R.M. Sahai, J.
1. Income-tax Appellate Tribunal, Allahabad, submitted the following question of law in compliance with the order passed by this court under Section 256(2) of the I.T. Act:
' 1. Whether the Income-tax Appellate Tribunal was right in holding that the assessee was not entitled to be assessed on receipt basis and was liable to tax on accrual basis only ?
2. Whether the Income-tax Appellate Tribunal was right in holding that before the assessee could switch over from accrual basis to receipt basis, it was obligatory to obtain permission from the Income-tax Officer before the end of the previous year ?
3. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in holding that one application for assessment years 1968-69 and 1969-70 was not maintainable notwithstanding that the appeals for the two years were disposed of by a consolidated order and only one copy of the order was served '
2. Facts relevant for question No. 2 are being noticed as we do not propose to decide questions Nos. 1 and 3 for reasons to be stated in the order at the appropriate place. In the assessment year 1968-69, with which this reference is concerned, the assessee, an individual, had income from salary, royalty and other sources. A portion of the royalty income was received from Indian Press (Publication) Private Ltd. This used to be shown in return filed under Section 143 of I.T. Act on accrual basis. Payments from press, however, were not regular and by 1966-67, substantial amount had accumulated, therefore, the assessee switched over to the cash system, the system it was following in respect of other royalty income. And when amounts were received from the press the assessee adjusted them towards accumulated arrears, on which it had paid tax already on accrual basis. No income from this source was, therefore, shown in the return. The ITO did not agree, as from accounts of Indian Press it appeared that the assessee had royalty income from this source in assessment year 1968-69, and included the sum received from Indian Press as income of the assessee on accrual basts, the system which wasfollowed by it in earlier years. In appeal, the order was upheld as the assessee could not unilaterally change the system of accounting from accrual basis to cash basis. It was also found that even the cash amount received by the assessee was not offered for assessment. According to the AAC, the assessee did not follow either the mercantile system or the cash receipt. In further appeal, the Tribunal held that the assessee did not maintain any system of accounts, mercantile or cash. Therefore, the question of change did not arise. According to the Tribunal what was changed by the assessee was the method of furnishing the return, which could not be done for two reasons, one consistency and the other inability to do so unilaterally.
3. We take up question No. 3, first as learned counsel for the Revenue had taken a preliminary objection that it does not arise out of the order passed by the Tribunal under Section 254. According to him decision of more than one appeal by a consolidated order could not entitle the assessee to move only one application under Sub-section (1) of Section 256. And as the assessee did move only one application and confined it at the time of hearing to the assessment year 1968-69, the question should be answered in the negative and against the assessee. On the other hand, learned counsel for the assessee placed reliance on CIT v. Income tax Appellate Tribunal : 99ITR552(Delhi) , and submitted that the Tribunal committed an error in not entertaining one application under Section 256 for both the years. The decision, however, is on a writ petition and cannot be said to be squarely applicable to the facts of the case. A reference under Sub-section (1) or (2) of Section 256 lies against an appellate order under Section 254. As the question sought to be raised is an order passed under Section 256(1) and not under Section 254, we do not think that this court in its advisory jurisdiction can adjudicate upon it. We do not propose to say anything further as any further observation might prejudice the assessee while seeking other remedy, ii any, available to him.
4. Coming to question No. 2, which in fact is the only question we propose to decide, there is no provision either under the Act or the Rules which debars an assessee from switching over to one system of accounting from another. But frequent changes resorted to by unscruplous assessees may be prejudicial to the Revenue. The courts, therefore, have insisted on bona fides of assessees as a prerequisite for change from one system to another. In a case where the assessee makes an application for a change of system and the ITO allows it, it is obviously because he is satisfied with the bona fides of the assessee. But the mere non-making of an application or its (non) acceptance could not result in drawing an inference that the switch over was other than bona fide. It will have to be decidedon the facts and circumstances of each case. In New Victoria Mills Co, Ltd. v. CIT : 61ITR395(All) , it was observed (headnote) :
'Though it is open to an assessee to change his method of accounting, the change should be bona fide and not a casual departure from the regular method which has hitherto been accepted by him for a number of years. '
5. In another decision, Shiv Prasad Ram Sahai v. CIT : 61ITR124(All) , it was no doubt observed (p. 130) :
' In the absence of any direct authority, but on first principles it is clear that, once the assessee has adopted the mercantle system of accounting, there is no alternative for the Income-tax Officer but to compute the assessee's income on that system, i.e., on the accrual and not the receipt basis. The choice is entirely that of the assessee. He may even choose to adopt the mercantile system for certain transactions and the cash basis for other transactions, but once having chosen and regularly employed that system, it is not open to him unilaterally at any time during an accounting year to say that he will not now follow that system in respect of a particular transaction. '
6. But, as observed, the restriction was imposed by the Bench to ensure the bona fides of the assessee. It was not meant as a condition precedent. It may not be out of place to mention that the latter decision is also by the same Bench, although reported earlier.
7. In this case none of the authorities have examined if the switch over to cash system was bona fide or not. This, in our opinion, was fundamental before recording the finding that the assessee could not change the system of accounting. As we are of opinion that the Tribunal should record a finding on bona fide first, we do not decide question No. 1 and leave it open for decision afresh by the Tribunal.
8. The reference is disposed of accordingly, parties shall bear their own costs.