GOPAL KRISHAN JOSHI Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THESE two applications under Section 256(2) of the Income-tax Act, 1961, are made by Gopal Kishan Joshi, an individual assessee, for the years 1965-66 and 1964-65, respectively.

(2.) THE assessee is a confectioner carrying on business at Bikaner. He manufactures sweets and other eatables and also sells confectionery articles which he purchases on wholesale from another merchant. He submitted his return -for the year 1965-66, showing gross turnover in the sum of Rs. 2,34,576. Breaking up the aforesaid amount the assessee said that the sweets manufactured by him amounted to Rs. 75,000 and those that were purchased by him amounted to Rs. 1,59,576. According to the assessee the gross profit rate of the confectionery manufactured by him was 17.5% and for the one that was purchased by him it was 8'5%, yielding an average profit of 11.2%. THE Income-tax Officer, not finding the books of account entirely reliable, estimated the turnover at Rs. 2,50,000 and calculated the average rate of profit at 17.5% and taxed the assessee accordingly. An appeal was taken before the Appellate Assistant Commissioner. He reduced the gross turnover to Rs, 2,44,000 and reduced the average rate to 15% profit. A second appeal before the Income-tax Tribunal, Jaipur Bench, was preferred and it was urged that the total turnover of the assessee should be bifurcated into one relating to the confectionery manufactured by the assessee and sold by him and the other which he had only sold after purchasing it from elsewhere. THE Tribunal for the purposes of calculation yielded to this request and, firstly, it reduced the total gross turnover to Rs. 2,40,000 and treating the portion relating to the confectionery manufactured by the assessee at Rs. 75,000, the profit rate assessed by the Tribunal was 20%. Regarding the sale of the confectionery which was purchased by the assessee and sold by him, the turnover was taken at Rs. 1,65,000 and the rate applied to it was 10% resulting in an average at 13.1%.

(3.) MR.S. C. Bhandari, learned counsel for the revenue, urged that the total liability of the assessee having been, in point of fact, reduced, it was erroneous to urge that the Tribunal had enhanced any tax. He placed reliance on Commissioner of Income-tax v. McMillan & Co., 1958 33 ITR 182 The question relating to the calculation of the flat rate in the absence of reliable account books as envisaged by Section 13(5), equal to the proviso to Section 145(1), was the question relating to the flat rate and such a question was basically a question of fact and it did not give rise to any question of law. He placed reliance on Feroz Shah v. Income-tax Commissioner, 1933 1 ITR 219. In this context he also urged that the Tribunal has actually reduced the tax from 17.5--15% in 1965-66 to 13.1 --13.75% in 1964-65. In all fairness to the assessee the order of the Tribunal disclosed the process of calculating the flat rate on the total benefit accruing to the assessee. If the Tribunal had merely said without breaking up that it had reduced the flat rate of profit to the aforesaid two figures probably there would not have been any ground or reason for raising a question of law. Lastly, he urged that the four questions which are required to be referred do not arise from the order of the Tribunal because no contest was raised in this behalf before the Tribunal and, therefore, according to the fourth test laid down by their Lordships of the Supreme Court in Commissioner of Income-tax v. Scindia Steam Navigation Co. Ltd., [1961] 42 ITR 589; [1962] 1 SCR 788 (SC) such a question cannot be required to be referred under Section 256(2) of the Act. The exact words of Section 256(1) which fall for our consideration are "any question of law arising out of such order" of the Tribunal. It is in this situation that the Tribunal has to make a reference to the High Court failing which the High Court may require the Tribunal to make a reference. The principles relating to the interpretation of these words are to be found in Dhirajlal's case which lays down that if the court of fact whose decision on a question of fact is final, arrives at a decision of fact by considering material which is irrelevant to the enquiry, or by considering material which is partly relevant and partly irrelevant or bases its decision partly on conjectures, surmises and suspicions and partly on evidence, then in such a situation clearly an issue of law arises. To the same effect is the pronouncement in Omar Salay Mohamed Sait v. Commissioner of Income-tax. The principles enunciated in Sree Meenakshi Mills Ltd. v. Commissioner of Income-tax and summed up in the head-note deserve recall: