# < negative. Sodr~· Devi -~- J RAGHUBAR MANDAL HARIHAR MAND AL v. THE STATE OF BIHAR

- **Citation:** [1958] 1 S.C.R. 37
- **Court:** Supreme Court of India
- **Decided:** 1956-06-30
- **Case number:** Civil Appeal No. 322 of 1955
- **Bench:** Bhagwati, S. K. Das, J. L. Kapur
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/negative-sodr-devi-j-raghubar-mandal-harihar-mand-al-v-the-state-of-bihar-1466
- **Pages:** 13

## Headnote

Sales Tax-Assessee's accounts rejected as unreliable-Assessment made 011 guess without reference to evidence or materialV alidity-Bihar Sales Tax Act, 1944 (Bihar
Act VI of 1944),
s. 10(2)(b)-Indian I11come-tax Act, 1922 (XI of 1922), s. 23(3).
The appellant filed the necessary returns, as required by the
provisions of the Bihar Sales Tax Act, 1944, and produced the
account books. The Sales Tax Officer considered that the account
books were not dependable and, after rejecting them as well as
the returns, proceeded to estimate the gross turnover by adopting
a figure by pure guess, without reference to any evidence
or
material, and made the assessment under s. 10(2)(b) of the Act.
Held, that under s. 10(2)(b) of the Bihar Sales Tax Act,
1944, a duty is imposed on the assessing authority to make the
assessment after hearing such evidence as the assessee may produce
and such other evidence as the assessing authority may require
on specified points, and, in case the returns of the assessee and
his books of account are rejected, the assessing authority must
make an estimate, but this must be based on such evidence or
material as the assessing authority has before him, including the
assessee's circumstances, knowledge of previous returns and all
other matters which the assessing authority thinks will assist him
in arriving at a fair and proper estimate.
Dhakeswari Cotton Mills Ltd. v. Commissioner of Income Tax,
West Bengal, (1955) l.S.C.R. 941 and Income-tax Commissioner v.
Badridas Ramrai Shop, Ako/a, (1937) L.R. 64 I.A. 102, relied on .

## Text

S.C.R.
SUPREME COURT REPORTS
37
BY COURT : In accordance with the Judgment of the
1957
majority Civil Appeal No. 322 of 1955 is dismissed The Commissio11er
with costs and Civil Appeal No. 25 of 1955 is allowed
01 Income-tax,
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Madhya Pradesh
wit costs, t e re erre question
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and Bhopal
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negative.
Sodr~· Devi
-~-
J ..
RAGHUBAR MANDAL HARIHAR MAND AL
v.
THE STATE OF BIHAR
(BHAGWATI, S. K. DAS and J. L. KAPUR JJ.)
Sales Tax-Assessee's accounts rejected as unreliable-Assessment made 011 guess without reference to evidence or materialV alidity-Bihar Sales Tax Act, 1944 (Bihar
Act VI of 1944),
s. 10(2)(b)-Indian I11come-tax Act, 1922 (XI of 1922), s. 23(3).
The appellant filed the necessary returns, as required by the
provisions of the Bihar Sales Tax Act, 1944, and produced the
account books. The Sales Tax Officer considered that the account
books were not dependable and, after rejecting them as well as
the returns, proceeded to estimate the gross turnover by adopting
a figure by pure guess, without reference to any evidence
or
material, and made the assessment under s. 10(2)(b) of the Act.
Held, that under s. 10(2)(b) of the Bihar Sales Tax Act,
1944, a duty is imposed on the assessing authority to make the
assessment after hearing such evidence as the assessee may produce
and such other evidence as the assessing authority may require
on specified points, and, in case the returns of the assessee and
his books of account are rejected, the assessing authority must
make an estimate, but this must be based on such evidence or
material as the assessing authority has before him, including the
assessee's circumstances, knowledge of previous returns and all
other matters which the assessing authority thinks will assist him
in arriving at a fair and proper estimate.
Dhakeswari Cotton Mills Ltd. v. Commissioner of Income Tax,
West Bengal, (1955) l.S.C.R. 941 and Income-tax Commissioner v.
