LAHIRI C.J. - In this reference the point that arises for consideration is whether a sum of Rs. 2,59,399 should be included in the computation of the profits of business carried on by the assessee in the assessment year 1951-52. The assessee is a registered firm. It entered into an agreement with Messrs. Columbia International (India) Ltd., for the purchase of balls, roller bearings, taper bearings and other allied machine parts. For the purpose of payment of price of those commodities, the assessee made forward purchases of dollars and sterling through the Netherlands Trading Society Ltd. Eventually, however, the contract with Messrs. Columbia International (India) Ltd., did not materialise and the dollar and sterling purchased by the assessee could not be utilised. Messrs. Netherlands Trading Society Limited on the instruction of the assessee sold the dollars and sterling purchased by it on behalf of the assessee and as a result of the sale there was loss of Rs. 7,617-7-0 on sterling and a profit of Rs. 2,67,016-5-2 on dollars. After deducting the former from the latter, the Income-tax Officer added the balance of Rs. 2,59,399 to the income of the assessee as its income from business. Before the Income-tax Officer the assessed objected to the inclusion of this amount in its income principally on two grounds : (a) that the amount was in the nature of a capital receipt and was not liable to assessment under section 10, and (b) the receipt came within the exemption of section 4(3)(vii) as it was not receipt arising from business and as it was of a casual and non-recurring nature. The Income-tax Officer overruled both these objections and included this amount in the total income of the assessee. On appeal, the Appellate Assistant Commissioner affirmed the decision of the Income-tax Officer on this point. Against the order of the Appellate Assistant Commissioner the assessee took in appeal to the Appellate Tribunal. Before the Appellate Tribunal the assessee raised the objection that the sum of Rs. 2,59,399 was not assessable income because it was not derived out of the business carried on by the assessee, but was only an appreciation of capital and it was also argued that the income was of a casual and non-recurring nature and as such it was exempt from assessment under the provisions of section 4(3)(vii) of the Income-tax Act. The Appellate Tribunal overruled both these contentions and held that the income was not in the nature of appreciation of capital and it further held that the amount was a profit incidental to and earned in the usual course of the business of the assessee. The present reference in one under section 66(1) of the Income-tax Act and the question that has been referred to his court by the Tribunal is;
'Whether there was any material to hold that the assessee was carrying on a business which produced the profit of Rs. 2,59,399 liable to income-tax and not exempt under section 4(3)(vii) of the Act being receipt arising from capital gains or being of a casual and non-recurring nature not arising from business ?'
The assessee was not satisfied with the question that has been referred to this court under section 66(1) and it has filed an application under section 66(2) for an order upon the Tribunal to refer certain other questions of law. On August 3, 1956, this court directed this application to be kept on the record to be considered at the time of the hearing of the reference. Before addressing us on the merits of the reference, Dr. Pal appearing for the assessee pressed the application under section 66(2). He, however, abandoned all other questions in the application under section 66(2) except question No.(1) which runs as follows :
'Whether, on the facts and circumstances of the case, the sum of Rs. 2,59,399 satisfied the requirements of section 4(3)(vii) of the Income-tax Act, being of a casual and non-recurring nature and not being receipts arising from business ?'
On hearing Dr. Pal in support of the application under section 66(2), it appears to us that the question proposed by the assessee in the application under section 66(2) will not help the assessee materially because ' the facts and circumstances' referred to in the question would not entitle us to go beyond the facts as set out in the statement of case and as recorded in the findings of the Appellate Tribunal and Dr. Pal conceded that if we were not entitled to go beyond the findings recorded by the Tribunal, there was no hope for success of the assessee. In this view of the matter, we decided to dismiss the application under section 66(2) summarily.
Coming now to the question referred to this court by the Tribunal, it appears to me that the substantial question is whether it comes within the exemption of section 4(3)(vii) of the Income-tax Act. Under that section, again, the question is of a two-fold character whether the amount is of the nature of capital gains or whether it is an income from business and not receipt of a casual and non-reassuring nature not arising from business. Dr. Pal appearing for the assessee stated before us that he did not want to argue that the amount was in the nature of capital gains, but he confined his argument to the second limb of the question and pressed before us the claim that it was not an income of the assessee arising from the business. Reliance was placed upon the fact that the import of machine parts was not in the usual course of the business of the assessee. It was argued that the import of machine parts was an attempt to carry on a new business which did not materialise and which was wholly unconnected with the business which was the assessees normal line of business. In other words, the income of the assessee was not from a new transaction in the course of the old business, but an attempt at starting a new business having no relation to the old business. The point, however, does not appear to have been raised by the assessee before the Tribunal. The argument before the Tribunal was confined chiefly to the question of capital appreciation which has now been abandoned by Dr. Pal. In dealing with the argument, however, the Tribunal recorded a finding to the effect that argument, however, the Tribunal recorded a findings to the effect that the 'profit derived by the assessed from the sale of dollars was incidental to and in the course of the normal business of the appellant.'
