, thus making up a total amount of Rs. 15,91,000.
10. In the reassessment proceedings the ITO recorded the statements of all these three assessees. These statements are annexed to the statement of case as annexs.'A', 'B' and 'C'. The ITO took the view that the deposits were not genuine and indeed it is now found as a fact that none of the 48 persons had made any deposits out of the amount of Rs. 9,69,000 in respect of which the declaration was signed by Phatak and Karandikar, and high denomination notes for which were encashed in the name of Laxmi Textile Mills. The ITO estimated that Rs. 1 lakh out of this amount could be considered as probable secreted profits of the Laxmi Textile Mills, and considering the fact that the Bhor Mercantile Agency was entirely under the control of the three assessees, the remaining amount of Rs. 8,65,000, which was shown to have been paid through the Bhor Mercantile Agency was treated as having been paid jointly by all the three assessees. He thus found that the amounts directly withdrawn and the amounts withdrawn through the Bhor Mercantile Agency by Phatak and Karandikar came to Rs. 2,39,000 and Rs, 2,92,000, respectively, and the amount withdrawn by Desai came to Rs. 3,38,000, to which he added Rs. 86,000 in respect of which Desai alone had made a statement before the Treasury Officer. Taking these amounts into consideration as well as the earlier original assessments made, the ITO on reassessment computed the total taxable income of Karandikar, Phatak and Desai at Rs. 3,20,162, Rs. 2,58,141 and Rs. 4,46,432, respectively.
11. All these additions were upheld by the AAC while dismissing the three appeals filed by them.
12. In the meantime, the three assessees came to be prosecuted under s. 7 of the Ordinance on the charge that the assessees had split up the high denomination notes of the value of Rs. 10,55,000 in three parts of Rs. 9,69,000, Rs. 62,000 and Rs. 24,000, with a view to get over the legal provision which required that an amount exceeding Rs. 10 lakhs could be encashed only with the Reserve Bank Offices at Bombay, Calcutta or Madras. However, in Criminal Case No. 981 of 1953, Pathak and Desai pleaded guilty, and they were sentenced to pay a fine of Rs. 5,000, or in default to suffer simple imprisonment for six months (annex.'S'). Karandikar, however, contested his liability in the criminal proceedings, and the Special Judicial Magistrate, First Class (Anti-Corruption), Poona, by his order (annex.'T') dated 5th October, 1961, held that Karandikar was a nominal director of the Laxmi Textile Mills Limited, and that the accused had not made the declaration knowingly, but that he believed that the statements made in the declaration were true. The Magistrate held on appreciation of evidence that Karandikar had carried on the business in cloth in Poona, and that he had signed no receipt or authority in respect of the receiving or the returning of the deposit amounts, that he did not receive any part of the exchanged amount, and that he had no knowledge of what Desai did. Consequently, Karandikar was acquitted.
13. The acquittal of Karandikar was challenged by the State by an appeal to this court in criminal Appeal No. 189 of 1962. The Division Bench by its judgment (annex.'U') declined to interfere with the order of acquittal after considering the evidence ofMalegaonkar, who used to write accounts of the managing agency company. On his evidence the High Court took the view that his evidence did not make it clear that Karandikar had received the amount of Rs. 10,55,000. The High Court also held that the evidence did not indicate that Karandikar took part in the active managements of the Laxmi Textile Mills and the Bhor Mercantile Agency. The court found it unsafe to accept without corroboration the general statement made by M/s. Potnis and Malegaonkar, that all the three accused gave instructions to rewrite and manipulate the accounts. The High Court recorded a finding that there was no evidence to show that Karandikar took part in the active management of the business and knew the fictitious nature of the deposits in question. It has observed that :
'Unless it is shown that Karandikar was in the active management and had knowledge about the true state of affairs with regard to the said deposits, we cannot say that the view taken by the learned trial Magistrate that Karandikar believed the statement in the declarations in question to be true, is incorrect and unreasonable.'
14. By the time the assessments came to the Tribunal in appeal by all the three assessees, the criminal proceedings had come to an end. The revenue, wanting to make use of the material collected in the course of investigation which led to the prosecution of all the three assessees, pleaded before the Tribunal that they would be relying upon the material gathered in the criminal proceedings in support of the assessments. It appears that the evidence collected for the prosecution, including the evidence recorded during the prosecution, was agreed to be referred to for the purpose of deciding the appeals. The Tribunal in its order has positively mentioned that 'all parties were agreed that this evidence, documents and materials gathered in the criminal proceedings could also be relied upon and used in the present proceedings.'
15. The Tribunal posed for its determination the question as to whom the high denomination notes of the value of Rs. 10,55,000 belonged, and how far the three assessees could be assessed in the manner done by the department and what amount, if any, could be reasonably said to have been earned by the three assessees in the encashment of the high denomination notes. The Tribunal observed that :
'It is common ground, therefore, that these 48 depositors were fictitious and no amount was deposited by any one of these people.'
16. The Tribunal referred to the evidence of Kale, who was employed in the Bank of Maharashtra, from whom Desai had enquired whether the bank would accept a few Rs. 1,000 notes, which he had, and came to the conclusion that Desai had approached Kale on or about 14th or 15th of January for encashment of the notes to the extent of Rs. 10,55,000. The Tribunal referred to the evidence of Malegaonkar, who was accountant in the Laxmi Textile Mills and who had stated that all the three accused had come to Bhor two or four days after the promulgation of the Ordinance and told him that they had brought with them Rs. 10,55,000 in currency notes of Rs. 1,000 each. The Tribunal referred to the evidence of the Police Insepctor, Divate, who had stated that they had made enquiries into the genuineness of the depositors, and except one, i.e., Ganesh Paranjape, no other depositors were traced and even Paranjape, a cousin of Phatak, denied having made any such deposit. The Tribunal referred to Divate's statement that he could not say that accused Nos. 1 and 2 i.e., Desai and Phatak, were the owners of Rs. 1,000 notes. The Tribunal referred to the findings recorded by the Magistrate in the criminal case against Karandikar in which the Magistrate had observed that -
'Karandikar.............. was a booby swept by accused, Mr. Desai, the same remark may have to be given to some extent in respect of accused Mr. Phatak also.'
