judgement:
ivil Appeal No. 1935 of 1981.
From the Judgment and Order dated 8.4.
1980 of the Calcutta High Court in Matter No. 143 of 1980.
Sukumar Bhattacharya and G.S. Chaterjee for the Appellant.
J. Ramamurthy.
g. Rajappa and Ms. A. Subhashini for the Respondents.
The Judgment of the Court was delivered by K.N. SINGH, J.
The appellant is a Government Corporation engaged in jute industry.
It was assessed to income tax for the assessment year 1974 75 by the Income Tax Officer.
The assessee preferred appeal before the Appellate Assistant Commissioner.
During the hearing of the appeal, the assessee raised an additional ground claiming deduction of Rs. 11,54,995 on the ground of liability of Purchase Tax.
The assessee claimed that in view of the decision of this Court in Kedarnath Jute Company Limited vs Commissioner of Income Tax, [19771 the aforesaid amount being tax liability should be deducted from its income for purposes of charging tax.
The Appellate Assistant Commissioner permitted the assessee to raise the additional ground and after hear ing the Income Tax Officer, he accepted the assessee 's claim and allowed deduction of Rs. 11,54,995 in computing the total income of the assessee for the assessment year 1974 75.
The Revenue preferred appeal before the Income Tax Appellate Tribunal.
The Tribunal held that the Appellate Assistant Commissioner had no jurisdiction to entertain an additional ground or to grant relief to the assessee on a ground which had not been raised before the Income Tax Officer.
The Tribunal set aside the order of the Appellate Assistant Commissioner placing reliance on the decision of this Court in Addl.
Commissioner of Income Tax, Gujarat vs Gurjargravures P. Ltd. [1978] 111 I.T.R.I.
The assessee made application before the Tribunal under Section 256(1) of the Income Tax Act, 1961 for making reference to the High Court.
The Tribunal refused to refer the question on 343 the findings that the question stood covered by this Court 's decision in Gurjargravures (supra).
The assessee thereupon approached the High Court under Section 256(2) of the Act for calling the statement of case and reference from the Appellate Tribunal.
A Division Bench of the Calcutta High Court held that the Tribunal was right in rejecting the assessee 's application, therefore it refused to call state ment of case.
The assessee thereupon approached this Court under Article 136 of the Constitution.
and obtained leave.
Hence this Appeal.
The question of law which the assessee sought to be referred to the High Court under Section 256(1) of the Act was: "Whether on the facts and in the circumstances of the case.
the Income Tax Appellate Tribunal was justified in holding that the Appellate Assistant Commissioner of Income Tax had exceeded his powers in entertaining the additional ground of appeal taken before him in respect of the claim for deduc tion of a sum of Rs. 11,54,995 representing liability for raw jute Purchase Tax.
" Section 251 of the Income Tax Act (hereinafter referred to as the 'Act ') prescribes power of the Appellate Authority hearing appeal against the order of.
Income Tax Officer.
Clause (a) of Section 25 1(1) confers power on the Appellate Authority namely the Appellate Assistant Commissioner [now after the Amendment of 1987 the Deputy Commissioner (Ap peals)] according to which Appellate AUthority while hearing appeal against an order of assessment.
has power to confirm.
reduce, enhance or annual the assessment; he is further empowered to set aside the assessment and remit the case back to the Assessing Officer for making a fresh assessment in accordance with its directions.
after making such further inquiry as may be necessary.
If a direction is issued by the Appellate Authority, the Assessing Officer is required to proceed to make such fresh assessment and determine the amount of tax, if any.
payable on the basis of fresh assess ment.
The Appellate Assistant Commissioner is thus invested with wide powers under section 251(1)(a) of the Act while hearing an appeal against the order of assessment made by the Income Tax Officer.
The amplitude of the power includes power to set aside the assessment order or modify the same.
The question is whether the Appellate Assistant Commissioner while hearing an appeal under section 251(1)(a) has jurisdiction to allow the assessee to raise an additional ground in assailing the order of the assessment before it.
The Act does not contain any express provision debarring an assessee from raising an addi 344 tional ground in appeal and there is no provision in the Act placing restriction on the power of the Appellate Authority in entertaining an additional ground in appeal.
In the absence of any statutory provision.
general principle relat ing to the amplitude of appellate authority 's power being co terminus with that of the initial authority should nor mally be applicable.
But this question for the purposes of the Income Tax Act has been an intricate and vexed one.
There is no uniformity in the judicial opinion on this question.
Section 31 of the Income Tax Act, 1922 also conferred power on the Appellate Assistant Commissioner to hear appeal against the assessment order made by the Income Tax Officer.
The Chagla, CJ of the Bombay High Court considered the question in detail in Narrondas Manordass vs Commissioner of Income Tax, and held that the Appellate Assistant Commissioner was empowered to correct the Income Tax Officer not only with regard to a matter which had been raised by the assessee but also with regard to a matter which may have been considered by the Income Tax Officer and determined in the course of the assessment.
The High Court observed that since the Appellate Assistant Commissioner had revising authority against the decisions of the Income Tax Officer; a revising authority not in the narrow sense of revising those matters, which the assessee makes a grievance but the subject matter of the appeal not only he had the same powers which could be exercised by the Income Tax Officer.
These observations were approved by this Court in Commissioner of Income Tax vs McMillan & Co., ; the Appellate Assistant Commissioner on an appeal preferred by the assessee had jurisdiction to invoke, for the first time provisions of Rule 33 of the Income Tax Rules, 1922, for the purpose of computing the income of a nonresident even if the Income Tax Officer had not done so in the assessment proceedings.
But in Commissioner of Income Tax, Bombay vs Shapporji Pallon Ji Mistry, [1962] 44 I.T.R. 891 this Court while considering the extent of the power of the Appellate Assistant Commissioner referred to a number of cases decided by various High Courts including Bombay High Court judgment in Narrondas case and also the decision of this Court in McMillan & Co. case and held that in an appeal filed by the assessee, the Appellate Assistant Commissioner has no power to enhance the assessment by discovering new sources of income, not considered by the Income Tax Officer in the order appealed against.
It was urged on behalf of the Revenue that the words "enhance the assessment" occurring in section 31 were not confined to the assessment reached through particular process but the amount which ought to have been computed if the true total income had been 345 found.
" The Court observed that there was no doubt that this view was also possible, but having regard to the provisions of Sections 34 and 33B, which made provisions for assessment of escaped income from new sources, the interpretation suggested on behalf of the Revenue would be against the view which had held the field for nearly 37 years.
In this view the Court held that the Appellate Assistant Commissioner had no power to enhance the assessment by discovering new sources of income.
This decision does not directly deal with the question which we are concerned.
Power to enhance Tax on discovery of new source of income is quite different than granting deduction on the admitted facts fully supported by the decision of this Court.
If the tax liability of the assessee is admitted and if the Income Tax Officer is af forded opportunity of hearing by the Appellate Authority is allowing the assessee 's claim for deduction on the settled view of law, these appears to be no good reason to curtail the powers of the appellate authority under Section 25 1(1)(a) of the Act.
