Patna High Court
Hanutram Chandanmul vs Commr. Of Income-Tax on 20 March, 1953
Equivalent citations: 1953(1)BLJR545, [1953]23ITR505(PATNA)
JUDGMENT
1. The assessee is a firm Hanutram Chandanmal of Kishunganj. The books of account for the year ending Chait Sudi 8,2004 Samvat disclosed sales of silver to the extent of Rs 2,04, 545 and the gold to the extent of Rs 2,34,344. The account books disclosed a gross profit of Rs. 9,710. The Income-tax Officer, however, rejected the books of account and estimated the total sales of bullion at Rs. 4,50,000 and profit at 5 per cent. In result, the Income Tax officer added a sum of Rs. 12,800 to the income as disclosed by the books of account. The assessee took an appeal to the Appellate Assistant Commissioner but the appeal was dismissed. A further appeal was taken to the Income-tax Appellate Tribunal. The, Judicial Member was of opinion that the Income-tax officer was right in applying the proviso to Section 13, but the Accountant Member stated as follows:
"I am inclined to the view that in the circumstances of the case, the books should not have been rejected as has been done by the Income-tax authorities, but on the other hand should have formed the basis of the assessment with such adjustments as may be found necessary for any I shortage claimed which may appear to be in excess of the usual percentages in the trade. The stock records, viz., the daily stock register as well as the melting records, disclosed, as observed above only small discrepancies which have to be in the nature of things, arithmetical in character. The book of original entry, the kachi Rokar contains all the materials available for a proper quantitative tally. The final shortage ascertained on the basis of the inventory after due allowance for a reasonable normal shortage requires to be adjusted in the assessment. In facts of the case, such additions do not appear to be of such considerable proportion as to require any accurate working. The shortage of 5 tolas of gold and 100 tolas of silver as revealed in the final inventory cannot amount to more than Rs. 700/-. Counting in other possible minor discrepancies from day to day, I am of opinion that an overall addition of say Rs. 2,800 on this account will more than adequately cover the requirements of the case, instead of Rs. 12,800 as at present in the assessment, so that a modification of the assessment to the extent of Rs. 10,000 is necessary."
As there was difference of opinion the case was referred to the President of the Income-tax Appellate Tribunal under Section 5A(7), Indian Income-tax Act. The order of reference was in the following, terms "As there is a difference of opinion between us on the only contention in this appeal, we hereby refer the appeal to the President under Section 5A(7), Income-tax Act."
The President heard the appeal and formed the opinion that the Income-tax Officer was right in taking recourse to the provision of Section 13, Income-tax Act. The President, however, directed that in order to compute the profits of the assessee a rate of 3 per cent, should be applied to the sales of silver amounting to Rs. 2,04,545 and the rate of 5 per cent, to the sales of gold amounting to Rs. 2,34,344. According to this direction the amount to be added to the assessee's income as disclosed by the books was Rs. 8,143.
2. At the instance of the assessee the Income-tax Appellate Tribunal has formulated the following questions of law for the opinion of the High Court; (1) whether the order of the President of the Tribunal is in accordance with law? and (2) whether the assessment can be legally completed in accordance with the direction contained in the order of the President of the Tribunal?
3. As regards the first question, it was pointed out by Mr. R.J. Bahadur who presented the case of the assessee that the two members of the Tribunal who heard the appeal in the first instance did not formulate the point or points on which they differed. The order of reference merely states that "there was a difference of opinion between the two members of the Tribunal on the only contention in the appeal."
The point on which difference of opinion arose has not been formulated by the Tribunal in the order of reference.
It was argued by Mr. R.J. Bahadur that it was the duty of the members of the Tribunal to formulate clearly the point or points on which they differed and only then the case may be properly referred to the President of the Tribunal. In our opinion the argument of Mr. R. J. Bahadur is well founded.