17. The Tribunal also referred to the finding of the Magistrate that karandikar had not received any part of the exchange amount, and he had not signed any receipt or authority in respect of the bogus deposits. The Tribunal thus found that the story of 48 depositors was fictitious, and considering the various entries made in the ledger of the Bhor Mercantile Agency, the Tribunal came to a finding that Rs. 10,55,000 was transferred from the books of the textile company to the Bhor Mercantile Agency. Out of this amount it was found that Rs. 2 lakhs were paid into the Bhor State Bank on February 4, 1946; Rs. 55,000 were paid to M. G. Desai on February 4, 1946; Rs. 5 lakhs were deposited in the Presidency Industrial Bank Limited, Poona, on February, 4, 1946; and Rs. 2 lakhs were paid into the Bhor State Bank, Poona Branch, on February 6, 1946. The Tribunal found that though the overdraft standing in the name of Phatak and Karandikar in the Presidency Industrial Bank was squared off by issuing a cheque on a separate account in which Rs. 5 lakhs were deposited, subsequently Phatak and Karandikar raised moneys and repaid the amount adjusted against the overdraft amounts. The Tribunal also found that the agency company, in whose account the exchange amount of Rs. 10,55,000 had ultimately found its way, issued several bearer cheques periodically in the name of Desai and were encashed, and the proceeds were said to have been utilized for the purpose of paying off the owners of the high denomination notes. The Tribunal also found that a sum of Rs. 2,16,455 was transferred to the joint account of Desai, Phatak and Karandikar some time in 1949. Having thus reviewed the entire evidence, the Tribunal recorded certain findings. It took the view that the evidence showed that 'Desai was very influential with the Ruler of Bhor State', and was approached by some people for encashment of the high denomination notes at Bhor, where, at the material time, the Ordinance was not in force. It also found that though the deposit-holders were shown to have been paid off, in fact the entire money got transferred to the accounts of Bhor Mercantile Agency and thereafter by drawing self-cheques by Desai, the ledger accounts were squared up, leaving a sum of Rs. 2,16,455, which was ultimately transferred to the joint account of the three assessees. In the background of these findings, the Tribunal considered the explanation of the assessee that these high denomination notes did not really belong to them. The Tribunal considered two alternatives, viz., either the notes belonged to these people, being their secreted profits, or they had been received for encashment from third parties. On a review of this evidence, it did not think that they had received the notes only for keeping for some time but that the third parties, who had these notes approached Desai for encashment of the same as the Ordinance was promulgated first in the then British India. The Tribunal thus found that at the most the sum of Rs. 2,16,455 only could be considered the income of the three assessees from the transaction of encashment of the high denomination notes. However, considering that some portion of the high denomination notes still remained unpaid, the Tribunal proceeded on the assumption that ten per cent. of the gross value of the high denomination notes would be a reasonable remuneration and at that rate a sum of Rs. 1,05,500, according to the Tribunal, could be safely taken to be the estimated remuneration for encashment of the high denomination notes on behalf of the third parties. The Tribunal allocated this amount of Rs. 1,05,500 to the shares of all the three assessees-Rs. 60,000 being allocated as the remuneration of Desai, and Rs. 22,750 each being allocated to the share of remuneration of Phatak and Karandikar, respectively. Having recorded these findings, the additions made by the ITO were restricted to these amounts. The appeals were thus partly allowed.
18. The revenue being aggrieved by the findings recorded by the Tribunal, an application under s. 66 (1) of the Indian I. T. Act, 1922, came to be made, in which reference was sought in respect of three questions. In the first question the finding that the currency notes belonged to the assessees was being put in issue. In the second question the quantum of remuneration as determined by the Tribunal was itself put in issue; and in the third question the apportionment of the amount of Rs. 1,05,500 was being put in issue. There can hardly be any doubt that these three questions would have covered the entire controversy in relation to the reassessment proceedings relating to the undisclosed income of the three assesses, as alleged by the revenue. The Tribunal, however, rejected this application holding on the first question that it had accepted the explanation of the assessees and that the finding recorded was finding of fact arrived at on appreciation of the evidence on record. With regard to the second and the third questions also, the findings were held by the Tribunal to be findings of fact. The revenue then approached this court under s. 66 (2) of the Indian I. T. Act, 1922, in which reference of some of the questions was again sought. The rule was, however, made absolute in respect of the question as reframed. The present question, which is now the subject of this reference, is, therefore, a reframed question in place of the original question No. 1.
19. The main argument in this reference has been advanced by Mr. Pandit appearing on behalf of the assessee, Karandikar, which is supplemented by Mr. Inamdar, appearing for the assessee, Phatak. The original assessee, Desai, is no longer alive, and Mr. Vahia, appearing on behalf of the legal representatives of the deceased, Desai, has fully adopted the arguments advanced by Mr. Pandit.
20. The argument advanced on behalf of the assessee is essentially in two parts. According to the learned counsel for the assessee, there was substantial evidence on record on the basis of which the Tribunal was entitled to come to the conclusion that the high denomination currency notes in question did not belong to the assessees, but belonged to the third parties, and that the finding is one of fact. The second limb of the argument which has to be first considered was that the reference itself must be held to be incompetent, because, according to the learned counsel, the question of law, which is now being debated on the basis of a reference made under s. 66 (2) of the Indian I. T. Act, 1922, was never the question in respect of which a reference was sought by the revenue from the Tribunal. The contention of the learned counsel for the assessees is that the question as framed in the application under s. 66 (1) and in respect of which a reference was sought under s. 66 (2), was entirely a different question, and that too fact, from the question in respect of which a statement of case was called for under s. 66 (2) of the Act. The learned counsel contended that since the question referred now is entirely a new question and since the power to reframe a question cannot be so exercised as to have a reference made in respect of an entirely new question, even at the stage of the final hearing of the reference, it will be competent for this court to decline to answer such a question. The learned counsel has contended, primarily on the authority of a decision of this court in CIT v. Deviprasad Khandelwal and Co. Ltd. : 81ITR460(Bom) , that having regard to the form in which the question was raised before the Tribunal in the application under s. 66 (1), the question as to whether there was evidence to support a finding recorded by the Tribunal could not be made the subject-matter of the reference under s. 66 (2).
21. Now, so far as the power of the court to reframe the question is concerned, the scope and extent of this power is now well settled, as will be clear from the decision of the Supreme Court in the case of CIT v. Smt. Anusuya Devi : 68ITR750(SC) , where the Supreme Court has pointed out that the power to reframe a question may be exercised to clarify some obscurity in the question referred, or to pinpoint the real issue between the tax payer and the department or for similar other reasons; and that it cannot be exercised for reopening an enquiry on questions of fact or law which are closed by the order of the Tribunal (p. 757 of 68 ITR). It is, therefore, clear that the power to reframe a question cannot be so exercised as to put in issue a controversy settled or finding recorded by the Tribunal in respect of which no reference was ever sought by a party, and consequently the finding on the said issue had become final. Whether the question reframed has traversed beyond the scope of the question originally sought to be referred will be discussed later.
22. There can also be no dispute that the jurisdiction of this court under s. 66 of the Indian I. T. Act, 1922, and under s. 256 of the I. T. Act, 1961, is not in the nature of an appellate or revisional jurisdiction, and the jurisdiction is wholly controlled by the scope of the question in respect of which advice is sought by the Tribunal. In other words, it is only in respect of the question for which the advice has been sought, subject to the limitations within which that question can be reframed, that the advisory jurisdiction of the court can be exercised. The law in that behalf is settled by a catena of decisions of the Supreme Court. In CIT v. Greaves Cotton and Co. Ltd. : 68ITR200(SC) , the Supreme Court has observed as follows (p. 206) :
'It is true that the finding of fact will be defective in law in there is no evidence to support it or if the finding is unreasonable or perverse. But in the hearing of a reference under section 66 of the Income-tax Act it is not open to the assessee to challenge such a finding of fact unless he has applied for a reference of the specific question under 66 (1). In India Cements Ltd. v. Commissioner of Income-tax : 60ITR52(SC) , it was pointed out by this court that in a reference the High Court must accept the findings of fact reached by the Appellate Tribunal and it is for the party who applied for a reference to challenge those findings of fact, first, by an application under section 66 (1). If the party concerned has failed to file an application under section 66 (1) expressly raising the question about the validity of the findings of fact, he is not entitled to urge before the High Court that the findings are vitiated for any reason.'
23. In Smt. Anusuya Devi's case : 68ITR750(SC) , the Supreme Court declined to accept the view of the Calcutta High Court that if an order is passed by the High Court calling upon the Tribunal to state a case on a question that does not arise out of the order of the Tribunal, the High Court is bound to advise the Tribunal on that question, even if the question does not arise out of the order of the Tribunal. It was then pointed out (pp. 756, 757) :
'The High Court may only answer a question referred to it by the Tribunal; the High Court is however not bound to answer a question merely because it is raised and referred. It is well settled that the High Court may decline to answer a question of fact or a question of law which is purely academic, or has no bearing on the dispute between the parties or though referred by the Tribunal, does not arise out of its order. The High Court may also decline to answer a question arising out of the order of the Tribunal, if it is unnecessary or irrelevant or is not calculated to dispose of the real issue between the taxpayer and the department. If the power of the High Court to refuse to answer questions other than those which are questions of law directly related to the dispute between the taxpayer and the department, and which, when answered, would determine qua that question, the dispute be granted, we fail to see any ground for restricting that power when by an erroneous order the High Court has directed has Tribunal to state a case on a question which did not arise out of the order of the Tribunal. We are unable, therefore, to hold that at the hearing of a reference pursuant to an order calling upon the Tribunal to state a case, the High Court must proceed to answer the question without considering whether it arises out of the order of the Tribunal, whether it is a question of law, or whether it is academic, unnecessary or irrelevant.'