In Commissioner of Income Tax, U.P.v.
Kanpur Coal Syndi cate, a three Judge Bench of this Court discussed the scope of Section 31(3)(a) of the Income Tax Act, 1922 which is almost identical to Section 251(1)(a).
The Court held as under: "If an appeal, lies, Section 31 of the Act describes the powers of the Appellate Assistant Commissioner in such an appeal.
Under Section 31(3)(a) in disposing of such an appeal the Appellate Assistant Commissioner may, in the case of an order of assessment, confirm, reduce, enhance or annul the assessment; under clause (b) thereof he may set aside the assessment and direct the Income Tax Officer to make a fresh assessment.
The Appellate Assistant Commissioner has, therefore, plenary powers in disposing of an appeal.
The scope of his power is conterminous with that of the Income Tax Officer.
He can do what the Income Tax Officer can do and also direct him to do what he has failed tO do. " (emphasis supplied) The above observations are squarely applicable to the interpretation of section 25 1(1)(a) of the Act.
The declaration of law is clear that the power of the Appellate Assistant Commissioner is co terminus with that of the Income Tax Officer, if that he so, there appears to be no reason as to why the appellate authority cannot modify the assessment order on an additional ground even if not raised before the Income Tax Officer.
No 346 exception could be taken to this view as the Act does not place any restriction or limitation on the exercise of appellate power.
Even otherwise an Appellate Authority while hearing appeal against the order of a subordinate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations if any prescribed by the statutory provi sions.
In the absence of any statutory provision the Appel late Authority is vested with all the plenary powers which the subordinate authority may have in the matter.
There appears to be no good reason and none was placed before us to justify curtailment of the power of the Appellate Assist ant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income Tax Officer.
In Additional Commissioner of Income Tax, Gujarat vs Gurjargravures P. Ltd. (supra) this Court has taken a dif ferent view, holding that in the absence of any claim made by the assessee before the Income Tax Officer regarding relief, he is not entitled to raise the question of exemp tion under Section 84 before the Appellate Assistant Commis sioner hearing appeal against the order of Income Tax Offi cer.
In that case the assessee had made no claim before the Income Tax Officer for exemption under Section 84 of the Act, no such claim was made in the return nor any material was placed on record supporting such a claim before the Income Tax Officer at the time of assessment.
The assessee for the first time made claim for exemption under Section 84 before the Appellate Assistant Commissioner who rejected the claim but on further appeal the Appellate Tribunal held that since the entire assessment was open before the Appellate Assistant Commissioner there was no reason for his not entertaining the claim, or directing the Income Tax Officer to allow appropriate relief.
On a reference the High Court upheld the view taken by the Tribunal.
On appeal this Court set aside the order of the High Court as it was of the view that the Appellate Assistant Commissioner had no power to interfere with the order of assessment made by Income Tax Officer on a new ground not raised before the Income Tax Officer, and therefore the Tribunal committed error in directing the Appellate Assistant Commissioner to allow the claim of the assessee under Section 84 of the Act.
Apparent ly this view taken by two Judge Bench of this Court appears to be in conflict with the view taken by the three Judge Bench of the Court in Kanpur Coal Syndicate 's case (supra).
It appears from the report of the decision in Gujarat case the three Judge Bench decision in Kanpur Coal Syndicate (supra) case was not brought to the notice of the Bench in the Gurjargravures P. Ltd. (supra).
In the 347 circumstances the view of the larger Bench in the Kanpur Coal Syndicate, (supra) holds the field.
However we do not consider it necessary to over rule the view taken in Gurjar gravures P. Ltd. (supra) case as in our opinion that deci sion is rounded on the special facts of the case, as would appear from the following observations made by the Court; "As we have pointed out earlier, the statement of case drawn up by the Tribunal does not mention that there was any material on record to sustain the claim for exemption which was made for the first time before the Appellate Assistant Commissioner.
We are not here called upon to consider a case where the assessee failed to make a claim though there was no evidence on record to support it, or a case where a claim was made but no evidence or insufficient evidence was ad duced in support.
In the present case neither any claim was made before the Income Tax Officer, nor was there any mate rial on record supporting such a claim.
" The above observa tions do not rule out a case for raising an additional ground before the Appellate Assistant Commissioner if the ground so raised could not have been raised at that particu lar stage when the return was filed or when the assessment order was made, or that the ground became available on account of change of circumstances or law.
There may be several factors justifying raising of such new plea in appeal, and each case has to be considered on its own facts.
If the Appellate Assistant Commissioner is satisfied he would be acting within his jurisdiction in considering the question so raised in all its aspects.
Of course, while permitting the assessee to raise an additional ground, the Appellate Assistant Commissioner should exercise his discre tion in accordance with law and reason.
He must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons.
The satisfac tion of the Appellate Assistant Commissioner depends upon the facts and circumstances of each case and no rigid prin ciples or any hard and fast rule can be laid down for this purpose.
In Rai Kumar Srimal vs Commissioner of Income Tax, West Bengal 111, a Division Bench of Cal cutta High Court presided over by Sabyasachi Mukharji, J., as he then was held that the Appellate Assistant Commission er was entitled to admit new ground or evidence either suo motu or at the invitation of the parties.
If he is acting on being invited by the assessee, then there must be some ground for admitting new evidence in the sense that there must be some explanation to show that the failure to adduce earlier the evidence sought to be adduced before the Appel late Assistant Commissioner was not wilful and not unreason able.
This view is reasonable and it finds favour with us.
348 In the instant case the assessee was carrying on manu facture and sale of jute.
In the assessment year of 1974 75 he did not claim any deduction on its liability to pay Purchase Tax under the provisions of the Bengal Raw Jute Taxation Act, 1941, as the appellant entertained a belief that it was not liable to pay Purchase Tax under the afore said Act.
But later on it was assessed to Purchase Tax and the order of assessment was received by it on 23.11.
The appellant disputed the demand and filed an appeal before the Appellate Authority and obtained stay order.
The asses see thereafter claimed deduction for the amount of Rs. 11,54,995 towards his liability to pay Purchase Tax as deduction for the assessment year 1974 75.
The assessee had not actually paid the Purchase Tax as he had obtained stay from the Appellate Authority nonetheless its liability to pay tax existed, and it was entitled to deduction of Rs. 11,54,995 as was held by this Court in Kedarnath Jute Mfg. Co. Ltd. vs Commissioner of Income Tax (Central), Calcutta, There was no dispute about these facts.
In these circumstances the Appellate Assistant Com missioner allowed the assessee to raise this question and after hearing the Income Tax Officer, he granted the deduc tion from the assessee 's income.
The Tribunal took a con trary view placing reliance on the decision of this Court in Gujargravures P. Ltd. (supra).
As already discussed the facts in the instant case are quite clear, unlike the facts involved in Gurjargravures case.
We are, therefore, of the view that the view taken by the Appellate Tribunal and the High Court is not sustainable in law.
In our opinion, the High Court and Tribunal both committed error in refusing to state the case, or making a reference.
