1. Aggrieved by the order of the Mysore Sales Tax Appellate Tribunal, Bangalore, in Case No. S.T.A. 257/60-61 on its file, the petitioner has come up in revision to this Court.
2. The petitioner is the proprietor of Vasantha Bhavan, Station Road, Hubli. He runs three restaurants at Hubli and one at Gadag. For the period, from 1st November, 1957 to 31st October, 1958, he declared a gross turnover of Rs. 2,92,224-16 and a net turnover of Rs. 2,87,718-52. In support of his return, he produced before the Commercial Tax Officer at Hubli, the accounts maintained by him. His accounts were rejected and he was assessed on the basis of best of judgment. For determining his turnover, the Commercial Tax Officer first ascertained his working expenses and multiplied the same by five times. This formula, he considered as an appropriate one. In arriving at the working expenses, he determined the feeding charges of each one of the servants at Rs. 30 per month.
3. Sri T. Krishna Rao, the learned counsel for the petitioner, has pressed before us three contentions in support of this revision petition. His first contention was that the reasons given by the Commercial Tax Officer for rejecting the accounts submitted by the petitioner are wholly irrelevant. Secondly, he contended that the working expenses is no guide for determining the turnover. Lastly, it was urged by him that the conclusion of the Commercial Tax Officer that the feeding charges of each one of the servants would be about Rs. 30 per month was wholly aribitrary. We shall now proceed to consider each one of these contentions.
4. This is what the Commercial Tax Officer says for rejecting the accounts of the petitioner :
'The account books produced were scrutinised. It was seen that not all purchases were supported by purchase vouchers and the sales had not been supported by sales bills. Section 27 of the Act of 1957 required every dealer whose turnover exceeds Rs. 20,000 in any year to issue in respect of all the goods sold by him a bill or a cash memorandum and also to keep the counterfoils or the duplicates of such bill or cash memorandum and since the assessee in question has not complied with the provisions of this section and the accounts also have not been maintained in the manner prescribed under rule 26 of the Mysore Sales Tax Act and rule 57, it cannot be said that the assessee has maintained a regular account that can be depended upon and therefore I have no option but to reject the turnover declared and estimate the same on the basis of certain principles that have been formulated for estimating the turnover in such cases to the best of judgment.'
5. It may be noted from the foregoing that the accounts produced by the petitioner were rejected on the sole ground that the books and documents were not maintained according to the Rules. The view of the Commercial Tax Officer on this point had commended itself to the Mysore Sales Tax Appellate Tribunal. We are told that most of the purchases made are supported by vouchers; similarly must of the sales are supported by bills. It was contended on behalf of the petitioner that in the very nature of things, it is not possible to maintain vouchers in respect of all purchases and bills in respect of all sales. It was also contended on behalf of the petitioner that in the past the taxing authorities had not insisted on the maintenance of vouchers or bills in respect of all transactions. The question for decision is whether the Commercial Tax Officer was within his powers in rejecting the accounts submitted by the petitioner on the sole ground that the books and documents were not maintained in accordance with Rules
6. Under section 12(3) of the Mysore Sales Tax Act, 1957, if the return submitted by the assessee appears to the assessing authority to be incorrect or incomplete, the assessing authority is authorised to assess the assessee to the best of his judgment, recording the reasons for such assessment. Section 26 of that Act prescribes the manner in which the accounts are to be maintained by dealers. It further provides that in case the accounts maintained in the ordinary course do not show the same in an intelligible form, the assessee should maintain a true and correct account in such form as may be prescribed in that behalf. Under sub-section (2) of that section, the Commissioner is authorised, subject to such conditions or restrictions as may be prescribed in that behalf, by notice in writing direct any dealer or by notification direct any class of dealers to maintain accounts and records showing the details regarding their purchases, sales or deliveries of goods in such form and in such manner as may be specified by him. Under section 27, it is laid down :
'(1) Every dealer whose turnover exceeds Rs. 20,000 in any year shall, in respect of all goods sold by him, issue a bill or a cash memorandum to the purchaser, signed and dated by him or his servant, manager, or agent showing such particulars as may be prescribed and shall keep the counterfoil or duplicate of such hill or cash memorandum duly signed and dated and preserve it for a period of not less than five years from such date.'