24. These observations leave no room for doubt that the High Court at the stage of a hearing of a reference under s. 66 (2) can still consider whether the question referred is a question of law or a question of fact, and if it is a question of law, whether it is academic, unnecessary or irrelevant, or whether it arises out of the order of the Tribunal or not. In other words, it is open to a party, even at the stage of the hearing of the reference by a court to urge that either the reference has been wrongly made, because the question referred does not arise out of an order of the Tribunal, or that the question is not a question of law, or is one of fact, or that for diverse reasons it is not necessary to answer that question.
25. It may be pointed out that the argument of the learned counsel for the assessees was that the modification or the reframing of the question under s. 66 (2) made by this court, when the rule was made absolute, had the effect of the Tribunal being called upon to refer the question which it was not called upon to consider in the application under s. 66 (1), an argument, which we shall, in course of time, consider.
26. That brings us to the main question which is argued before us, viz., that the question as reframed by this court is different from the question which was originally suggested for reference, and that this court should not deal with that question because the Tribunal was never called upon to consider whether this question should be referred or not. It is pointed out that the original question No. 1 in respect of which reference was sought was :
'Whether, on the facts and circumstances of the case, the Tribunal was justified in holding that the high denomination notes encashed did not belong to these three assessees, viz., Karandikar, Phatak and Desai, but belonged to outside parties ?'
27. It has been argued before us the department had never raised a question that there was no evidence for this finding and unless a specific question was raised before the Tribunal that there was no evidence to support the finding of the Tribunal, that question cannot now be debated, with the result that the question as reframed should not be answered. The argument of the learned counsel for the assessees raises, in our view, an important question which requires to be considered. The answer to the argument, which is advanced on behalf of the assessees, necessitates a determination of the question as to whether, when a finding recorded by the Tribunal is challenged or put in issue in the form of a question under s. 66 (1), all the grounds on which that challenge is sought to be made must necessarily be formulated in the form of a question of law or in a given case where a finding is challenged, it is permissible for the court to allow the assessee to urge that the finding is vitiated by any particular error of law. Under s. 66 (1) it is for the assessee or the Commissioner to make an application requiring the Appellate Tribunal to refer to the High Court 'any question of law arising out of such order'. Such an application was then required to be made in the prescribed form. This form, it is not in dispute, is identical to Form No. 37 under rule 8 of the I. T. Rules, 1962. It requires in para. (4) of the application that the questions of law are to be stated. Paragraph (4) of the application states 'that the following questions of law arise out of the order of the Appellate Tribunal'. Now, nothing prevents an assessee or the revenue to urge that what the Tribunal holds to be a finding of fact gives rise to one or more questions of law depending on the nature of the challenge that can be made to such a finding. The assessee or the Commissioner is merely required to state what, according him, is a question of law. But what is styled in the application as a question of law may not necessarily be found to be a question of law by the Tribunal, and the Tribunal would obviously be entitled to take a view different from the one taken either by the assessee or the Commissioner with regard to the nature of the question. It can decline to make a reference in respect of the question proposed, if it takes the view that the questions suggested are not questions of law arising out of its order. The Tribunal cannot merely be reading the question and come to the conclusion that the said question is a question of fact. What may apparently appear to be a finding of fact may stand vitiated by an error of law committed by the Tribunal in arriving at what apparently appears to be a finding of fact. In other words, before a question is adjudicated upon as a question of fact or a question of law, the Tribunal has, for the purpose of deciding an application under s. 66 (1), to refer to the process by which and the material on which that finding has been arrived at. If the finding is arrived at purely on appreciation evidence, it, may be that the finding would become a finding of fact, but even in such a case, if it is possible for the applicant to show that the appreciation of evidence is itself vitiated by an error of law, such as for example, that they particular part of the evidence has been misread or that any material part of the evidence has been left out of consideration, then, though apparently a finding of fact is the result of the appreciation of evidence, that appreciation itself would stand vitiated by an error of law, and consequently the finding reached after such appreciation will also be vitiated by an error of law and such a finding may itself give rise to a question of law. Therefore, when a particular finding is challenged by an application under s. 66 (1), the Tribunal will have to bring its mind to bear upon the grounds which are canvassed before it, and if the Tribunal is convinced that the finding challenged appears to be vitiated by an error of law as pointed out above, what appeared to be a question of fact at the outset would certainly give rise to a question of law.
28. Now, assuming for a moment that what was canvassed before the Tribunal as an error of law which had vitiated the finding of fact. is, in the view of the Tribunal, not an error of law, then the party aggrieved has the right to approach this court under s. 66 (2). The power of this court under s. 66 (2) is co-extensive with the power of the Tribunal under s. 66 (1). When the matter is brought to this court under s. 66 (2) putting a particular finding, which apparently is a finding of fact, in issue which, according to the applicant, gives rise to a question of law, this court will not be entitled to shut out the applicant by merely reading the finding. The applicant will be entitled to urge before this court also that a particular finding is vitiated by an error of law. Such a process is implicit, in our view, in the determination as to whether the question proposed is a question of law arising out of the order of the Tribunal or is a question of fact. When a party comes before this court under s. 66 (2), or goes to the Tribunal under s. 66 (1), the questions, which are suggested by the party, are questions of law, according to it. Indeed, as pointed out, that is how the application is worded and such an application cannot be thrown out on the form of the question which has been framed. What is intended is to go to the substance of the controversy. Now, when it is merely contended that a particular finding is vitiated by an error of law, that by itself cannot be an independent question of law, unless the question highlights the error which vitiated any particular finding. The fact, however, remains that ultimately it is the finding is put in issue. There may thus be several grounds on which a finding may be open to challenge, but it may be that in a given case each ground by itself may not be specified in the application under s. 66 (1) as a question of law. It may, therefore, be possible in a given case that where under s. 66 (1) or under s. 66 (2) several grounds are raised while challenging a finding, the Tribunal or the court finds that only certain grounds may be debatable as being grounds of law, which, if accepted, would vitiate the finding. Thus, a question of law may arise and finally the controversy may be restricted to only such limited grounds. Even when such limited grounds are put in issue as a question of law, it is essentially the finding which is put in issue. It appears to us, therefore, that when the finding that any amount is included in or excluded from the income of the assessee is challenged, though apparently the finding is one of fact, that finding could be challenged by way of a reference if it is possible for the assessee or revenue, as the case may be, to show that, in arriving at the finding, the Tribunal has committed an error of law. This appears to us to be the view which even the Supreme Court has taken in a series of cases.