The next question which arises for consideration is to know what order should be passed in the present circum stances.
In view of the findings recorded by us ordinarily we should direct the High Court to call for the statement of case from the Tribunal and thereupon decide the matter afresh, but this procedure would be time consuming.
Since we have already discussed the correct position of law we do not consider it necessary to follow the usual procedure.
Since the view taken by the Income Tax Appellate Tribunal is not sustainable in law we grant leave against the order of the Appellate Income Tax Tribunal under Article 136 and set aside the same and remit the matter to the Appellate Income Tax Tribunal to consider the merit of the deduction permit ted by the Appellate Assistant Commissioner.
If the Tribunal thinks it necessary it may remand the matter to the Appel late Assistant Commissioner (now Deputy Commissioner of Appeals) for reheating.
The appeal is accordingly disposed of.
There will be no order as to costs.
G.N. Appeal disposed of.

dataset_name: IN-Abs

summary/full:
In respect of the assessment for the assessment year 1974 75, the appellant assessee preferred an appeal before the Appellate Assistant Commissioner.
During the hearing of the appeal, the assessee raised an additional ground as regards its liability to Purchase Tax and claimed a deduc tion of Rs.11,54,995.
After giving an opportunity of hearing to the Income Tax Officer, the Appellate Assistant Commis sioner allowed the said claim.
The Revenue preferred an appeal before the Income Tax Appellate Tribunal.
The Tribunal held that the Appellate Assistant Commissioner had no jurisdiction to entertain any additional ground not raised before the Income Tax Officer and set aside the order of the Appellate Assistant Commis sioner.
The assessee 's application for making reference to the High Court was refused by the Tribunal.
The High Court also rejected the assessee 's application for calling the state ment of the case and reference from the Tribunal.
Hence, this appeal by special leave.
Disposing of the appeal, the Court, HELD: 1.1 The declaration of law is clear that the power of the Appellate Assistant Commissioner is co terminus with that of the Income Tax Officer.
If that be so, there appears to be no reason as to why the appellate authority cannot modify the assessment order on an additional ground even if not raised before the Income Tax Officer.
No exception could be taken to this view as the Act does not place any restric tion or limitation on the exercise of appellate power.
Even otherwise an Appellate Authority while hearing appeal against the order of a subordinate authority has all the powers which the original 341 authority may have in deciding the question before it sub ject to the restrictions or limitation if any prescribed by the statutory provisions.
In the absence of any statutory provisions to the contrary the Appellate Authority is vested with all the plenary powers which the subordinate authority may have in the matter.
[155G H; 156A B] 1.2 If the Appellate Assistant Commissioner is satisfied he would be acting within his jurisdiction in considering the question so raised in all its aspects.
Of course, while permitting the assessee to raise an additional ground, the Appellate Assistant Commissioner should exercise his discre tion in accordance with law and reason.
He must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons.
The satisfac tion of the Appellate Assistant Commissioner depends upon the facts and circumstances of each case and no rigid prin ciples or any hard and fast rules can be laid down for this purpose.
[157D F] Commissioner of Income Tax vs Mc Millan & Co., ; ; Commissioner of Income Tax, U.P. vs Kanpur Coal Syndicate,, ; Kedarnath Jute Mfg. Co. Ltd. vs Commissioner of Income Tax (Central), Calcutta, ; relied on.
Commissioner of Income Tax, Bombay vs Shapporji Patton Ji Mistry, ; Addl.
Commissioner of Income Tax Gujarat vs Gurjargravures ?.
Ltd., ; distinguished.
Rai Kumar Srimal vs Commissioner of Income Tax, West Bengal 111, , approved.
Narrondas Manordass vs Commissioner of Income Tax, [1957] 31 referred to. 2.
In the instant case, the assessee was assessed to Purchase Tax.
The appellant disputed the demand and filed an appeal before the Appellate Authority and obtained stay order.
The assessee thereafter claimed deduction for the amount of Rs.11,54,995 towards his liability to pay Purchase Tax as deduction for the assessment year 1974 75.
The asses see had not actually paid the Purchase Tax as it had ob tained stay from the Appellate Authority; nonetheless its liability to pay tax existed, and it was entitled to deduc tion of Rs. 11,54,995.
[158B C] 3.
Since the view taken by the Income Tax Appellate Tribunal is 342 not sustainable in law, the order of the Tribunal is set aside and the matter is remitted to the Tribunal to consider the merit of the deduction permitted by the Appellate As sistant Commissioner.
If the Tribunal thinks it necessary, it may remand the matter to the Appellate Assistant Commissioner (Deputy Commissioner of Appeals) for hearing [158F H]


judgement:
ivil Appeals Nos.
322 & 323 of 1976.
From the Judgment and Order dated 27.3.1973 and 23.5.75 of the Delhi High Court in F.A.O. (O.S.) No. 35 of 1969 and C.M. No. 1300 of 1974 in F.A.O. (O.S.) 35 of 1969.
P.P. Juneja for the Appellant.
B.B. Barua, Ms. A. Subhashini (N.P.) and Ms. Indira Sawhney ( N.P. ) for the Respondent.
The Judgment of the Court was delivered by S.C. AGRAWAL, J.
Civil Appeal No. 322 of 1976 This appeal by special leave has been filed against the judgment dated March 27, 1973 of the High Court of Delhi in F.A.O. (O.S.) No. 35 of 1968.
The appellant, section Harcharan Singh, was awarded a contract for 80 constructing approaches to the Bridge Structure B 2 on the North Sikkim Road in 1959 60.
Under the agreement the appel lant was required to do hard rock cutting to the extent of 7.54,530 cft.
The rate fixed for the said work in the con tract was Rs.129 per thousand cft.
plus 2%.
The appellant was required to perform hard rock cutting to the extent of 18, 18,704 cft.
The appellant claimed payment at the rate of Rs.200 per thousand cft.
for the additional work of hard rock cutting.
He also claimed certain other sums under other heads.
The dispute in respect of four heads was referred to arbitration in accordance with the clause 25 of the agree ment.
The arbitrator gave his award dated February 5, 1965 wherein he disallowed the claim of the appellant in respect of two items but made an award in favour of the appellant in respect of two items of claim.
In this appeal we are only concerned with the claim of the appellant in respect of the additional work of hard rock cutting which the appellant was required to execute.
The arbitrator awarded a sum of Rs.52,800 against the said item.
The award was filed in the High Court by the arbitrator alongwith his letter dated June 6, 1968.
Objections were filed by the respondent under Sections 30 and 33 of the (hereinafter referred to as 'the Act ').
The said objections were consid ered by the learned single Judge of the Delhi High Court and by order dated April 23, 1969.
the said objections of the respondent were rejected and it was ordered that the award be made a rule of the Court.
The respondent filed an appeal against the said order and decree passed by the learned single Judge.
The appeal was partly allowed by the Division Bench of the High Court by judgment dated March 27, 1973, whereby the award as regards the claim for higher remunera tion at the rate of Rs.200 per thousand cft.
for the addi tional work of hard rock cutting was set aside.
