Moti Ram vs Commissioner Of Income-Tax

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Not extracted

Decision Date: 24 April, 1958

Coram: A.K. Sarkar, P.B. Gajendragadkar

In this case, the Court noted that the appeal was filed by the assessee against an order dated 8 May 1953 issued by the Appellate Tribunal, which had affirmed the order of the Appellate Assistant Commissioner dated 23 July 1951. The sole issue presented for determination was whether the appellant was liable under section 4(1)(b)(iii) of the Income‑tax Act to pay tax on a sum of Rs 1,20,000 that he had remitted from Srinagar in Kashmir to British India during the relevant accounting year, on the ground that the amount represented profits that had been accumulated outside British India and subsequently brought into British India. The background of the dispute related to the assessment of the appellant’s income for the financial year 1945‑46. The appellant had been carrying on a cloth‑trading business in Srinagar for many years and, in the year 1943‑44, had commenced a similar business in Amritsar. During the period from 25 March 1944 to 12 April 1945, the appellant had transferred from Srinagar to British India a total of Rs 5,00,850 for the purpose of purchasing goods. The Income‑tax Officer of Amritsar, who was responsible for the assessment, held that Rs 3,00,000 of that amount represented income earned in Kashmir before the relevant year and after 31 March 1940, and therefore directed the appellant to pay tax on that Rs 3,00,000. The appellant challenged this assessment before the Appellate Assistant Commissioner. That Commissioner held that the amount actually remitted out of the Srinagar income was Rs 1,20,000 and not Rs 3,00,000, and concluded that the appellant was liable to pay tax on the lower sum of Rs 1,20,000. Subsequently, the appellant appealed to the Appellate Tribunal. Before the Tribunal, the appellant contended that the monies transferred from Srinagar had been drawn from the working capital of the business there and not from accumulated profits of previous years. The Tribunal found that the appellant had not been given a sufficient opportunity to demonstrate that the profits sought to be taxed were segregated from the working funds in Srinagar. Consequently, the Tribunal remanded the matter to the Income‑tax Officer for a detailed enquiry and a report determining whether, and to what extent, the funds sent to British India and used for purchasing goods comprised profits from earlier years. When the matter returned to the Income‑tax Officer for enquiry, the appellant admitted that the profits in Srinagar were intermingled with the working funds and that it was impossible for him to isolate from his accounts the portion of the remittances that derived from those profits.

In the current year, the appellant admitted that the profits generated in Srinagar were intermingled with the ordinary working funds of the business. Because of this admission, the Income‑Tax Officer could rely only on the documentary material that had been produced during the first assessments. After examining those records, the Officer concluded that the view expressed by the Appellate Assistant Commissioner – namely that the amount of profit transmitted to British India was Rs 1,20,000 – was justified and therefore reported the same.

The Tribunal then reconsidered the matter on the basis of the Officer’s report. It observed that the appellant, having conceded that the Srinagar profits were mixed with working funds, had not demonstrated that the remittances sent to British India were not drawn from those profits. Consequently, the appellant had failed to overcome the presumption that the remittances were made out of profit, and the burden of rebutting that presumption remained unsatisfied. The Tribunal’s judgment indicates that, for the first time at the hearing after receipt of the Income‑Tax Officer’s report, the appellant attempted to argue that no remittances to British India had been made at all. The appellant framed the issue in the following manner: the remittances were made solely to meet the price of goods purchased by the appellant in British India. These payments were effected by telegraphic money orders dispatched from Srinagar post offices and by bank drafts sent by post from Srinagar. The appellant contended that, once the instructions for the telegraphic money orders were given or the bank drafts issued, he no longer exercised control over the monies covered by those instruments, and therefore the monies thereafter ceased to be his. He further argued that the instruments were sent under the direction of the sellers of the goods, making the post office an agent of those sellers. Accordingly, when the money orders or drafts were handed to the Srinagar post office for transmission, ownership transferred to the sellers, and the appellant’s title to the funds ended. Under this construction, the monies that arrived in British India were the property of the sellers, not the appellant, and irrespective of whether they represented his profits in Srinagar, the appellant could not be taxed on them. The Tribunal held that this contention raised new factual questions that could not be decided without additional evidence, and therefore it refused to allow the appellant to pursue the argument. Since there was no further objection to the Appellate Assistant Commissioner’s order, the Tribunal dismissed the appeal.