29. We may first refer to two decisions of the Supreme Court in CIT v. Ogale Glass Works Ltd. : 25ITR529(SC) and Zoraster & Co. v. CIT : 40ITR552(SC) . Both of them have been reaffirmed in the decision of the Supreme Court in CIT v. Scindia Steam Navigation Co. Ltd. : 42ITR589(SC) and heavy reliance was placed before us on behalf of the assessees on these decisions. In Ogale Glass Works Ltd.'s case : 25ITR529(SC) the question was whether the assessee who carried on business in an Indian State outside British India can be said to have received certain cheques within British India. The question referred to the High Court was whether on the facts of the case, income, profits and gains in respect of the sales made to the Government of India was received in British India within the meaning of s. 4(1)(a) of the Act. The argument of the assessee was that it had received payments for goods supplied by it when it received cheques at Aundh, and that the cheques were accepted in full satisfaction and discharge of the claim under the contract. According to the assessee, as the cheques were received Aundh, the payments were received there and consequently the assessee, which was a non-resident company, did not receive any income, profits or gains in British India within the meaning of s. 4(1)(a) of the I. T. Act. The facts found indicate that the cheques, when received by the assessee, used to be endorsed by the Ogale Glass Works in favour of Aundh Bank Ltd., Ogalewadi branch, which in its turn used to endorse them in favour of the Bombay Provincial Co-operative Bank Ltd., Bombay. This Bombay bank cleared the cheques through the clearing house in Bombay. The Aundh Bank used to credit the assessee's account on the very day on which the cheques were received from the assessee. The contention of the revenue was that the question whether the assessee accepted the cheques unconditionally and in full satisfaction of its claim under the contract was concluded by the Tribunal's findings of fact. The Tribunal had taken the view that when the assessee received the cheques it did not receive the sale proceeds, but it received the sale proceeds subject to the encashment of the cheques and, therefore, the sale proceeds were received in cash in Bombay. The High Court had taken the view that the Tribunal had in terms come to the conclusion that the assessee accepted the cheques in full satisfaction and in discharge of its claim for the price of goods supplied by it. But the High Court found that there was an arrangement between the assessee and the Government from which it can be said that the acceptance by the assessee of the cheques from the Government resulted in an unconditional discharge of the debt. The Supreme Court found that the assessee had received payments as soon as the cheques were delivered, and then the question, according to the Supreme Court, was as to when and where the assessee received such payments. According to the assessee, the payments were received at Aundh, but according to the revenue, the cheques were delivered to the assessee as soon as they were posted. The cheques were posted from Delhi. The argument that the payments must be deemed to have been received as soon as the cheques were posted and, therefore, the payments were received in Delhi, was contested on behalf of the assessee. According to the assessee, this was entirely a new question of law, which was never raised or argued before the Tribunal, and was not dealt with by it and, therefore, cannot be said to arise out of the Tribunal's order, and, consequently, the court had no jurisdiction while exercising its advisory jurisdiction under s. 66 of the Indian I. T. Act to permit such a new question of law to be raised at this stage. The Supreme Court found that the contention that a mere posting of the cheques operated as payments in Delhi did not raise any new question of law. According to the Supreme Court, the question of law still was whether, on the facts of the case, income, profits and gains in respect of sales made to the Government of India was received in British India within the meaning of s. 4(1)(a) of the Act. The Supreme Court found that the contention that the question must be limited to those facts on which alone in respect of the arguments which were advanced before the Tribunal and on which the Tribunal's decision was founded leaving out all other facts appearing on the record not have been referred to in the Tribunal's order and the statement of case could not be accepted. The Supreme Court pointed out that the language of the question clearly indicated that the question of law had to be determined 'on the facts of this case' and to accede to the contention of the assessee will involve undue cutting down of the scope of the question by altering its language.
30. A similar question was referred in Zoraster & Company v. CIT : 40ITR552(SC) , as follows :
'Whether, on the facts and circumstances of the case, the profits and gains in respect of the sales made to the government of India were received by the assessee in the taxable territories ?'
31. The Supreme Court held that the question referred by the Tribunal to the High Court was wide enough to include the alternative line of approach whether there was a request, express or implied, to send the amount due under the bills by cheque, the post office would be the agent of the assessee, and the income was received in the taxable territories when the cheques were posted. The following observations from Kusumben D. Mahadevia v. CIT : 39ITR540(SC) were quoted with approval (p. 544) :
'Section 66 of the Income-tax Act which confers jurisdiction upon the High Court only permits a reference of a question of law arising out of the order of the Tribunal. It does not confer jurisdiction on the High Court to decide a different question of law not arising out of such order. It is possible that the same question of law may involve different approaches for its solution, and the High Court may amplify the question approaches. But the question must still be the one which was before the Tribunal and was decided by it. It must not be an entirely different question which the Tribunal never considered.'
32. After referring to these observations, the Supreme Court in Zoraster & Company's case : 40ITR552(SC) , observed as follows (p. 559) :
'It follows from this that the enquiry in such cases must be to see whether the question decided by the Tribunal admits the consideration of the new point as an integral or even an incidental part thereto.'
33. These observations, in our view, therefore, lay down a test for ascertaining as to whether the question, which is sought to be argued in aid of the main question which has been referred could be raised under s. 66 (1) of the Act.
34. In Scindia Steam Navigation Company's case : 42ITR589(SC) , on which heavy reliance was placed on behalf of the assessee, the Supreme Court has referred to the scope and the extent of the power under s. 66 (2), and has held that s. 66 (2) confers on the court a power to direct a reference where the Tribunal was under a duty to refer under s. 66 (1), and is, therefore, subject to the same limitation as s. 66 (1). It was then observed as follows (p. 609) :
'Moreover, the power of the court to issue direction to Tribunal under section 66 (2) is, as has often been pointed out, in the nature of a mandamus and it is well settled that no mandamus will be issued unless the applicant has made a distinct demand on the appropriate authorities for the very reliefs which he seeks to enforce by mandamus and that had been refused. Thus, the power of the court to direct a reference under section 66 (2) is subject to two limitations-the question must be one which the Tribunal was bound to refer under section 66 (1) and the applicant must have required the Tribunal to refer it...... It is, therefore, clear that under section 66 (2) the court cannot direct the Tribunal to refer a question unless it is one which arises out of the order of the Tribunal and was specified by the applicant in his application under section 66 (1). Now, if we are to hold that the court can allow a new question to be raised on the reference, that would in effect give the applicant a right which is denied to him under sections 66 (1) and (2), and enlarge the jurisdiction of the court so as to assimilate it to that of an ordinary civil court of appeal.'
35. These observations appear to be the sheet-anchor of the elaborate argument advanced before us on behalf of the assessee that if the power of the Tribunal under s. 66 (2) is co-extensive with the power of the Tribunal s. 66 (1), then unless a party asks for a reference of a question under s. 66 (1) a direction under s. 66 (2) cannot be given to the Tribunal in respect of a new question. As already pointed out, this proposition can hardly be disputed. But the question which will have to be considered on the facts of each case will be whether, as pointed out in Zoraster & Company's case : 40ITR552(SC) , the question decided by the Tribunal would admit the consideration of the new point as an integral or incidental part of that question. If in a given case only one aspect of the question, of which originally a reference was sought, is referred, then it cannot be said to be a new question of law which should be denied consideration. There are some instructive observations of the Supreme Court in Scindia Steam Navigation Co.'s case : 42ITR589(SC) , which clearly indicate that the provisions of ss. 66 (1) and 66 (2) do not contemplate a reference in respect of each aspect of question as a separate question of law. At this stage, a reference to the facts of the Scindia Steam Navigation Co.'s case : 42ITR589(SC) briefly would be necessary. The question referred in that case was :
'Whether the sum of Rs. 9,26,532 was properly included in the assessee-company's total income computed for the assessment year 1946-47 ?'