Badridas Ramrai Shop, Ako/a, (1937) L.R. 64 I.A. 102, relied on .
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
249 of 1954.
Appeal by special leave from the judgment and
order dated January 8, 1952, of the Patna High Court
in Misc. Judicial Cases Nos. 13, 14, 15, 16, 17, 18 and
19 of 1949.
1957
May22.
38
SUPREME COURT REPORTS
[1958]
1957
Bhawam Lal and K. L. Mehta, for the appellants.
RaghubarMandal
L. K. Jha, B. K. P. Sinha and R. C. Parsad, for
Hanh•~. Manda/ the respondent.
.
TheStateofBihar
1957. May 22. The Judgment of the Court was
s. K. Das J.
delivered by
S. K. DAS J.-The appellant Messrs. Raghubar
Manda! Harihar Manda!, hereinafter referred to as
the assessee, is a firm of bullion dealers carrying on
its business at Laheriasarai in the district of Darbhanga in the State of Bihar.
The assessee was
assessed to sales tax for seven quarters ending December 31, 1945, March 31, 1946, June 30, 1956, September 30, 1946, December 31, 1946, March 31, 1947
and June 30, 1947, respectively. For three of the
aforesaid quarters, namely those ending on December 31, 1945, March 31, 1947 and June 30, 1947, the
assessee failed to file the necessary returns as required
by the provisions of the Bihar Sales Tax Act, 1944
(hereinafter referred to as the Act), which was the
Act in force during the material period; therefore,
the assessee was assessed for those three quarters
under sub-s. (4) of s. 10 of the Act. For the remaining four quarters, the assessee did file returns. The
Sales Tax Officer rejected those returns as also the
books of account filed by the assessee for all the seven
quarters and assessed the assessee under cl. (b) of
sub-s. (2) of s. 10 of the Act. The Sales Tax Officer
passed separate orders assessing the tax for all the
seven quarters simultaneously on October 9, 1947. He
assessed the tax on a taxable turnover of Rs. 2,94,000
for each of the five quarters ending December 31, 1945,
March 31, 1946, September 30, 1946, December 31,
1946 and March 31, 1947; for the other two quarters
ending on June 30, 1946, and June 30, 1947, he assessed
the tax on a taxable turnover of Rs. 3,92,000. The
assessee then moved in appeal the Commissioner of
Cpmmercial Taxes, Tirhut Division, but the Commissioner dismissed the appeals by his order dated
February 23, 1948. The Board of Revenue was then
moved in revision but, by its order dated July 31, 1948,
the Board refused to interfere. The Board expressed
'
'
..
...
A
-.
S.C.R.
SUPREME COURT REPORTS
39
the view that the finding of the Sales Tax Officer and
1957
the Commissioner that the books of account maintained Raghubar Manda!
by the assessee were not dependable was a finding of Harihar Manda/
fact which could not be interfered with in revision; T11e Sta~ of Biha,.
therefore the assessing officer was bound to assess to
·
the best of his judgment. The Board was then moved
s. K. Das 1·
under s. 21 of the Act to refer certain questions of law
to the High Court of Patna which, the assessee
contended, arose out of its order. By its order dated
DeceJDber 10, 1948, the Board rejected the applications
for making a reference to the High Court on the same
ground, namely, that no question of law was involved
and the assessment orders were concluded by a
concurrent finding of fact. The assessee then moved the
High. Court and by its order dated April 27, 1949,
passed in Miscellaneous Judicial Cases Nos. 13 to 19 of
1949, the High Court directed the Board of Revenue
to state a case on the following question :
"Whether the Sales Tax Officer is entitled under
section 10(2)(b) of the Act to make an assessment on
any figures of gross turnover without giving any basis
to justify the adoption of that figure ?"
The Board of Revenue then stated a case, and the
High Court disposed of the reference by answering the
question in the affirmative by its judgment and order
dated January 8, 1952. The assessee then moved this
Court and obtained special leave to ,appeal from the
said judgment and order of the High Court .