The award in respect of other item of the claim relating to expenditure incurred by the appellant in reconstructing the retaining walls after damage, was maintained.
Aggrieved by the said decision of the Division Bench of the High Court the appel lant has filed this appeal after obtaining special leave.
As indicated earlier, this appeal is confined to the claim of the appellant for payment for the additional work of hard rock cutting which the appellant was required to execute.
The appellant has claimed a higher rate of Rs.200 per thousand cft.
for this additional work.
Under the agree ment the appellant was required to execute hard rock cutting to the extent of 7,54,530 cft.
but actually he was required to execute such cutting to the extent of 18.15 lacs cft.
The extent of the additional work was about 10.60 lacs cft.
, i.e. about 140%.
While undertaking the execution of the additional work of hard rock 81 cutting the appellant in his letter dates August 24, 1960 addressed to the Executive Engineer, Central Division No. II, Gangtok, had requested for revision of the rate for hard rock cutting and stated that the minimum working rates for this item are 52% above the tendered rates.
The ExecUtive Engineer by his letter dated September 2, 1960, requested the appellant to submit an analysis of rate for hard rock cutting.
The appellant submitted his analysis of rates on September 14, 1960 wherein after analysing the rates of materials and labour the workable rate worked out to Rs.200 per thousand cft.
The Executive Engineer also got an analy sis of rates done on the basis of the data collected on actual observation and he arrived at a figure of Rs.237 per thousand cft.
By his letter dated November 9, 1961 addressed to the Superintending Engineer, Calcutta Central Circle No. III, CPWD, Calcutta, the Executive Engineer recommended the extra rate of Rs.200 per thousand cft.
for work in excess of 20% of the stipulated quantity.
The Superintending Engineer, in his letter dated February 23, 1962 addressed to the Additional Chief Engineer III, Central P.W.D., New Delhi, made a similar recommendation and the Additional Chief Engineer made a similar recommendation in his letter dated July 16, 1962 addressed to the Secretary to the Government of India, Ministry of Works and Housing.
It appears that the Government did not agree to pay at a rate in excess of the rate of Rs.129 per thousand cft.
plus 2% stipulated under the agreement.
The dispute was, therefore, referred to arbitration.
The arbitrator in his award has considered this item of claim as under: Claim Dispute Award "The contractor claims The arbitrator The claim of the that for Item No 3 of is to deter contractor is the agreement he should mine whether partly justified.
be paid at the rate of under the He should be paid Rs.200 per 1000 cft.
terms and con an amount of for the quantities ditions of the Rs.52,800 (Rupees beyond what is stipu contract, the fifty two thousand lated in the agreement.
claim is jus and Eight hundred tified and if only) in addition so, to what ex to the payment to tent. be made to him at relevant agreement rate for the total quantity of work executed by him under this item.
" 82 Before the learned single Judge it was submitted on behalf of the respondent that the award is a speaking award and from the award it is apparent that the arbitrator has fixed rates for additional work done by the contractor which the arbitrator has no jurisdiction to do by reason of clause 12 of the agreement between the parties which provides that additions to the contract work shall be carried out by the contractor on the same conditions in all respects on which he agreed to do the main work and at the same rates as specified in the tender for the mainwork.
The learned single Judge rejected the said contention and held that the arbi trator was determining only the value of the additional work at the rate of Rs.200 which had been agreed by the Engineer in charge and the Superintending Engineer of the Circle as contemplated by clause 12 and the scope of the inquiry before the arbitrator was only the quantity of work which was additional to the quantities specified in the agreement.
The learned Judges of the Division Bench of the High Court have disagreed with the said view and have ob served that it is clear from the statement of claim as incorporated in the award, and the affidavit of the contrac tor that there was no dispute with regard to the quantity of work and the only dispute was with regard to the rate and that the arbitrator had allowed a sum of Rs.52,800 to the contractor in respect of the total quantity of work executed by him under item No. 3 in addition to the agreed rate and that there was no escape from the conclusion that the arbi trator had awarded the above 'amount by applying a rate higher than the agreed rate.
The learned Judges of the Division Bench were of the view that under clause 12 of the agreement the provision with regard to the fixing of the rate by the Engineer incharge and the Superintending Engi neer of the Circle comes into play only when the additional item of work does not form part of the main work and the rates for such work are not specified in the schedule of rates.
The learned Judges of the Division Bench have held that since the additional hard rock cutting job done by the appellant was part of the main work and the agreement pro vided the rate for the said item, there was no occasion for the Engineer in charge or the Suprer intending Engineer to fix the rate for the extra quantity of hard rock cutting and that the action of the arbitrator in allowing the rate to the contractor in excess of the agreed rate for the job of hard rock cutting was against clause 12 of the agreement and thereby the arbitrator had exceeded his jurisdiction.
As regards the award of an arbitrator under the Act.
the law is well settled that the arbitrator 's adjudication is generally considered binding between the parties for he is a tribunal selected by the parties and the power of the court to set aside the award is restricted to cases 83 set out in section 30 of the Act, viz. (a) if the arbitrator has misconducted himself or the proceedings; or (b) when the award has been made after the issue of an order by the Court superseding the arbitration or after arbitration proceedings have become invalid under Section 35; or (c) when the award has been improperly procured or is otherwise invalid.
Under clause (c) of Section 30 the Court can set aside an award which suffers from an error on the face of the award.
It is.
however.
not open to the Court to speculate, where no rea sons are given by the arbitrator.
as to what impelled the arbitrator to arrive at his conclusion.
But the jurisdiction of the arbitrator is limited by the reference and if the arbitrator has assumed jurisdiction not possessed by him, the award to the extent to which it is beyond the arbitra tor 's jurisdiction would be invalid and liable to be set aside (See: Jivarajbhai Ujarnshi Sheth and Others vs Chin tatnanrao Balaji and Others, ; This posi tion at law has been reiterated by the Constitution Bench of this Court in its recent decision in Raipur Development Authority and Others vs M/s Chokharnal Contractors and Others, [1989] 2 S.C.C. 721.
It has been held that an arbi trator or umpire is under no obligation to give reasons in support of the decision reached by him unless under the arbitration agreement or the deed of submission he is re quired to give such reasons and if the arbitrator or umpire chooses to give reasons in support of his decision it is open to the Court to set aside the award if it finds that an error of law has been committed by the arbitrator or umpire on the face of the record on going through such reasons and that an award can neither be remitted nor set aside merely on the ground that it does not contain reasons in support of the conclusion or decisions reached in it except where the arbitration agreement or the deed of submission requires him to give reasons.
In the instant case the arbitration agreement or the deed of submissions did not require the arbitrator to give reasons and, therefore, the award cannot be questioned on the ground of an error on the face of the award.
The learned Judges of the Division Bench of the High Court have set aside the award in relation to claim No. 1 relating payment for additional work of hard rock cutting on the ground that in making the award the arbitrator exceeded his jurisdiction by allowing a rate to the contractor in excess of the agreed rate for the job of hard rock cutting against the terms and conditions contained in clause 12 of the agreement.