36. When the reference made at the instance of the assessee came up before the High Court, the assessee raised a contention that the proviso to s. 10 (2) (vii) of the Act under which the charge was made could not be taken into account in making the assessment as the same had been introduced by the I. T. (Amend.) Act, 1946, which came into force on 4th May, 1946, whereas the liability of the company to be taxed fell to be determined as on April 1, 1946, when the Finance Act, 1946, came into force. An objection was taken by the revenue to this question being raised for the first time before the court, on the ground that it did not arise out of the order of the Tribunal, having been neither raised before it not dealt with by it and further it had not been referred to the court. This objection was, however, overruled by the High Court observing that the form in which the question was framed was sufficiently wide to take in the new contention and the company was entitled to raise it even if that aspect of the question had not been argued before the Tribunal, and that it was implicit in the question framed and, therefore, the assessee could raise it. On merits, the contention of the assessee was upheld and the question was answered in the negative. The revenue then went up in appeal before the Supreme Court. The question which was posed by the Supreme Court for decision was :
'Whether in a reference under section 66 the High Court can consider a question which had not been raised before the Tribunal and/or dealt with by it in its order though it be one of law.'
37. Observing that there was considerable force in the argument that the language of s. 66 (1) is wide enough to admit of questions of law which arise on facts found by the Tribunal and there is no justification for cutting down its amplitude by importing in effect words into it which are not there, the Supreme Court referred to certain distinguishing features of the jurisdiction under s. 66. The Supreme Court then observed as follows (p. 612) :
'Section 66 (1) speaks of a question of law that arises out of the order of the Tribunal. Now a question of law might be a simple one, having its impact at one point, or it may be a complex one, trenching over an area with approaches leading to different points therein. Such a question might involve more than one aspect, requiring to be tackled from different standpoints. All that section 66 (1) requires is that the question of law which is referred to the court for decision and which the court is to decide must be the question which was in issue before the Tribunal. Where the question itself was under issue, there is no further limitation imposed by the section that the reference should be limited to those aspects of the question which had been argued before the Tribunal. It will be an over-refinement of the position to hold that each aspect of a question is itself a distinct question for the purpose of section 66 (1) of the Act.'
38. That was the view taken by the Supreme Court in CIT v. Ogale Glass Works Ltd. : 25ITR529(SC) and Zoraster & Company v. CIT : 40ITR552(SC) . Thus, if it is shown that the question which the court is called upon to decide in a reference was in issue before the Tribunal, then the reference cannot be restricted only to the aspects argued before the Tribunal.
39. This decision in Scindia Steam Navigation's case : 42ITR589(SC) clearly shows that one of the grounds on which the amount was contested as not being includible was raised for the first time before the court there and was treated as being included in the question referred. The non-applicability of the proviso to s. 10 (2) (Vi) to the facts of that case was never in question in respect of which a reference was sought at any stage nor was it a ground on which the liability was disputed before the Appellate Tribunal, and yet the Supreme Court held that it was an aspect of the general question referred, and the High Court was entitled to take it into consideration. In view of this clear pronouncement of the Supreme Court, it is obvious that when, according to the revenue, the question of law was whether the finding that the amounts in question did not belong to the assessees, and if in that context, while considering the question the question of law, one facet of it was to be considered as an arguable question of law, and the reference was restrict to that question, the reference cannot be held to be bad merely because the revenue had not sought an independent reference in respect of that ground under s. 66 (1) of the Act.
40. Reliance was also placed by the learned counsel for the assessees on Anusuya Devi's case : 68ITR750(SC) , to which we have already referred earlier. The reference under s. 66 (2) directed by the Calcutta High Court in that case was in respect of the question :
'Whether, the Tribunal erred in law by basing their decision on a part of the evidence ignoring the statement made as regards the withdrawal of Rs. 4,94,000 by 494 pieces of Rs. 1,000 notes from the ban ?'
41. One Anusuya Devi, who had encashed high denomination notes of the value of Rs. 5,84,000, had made a declaration that this amount was made over and/or directed to be made over by her deceased husband, Amritlal Ojha, in April, 1944, some time before his death for her benefit and for the benefit of the eight minor sons. In reassessment of the estate of the deceased, Amritlal Ojha, Anusuya Devi's attorneys had stated that during the last thirty years Amritlal had been giving gifts to his wife and also setting apart moneys exclusively for the benefit of his wife, and that this amount so accumulated had remained in a cupboard and was found after his death. Disbelieving this explanation, the amount of Rs. 5,84,000 was brought to tax in the year of account, viz., 1944-45. When the appeal was taken to the Tribunal against the order of the AAC, who had confirmed the assessment, an affidavit by Anusuya Devi came to be filed stating that this amount was the stridhan property. The Tribunal, while admitting this evidence, declined to admit an affidavit by Gunvantary, one of the sons of Amritlal, because in the opinion of the Tribunal a large number of new facts were attempted to be brought on record which were never disclosed before the departmental authorities. The Tribunal upheld the assessment. The application for stating the case to the High Court was also rejected by the Tribunal. When the Tribunal was directed to state a case on the question earlier reproduced, it had clearly mentioned that the extract from the statement incorporated in the petition under s. 66 (1) was materially different from the statement reproduced in the order of the ITO and that the Tribunal was not invited to consider at the hearing of the appeal the truth or otherwise of the alleged copy of the declaration incorporated in the petition under s. 66 (1), and that at the hearing of the appeal the original declarant had not been produced. The High Court though apparently of the view that the question referred did not arise out of the order of the Tribunal, took the view based on the decision in Chainrup Sampatram v. CIT : 20ITR484(Cal) , 'that it is not open to the court hearing a reference under section 66 (2) to hold, contrary to the decision recorded at the time when the Tribunal was directed to state the case on a question, that the decision did not arise out of the order of the Tribunal'. The Calcutta High Court held that the Tribunal had apparently ignored the declaration made by Anusuya Devi, and that the order of the Tribunal suffered from certain infirmities. This order of the High Court was set aside by the Supreme Court, and it was pointed out that in the question that was referred under the direction of the High Court it was assumed that the Tribunal had before it the statement about the receipt of 494 currency notes of Rs. 1,000 each from the bank at Calcutta in realisation of a cheque. Holding that that evidence was not before the Tribunal, and, before, the order of the Tribunal was not open to the objection that it had decided the appeal before it on a partial review of the evidence, the Supreme Court observed that the High Court was not bound to answer all questions referred under s. 66 (1) or s. 66 (2), and that the High Court has the power to refuse to answer questions other than those, which are question of law directly related to the dispute between the taxpayer and the department, and which, when answered, would determine qua that question the dispute, and that power cannot be restricted when by an erroneous order, the High Court has directed the Tribunal to state a case on a question which did not arise out of the order of the Tribunal. The decision in Anusuya Devi's case : 68ITR750(SC) , which turned on its own facts, does not, therefore, render any assistance to us in deciding the controversy involved in the reference before us.
42. A reference to the decision in Lakshmiratan Cotton Mills Co. Ltd. V. CIT : 73ITR634(SC) may be justified in so far as the argument of the learned counsel goes that in an application under s. 66 (2) of the I. T. Act, the High Court cannot order that the case be stated on a question which had not been included in the application submitted under s. 66 (1), but that decision is not of any assistance to the assessee in determining what was the scope of the question originally sought to be referred. It may, however, be pointed out that the earlier decision of the Supreme Court in Scindia Steam Navigation Company's case : 42ITR589(SC) was cited with approval, and no departure has been made from the observations in Scindia Steam Navigation Company's case : 42ITR589(SC) , in which the Supreme Court had observed that it could not be held that each aspect of the question is itself a distinct question for the purpose of s. 66 (1) of the Act.