The main contention of the assessee is that the High
Court has not correctly answered the question of law
referred to it. Before we proceed to consider this
contention of the assessee, it is necessary to clear the
ground by delimiting the precise scope of the question
referred to the High Court. It is well settled that the
jurisdiction of the High Court in the matter of incometax references is an advisory jurisdiction and under
the Income-tax Act the decision of the Tribunal on
facts is final, unless it can be successfully assailed on
the ground that there was no evidence for the conclusion on facts recorded by the Tribunal or the conclusion was such as no reasonable body of per~ons could
have arrived at. It is also well settled that the duty
40
SUPREME COURT REPORTS
[1958]
1957
of the High Court is to start with the statement of the
Raghubar Ma11dat case as the final statement of the facts and to answer
Harihar Manda/ the question of law with reference to that statement.
The s1a1~·of Bihar The provisions of the Indian Income-tax Act are in
pari materia with the provisions of the Act under our
s. K. DasJ.
consideration, the main scheme of the relevant provisions of the two Acts being similar in nature, though
the wording of the provisions is not exactly the same.
Under s. 21 of the Act, the High Court exercises a
similar advisory jurisdiction, and under sub-s. (3) of
that section, the High Court may require the Board of
Revenue to state a case and refer it to the High Court,
when the High Court is satisfied that the refusal of the
Board to make a reference to the High Court under
sub-s. (2) is not justified. Under sub-s. (5) of s. 21 the
High Court hears the reference and decides the
question of Jaw referred to it, giving in a judgment the
grounds of its decision.
In the case under our consideration, the question which was referred to the High
Court related to the assessments made under s. I 0(2)(b)
of the Act; in other words, the question related to
those four quarters only for which the assessments
were made under s. 10(2)(b). The question did not
relate to the three quarters for which the assessee had
filed no returns and assessments were made under
s. 10(4) of the Act. At one place in its judgment, the
High Court referred to a slight inaccuracy in the
question framed, but it did not reframe the question
so as to widen its scope and include the three quarters
for which assessments were made under s. 10(4) of the
Act. The question, as it stood and as it was answered
by the High Court, did not relate to the propriety or
legality of the assessments made under s. 10( 4) of the
Act. We must, therefore, make it clear at the very
outset that the question relates to those four quarters
only for which assessments were made under s. 10(2)(b)
of the Act, and the answer given to the question will
govern those four quarters only.
Having thus indicated the precise scope of the
question referred to the High Court, we proceed now
to consider the main contention of the assessee.
We
must first read the relevant provisions of the statute
-
..
S.C.R.
SUPREME COURT REPORTS
41
under which the assessments were made. Sub-section (1)
1957
of s. 10 of the Act states that if the Commissioner is Raghubar Manda/
satisfied without requiring the presence of a registered Harihar Manda/
dealer or the production by him of any evidence 111es1a'!e'otBihar
that the returns furnished in respect of any period are
s -ask
.correct and complete, he shall assess the amount of
· K. D
•
tax due from the dealer on the basis of such returns.
Clause (a) of sub-s. (2) states what the Commissioner
-shall do, if he is not satisfied without requiring the
presence of a registered dealer who furnished the
returns or production of evidence that the returns
furnished in respect of any period are correct and
.complete; the clause states that in that event the
Commissioner shall serve on the dealer a notice in the
prescribed manner requiring him either to attend in
person or to produce or cause to be produced any
evidence on whieh such dealer may rely in support of
his returns. Then comes cl. (b) of sub-s. (2) which
must be quoted in extenso:
"(b) on the day specified in the notice or as
soon afterwards as may be, the Commissioner, after
hearing such evidence as the dealer may produce, and
such other evidence as the Commissioner may require
on specified points, shall assess the amount of tax due
from the dealer."