The question which needs to be considered here is as to whether in awarding the sum of Rs.52,800 to the appellant for the additional 84 work of hard rock cutting executed by him the arbitrator has disregarded clause 12 of the agreement.
The said clause reads as under: "The Engineer in charge shall have power to make any altera tions in, commissions from, additions to or substituting for, the original specifications, drawings, designs and instructions, that may appear to him to be necessary or advisable during the progress of the work, and the contrac tor shall be bound to carry out the work in accordance with any instructions which may be given to him in writing signed by the Engineer in charge, and such alterations, omissions, additions or substitutions shall not invalidate the con tract: and any altered, additional or substituted work which the contractor may be directed to do in the manner above specified as part of the work shall be carried out by the contractor on the same conditions in all respects on which he agreed to do the main work and at the same rates as are specified in the tender for the main work.
The time for the completion of the work shall be extended in the proportion that the additional or substituted work bears to the Origi nal work, and the certificate of the Engineer in charge shall be conclusive as to such proportion.
And if the al tered, additional or substituted work included any class of work for which no rate is specified in this contract, then such class of work shall be carried out at the rates entered in the schedule of rates of the C.P.W.D. Schedule of Rates 53 54 on which the estimated cost shown on page 1 of tender is based provided that when the tender for the original work is a percentage above the schedule rates the altered, addi tional or substituted work required as aforesaid shall be chargeable at the said schedule rate plus the same percent age deduction addition and if such class of work is not entered in the said schedule of rates, then the contractor shall within seven days of the date of the receipt of the order to carry out the work inform the Engineer incharge of the rat.
e which it is his intention to charge for such class of work, and if the Engineer in charge does not agree to this rate he shall by notice in writing be ' at liberty to cancel his order to carry out such class of work and arrange to carry it out in such manner as he may consider advisable provided always that if the contractor "shall commence work or incur any expenditure in regard thereto before the rates shall have been determined as lastly hereinbefore 85 mentioned, then and in such case he shall only be entitled to be paid in respect of the work carried out or expenditure incurred by him prior to the date of the determination of the rate as aforesaid according to such rate or rates as shall be fixed by the Engineer in charge.
In the event of a dispute the decision of the Superintending Engineer of the Circle shall be final.
" Under this clause the Engineer in charge was empowered to make any additions to the original specifications that may appear to him to be necessary or advisable during the progress of the work and the contractor was bound to carry out the work in accordance with any instructions given to him in writing signed by the Engineer in charge.
As regards payment for the additional work which the contractor was directed to do it was provided that: (i) The contractor shall be paid at the same rates as are specified in the tender for the main work; (ii) If the additional work included any class of work for which no rate was specified in the contract then the con tractor shall be paid at the rates entered into the schedule of rates of the C.P.W.D. Schedule of Rates 53 54 on which the estimated cost shown on page 1 of tender is based and if the tender for the original work is a percentage above the schedule rates the additional work shall be chargeable at the said schedule rates plus the same percentage deductions/addition; and (iii) If such class of work is not entered in the said Schedule of Rates then the contractor should inform the Engineer in charge within seven days of the receipt of the order the rate he wants to charge for such class of work and the Engineer in charge, if he does not agree to the said rate, may cancel the order for such additional work and if the contractor has commenced the work or incurred expendi ture in regard thereto before the determination of the rates the contractor shall be paid in respect of work carried out or expenditure incurred by him prior to the determination of the rates according to such rates or rates as shall be fixed by the Engineer in charge and in the event of a dispute the decision of the Superintending Engineer of the Circle would be final.
The case of the appellant is that clause 12 envisages alter ations or 86 additions within reasonable limits and an addition to the extent of 140% in respect of one particular item alone is not covered by this clause and that in awarding Rs.52,800 as extra payment for the additional work the arbitrator has not acted in disregard of clause 12 and he cannot be said to have exceeded his jurisdiction.
A clause making provision for additions and variations is generally found in building and construction contracts.
In Hudson 's Building and Engineering Contracts 8th Edn.
it has been observed: "It may be that it can be inferred from the terms of the contract that the power to order extras, although apparently unlimited, is in fact limited to ordering extras up to a certain value and, in such a case, extras ordered in excess of that amount, although work of a kind contemplated by the contract, may yet be quite outside the terms of the con tract." (p. 294) "If the extra work ordered is outside the contract the terms of the contract have no application." (p. 296) In this context it would be relevant to take note of the decision of the Court of Appeal in England in Parkinson (Sir Lindsay) & Co. Ltd. vs Commissioners of His Majesty 's Works and Public Buildings, In that case the contractors had agreed with His Majesty 's Commissioners of Works and Public Buildings to erect an ordnance factory according to the general conditions and specifications and bills of quantities and drawings annexed for the contract sum of Pound 3,500,000 and under the general conditions of contract the Commissioners had power, at their absolute discretion, to modify the extent and character of the work or to order alterations of or additions to the works and it was the duty of the contractor to comply with the archi tect 's instructions in this respect.
In the contract it was also provided that it is probable that further work to the value of approximately, Pound 500,000 would be ordered on a measured basis under the terms of the contract.
The contract was amended by a deed of variation and it was provided that exceptional methods should be used to hasten the work and that a system of uneconomic working should be introduced to bring about the completion of the factory by the date fixed by the contract.
The Commissioners ordered work to be exe cuted greatly in excess of the amount contemplated although not different in character from that covered by the varied contract, so that the works could not be completed until a year beyond the time anticipated and the actual cost of the 87 contracts was L6,683,056 which amount had been paid to them alongwith L300,000 the maximum profit under the deed of variation.
During the progress of the work the contractors had.
complained to the Commissioners that they were being called on to execute more work than was contemplated by the varied contract and claimed that they were entitled to extra remuneration for the work in excess of that contemplated but they proceeded with the work at the request of the Commis sioners leaving the issue to be subsequently decided by arbitration.
The arbitrator found that the estimated cost of the work under the varied contract was L500,000 and awarded L90,298 as proportionate or reasonable profit or remunera tion to the contractors for the additional work.
The said award was upheld by the Court of Appeal on the view that a term must be implied in the varied contract that the Commis sioners should not be entitled to require work materially in excess of the sum of L5,000,000 and that such excess work having been done by the contractors, the Commissioners were liable to pay the contractors reasonable remuneration there fore.
On behalf of the Commissioners reliance was placed on Condition 33 of the original contract which gave the Commis sioners an unlimited power of ordering extras even to the extent of altering the character of the work.
The contrac tors, on the other hand, placed reliance on the following observations of Mc Cardie, J. in Naylor, Benzon & Co. vs Krainische Industrie Gesellschart, [1918] 1 K.B.331: "It is essential to remember, however, that words, even though general, must be limited to circumstances within the contemplation of the parties.
" Accepting the contention urged on behalf of the contrac tors Asquith L. J. observed: "If the original contract plus the deed are read without any implied limitation on their literal meaning, the result, as indicated above, is that after L300,000 profit has been earned by the contractor, he can be compelled to labour like the Danaids without reward or limit, or any further "extras" which the commissioners may elect to exact from him, 'till the last syllable of recorded time. ' Only the most compel ling language would induce a court to construe the combined instruments as placing one party so completely at the mercy of the other.