43. The learned counsel for the assessee has placed some reliance on the decision of the Supreme Court in CIT v. Madan Gopal Radhey Lal : 73ITR652(SC) . In that case the assessee, who held certain shares of certain companies as stock-in-trade, had received bonus shares proportionate to the equity holding, and these bonus shares were held by the assessee. The sale proceeds of the bonus shares were held to be the income of the assessee arising from business in share by the ITO, by the AAC and by the Tribunal. The question referred was :
'Whether the sale proceeds of bonus shares which had been issued in respect of shares which formed part of the assessees' stock-in-trade of the share dealing business,are liable to inclusion in the assessees total incomes for the respective years as profits of the share-dealing business ?'
44. The question was answered in favour of the assessees by the High Court, and the matter was taken in appeal to the Supreme Court by the High Commissioner. The Tribunal had in its order observed that the assessees dealt in shares and the sale proceeds of the bonus shares were received by him in the course and as part of their share-dealing business, and, therefore, the amount so received was a part of their profits from the share-dealing business and was liable to tax as such. The counsel appearing for the assessees had contended before the Supreme Court that the Tribunal had not referred to any evidence in support of its conclusion, but had made a cryptic statement which was not capable of interpretation that the assessees had converted the bonus shares into their stock-in-trade. The Supreme Court had observed that the Tribunal had found as a fact that the sale proceeds of the bonus shares were received in the course and as part of the business in shares and were on that account taxable. The Supreme Court had further observed that the orders of the ITO and the AAC were not before the court. The Supreme Court then observed as follows (p. 656) :
'The question posed for the opinion of the court was not whether the conclusion of the Tribunal was founded on evidence, but whether the sale proceeds of the bonus shares were of the nature of revenue. On this question an inquiry into whether whether the conclusion of the Tribunal is supported by the evidence cannot be made.'
45. According to the learned counsel, these observations must be held as lying down a general principle that the question as to whether there was evidence as to finding must be specifically raised in a reference. The Supreme Court has in the same decision referred to the case of India Cements Ltd. v. CIT : 60ITR52(SC) , and has later observed thus :
'...... in a reference under the Income-tax Act the High Court must accept the findings of fact made by the Appellate Tribunal, and it is for the person who has applied for a reference to challenge those findings first by an application under section 66 (1).'
46. Therefore, as observed by the Supreme Court, if a person is aggrieved by a finding of fact, it must be challenged as such. When the Supreme Court in that case did not allow the question as to whether the finding given by the Tribunal was not supported by evidence to be canvassed, it was because such a question about the validity of the finding of fact was not expressly raised by an application under s. 66 (1). The question raised was whether the sale proceeds were of the nature of revenue. The ratio of that decision is not attracted in the present case.
47. The other decision relied upon is the one in CIT v. Imperial Chemical Industries (India) (P.) Ltd. : 74ITR17(SC) , in which at the instance of the assessees, the following question of law was referred under s. 66 (1) :
'Whether the inclusion by the Income-tax Officer of Rs. 2,03,503, Rs. 5,41,526, Rs. 5,29,284 and Rs. 4,00,052 in the assessment for the years 1949-50, 1950-51,1951-52 and 1952-53 for the relevant accounting years ending the 30th September, 1984, 1949, 1950 and 1951, respectively, in the computation of the total income of the assessee is justified and correct ?'
48. The assessee claimed deduction of these amounts in computing its profits contending that there was an agreement between Indian Chemical Industries (Exports) Ltd. and the assessee, that the assessee would be entitled only to the difference between the normal commission and the amounts payable to the outgoing agents. The I. C. I. (Exports) Ltd. had terminated the selling agency of former agents in India with effect from April 1, 1948, and the assessee was appointed the sole selling agents. The compensation agreed to be paid by I.C.I. (Exports) Ltd.at a certain proportion of the commission earned by the assessee for three years from April 1, 1948, was to be paid through the accounts of the assessees. The assessees in each year credited the commission account and debited the I. C. I. (Exports) Ltd. accounts with the full amount of compensation earned by them at normal rates of sales effected during the years. The assessee then transferred 11/15ths of the commission to a special reserve account, called the Explosives Ex-agents' Compensation Reserve Account. This was how the sums referred to above came to be transferred to the revenue account. The Tribunal had found as a fact that there was no agreement between the assessees and the I. C. I. (Exports) Ltd. with regard to the commission to be paid to the ex-agents for the period between the 1st April, 1948, and 31st March, 1951. It further held that even if there was such an agreement, it was not acted upon. This finding was interfered with by the High Court, and the Supreme Court held that there was no legal justification for the High Court for interfering with the finding of the Appellate Tribunal. In that context, it was observed by the Supreme Court that in the hearing of a reference under s. 66 (1) of the Act, it was not open to the assessees to challenge such a finding of fact unless they applied for a reference of the question under s. 66 (1). It is difficult for us to see how these observations can be of any help to the assessees in the instant case. On facts, it is obvious that the proof of the agreement on the basis of which deduction was claimed was a material question, and if on that material question, no question of law was raised, permitting such a question to be argued with out the question being raised and referred would be clearly contrary to the scope of the provisions of s. 66 (1) of the Act. It is obvious that in that case the assessee was required to positively put in issue the validity of the finding with regard to the agreement or with regard to the agreement or with regard to the agreement being acted upon.
49. Mr. Pandit has also relied upon a decision of the Supreme Court in Aluminium Corporation of India Ltd. v. CIT : 86ITR11(SC) , and particularly on the observations which were made in the context of the question involved in that case, where it was pointed out that the words ' on the facts and in the circumstances of the case ' meant 'the facts and circumstances found by the Tribunal '. The question referred in that case was :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 1,56,806 was wholly and exclusively laid out for the purpose of business and as such allowable as a business expenditure ?'
50. The amount claimed by way of business expenditure was on account of the commission paid by the assessee-company to its selling agents, for selling its aluminium products, by an agreement dated 30th December, 1949. The ITO and the AAC held that the payment had been made for some extra commercial considerations, and that the agreement had not been acted upon and the payment had been made for extra commercial considerations. Those findings were set aside by the Tribunal. The High Court set aside the finding given by the Tribunal and the matter was, therefore, taken in appeal to the Supreme Court. It was, while dealing with the question referred to above, that the Supreme Court observed that the High Court had to proceed on the finding that the agreement was acted upon and that the payment was not made for extra commercial considerations. The Supreme Court pointed out that these facts having been found by the Tribunal when the question was referred to the High Court, the legal effect of those facts and circumstances had to be determined by the High Court. In that context, it has been observed by the Supreme Court that (p. 13 to 86 ITR) :
'When a question refers to the facts and circumstances in the case, it means the facts and circumstances as found by the Tribunal.'
51. It was then pointed out that if any party wants to challenge the correctness of the finding given by the Tribunal either on the ground that the same is not supported by evidence on record or is based on irrelevant or inadmissible evidence or is unreasonable or perverse, a reference raising any one of these grounds must be sought for and obtained. Having read these observations, it does not appear to us that it was intended to be laid down by the Supreme Court that each one of the grounds on which a finding of fact is sought is required to be challenged must be specifically raised as a question of law. On the facts of that case, the question of law would be in the context of the agreement that the Tribunal was in error in holding that the agreement was proved. Each ground on which this contention is raised was, as pointed out by the Supreme Court in Scindia Steam Navigation Company's case : 42ITR589(SC) , not an independent question of law. The Supreme Court was merely giving the grounds on which a finding of fact could be challenged. In any case, as observed by the Supreme Court in Scindia Steam Navigation Company's case, it does not appear to us that each aspect of a question of law has to be raise as an independent question of law.