These provisions are similar to the provisions containea
iris. 23 of the Indian Income-tax Act. Sub-section (1)
of s. 10 of the Act corresponds to sub-s. (1) of s. 23 of
the Indian Income-tax Act; clause (a) of sub-s. (2) of
s. 10 of the Act corresponds to sub-s. (2) of s. 23 Qf the
Indian Income-tax Act; and clause (b) of sub-s. (2) of
s. 10 of the Act corresponds to sub-s. (3) of s. 23 of the
Indian Income-tax Act, though there are some verbal
differences between the two provisions. Sub-section (3)
of s. 23 of the Indian Income-tax Act requires the
Income-tax Officer to assess the total income of the
assessee and determine the sum payable by him on the
basis of such assessment, by "an order in writing";
but cl. (b) of sub-s. (2) of s. 10 of the Act requires the
Commissioner to assess the amount of tax due from
the dealer and does not impose any liability as to "an
order in writing". In spite of these differences, the
42
SUPREME COURT REPORTS
[1958]
1957
two provisions are substantially the same and impose
Raghuba1 Manda/ on the assessing authority a duty to assess the tax
Harihar Manda/ after hearing such evidence as the dealer may produce
r1zes1:ieo/Bihar and such other evidence as the assessing authority
may require on specified points.
s. K. Das J.
The point for our consideration is-can the assessing
authority, purporting to act under s. J0(2)(b) of the
Act, assess the amount of tax due from a dealer more
or less arbitrarily or without basing the assessment on
any materials whatsoever? In the question referred
to the High Court, the expression used is, "make an
assessment on any figure of gross turnover without
giving any basis to justify the adoption of that figure".
That expression is perhaps a little ambiguous, but read
in the context of the statement of the case, the question
can only mean this : can the assessing authority adopt
a figure of gross turnover by pure guess and without
referring to any materials on which the figure is based?
It is clear to us that, understood in that sense, the
High Court has answered the question incorrectly.
The High Court went into an elaborate consideration,
by way of comparison and contrast, of sub-s. (4) and
cl. (b) of sub-s. (2) of s. JO of the Act. It is unnecessary for us to make any pronouncement in this appeal
with regard to the precise scope of sub-sl. (4) of s. JO of
the Act, which corresponds more or less to sub-s. (4) of
s. 23 of the Indian Income-tax Act; nor is it necessary for us to decide if an asse&sment made under
cl. (b) of sub-s. (2) of s. 10 of the Act, when the account
books of the assessee are disbelieved, stands exactly
on the same footing as an assessment made under
sub-s. (4) of s. 10 when the assessee has failed to
furnish his returns. In some decisions relating to the
corresponding provisions of the Indian Income-tax
Act, it has been. said that the difference between the
two is one of degree only, the one being more summary
than the other. These are questions which do not
really fall for decision in the present appeal, which is
confined to interpreting the true nature and scope of
cl. (b) of sub-s. (2) of s. JO of the Act. With regard to
the corresponding provision in sub-s. (3) of s. 23 of the
Indian Income-tax Act, there is a decision of this
I
S.C.R.
SUPREME COURT REPORTS
43
Court which, in our opinion, answers the question
1957
before· us. The decision is that of Dhakeswari Cotton Raghubar .Manda!
Mills Ltd. v .. Commissioner of Income Tax, West
Hariha~.Mandat
Benga/(1). This Court observed :
TheStateoJBihar
"As regards the second contention, we are in
D
J
s .. K.
as .
·entire agreement with the learned Solicitor-General
when he says that the Income-tax Officer is riot
fettered by technical rules of evidence and pleadings,
and that he is entitled to act on material which may
not be accepted as evidence in a Court of law, but
there the agreement ends; because it is equally clear
that in making the assessment under sub-s. (3) of s. 23
·Of the Act, the Income-tax· Officer is not entitled to
make a pure guess and make an assessment without
reference to any evidence or any material at all.
There must be something more than bare suspicion to
support the assessment under s. 23(3)."
In our view, the aforesaid observations clearly show
that the High Court was in error in answering the
question in the affirmative. Firstly, the High Court
treated the question referred to it as a pure question
of fact; if that were so, then the High Court should
have rejected the reference on the ground that it was
not competent to answer a question of fact. Then, the
High Court proceeded to consider certain decisions
relating to the interpretation of sub-ss. (3) and (4) of
s. 23 of the Indian Income-tax Act, and held that
there was no difference between an assessment under
sub-s. (3) and an assessment under sub-s. (4) of s. 23.