7. Sub-section (2) of that section provides :-
'Any person who contravenes the provisions of sub-section (1) shall, on conviction, be punishable with a fine equal to double the amount of the bill or the cash memorandum in respect of which such contravention has occurred or fifty rupees whichever is less.'
8. The Rules framed under the Mysore Sales Tax Act prescribe the manner of maintaining vouchers, bills and accounts (rule 26). Our attention has not been invited to any provision either in the Mysore Sales Tax Act or to any of the Rules framed thereunder providing for the rejection of the accounts submitted on the sole ground that accounts or vouchers or bills have not been maintained in accordance with the provisions of the Act or the Rules framed thereunder. The order of the Commercial Tax Officer above noticed goes to indicate that the accounts submitted by the petitioner have been rejected on the sole ground that they were not maintained in accordance with the provisions of the Mysore Sales Tax Act and the Rules framed thereunder. From that order it does not appear that either the Commercial Tax Officer or his official superiors had ever considered whether the accounts are otherwise acceptable or not. Section 12(3) of the Mysore Sales Tax Act bears similarity to the proviso to section 13 read with section 23(4) of the Indian Income-tax Act. Dealing with the latter provisions, a Bench of the Lahore High Court in M/s. Ganga Ram Balmokand v. Commissioner of Income-tax (A.I.R. 1937 Lah. 721; 5 I.T.R. 464) observed that no burden is imposed on the Income-tax Authorities to prove by positive evidence that the accounts are unreliable or that the figure at which they assess is the correct figure. Their Lordships further observed that in the first place, the question of unreliability of accounts is a question of fact and primarily falls for the determination of the Income-tax Authorities alone; if, therefore, it is once decided by them that the accounts are fictitious or unreliable, their finding cannot be disturbed, unless of course it is altogether capricious and unjudicial; secondly, the Income-tax Officer cannot be fixed with the knowledge of the state of the assessee's account and cannot subsequently be expected to lead evidence to prove the assessee's transactions for the accounting year. They also observed that it cannot be denied that there must be some material before the Income-tax Officer on which to base his estimate, but no hard and fast rule can be laid down by any Court to define what sort of material is required on which his estimate can be founded; the law nowhere contemplates that the Income-tax Officer is a party to the case in the sense in which an ordinary party to a civil litigation is, and he cannot be expected to be in possession of such evidence as would be required from an ordinary litigant to refute the case of his adversary. The Indian Income-tax Act is modelled on the basis of the corresponding law in England. Therefore, the decisions of the English Courts on the point under consideration are helpful. The leading case on that point is the one reported in Anderson v. Commissioners of Inland Revenue ((1933) 18 Tax Cas. 320). Therein the Lord President observed :
'It may be they did find in fact that the books were badly kept, or that the profit and loss account had not been accurately made out; but, if that is what they meant as a reason for refusing to look at what was undoubted evidence, ........... they should have said so. There might then have been no difficulty whatever in sustaining their conclusion, which would have been to some such effect as this : 'The books and accounts you produce are not satisfactory for one reason or another. That being so, we cannot regard them as proving your profits.''
9. Lord Sands added :
'If the Commissioners had said that they thought the accounts were 'fictitious' or 'cooked', then that would have justified their disregarding these accounts, and, in those circumstances, we might not have been justified in scrutinising the grounds upon which they were proceeding and in considering whether they were supported by evidence which would satisfy a court of law.'
10. Lord Morison observed :
'In this case, the Commissioners have not made a statement to the effect that they were not satisfied with the statement of the profits which the appellant delivered to them.'