52. That brings us to a decision of this court on which apparently the contention raised on behalf of the assessee is founded. Both Mr. Inamdar and Mr. Pandit have relied on this decision in support of their connection that the question in the present form is really a conversion of a question of fact not a question of law. The ITO in that case had held that the sum of Rs. 1,35,000 standing in the name of Ramsaran Pyarelal in the books of account of the assessee-company was income from undisclosed sources belonging to the assessee-company. This finding was confirmed by the AAC. The matter was remanded by the Tribunal for examination of certain witnesses, and after receiving the remand report, the Tribunal held that the amount Rs. 1,35,000 represented secreted cash of one or the other of the shareholders of the company, and refused to add that amount in the income of the assessee-company. A reference was made at the instance of the revenue in which the question referred was as follows : (vide CIT v. Deviprasad Khandelwal and Co. Ltd. : 81ITR460(Bom) :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the amount of Rs. 1,35,000 credited to the account of Ramsaran Pyarelal did not constitute the income of the assessee-compan ?'
53. It was contended on behalf of the revenue that the finding that the capital used was of the ownership of one or the other shareholders of the company was an inference without any supporting evidence on record, and that inference was entirely unreasonable, unwarranted and/or preverse. This, according to the learned counsel for the revenue, was not merely a question of fact.
54. It may be pointed out that the question which was referred was under s. 66 (2). The contention on behalf of the assessee-company was that the revenue had not raised any question about the Tribunal having arrived at its finding without any evidence on record and/or in a preverse manner, and, therefore, the question cannot be raised before the court in a reference under s. 66 (2). The assessee's counsel pointed out that the revenue's attempt was to convert a reference, which was on a question of fact, into one of a question of law, because the Tribunal had made a distinct finding of fact that the amount was not of the ownership of the assessee-company, and this finding could never be challenged in a reference under s. 66 before the High Court. The Division Bench, which dealt with the reference, no doubt, observed that it was difficult to reject the submission of the counsel for the assessee that in the application made to the Tribunal on behalf of the revenue for reference under s. 66 (1) a contention, that the finding of the Tribunal was arrived at without there being any evidence on record and was preverse, was not made, but having made these observations, it appears from the judgment that the Division Bench went on to find out whether there was in fact no evidence in support of the finding, as contended by the counsel for the revenue. As a matter of fact, the Division Bench went on to point out that the finding recorded by the Tribunal, which finding was put in issue, was a finding of fact for which it would not be possible even for the counsel for the revenue to say that there was no evidence. This will be clear from the following observations (p. 471 of 81 ITR) :
'On inquiries repeatedly made by us, Mr. Joshi has not been able to submit that in connection with the question of the cash credit in respect of the sums of Rs. 1,00,000 and Rs. 35,000 evidence was not on record. He was unable to state that the finding of the Tribunal rejecting the inclusion of the sum of Rs. 1,35,000 in the assessable income of the assessee-company was not in respect of a question of fact.'
55. The Division Bench pointed out that in refusing to hold the sums in dispute to be the income of the assessee-company, the Tribunal was not called upon to apply any principles of law, and that the Tribunal had considered a plethora of evidence which was on record. It was pointed out that the Tribunal discussed the facts in respect of the ledger accounts in question, and it had also referred to other relevant fact. It was observed that on the basis of the evidence on record and the facts, the Tribunal found it difficult to accept the contention of the revenue that this money was the income of the assessee-company from undisclosed sources. The Division Bench pointed out that (p. 472 of 82 ITR) :
'Having regard to these facts, in our view the submission made by Mr. Dastur that the finding of the Tribunal was totally on a question of fact is correct.'
56. The decision of the Division Bench thus shows that even at the outset in order to decide whether the contention on behalf of the revenue should be entertained or not, the Division Bench went into the question as to whether the finding given by the Tribunal was based on evidence. It was only after referring to that evidence that contention of the counsel for the assessee that the finding was on a question of fact was accepted. It is not possible for us to speculate as to the view which the Division Bench would have taken, if in the course of the sifting of the evidence it was found that there was no evidence at all. The decision mainly seems to have turned on the finding reached by the court that there was evidence to support the finding of the Tribunal, and consequently the contention that it was a question of fact had to be accepted. It is no doubt true that certain further observations were made by the Division Bench to the effect that the question that the Tribunal made its finding without any evidence on record and/or that the finding was perverse was never raised in the application under s. 66 (1) of the Act, and such a question could, therefore, not be allowed to be raised at the hearing of this reference made under s. 66 (2) of the Act. These observations, having regard to the manner in which the contentions have been dealt with by the Division Bench must, in our view, be clearly read in the light of the facts found in that case, viz., that there was evidence in support of the finding recorded by the Tribunal and cannot be taken to be one of general application, especially in view of the decision of the Supreme Court in Scindia Steam Navigation Company's case : 42ITR589(SC) .
57. We may briefly refer to three decisions, which are cited on behalf of the revenue by Mr. Kotwal. Mr. Kotwal has referred to a decision in Shivrajpur Syndicate Ltd. v. CIT : 46ITR1205(Bom) , in which the Division Bench has observed that (at p. 1212) :
'Mere mistakes in framing the questions or unhappy framing of questions, in our opinion, would not warrant a finding that the assessee had not asked the Tribunal to refer this question to this court.'
58. This decision, in our view, is not very much relevant to the controversy before us, where the main question is whether the reframed question is only one of the aspects of the question which was originally sought to be referred.
59. The learned counsel for the revenue has then referred us to the decision of the Supreme Court in Bhanji Bagawandas v. CIT : 67ITR18(SC) where the Supreme Court has expressly followed the decision in Scindia Steam Navigation Company's case : 42ITR589(SC) and found that the legal effect of the Amending Act of 1959 was within the framework of the question already referred to the High Court in that case, and, therefore, it was competent for the Supreme Court to allow a new conention to be advanced in that case. It ,however,appears that these observations are of limited application,because the Supreme Court was made it clear that a new contention could be advanced ' in a case of this description'.
60. In CIT v. India Molasses Co. P. Ltd. : 78ITR474(SC) , the question referred to the High Court of Calcutta at the instance of the Commissioner of Income-tax was :
'Whether, on the facts and in the circumstances of the case, the sum of Rs. 1,83,434 was an expenditure effectively laid out or expended during the accounting year 1955 within the meaning of section 10 (2) (xv) of the Income-tax Ac ?'
61. The second question referred was -
'If the answer to question No. 1 is in the affirmative, then whether the said expenditure of Rs. 1,83,434 represented a revenue expenditure ?'
62. The Tribunal considered only two questions, viz., (1) whether the setting apart of the amounts amounted to expenditure; and (2) if it was expenditure, whether it could be regarded as capital expenditure and not revenue expenditure. Both the contentions were decided by the Tribunal in favour of the assessee. The High Court took the view that before the Tribunal the question was not expressly raised that 'the other conditions inviting the application of section 10 (2) (xv) were not satisfied, the allowance was not adimissible.' and the Commissioner was incompetent to urge that plea before the High Court. In arriving at this decision, the High Court had relied on the judgment of the Supreme Court in Scindia Steam Navigation Company's case : 42ITR589(SC) , and the High Court took the view that before the Tribunal the plea that the expenditure was not laid out or expended wholly or exclusively for the purpose of the business of the company was not argued, and since the question raised and referred 'was not wide enough to include that submission', the Commissioner could not urge it before them. The Supreme Court observed that the decision in Scindia Steam Navigation Company's case : 42ITR589(SC) , did not support the opinion of the High Court. It observed that the plea that the amount claimed to have been expended was not admissible as an allowance was raised by the department and granting that that aspect of the question was not argues before the Tribunal, the question was on that account not one which did not arise out of the order of the Tribunal. The Supreme Court took the view that if a question of law is raised before the Tribunal, even if an aspect of the question is not raised, that aspect may be urged before the High Court. Holding that the decision in Scindia Steam Navigation Company's case : 42ITR589(SC) did not only not lend any assistance to the view taken by the High Court but negatived that view, the Supreme Court took the view that the second question permitted an inquiry, whether the amount claimed is an admissible allowance under s. 10 (2) (xv) and it was not restricted to an inquiry that the expenditure was of a capital nature.