Before the Income-tax Officer the contention on behalf of the assessee was that its business consisted mainly in the import of betelnuts, spices, vegetable oils, mineral oils, sulfur, caustic soda, petroleum products etc., which was wholly unconnected with the business of import of hardware and machine parts which was started by the assessee for the first time during the assessment year. The argument was that this was a business unconnected with the old business carried on by the assessee. There was no argument before the Income-tax Officer that the import of hardware was not a business or merely an unsuccessful attempt to start a new business, which is the argument of the assessee before us. The assessees before the Appellate Assistant Commissioner was substantially the same as before the Income-tax Officer. In the memorandum of appeal before the Appellate Tribunal which has been placed before us by Dr. Pal no ground appears to have been taken to the effect that the import of hardware and merely an attempt by the assessee to start a new business which did not eventually materialise. It is now well settled by authorities, amongst which reference may be made to the decision of the Supreme Court in the case of New Jehangir Vakil Mills Ltd. v. Commissioner of Income-tax, that in a reference under section 66(1) of the Income-tax Act this court is not entitled to answer any question which does not arise out of the order of the Tribunal and on a point which was not in contention before the Tribunal and on which the Tribunal did not give any decision. I accordingly hold that it is not open to the assessee to raise this point for the first time in this reference.
Dr. Pal, however, argued before us that there is no material in support of the finding of the Tribunal to the effect that the sum of Rs. 2,59,399 represented the profits of the assessee in the course of its normal business. The question which has been forwarded to this court by the Tribunal also requires us to examine whether there is any material in support of that finding. It is conceded by both sides that in considering the question whether there is any material in support of the finding we are not confined only to the statement of the facts or the finding arrived at by the Appellate Tribunal but we are entitled to look at the entire proceeding including the order of the Income-tax Officer and the order of the Appellate Assistant Commissioner which form part of the paper book. The Income-tax Officer took into account three circumstances for the purpose of coming to his conclusion that the amount in dispute represented the profits of the assessees business. Those circumstances are as follows :
The assessees business was that of a general importers of goods and it was not confined to the import of any particular class of commodities. The finding is that the assessee has been dealing in any and the further finding is that the goods in which the assessee carries on business cover a wide variety of items absolutely unconnected with one another and if during the assessment year the assessee for the first time attempted to import hardware, it was a new transaction in the course of the normal business of the assessee. The next circumstance relied upon by the Income-tax Officer is that the assessee under to keep only one set of accounts and bank accounts for its business in all classes of goods and all the receipts and expenses arising from dealings in different articles including the business of hardware were entered in the same account books. The third factor relied upon by the Income-tax Officer also took into account the fact that the assessee attempted to import hardware for the first time only during the assessment year.
I have already said that the question which has been argued before us Dr. Pal, namely, that the income was derived from the unsuccessful attempt at starting a new business and not an income from its ordinary business, was not raised by the assessee before the Tribunal or even before the Income-tax Officer or the Appellate Assistant Commissioner and as such it is not open to the assessee to raise that question before us for the first time. But even assuming that the assessee could raise this point in this reference, we find that there are enough materials on the record to show that the income was derived not from an unsuccessful attempt at starting anew business, but form the normal business carried on by the assessee. As far as we have begun able to understand the finding of the Income-tax Officer, it is to the effect that the business of the assessee was that of a general importer of goods and if the assessee in the course of its business entered into a contract for the purchase of hardware in the assessment year, this was a trading activity of the assessee, and this trading activity was in the course of the assessees normal business. Dr. Pal stated before us that if this be our interpretation of the finding as to the nature of the assessees business, he could not place any other point for our consideration.
In the result, the question referred to this court by the Tribunal must be answered in the affirmative.
The assessee will pay the costs of this reference.
Certified for two counsel.
The application under section 66(2) of the Income-tax Act is dismissed.
BACHAWAT J. - I agree.
Question answered in the affirmative.