1. The question in this reference at the instance of the Commissioner of Income-tax is as to the applicability to the facts of the second proviso to Section 34(3) of the Income-tax Act. 1922.
2. The assessee carried on business in Ceylon and by an order dated January 30, 1954, he was assessed to tax on a total income of Rs. 90,378/-, against the admitted income of Rs. 40,378/-. His appeal resulted in enhancement of the total income to Rs. 94,905/-. The Tribunal confirmed that order and dismissed the assessee's further appeal. In the course of its order the Tribunal observed 'unexplained cash credits to the extent of Rs. 60,051/-' and stated that they did not represent genuine liability. On that basis, according to the Tribunal, the total income amounted to Rs. 1,00,429/-. Its order was dated November 27, 1959. The Income-tax Officer on the view that there was a finding by the Tribunal in respect of credits in the anamath accounts amounting to Rs. 60,051/- which were spurious and unproved, reopened the assessment under Section 34(1) (a) and (3) and reassessed on January 25, 1961 on a total foreign income of Rs. 1,00,429/-. Differing from the Revenue, the Tribunal in an appeal arising out of the reassessment Order held that its observation in the order dated November 27, 1959 as to the total income of the assessee amounted to Rs. 1,00,429/-was only incidental to its finding that the total chargeable income fixed by the Appellate Assistant Commissioner was not excessive. The following question has been referred to this Court:--
'Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the reopening of the assessment for the year 1951-1952 under the second proviso to Section 34(3) was not justified in law.'
3. In our opinion, the Tribunal was right. The appeal of the assessee before it, was confined to the propriety of the finding of the Appellate Assistant Commissioner that the total income chargeable to tax should be fixed at Rs. 94,905/-. The Tribunal was not concerned with the question, whether the sum of Rs. 5,524/-should be added to the chargeable total Income for the assessment year, and indeed we doubt its jurisdiction to do so in the assessee's appeal. While investigating the point arising in the appeal, namely, whether the fixation by the Appellate Assistant Commissioner of the chargeable total income was excessive, it confronted with unexplained cash credits to the extent of Rs. 60,051/- in the light of which the total income would amount to Rs. 1,00,429/-, and in view of it, concluded that no interference with the order of the Appellate Assistant Commissioner was called for. It is obvious, therefore, that, having regard to the scope of the appeal preferred by the assessee and the question the Tribunal was called upon to decide in disposing it of, its observation as to the unexplained cash credits amounting to Rs. 60,051/- was but incidental to the question which it was necessary for it to decide in order to dispose of the appeal. Such an observation is not a finding within the meaning of the second proviso to Section 34(3).
4. A 'finding' in the context is the conclusion which the Tribunal has necessarily to reach so as to dispose of the appeal before it. We are of the view that the scope of the appeal not only with reference to what the appellant has asked for by way of relief but also the Tribunal's appellate powers with reference to it, and whether the assessee and the Revenue were at issue on a particular point in dispute a decision of which is also necessary for granting or denying the relief in such an appeal would govern the determination whether a disputed observation is a finding within the meaning of the second proviso. It should follow that every step or reason or observation incidental to finding cannot be mistaken for the finding itself,
5. In A.S. Khader Ismail v. Income Tax Officer, Salem : 47ITR16(Mad) this Court was inclined to the view that 'a finding' for purposes of the proviso should be given a wide significance so as to include not only findings necessary for the disposal of the appeal, but also findings which were incidental to it. A Full Bench of the Allahabad High Court in Lakshman Prakash v. Commissioner of Income-tax : 48ITR705(All) considered that the scope of a finding was even wider. The Court observed that a finding was nothing but what one found or decided and a decision on a question even though not absolutely necessary or not called for, was a finding. The majority in Income-tax Officer v. Murlidhar Bhagwan Das : 52ITR335(SC) disagreed with both the Courts and held:--
'A finding, therefore, can be only that which is necessary for the disposal of an appeal in respect of an assessment of a particular year. The Appellate Assistant Commissioner may hold, on the evidence, that the income shown by the assessee is not the income for the relevant year and thereby exclude that income from the assessment of the year under appeal. The finding in that context is that that income does not belong to the relevant year. He may incidentally find that the income belongs to anqther year, but that is not a finding necessary for the disposal of an appeal in respect of the year of assessment in question.'
While so denning the scope of 'a finding' the majority in : 52ITR335(SC) accepted as correct the earlier view of the Allahabad High Court in Pt. Hazari Lal v. Income-tax Officer, Kanpur : 39ITR265(All) , that is to say, a finding would cover only material questions arising in a particular case for decision by the authority hearing the appeal, which, being necessary for passing the final order, or giving the final decision in the appeal, has been the subject of controversy between the interested parties or on which the parties concerned have been given a hearing.
6. Mr. Balasubramanian, for the Revenue, referred to this view as extracted in : 52ITR335(SC) and appeared to rely on it as if it was wider in scope than the delimitation drawn by the majority in : 52ITR335(SC) . Clearly this is not correct, for, with reference to the observation extracted from the decision of the Allahabad High Court, the majority of the Supreme Court in : 52ITR335(SC) laid down that a finding could only be that which was necessary for the disposal of the appeal, and that too in respect of an assessment of a particular year. This view has been applied by the Supreme Court in N.K. Sivalingam Chettiar v. Commissioner of Income-tax : 66ITR586(SC) . There again, it was reiterated that a finding within the second proviso to Section 34(3) must be a finding necessary for giving relief in respect of the assessment year in question.
7. Can it be said that the determination of the total income of the assessee for the assessment year 1951-1952 to be Rs. 1,00,429/- was necessary for the disposal of the appeal, that is to say, to find _ whether the Appellate Assistant Commissioner fixed the total income excessively at Rs. 94,905/-? We are of the view that no such finding that the total income amounted, to Rs. 1,00,429/- was necessary, to arrive at that conclusion, so that the Tribunal' could dismiss the appeal. It is no doubt true that to determine whether Rs. 94,905/- was excessive the Tribunal had to explore into the unexplained cash credits and it had to do it in the nature of things with reference to all such unexplained cash credits which when totalled up came to a total income of Rs. 1,00,429/-. But that is only for the purpose of finding whether there was excessive fixation of the total income by the Appellate Assistant Commissioner, and that Way, the observation of the Tribunal was but incidental to that main question.
8. We answer the question against the Revenue with costs. Counsel's fee Rs. 250/-.