Where the language of the contract is capable of a literal and a more restricted meaning, all relevant circumstances can be taken into account in decid 88 ing whether the literal or a more limited meaning should be ascribed to it".
(p. 662) Similarly Singleton L.J. has observed: "1 find myself unable to agree with the submission of Mr. Rewcastle that under the contract as varied by the deed of variation, the contractors would have been bound to continue making alterations and additions, if ordered, for years and years, without any extra payment by way of profit.
That would have led to manifest absurdity and injustice, as Mathew, J. said in Bush vs Whitehaven Trustees, (1).
There must be a limit." (p. 673) Here also the question has often arisen whether the contractor under the variation clause is liable to execute the extra or additional quantities of the tendered items at the tendered rates to an unlimited extent.
In some awards given by the arbitrators in the Central Public Works Depart ment of the Government of India the variation of the ten dered quantities under the variation clause in the contract has been restricted to 10% beyond which the contractor was entitled to claim as extras and these awards have been accepted and implemented by the Government.
It appears that the standard form of contract of the Central Public Works Department has been amended and now it specifically permits for a limit of variation called "deviation limit" upto a maximum of 20% and upto such limit the contractor has to carry out the work at the rates stipulated in the contract and for the work in excess of that limit at the rates to be determined in accordance with clause 12 A under which the Engineer in charge can revise the rates having regard to the prevailing market rates (See: Gajaria 's Law relating to Building and Engineering Contracts in India, 3rd Edn., pages 410 412).
In the instant case, it appears that the Executive Engineer, the Superintending Engineer and the Additional Chief Engineer in their letters dated November 9, 1961, February 23, 1962 and July 16, 1962 respectively have ex pressed the view that the additional work under the terms of the contract may be confined to 20% and the appellant may be paid at the rates prescribed in the contract for 20% of the additional work and for the extra quantity of additional work he may be paid remuneration at the increased rate taking into account the increased costs in execution of the said work on account of the peculiar nature of the work.
While considering the claim of the appellant the 89 arbitrator was required to consider the terms of the con tract and to construe the same.
It was, therefore, permissi ble for the arbitrator to consider whether clause 12 of the contract enables the Engineer incharge to require the appel lant to execute additional work without any limit or a reasonable limit should be placed on the quantity of the additional work, which the appellant may be required to execute at the rate stipulated for the main work under the contract.
For that purpose the arbitrator could take into consideration the practice prevalent in the Central Public Works Department in this regard as well as the correspond ence between the appellant and the authorities including the letters dated November 9, 1961, February 23, 1962 and July 16, 1962 of the Executive Engineer, the Superintending Engineer and the Additional Chief Engineer recommending payment of remuneration at the increased rate for the addi tional work in excess of 20% of the quantity stipulated in the contract.
The appellant was claiming increased rate of Rs.200 per 1000 cft.
for the entire quantity of additional work.
The arbitrator did not accept the said claim of the appellant in full and has partly allowed the said claim by awarding Rs.52,800 which means that the arbitrator has awarded the increased rate only for a part of the additional work of hard rock cutting which the appellant was required to execute.
The arbitrator was entitled to do so on the construction placed by him on clause 12 of the contract and, therefore, it cannot be said that in awarding the sum of Rs.52,800 for the additional work the arbitrator has exceed ed his jurisdiction and the award is vitiated by an error of jurisdiction.
In the circumstances, we are unable to agree with the judgment of the learned Judges of the Division Bench of the High Court on this part of the claim.
The appeal is, therefore, allowed and the judgment of the Division Bench of the High Court setting aside the award of the arbitrator with regard to item No. 1 of the claim relating to payment for additional work of hard rock cutting is set aside and the order passed by the learned Single Judge upholding the award of the arbitrator in this regard is restored.
The appellant will be entitled to his costs.
Civil Appeal No. 323 of 1976 This appeal is directed against the order dated May 23, 1975 of the High Court of Delhi whereby the High Court rejected C.M. No. 1300 of 1974 filed by the appellant under Order 41, rule 21 read with Section 151 C.P.C., praying that the ex parte judgment dated March 27, 1973 in F.A.O. (O.S.) No. 35 of 1969 may be set aside and the appeal be re admit ted to its original number and the appeal be heard 90 and decided on merits.
The appellant has filed C.A. No. 322 of 1976 against the said judgment of the High Court dated March 27, 1973 in F.A.O. (O.S.) No. 35 of 1968.
The said appeal has been allowed by the judgment given today.
Since the judgment of the High Court dated March 27, 1973 has been set aside by this Court in C.A. No. 322 of 1976 this appeal does not survive and it is disposed of accordingly.
No costs.
G.N. Appeal disposed of.

summary/full:
The appellant was awarded a contract for constructing approaches to certain Bridge structure.
As per the agree ment, he was required to do hard rock cutting to the extent of 7,54,530 cft.
and the rate fixed was Rs.129 per thousand cft.
plus 2%.
Actually the appellant was required to perform hard rock cutting to the extent of 18,18,704 cft.
For the additional work, the appellant claimed payment at the rate of Rs.200 per thousand cft.
He also claimed certain other sums under other heads.
Dispute in respect of 4 heads was referred to arbitration.
The arbitrator in his award disal lowed two claims and allowed the other two claims, one of which was in respect of the additional work of hard rock cutting, and awarded a sum of Rs.52,800 under this head.
The arbitrator filed the award in the High Court.
After consid ering the objections filed by the respondent a Single Judge of the High Court ordered that the award be made a rule of the Court.
The respondent filed an appeal against the said order and the Division Bench set aside, ex parte, the claim for higher remuneration at the rate of Rs.200 per thousand cft.
Aggrieved, the appellant has preferred an appeal, by ' special leave.
The other appeal, also by special leave, is against the High Court 's rejection of the prayer for setting aside the ex parte judgment.
Allowing the former appeal and disposing of the latter one, HELD: 1.
As regards the award of an arbitrator under the Act, the law is well settled that the arbitrator 's adjudica tion is generally considered binding between the parties for he is a tribunal selected by the parties and the power of the court to set aside the award is restricted to cases set out In section 30 of the Act.
It is, however, not open to the 77 Court to speculate, where no reasons are given by the arbi trator, as to what impelled the arbitrator to arrive at his conclusion.
But the jurisdiction of the arbitrator is limit ed by the reference and if the arbitrator has assumed juris diction not possessed by him, the award to the extent to which it is beyond the arbitrator 's jurisdiction would be invalid and liable to be set aside.
An arbitrator or umpire is under no obligation to give reasons in support of the decision reached by him unless under the arbitration agree ment or the deed of submission he is required to give such reasons.
If the arbitrator or umpire chooses to give reasons in support of his decision it is open to the Court to set aside the award if it finds that an error of law has been committed by him on the face of the record.
An award can neither be permitted nor set aside merely on the ground that it does not contain reasons in support of the conclusion or decisions reached in it except where the arbitration agree ment or the deed of submission requires him to give reasons.