The High Court applied the same analogy and on that
footing held that there being no difference between an
assessment under cl. (b) of sub-s. (2) and an assessment
under sub-s. (4) of s. 10 of the Act, the answer to the
question must be in the affirmative. in our view, the
approach of the High Court to the question referred to
it was erroneous and the answer given to the question
by it solely on the basis of sub-s. (4) of s. 10 of the Act
was vitiated by that wrong approach. It was not
sub-s. (4) of s. 10 of the Act which the High Court had
to consider; it had to consider the true scope and
effect of cl. (b) of sub-s. (2) of s. 10 of the A.ct.
(1) [1955] • S.C.R. 941, 949·
44
SUPREME COURT REPORTS
[1958]
1957
Learned counsel for the respondent has strongly
Ragt111bar Ma11dat urged two points in support of the answer which the
Hari/ror M1111daI High Court gave. Firstly, he has contended that, on
The s1a1ev~f Bilrar a proper reading of the assessment orders and the
s K [) J
orders of the Commissioner, it would appear that the
· · "' · ·
gross turnover for the quarters in question was based
on certain materials; therefore, the argument of learned
counsel is that it is n~t correct to say that the figure
of gross turnover was arbitrarily adopted or was
adopted without reference to any evidence or any
material at all. We have examined the assessment
orders in question, which form part of the statement
of the case. It is clear to us that what the Sales Tax
Officer and the Commissioner did was to hold, for
certain reasons, that the returns made by the assessee
and the books of account filed by it were incorrect and
undependable.
It is not necessary to repeat those
reasons, because we must accept the finding of fact
arrived at by the assessing authorities that the returns
and the books of account were not dependable. The
assessin~ authorities rightly pointed out that several
transacllons were not entered in the books of account;
and a surprise inspection made on July 15, 1947, disclosed certain transactions with a Bombay firm known
as Messrs. Kishundas Lekhraj, which were not mentioned in the books of account; and finally, the assessee
.vas importing silver in the name of five confederates
in order to suppress the details of the transactions etc.
The assessing authorities further pointed out that there
was a discrepancy between the return filed for the
quarter ending June 30, 1946, and the accounts filed
in support of it; the return showed a gross turnover
of Rs. 2,28,370-12-0 while the accounts revealed a gross
turnover of Rs. 1,48,204. All these we must accept as
correct. Having rejected the returns and the books
,
of account, the assessing authorities proceeded to esti-
·
mate the gross turnover. In so estimating the gross
'
turnover, they did not refer to any materials at all.
On the contrary, they indulged in a pure guess and
adopted a figure without reference to any evidence or
any material at all. Let us take, for example, the.
assessment order for the quarter ending June 30, 1946.
S.C.R.
SUPREME COURT REPORTS
45
The Sales Tax Officer said : "I reject the dealer's
1957
accounts and estimate a gross turnover of Rs. 4,00,000. Raghubar Manda·
I allow a deduction at 2 % on the turnover and assess Jforihar Manda!
him on Rs. 3,92,000 to pay sales tax of Rs. 6,125." For Tiie siat~of Bihcr
the quarter ending on September 30, 1946, the Sales
-
Tax Officer said : "I reject his irregular account and
s. K. Das 1·
estimate a gross turnover of Rs. 3,00,000 for the
quarter and assess him on Rs. 2,94,000 to pay tax of
Rs. 4,593-12-0." These and similar orders do not show
that the assessment was made with reference to any
evidence or material; on the contrary, they show that
having rejected the books of account, the assessing
authorities indulged in pure guess and made an assessment without reference to any evidence or any material
at all. This the assessing authorities were not entitled
to do under cl. (b) of sub-s. (2) of s. 10 of the Act.
Secondly, learned counsel for the respondent has
referred us to several decisions on which the High
Court relied and has argued that on the basis of those
decisions, it must be held that the answer given by the
High Court to the question ref erred to it was a correct
answer. We propose to examine briefly some of those
decisions, though, as we have stated earlier, the question is really answered by the· observations made by
this Court in Dhakeswari Cotton Mills' case('). The
first decision is the Privy Council tlecision in Incometax Commissioner v. Badridas Ramrai Shop, Akola(2).
Lord Russell of Killowen in delivering the judgment of
their Lordships made the following observations as
respects a "best of judgment" assessment within the
meaning of s. 23 (4) of the Indian Income-tax Act :
"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, or 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, their Lordships think, 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,
(1) [1955] S.C.R. 941, 949.