63. Having considered the decisions, which are cited on both sides, it is not possible for us to accept the contention advanced on behalf of the assessee that we must decline to answer the question referred under s. 66 (2) on the ground that this was not a question on which the Tribunal was brought to bear its attention in the application under s. 66 (1). The question as reframed is merely an aspect or a facet of question No. 1, which was intended to put in issue the validity of the finding regarding the ownership of the high denomination currency notes. We, therefore, proceed to decide the contentions advanced on behalf of revenue as well as on behalf of the assessee on merits.
64. If the question referred is properly construed, the only controversy which it brings into focus is whether there was any evidence at all for the Tribunal to come to a finding that the high denomination notes did not belong to the three assessees. It is obvious that the question was so reframed in order to put in issue the finding of fact. While the validity of the finding of fact that the amounts did not belong to the three assessees is put in issue on the ground as to whether there was evidence for the Tribunal to come to that finding, it is equally clear from the question that the sufficiency of evidence on which the finding has been recorded has not been put in issue. Thus, if on a reading of the order of the Tribunal, it is possible to hold that the Tribunal has accepted certain circumstances as proved on evidence, then the finding will be supported by evidence, and thus not liable to be interfered with, It is in that context that the learned counsel for the three assessees have relied heavily on the order of the Tribunal itself, and Mr. Inamadar has categorised certain circumstances, which, according to him, the Tribunal took into account, and was entitled to take into account, for coming to the conclusion that the moneys in dispute did not belong to the assessees. These circumstances are : (1) Desai was an influential person at Bhor and could get notes cashed; (2) Sources of income of the assessees were not such as would be capable of yielding large scale secret profits; (3) Phatak and Karandikar had overdrafts with the Poona bank, which would be inconsistent with their having been in possession of large sums of moneys; (4) Only Rs. 2.16,000 were retained by the three assessees jointly; (5) Payments were made by Desai through bearer cheques and he alone was responsible for repayments; (6) The evidence given by the police sub-Inspector, Divate, that he had learnt that the high denomination notes belonged to somebody else; and (7) There was no increase in wealth of any of the assessees.
65. Both Mr. Pandit and Mr. Vahia have also relied on the order of the revenue Tribunal in paragraphs 20 to 22.
66. Now, as the Tribunal pointed out, when the assessments were originally sought to be reopened, all the three assessees had made statements before the ITO. None of these three assessees had admitted that the currency notes belonged to them. The story put forth by Karanadikar in his statement recorded on 14th January, 1956, was that the moneys belonged to 48 depositors, but that he did not know that the moneys were returned to the depositors. He admitted to have signed the declaration. According to him, he was not actively engaged in the conduct of the business of Laxmi Textile Mills. He had signed the declaration, according to him, because he was told that he should sign it in the interests of Laxmi Textile Mills Company. According to Phathak, Desai was the main person managing the affairs of Laxmi Textile Mills and the Bhor Mercantile Agency, and unless instructed by Desai, he did not do any work,. Even according to him, the currency notes were from 48 depositors, and it was only later that he came to know that there were no depositors. Desai himself admitted the encashment of the currency notes of Rs. 86,000, but was not able to say from whom this amount was received and from what account. According to him, the moneys were of the depositors.
67. Now, when the matter came to be decided at the appellate stage before the Tribunal, this was not the only material before the Tribunal. As already pointed out, both the revenue and the assessees agreed that the evidence recorded in the course of the trial of the three assessees for breach of the provisions of the Ordinance should be treated as evidence. The Tribunal was called upon to deal with the question as to whether these currency notes represented the undisclosed source of income of the assessees. Once the parties had agreed for the consideration of the material in the prosecution as a part of the record dealing with the assessment of the three assessees, it is obvious that it was competent for the Tribunal to take into consideration that evidence. The Tribunal has appreciated the circumstances that since prosecutions against the three assessees were pending, they could not have disclosed their cards completely, and that is why probably the earlier three statements have not been paid much attention to. When it came to the discussion of the other evidence that was brought on record before the Tribunal, in so far as Karandikar was concerned, there were two important circumstances, viz., the acquittal of Karandikar by the Magistrate and the confirmation of that order of acquittal by the High Court. The Tribunal was also entitled to take into consideration the finding recorded by the Magistrate and the High Court. It was expressly observed by the Magistrate that Karanadikar was only a nominal or a paper-director, and that he had not signed any receipt or authority in respect of either receiving or returning of the deposit amounts. When the matter came up to the High Court, Malegaonkar's evidence that the accounts were dictated by Desai was considered, and the fact that Karandikar did not take any active part in the management of the Laxmi Textile Mills or the Bhor Mercantile Agency was also considered. The Tribunal was entitled to appreciate the evidence of Malegaonkar and Divate. While appreciating that evidence of Malegaonkar and Divate, the Tribunal has found that Malegaonkar has stated that the moneys were taken by Phatak and Desai, and he had not come across any such writing showing the returning of deposits under the signature of Karandikar. An important circumstance, which weighed with the Tribunal, was the result of investigation by Divate, in which Divate had made a statement that ' I had learnt as to who had given those notes to the accused, but I could not get any evidence for that '. The discussion of the evidence by the Tribunal made in paragraph 22 of the order shows that the Tribunal had taken into consideration the circumstances categorised above by Mr. Inamdar. The Tribunal was also entitled to accept or reject the explanation given by the assessees that the moneys did not belong to them. When the Tribunal observed that the evidence indicated that the three persons were not the owners of the currency notes, it further accepted their case that third parties, who had those notes, gave them to Desai for encashment of the same as the Ordinance was first promulgated in British India. The circumstance that the resources of these three persons who had nominal investments to the extent of Rs. 5,000 each in the Laxmi Textile Mills and Rs. 700 each in the Bhor Mercantile Agency were not sufficient to bring them an income of such large amount as a result of accumulation of large sums of the value of more than Rs. 10,00,000, was clearly a very relevant circumstance for the Tribunal to take into account. Similarly, the fact that no investments by any one of the three assessees were found was also a material fact. As against encashment of Rs. 10,55,000, the possession by the assessees of a sum of Rs.2,16,455 was a circumstance on which it was open to the Tribunal to draw the inference that the moneys belonged to somebody else, to whom they have been paid off. It is no doubt true that if the matter had rested merely on the declaration made by these three person, there would have been some case for the revenue, but the fact that the declaration for Rs. 9,66,000 was signed by Karandikar and Phatak by itself would not be, in the present state of the record where other evidence has been brought in, sufficient to fasten the ownership of the moneys on them. It appears to us, therefore, that the Tribunal was entitled to take the view which it had taken of the relevant circumstances appearing in the case from the evidence of Kale, Malegaonkar and S. I. Divate, and the fact of acquittal of Karandikar. The several amounts in dispute could not be included as income of the assessees, unless it was primarily shown to belong to them. If the Tribunal on a consideration of the evidence has reached a finding in favour of the assessees, having regard to the question which has been raised, it cannot be said that there was no evidence for the finding recorded by it. Indeed, putting it positively, it must be held that there was evidence in support of the finding that the moneys did not belong to the assessees.
68. The latter part of the question would merely be consequential. If the moneys did not belong to the assessees, it is obvious that it should belong to somebody else, and and who that somebody else is, is not relevant for the purpose of the question, which has been referred.
69. Considering the material on record, the question referred must, therefore, be answered in the affirmative and in favour of the assessees. The assessees to get the costs of this reference.