MAHASUKH RAM MADANLAL Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee in this case is a Hindu undivided family carrying on business in commodities and also forward contract business in grain, silver, gunny bags etc. The assessee family carries on the forward contract business in various places like Raipur, Meerut and Patiala. For the assessment year 1945 -46 the assessee produced account to show that a profit of Rs.4,032 was made from the forward contract business. The assessee also claimed that a loss of Rs.28,442 was sustained in the forward contract business for the material period. The Income -tax Officer rejected the claim of the assessee mainly on the ground that no Souda Bahi or Nond Bahi was maintained by the assessee for the forward contract business. The Income -tax Officer thought that the assessee was a habitual speculator and it could not carry on the speculative business without any Souda Bahi showing commitments, as and when made, and also settlements and carrying forward of transactions in each particular commodity. The Income -tax Officer observed that the assessee produced contracts, bijak, letter copy book and telegram copy book, but the opinion of the Income -tax Officer was that the loss of the assessee in his speculative business could not be properly ascertained from these materials. The Income -tax Officer further observed that there was a transaction between the assessee and Geneshnarain Jodhraj which was omitted from the profit and loss account. The Income -tax Officer, therefore, refused to grant the assessee any relief with respect to the loss of Rs.28,442/ - alleged to have been sustained in the forward contract business. The assessee preferred an appeal to the Appellate Assistant Commissioner from the order of the Income -tax Officer. The Appellate Assistant Commissioner conceded in favour of the assessee that the business of Ganeshnarain Jodhraj was a different entity from the business carried on by the assessee that the speculative profit of Rs.600/ -really belonged to Ganeshnarain Jodhraj and there was no omission from the profit and loss account furnished by the assessee. But the Appellate Assistant Commissioner took the view that the Souda Bahi was a most important criterion in speculation business and in the absence of a Souda Bahi the profit and loss account cannot be satisfactorily verified. Taking this view the Appellate Assistant Commissioner dismissed the appeal of the assessee so far as the claim of the loss of Rs.28,442 is concerned. The matter was then taken in appeal on behalf of the assessee to the Appellate Tribunal. The Tribunal also took the view that in the absence of a Souda Bahi there was no guarantee that the assessee had accounted for all the speculative transaction in its account. The Tribunal therefore concluded that the loss of Rs.28,442 should not be allowed as a deduction; but the Tribunal accepted the contention of the assessee that the amount of Rs.4,032 should not be added to the income of the assessee as derived from speculative business. In substance the stand taken by the Tribunal was that the books of the assessee did not furnish a correct picture of the profit and loss sustained in speculative business and, therefore, neither the profit nor the loss should be taken into account in making assessment of the assessee for the purpose of income -tax.

(2.) AS directed by the High Court the Tribunal has stated a case on the following question of law; "Whether upon the findings of the Tribunal and on the materials produced by the assessee and collected by the Department, the assessee was entitled to get allowance for the loss of Rs.28,442 in speculation Forward Contracts -

(3.) ON behalf of the assessee Mr. Dutt put forward the argument that sufficient material was produced before the Income -tax authorities to indicate that the assessee had sustained a loss of Rs.28,442 in speculative business. Counsel made the submission that the Income -tax authorities had no justification for holding that the loss had not been proved in the absence of a Souda Bahi. Counsel pointed out that the assessee had produced the telegrams received, contract forms, duplicate books containing copies of telegrams sent and letter copy books in order to prove that for the accounting year the assessee had sustained a loss of Rs.28,442 in speculative business. It was also contended that for each commodity the assessee had maintained a separate account and full details for each item of transaction had been entered. It was therefore argued by Mr. Dutt that there were sufficient materials before the Income -tax authorities to show that the assessee had suffered a loss of Rs.28,442 in speculative business. We are, however, unable to accept the argument advanced by Mr. Dutt as correct. The question at issue in this case is a question of fact and it is well -settled according to a sequence of authorities that the High Court has no jurisdiction to interfere with the decision of Income -tax authorities on a question of fact unless there is complete absence of material or unless the Income -tax authorities have applied a wrong principle of law in reaching a conclusion of a fact.In the present case, counsel on behalf of the assessee made an attempt to show that the action of the Income -tax authorities is arbitrary and that the question at issue has passed from the realm of fact into the realm of law. We are however, not satisfied that this argument has any substance. The Income -tax officer has stated in very clear terms that the real account of profit and loss of the speculative business cannot be ascertained unless a Souda Bahi or Nond Bahi had been kept by the assessee. The Income -tax officer remarked that the assessee was a habitual speculator and he was carrying on a fairly extensive business in forward contract business and it is impossible to believe that the assessee would carry on such a business without any Souda Bahi. A similar view was taken by the Appellate Assistant Commissioner who said that "Souda Bahi was the most important criterion in speculation business and in the absence of a Souda Bahi the profit and loss cannot be satisfactorily verified." The appellate Tribunal also has affirmed the opinion of the Appellate Assistant Commissioner with regard to the importance of Souda Bahi. The question involved in this case is a matter of accounting and in considering the question from this aspect the opinion of the Appellate Tribunal with regard to the importance of Souda Bahi must be given due weight. We are, therefore, not prepared to say that the action of the Income -tax Authorities in this case is arbitrary. The question referred to the High Court is a question of fact but learned counsel for the assessee attempted to throw the cloak of law on the question and argued as if it were a question of law. In an English case - 'James Cycle Co., Ltd. v. Commr. of Inland Revenue', (1919) 12 Tax Cas 98 (A), the facts were almost parallel and Rowlatt J., said; "They are saying, there, that these quarterly accounts, arrived at by a process of reasoning, and not by direct reference to ascertained facts, do not enable us readily to see the profits that are made. I am asked to say that they went wrong in saying that in point of law, or that they ought to have decided the other way. It seems to me the purest question of fact imaginable, upon which they may have had accountancy assistance which is not open to me, on a subject upon which these Commissioners had much better means of coming to a right conclusion than I have. It seems to me exactly the sort of case which is a question of fact for them. They said: This is not enough, it does not enable us readily to ascertain. If that is not a question of fact, I do not know what is". In our opinion the question at issue in this case is a question of fact and there was sufficient material upon which the Appellate Tribunal could reach this conclusion.The High Court has, therefore, no jurisdiction to interfere with the finding of the Appellate Tribunal in refusing to allow the sum of Rs.28,442/ - as loss in the speculation business of the assessee.We consider that the question referred to the High Court must be answered against the 'assessee and in favour of the Income -tax Department. The assessee must pay the cost of the reference; hearing fee Rs.250. Answered accordingly.