[82H; 83A E] Jivarajbhai Ujamshi Sheth and Others vs Chintamanrao Balaji and Others, ; ; Raipur Development Authority and Others vs M/s Chokhamal Contractor and Others, [1989] 2 SCC 721, relied on.
2.1 In the instant case the arbitration agreement or the deed of submission did not require the arbitrator to give reasons and, therefore, the award cannot be questioned on the ground of an error on the face of the award.
The Divi sion Bench of the High Court set aside the award in respect of the claim relating to payment for additional work of hard rock cutting on the ground that in making the award the arbitrator exceeded his jurisdiction by allowing a rate to the contractor in excess of the agreed rate for the job of hard rock cutting against the terms and conditions in clause 12 of the agreement.
[83F G] 2.2 Under clause 12 of the agreement, the Engineer in charge was empowered to make any additions to the original specifications that may appear to him to be necessary or advisable during the progress of the work and the contractor was bound to carry out the work in accordance with any instructions given to him in writing signed by the Engineer in charge.
[85B C] 2.3 It has to be inferred from the terms of the contract whether this power to order extras, although apparently unlimited, is in fact limited to ordering extras upto a certain value and in such a case, extras ordered in excess of that amount may be outside the terms of the contract.
78 Parkinson (Sir Lindsay) & Co. Ltd. vs Commissioners of His Majesty 's Works and Public Buildings, , referred to.
Hudson 's Building and Engineering Contracts, 8th Edn.
294, 296, referred to.
In some awards given by the arbitrators in the Cen tral Public Works Department of the Government of India the variation of the tendered quantities under the variation clause in the contract has been restricted to 10% beyond which the contractor was entitled to claim as extras and awards have been accepted and implemented by the Government.
It appears that the standard form of contract of the Central Public Works Department has been amended and now it specifi cally permits for a limit of variation called "deviation limit" upto a maximum of 20% and upto such limit the con tractor has to carry out the work stipulated in the contract and for the work in excess of that limit at the rates to be determined in accordance with clause 12 A under which the Engineer in Charge can revise the rates having regard to the prevailing market rates.
[88D F] Gajaria 's Law relating to Building and Engineering Contracts in India, 3rd Edn., pages 410 412, referred to.
In the instant case, the Executive Engineer, the Superintending Engineer and the Additional Chief Engineer have expressed the view that the additional work under the terms of the contract may be confined to 20% and the appel lant may be paid at the rates prescribed in the contract for 20% of the additional work and for the extra quantity of additional work he may be paid remuneration at the increased rate taking into account the increased costs in execution of the said work on account of the peculiar nature of the work while considering the claim of the appellant the arbitrator was required to consider the terms of the contract and to construe the same.
It was, therefore, permissible for the arbitrator to consider whether clause 12 of the contract enables the Engineer in charge to require the appellant to execute additional work without any limit, or a reasonable limit should be placed on the quantity of the additional work, which the appellant may be required to execute at the rate stipulated for the main work under the contract.
For that purpose the arbitrator could take into consideration the practice prevalent in the Central Public Works Depart ment in this regard as well as the correspondence between the appellant and the authorities recommending payment of remuneration at the increased rate for the additional work in excess of 20% of the quantity stipulated in the contract.
79 The appellant was claiming increased rate of Rs.200 per 1000 cft.
for the entire quantity of additional work.
The arbi trator did not accept the said claim of the appellant in full and has partly allowed the said claim by awarding Rs.52,800 which means that the arbitrator has awarded the increased rate only for a part of the additional work of hard rock cutting which the appellant was required to exe cute.
The arbitrator was entitled to do so on the construc tion placed by him on clause 12 of the contract and, there fore, it cannot be said that in awarding the sum of Rs.52,800 for the additional work the arbitrator has exceed ed his jurisdiction and the award is vitiated by an error of jurisdiction.
[88G H; 89A E] 5.
The judgment of the Division Bench of the High Court setting aside the award of the arbitrator with regard to the claim relating to payment for additional work of hard rock cutting is set aside and the order passed by the Single Judge upholding the award of the arbitrator in this regard is restored.
[89F] 6.
Since the judgment of the Division Bench of the High Court is set aside the appeal against the order rejecting the prayer for setting aside the ex parte judgment, does not survive.


judgement:
Appeal No. 91 of 1976.
From the Judgment and Order dated 15.4.
1975 of the Punjab and Haryana High Court in I.T. Reference No. 14 of 1972.
Bishamber Lal and Ms. Geetanjali Madan for the Appellant.
Gauri Shanker, Manoj Arora, section Rajappa and Ms. A. Subhashini for the Respondent.
The Judgment of the Court was delivered by SINGH, J.
This appeal is directed against the judgment and order of the Punjab and Haryana High Court dated 15.4.1975 answering the Income Tax Reference made to it by the Income Tax Appellate Tribunal.
Briefly, the facts giving rise to this appeal are that the appellant Saraswati Industrial Syndicate is a limited company carrying on business of manufacturing and sale of sugar and machinery for sugar mills and other industries.
Another company, namely, the Indian Sugar and General Engi neering Corporation (hereinafter referred to as 'the Indian Sugar Company ') was also manufacturing machinery parts for sugar mills.
On 28th September 1962 under the orders of the High Court the Indian Sugar Company was amalgamated with the appellant company.
After the amalgamation, the Indian Sugar Company lost its identity, as it did not carry on any busi ness.
Prior to the amalgamation, the Indian Sugar Company had been allowed expenditure to the extent of Rs.58,735 on accrual basis in its earlier assessment.
The company had shown the aforesaid amount as a trading liability and the said trading liability was taken over by the appellant company.
After amalgamation, the appellant company claimed exemption on the amount of Rs.58,735 from income tax for the assessment year 1965 66 on the ground that the amalgamated 335 company was not liable to pay tax under Section 41(1) of the Income Tax Act 1961 (hereinafter referred to as 'the Act ') as the expenditure had been allowed to the erstwhile Indian Sugar Company which was a different entity from the amalga mated company.
The Income Tax Officer disallowed the appel lant 's claim for exemption.
The assessee filed appeal before the Appellate Assistant Commissioner who confirmed the order of the Income Tax Officer.
The assessee, thereafter, pre ferred appeal before the Income Tax Appellate Tribunal.
The Tribunal allowed the appeal on the construction of Section 41(1) of the Act.
The Tribunal held that after the amalgama tion of the Indian Sugar Company with the assessee company the identity of the amalgamating company was lost and it was no longer in existence, therefore, the assessee company was a different entity not liable to tax on the aforesaid amount of Rs.58,735.
On the Department 's application the Tribunal referred the following question to the High Court: "Whether on the facts and circumstances of the case the Tribunal was justified in law in holding that the amount of Rs.58,735 was not chargeable to tax under sub section (1) of Section 41 of the Income Tax Act 1961 for the assessment year 1965 66?" The High Court answered the question in favour of the Reve nue holding that the exemption from tax liability claimed by the appellant assessee was chargeable to tax under Section 41(1) of the Act.