11. In the present case also the Commercial Tax Officer or his official superiors at no stage stated that the accounts produced by the petitioner are unreliable. We are conscious of the fact that the taxing authorities are the sole judges on the question whether the accounts produced are reliable or not. If they had come to the conclusion that the accounts are unreliable and had that decision been based on any relevant consideration, then it would not have been within our province to go into the correctness of their decision. This Court cannot reopen findings of fact so long as those findings are based on relevant considerations. But, this Court will and ought to safeguard the citizens against arbitrary decisions of quasi-judicial bodies. The larger the powers entrusted to an individual or a Tribunal, the greater should be the circumspection. Several decisions have been cited before us to show that the power of the High Court to interfere with the decision of the taxing authorities is very limited. See M/s. Ghanshyamdas Permanand v. Commissioner of Income-tax, C.P. and Berar ((1952) A.I.R. 1952 Nag. 24; 21 I.T.R. 79) and M/s. Ram Chandra Singh Ramnik Lal v. Commissioner of Income-tax : AIR1960Pat295 . We are in respectful agreement with the ratio of these decisions. In the instant case, as shown above, the Commercial Tax Officer refused to examine the books of account on the ground that they were not maintained according to rules and regulations. In our view, the Commercial Tax Officer had acted arbitrarily. Therefore, his opinion, with which the appellate bodies agreed, that the turnover shown is not correct is in reality no 'opinion' as he did not apply his mind to the material before him.
12. The next question for consideration is whether the formula adopted by the Commercial Tax Officer and affirmed by the appellate bodies is an arbitrary one. As observed by a Bench of the Patna High Court in M. A. Rauf v. Commissioner of Income-tax, Bihar and Orissa : 33ITR843(Patna) :
'There is no rule of law as to the proper way of making an estimate. The only rule of law is that the true gains are to be ascertained as nearly as they can be done. There is no way of estimating, which is right or wrong in itself. It is a question of fact and figure whether the way of making the estimate, in any case, is the best way for that case. In making the estimate, the Income-tax Officer acts under section 23(4) of the Act, and he is required under it to make an estimate to the best of his judgment against a person, who is in default as regards supplying information. He must make what he honestly believes to be a fair estimate of the proper figure of assessment, and for this purpose he must be able to take into consideration local knowledge and repute in regard to the assessee's circumstances, and his own knowledge of previous returns by, and assessments of, the assessee, and all other matters which he thinks will assist him in arriving at a fair and proper estimate; and though there must necessarily be guess-work in the matter, it must be honest guess-work.'
13. In Income-tax Commissioner, United and Central Provinces v. Badridas Ramrai Shop, Akola , the Judicial Committee observed that the officer is to make an assessment to the best of his judgment against a person who is in default as regards supplying information; he must not act dishonestly, vindictively or capriciously because he must exercise judgment in the matter; he must make what he honestly believes to be a fair estimate of the proper figure of assessment and for this purpose he must be able to take into consideration local knowledge and repute in regard to the assessee's circumstances, and his own knowledge of previous returns by and assessments of the assessee, and all other matters which he thinks will assist him in arriving at a fair and proper estimate; and though there must necessarily be guess-work in the matter, it must be honest guess-work. In that sense too the assessment must be to some extent arbitrary.
14. The principle of assessment at a flat rate cannot be considered as arbitrary. See In re Ganeshi Lal & Sons : AIR1938All367 and M. A. Rauf v. Commissioner of Income-tax : 33ITR843(Patna) .
15. It cannot be said that the working expenses bear no relationship to gross or net turnover. It may or may not be a safe guide. In these matters, we ought to depend upon the experience of the taxing authorities apart from the fact that it is their 'judgment' and not ours. In Anwari Hotel v. State of Mysore (C.R.P. No. 258 of 1959), a Bench of this Court observed :
'If the Commercial Tax Officer, who was proceeding to assess the petitioner according to his best of judgment had proceeded to base his estimation on the basis that his turnover should have been five times the working expenses of the firm, it would not be open for Mr. Srinivasan to contend that such an order was illegal or it cannot be supported.'
16. We respectfully agree with that view. Hence we cannot agree with Sri T. Krishna Rao, that the formula adopted for arriving at the turnover is an arbitrary or a capricious formula.
17. The Commercial Tax Officer with his experience of hotel business is the best person to find out the feeding charges of hotel servants. It is essentially a question of fact.
18. As in our opinion the accounts produced by the petitioner were rejected without scrutiny, under an erroneous impression that account books, vouchers and bills which do not fully comply with the requirements of the law are required to be rejected, this case will have to go back to the Mysore Sales Tax Appellate Tribunal for a fresh decision according to law as interpreted by us in the course of this judgment. It is ordered accordingly. The costs of this petition will be costs in the cause. Advocate's fee Rs. 100.
19. Ordered accordingly.