(2) (1937) 64 I.A. 102, 114·11s.
46
SUPREME COURT REPORTS
[1958]
1957
and all other matters which he thinks will assist him
Ragh"ba;--Mandal in arriving at a fair and proper estimate : and though
Harihar Manda) there must necessarily be guess-work in the matter, it
TheSta'(;,ofBihar must be honest guess-work."
We find nothing in those observations which runs
s. K. DasJ.
counter to the observations made in Dhakeswari Cotton
Mills' case(').
No doubt it is true that when the
returns and the books of account are rejected, the
assessing officer must make an estimate, and to that
extent he must make a guess; but the estimate must
be related to some evidence or material and it must be
something more than mere suspicion. To use the words
of Lord Russell of Killowen again, "he must make
what he honestly believes to be a fair estimate of the
proper figure of assessment" and for this purpose he
must take into consideration such materials as the
assessing officer has before him, including the assessees'
circumstances, knowledge of previous returns and all
other matters which the assessing officer thinks will
assist him in arriving at a fair and proper estimate. In
the case under our consideration, the assessing officer
did not do so, and that is where the grievance of the
assessee arises.
The next decision is Ganga Ram Balmokand v. Commissioner of Income Tax, Pwijab(2).
It was held
therein that where the income-tax authorities were not
satisfied with the correctness or completeness of the
assessees' accounts and, taking into consideration the
state of affairs in general and the fact that the assessees
had a large business and the profit shown by them
was abnormally low in comparison with that of other
persons carrying on the same business in the locality,
calculated the taxable income by applying a flat rate
of 7 per cent.,. the authorities were justified in applying
such a fiat rate, and the burden was on the assessees
to displace the estimate. There again, the estimate
made was not a pure guess and was based on some
materials which the Income-tax Officer had before him.
Din Mohammad J. who gave the leading judgment,
observed : "It cannot be denied that there must be
some material before the Income-tax Officer on which
(1) (1955] 1 S.C.R. 941, 949.
•
}
S.C.R.
SUPREME COURT REPORTS
47
to base his estimate, but no hard and fast rule can be
1957
laid down by the Court to define what sort of material Raghubar Mandal
is required on which his estimate can be founded." Harihar Manda/
With that observation we generally agree. If, in this TheSta~·ofBihar
case, the Sales Tax authorities had based their estimate
on some material before them, no objection could'have
s. K.DasJ.
been taken; but the question which was referred to the
High Court and which arose out of the orders of assessment was whether it was open to the said authorities
to make an assessment on a figure of gross turnover,
without referring to any materials to justify the adopttion of that figure.
In answering that question in the
affirmative, the High Court had given a carte blanche
to the Sales Tax authorities and has, in our opinion,
misdirected itself as to the true scope and effect of
cl. (b) of sub-s. (2) of s. 10 of the Act.
The next decision is Gunda Subbayya v. Commissioner of Income-tax, Madras( 1). This decision also
does not help the respondent. It was held in that
decision that thou~h there is nothing in the Indian
Income-tax Act which imposes a duty on an Incometax Officer, who makes an assessment under s. 23(3),
to disclose to the assessee the material on which he
proposes to act, natural justice requires that he should
draw the assessees' attention to it and give him an
opportunity to show that the officer's . information is
wrong and he should also indicate in his order the
material on which he has made his estimate. This
decision is really against the respondent and does not
lay down any rule which may be said to be inconsistent
with the observations made by this Court in Dhakeswari
Cotton Mills' case(2).
The decision of the Lahore High Court in Seth
Gurmukh Singh v.
Commissioner of Income-tax,
Punjab(3) was specifically approved by this Court in
Dhakeswari Cotton Mills' case(2). The rules laid down
in that decision were these : (1) While proceeding
under sub-s. (3) of s. 23 of the Income-tax Act, the
Income-tax Officer is not bound to rely on such evidence
produced by the assessee as he considers to be. false;
(2) if he proposes to make an estimate in disregard of
(l) (1939] 7 I.T.R. 21.