Section 5A, Indian Income-tax Act which deals with constitution, function and power of the Appellate Tribunal states in Sub-section (7) that if the members of the Bench differ in opinion on any point the point shall be decided according to the opinion of the majority, if there is a majority; but if the members are equally divided, they shall state the point or points on which they differ, and the case shall be referred by the President of the Tribunal for hearing on such point or points by one or more of the other members of the Tribunal, and such point or points shall be decided according to the opinion of the majority of the members of the Tribunal who have heard the case, including those who first heard it. In the present case the two members of the Tribunal who heard the appeal in the first instance have failed to comply with the statutory provision that they shall state the point or points on which they differ before they make reference to the President of the Tribunal. This failure to comply with the requirement of Section 5A(7) is not a mere procedural defect nor it is a matter of mere formality but it is a matter which is a condition of the validity of the reference itself. Until the two members of the Tribunal formulate the point or points on which they differ we do not think that the President to whom the case is referred or the other member of the Tribunal to whom the case is sent by the President has competence to hear the reference to express any opinion on the points on which the members who originally heard the appeal differed. The reason is that the jurisdiction conferred by Section 5A(7) is jurisdiction of a special character and it is a well known principle that the special jurisdiction does not arise until ail the preliminary conditions are strictly satisfied. In the present case, therefore, two think that the President to whom the case was referred by the two members of the Tribunal had no jurisdiction to hear the reference and the order he has passed cannot be held to be in accordance with law.
4. There is also another reason why the order of the President cannot he held to be legally valid. In this case the Judicial Member of the Appellate Tribunal formed the opinion that a ram of Rs. 12,300 should be added to the income as disclosed by the books of account. But the Accountant member was inclined to the view that addition of Rs. 2,800 only should be made to the income as disclosed from the books of account. The President before whom the matter came on reference decided that an amount of Rs. 8,143 should be added to the assessee's income as disclosed by the books of account.
Section 5A. income-tax Act requires that if the members of the Tribunal are equally divided they should state the point on which they differ and the case shall be referred, to the President of the Tribunal for hearing on such point by one or more of the other members of the Tribunal and "such point shall be decided according to the opinion of the majority of the members of the Tribunal who have heard the case including those who first heard it."
In the present case it is manifest that as regards quantum of assessment not only two members of the Appellate Tribunal but also the President have each of them taken a different view. It is manifest that there is no majority opinion in favour of any particular figure as assessment. In a matter of this description where there is difference of opinion as to the quantum of assessment, we think that the President or the third member to whom the case is referred is legally bound to agree with the figure of assessment either ac-cording to the Accountant Member or according to the judicial member. It is not open to the President or the third member to take a different view as to the quantum of assessment. The only course open to him is to agree with the figure of assessment according to the opinion of the Judicial Member or the opinion of the Accountant Member. The reason is that if the President takes a different view as to the quantum of assessment there is no majority opinion in favour of any particular figure of assessment and the machinery provided by Section 5A(7) would become unworkable.
It was suggested by Mr. Gopal Prasad during the course of the argument that the majority opinion in this case is for the assessment of Rs. 3.143. This argument proceeds on the basis that when there is a judgment for Rs. 8,143, the judgment must for the purpose of Section 5A(7) be regarded as given in respect of each rupee or groups of tens or hundreds of rupees. If the judgment of the three members of the Tribunal is so dissected, it was argued that there 4s a majority opinion in favour of Rs. 8,143 which was the quantum of assessment according to the view taken by the President.
We are unable to accept this view. It is not permissible on a correct interpretation of Section 5A (7) to divide the opinion of the members of the Tribunal into compartments and to make apportionment piecemeal of the figure of assessment which each of the members of the Tribunal has adopted. There is of course an obvious difficulty in applying the principle of the section in a case where there is difference of opinion between the members as regards quantum of assessment. In this respect there is a lacuna in the statute. But it is not the function of a Court to fill in the gap 3 eft in an Act of the Legislature, and to speculate with what material the legislature would if it had discovered the gap, filled it in. As Section 5A(7) stands at present, we think that the correct interpretation is that the President or the third member to whom the case is referred may only agree with the quantum of assessment taken by one or other of the two differing members and it is not open to him to take a third view as regards quantum of assessment.
5. For these reasons we think that the opinion of the President in this case is not legally valid and that the assessment cannot be legally completed in accordance with the direction contained in the order of the President of the Appellate Tribunal. The two questions formulated in the statement of the case must be answered to the above effect.
6. The result therefore is that the reference under Section 5A(7) to the President of the Tribunal is incompetent and the case must now go back to the Income-tax Appellate Tribunal for being dealt with and disposed of in accordance with law.
7. In the special circumstances of this case we do not propose to make any order as to the costs of this reference.