Subsequently, the appellant filed an application under section 66(1) of the Act, seeking a reference of certain questions to the High Court of Punjab for authoritative decision. The Tribunal rejected this application, and the appellant made no further applications thereafter.

In the circumstances that the Department had, during the interim, attached the appellant’s properties situated in British India and had commenced proceedings to realise the amount of tax that had been levied, the appellant sought a stay of those realisation proceedings. He applied to the High Court under section 66 of the Act, seeking an order that would require the Tribunal to refer the question to the High Court, but he was advised that an application made under section 66(2) could not obtain such a stay from the High Court. Consequently, the appellant turned to the Supreme Court and applied for special leave to appeal against the judgment of the Tribunal. The Supreme Court granted that special leave on 1 February 1954, and the present appeal proceeds from that grant of leave. At the same time that the leave was granted, the Supreme Court also ordered that the proceedings for the realisation of the tax be stayed, thereby preventing the Department from continuing its attempts to recover the tax while the appeal was pending.

The counsel appearing for the appellant raised before the Supreme Court a question that the Tribunal had not permitted the appellant to raise, namely whether the sums of money that had been brought into British India were in fact the appellant’s own money. The Court indicated that it was unnecessary to examine the merits of that contention and observed that, on the basis of the material that formed the record, it could not reach a decision on the issue. The Court affirmed that the Tribunal was correct in holding that the question could not be decided without further evidence and that the Tribunal was within its jurisdiction when it refused the appellant permission to adduce additional evidence. The Court found no reason to interfere with the Tribunal’s discretionary exercise. It noted that the contention had been raised for the first time when the matter returned to the Tribunal after the report of the Income‑Tax Officer, and that, had the appellant raised it earlier, the remand to that officer would have been unnecessary; furthermore, the appellant was not in a position to demonstrate that his profits earned at Srinagar had not been mingled with working funds, a circumstance which alone justified the remand. The Court also addressed an allegation that the Tribunal had asked the appellant to produce affidavits and a bank certificate to prove the nature of the arrangements with the sellers and the manner in which the money was dispatched. It was stated that the appellant had indeed produced the affidavits and certificate, and that these documents were part of the printed record. However, the respondent, the Commissioner of Income‑Tax, Punjab, contended that the Tribunal had never issued an order calling for such affidavits or certificate. The Court expressed the view that the respondent’s contention was correct, for we do

In reviewing the record, the Court observed that it could locate no order issued by the Tribunal that expressly called upon the appellant to produce either the affidavits or the bank certificate. Even assuming that the Tribunal had at some earlier stage permitted the appellant to submit those documents, the Court noted that the Tribunal retained full discretion to decline their acceptance if it elected not to permit the appellant to introduce a fresh line of argument. The Tribunal, in fact, exercised that discretion by refusing to allow the new contention. The Court further expressed that it was not persuaded that the affidavits and the certificate, even if they had been tendered, would have substantiated the appellant’s position. Consequently, the Court found no necessity to examine the substantive content of those documents, concluding that the Tribunal was rightly justified in denying the appellant leave to raise a new contention.

The Court then turned to the final relief sought. It held that there was no valid ground to challenge the Tribunal’s judgment and therefore dismissed the appeal, ordering the appellant to bear the costs of the proceeding. Moreover, the Court set aside the order that had stayed the proceedings for the realization of the tax, effectively removing that stay. In sum, the appeal was dismissed.