(3) [1944] 12 l.T.R. 393.
(2) (1955] I S.C.R. 941,949.
M2SC/611-4
48
SUPREME COURT REPORTS
(1958]
1957
the evidence, oral or documentary, led by the assessee,
Raghubar Manda/ he should in fairness disclose to the assessee the
Harlhar MaPUial material on which he is going to found that estimate;
The s101~·01 Bihar (3) he is not however debarred from relying on private
-
sources of information, which sources he may not
s. K. Das J.
disclose to the assessee at all;
and ( 4) in case he
proposes to use against the assessee the result of any
private inquiries made by him, he must communicate
to the assessee the substance of the information so
proposed to be utilised to such an extent as to put the
assessee in possession of full particulars of the case he
is expected to meet and should further give him ample
opportunity to meet it, if possible. The decision does
not lay down that it is open to the Income-tax Officer
to make an estimate on pure guess and
whithout
reference to any material or evidence before him.
The last decision to which we have been referred is
the decision in Malik Damsaz Khan v. Commissioner
of Income-tax('). That again is a decision of the
Privy Council. In that case, the validity of the assessment under s. 23 (3) of the Indian Income-tax Act was
not challenged by the assessee and the appeal was
directed solely to the amount of assessment. Their
Lordships observed :
"But it appears to them that it was
clearly
competent for the Income-tax Officer in the circumstances of the present case. to accept the return as a
valid return and proceed to assessment under section
23 (1) or section 23 (3) as the case might be. Since he
was not satisfied that the return was correct and
complete he could not proceed under section 23(1); he,
therefore, as appeared upon the face of the assessment,
proceeded under section
23(3). Neither
in
the
incompleteness of the return nor in the fact that in any
accompanying statement the . appellant referred to his
return as an estimate can their Lordships find any
possible justification for the plea that the assessment
was
incompetent or that the
Appellate Assistant
Commissioner had no jurisdiction to entertain the
appeal
proceedings which
the
appellant himself
initiated.'·
(1) (1947] 15 I.T.R. 445·
•
)
S.C.R.
SUPREME COURT REPORTS
49
These observations do not help the respondent in any
1957
way; nor do they lay down any rule contrary to the Raghllha-;Mandal
rules laid down in Seth Gurmukh Singh's case(1).
Horihor Mtmdal
For these reasons we hold.that the High Court was TlitSta~·o/Bihar
in error in answering the question referred to it. The
appeal is accordingly allowed and the judgment and
s. K. Das J.
order of the High Court are set aside. The answer to
the question referred to the High Ceurt is in the
negative. The appellant will be entitled to its costs
both in this Court and in the High Court.
Appeal allowed .
THE ORIENTAL INVESTMENT CO., LTD.
v.
THE COMMISSIONER OF INCOME-TAX,
BOMBAY.
(BHAGWATI, s. K. DAS, and J. L. KAPUR JJ.)
Income-tax-Reference
to High Court-Questions of lawInvestment companv-Dealer or lm·estor-Mi'xed question of law
and fact-Legal effect of facts found, a question of law.
The appellant company
was incorporated as an investment
company which by its memorandum of association enabled it,
inter alia, to deal in investments and properties. For the purposes
of assessment to income-tax the appellant claimed, for the assessment year in question, to be treated as an investor and not as a
dealer on the ground that it did not carry on any business in the
purchase or sale of shares, securities or -properties. The Incometax Appellate Tribunal held that according to. the company's
memorandum of association and its own assertions made all along
in the past, it should be. treated as a dealer in investments and
properties and that its income arising from the sales of shares
and properties should be taxed as business profits. The appellant's
applications for a reference to the High Courts were rejected on
the ground that no question of law arose out of the order of the
Tribunal.
Held, that the question whether the appellant's business
amounted to dealing in shares and properties or to investment, is
a mixed question of law and fact and that the legal effect of the
facts found by the Tribunal as a result of which the appellant
could be treated as a dealer or an investor, is a que~tion of law.
Accordingly, the order of the High Court was set aside and
· the case remitted to the High Court for directing the Tribunal to
state a case.
(1)(1944) 12 I.T.R. 393.
1957
May22