The High Court held that on the amalgama tion of the two companies, neither of them ceased to exist instead both the amalgamating companies continued their entities in a blended form.
It further held that the amalga mated company was a successor in interest of amalgamating company and since the assets of both the companies were merged and blended to constitute a new company the liabili ties attaching thereto must, therefore be, on the amalgamat ed company.
On these findings the High Court held that the amalgamated company, namely, the assessee was liable to pay tax on Rs.58,735 which came into its hands from the assets of the Indian Sugar Company.
The assessee made application before the High Court under Section 261 of the Act read with Section 109 of the Code of Civil Procedure for certificate to appeal to this Court but the High Court dismissed the same.
The appellant, thereupon, approached this Court by means of special leave petition under Article 136 of the Constitution.
This Court granted leave.
Hence this appeal.
Section 41(1) of the Act reads as under: 336 1(1).
Whether an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee, and subsequently during any previous year the assessee has obtained.
whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by him or the ' value of benefit accruing to him, shall be deemed to be profits and gains of business or profession and accord ingly chargeable to income tax as the income of that previ ous year, whether the business or profession in respect of which the allowance or deduction has been made is in exist ence in that year or not ." Section 41(1) has been enacted for charging tax on profits made by an assessee, but it applies to the assessee to whom the trading liability may have been allowed in the previous year.
If the assessee to whom the trading liability may have been allowed as a business expenditure in the previous year ceases to be in existence or if the assessee is changed on account of the death of the earlier assessees the income received in the year subsequent to the previous year or the accounting year cannot be treated as income received by the assessee.
In order to attract the provisions of Section 41(1) for enforcing the tax liability, the identity of the assessee in the previous year and the subsequent year must be the same.
If there is any change in the identity of the assessee there would be no tax liability under the provi sions of Section 41.
In Commissioner of Income Tax, Madhya Pradesh vs Hukumchand Mohanlal, this Court held that the Act did not contain any provision making a succes sor in a business or the legal representative of an assessee to whom the allowance may have been already granted liable to tax under Section 41(1) in respect of the amount remitted on receipt by the successor or by the legal representative.
ln that case the wife of the assessee on the death of her husband succeeded to the business carried on by him.
Another firm which had recovered certain amounts towards the sales tax from the assessee 's husband succeeded in an appeal against its sales tax assessment and thereupon the firm refunded that amount to the assessee which was received during the relevant accounting period.
The question arose whether the amount so received by the assessee could be assessed in her hands as a deemed profit under Section 41(1) of the Act.
This Court held that Section 41 did not apply because the assessee sought to be taxed was not the assessee as contemplated by Section 41(1) as the husband of the asses 337 see had died, therefore the Revenue could not take advantage of the provisions of Section 41(1) of the Act.
The question is whether on the amalgamation of the Indian Sugar Company with the appellant company, the Indian Sugar Company continued to have its entity and was alive for the purposes of Section 41(1) of the Act.
The amalgamation of the two companies was effected under the order of the High Court in proceedings under Section 391 read with Sec tion 394 of the .
The Saraswati Industrial Syndicate, the transferee company was a subsidiary of the Indian Sugar Company, namely, the transferor company.
Under the scheme of amalgamation the Indian Sugar Company stood dissolved on 29th October, 1962 and it ceased to be in existence thereafter.
Though the scheme provided that the transferee company the Saraswati Industrial Syndicate Ltd. undertook to meet any liability of the Indian Sugar Company which that company incurred or it could incur, any liabili ty, before the dissolution or not thereafter.
Generally, where only one company is involved in change and the rights of the share holders and creditors are varied, it amounts to reconstruction or reorganisation or scheme of arrangement.
In amalgamation two or more companies are fused into one by merger or by taking over by another.
Reconstruction or 'amalgamation ' has no precise legal mean ing.
The amalgamation is a blending of two or more existing undertakings into one undertaking, the share holders of each blending company become substantially the share holders in the company which is to carry on the blended undertakings.
There may be amalgamation either by the transfer of two or more undertakings to a new company, or by the transfer of one or more undertakings to an existing company.
Strictly 'amalgamation ' does not cover the mere acquisition by a company of the share capital of other company which remains in existence and continues its undertaking but the context in which the term is used may show that it is intended to include such an acquisition.
See: Halsbury 's Laws of Eng land, 4th Edition Vol.
7 Para 1539.
Two companies may join to form a new company, but there may be absorption or blend ing of one by the other, both amount to amalgamation.
When two companies are merged and are so joined, as to form a third company or one is absorbed into one or blended with another, the amalgamating company loses its entity.
In M/s. General Radio and Appliances Co. Ltd. & Ors.
M.A. Khader (dead) by Lrs., [1986] 2 S.C.C. 656, the effect of amalgamation of 338 two companies was considered.
M/s. General Radio and Appli ances Co. Ltd. was tenant of a premises under an agreement providing that the tenant shall not sub let the premises or any portion thereof to anyone without the consent of the landlord.
M/s. General Radio and Appliances Co. Ltd. was amalgamated with M/s. National Ekco Radio and Engineering Co. Ltd. under a scheme of amalgamation and order of the High Court under Sections 391 and 394 of .
Under the amalgamation scheme, the transferee company, namely, M/s. National Ekco Radio and Engineering Company had acquired all the interest, rights including leasehold and tenancy rights of the transferor company and the same vested in the transferee company.
Pursuant to the amalgamation scheme the transferee company continued to occupy the prem ises which had been let out to the transferor company.
The landlord initiated proceedings for the eviction on the ground of unauthorised sub letting of the premises by the transferor company.
The transferee company set up a defence that by amalgamation of the two companies under the order of the Bombay High Court all interest, rights including lease hold and tenancy rights held by the transferor company blended with the transferee company, therefore the transfer ee company was legal tenant and there was no question of any sub letting.
The Rent Controller and the High Court both decreed the landlord 's suit.
This Court in appeal held that under the order of amalgamation made on the basis of the High Court 's order, the transferor company ceased to be in existence in the eye of law and it effaced itself for all practical purposes.
This decision lays down that after the amalgamation of the two companies the transferor company ceased to have any entity and the amalgamated company ac quired a new status and it was not possible to treat the two companies as partners or jointly liable in respect of their liabilities and assets.
In the instant case the Tribunal rightly held that the appellant company was a separate entity and a different assessee, therefore, the allowance made to Indian Sugar Company, which was a different asses see, could not be held to be the income of the amalgamated company for purposes of Section 41(1) of the Act.
The High Court was in error in holding that even after amalgamation of two companies, the transferor company did not become non existent instead it continued its entity in a blended form with the appellant company.
The High Court 's view that on amalgamation 'there is no complete destruction of corpo rate personality of the transferor company instead there is a blending of the corporate personality of one with another corporate body and it continues as such with the other is not sustainable in law.
The true effect and character of the amalgamation largely depends on the terms of the scheme of merger.
But there cannot be any doubt that when two compa nies 339 amalgamate and merge into one the transferor company loses its entity as it ceases to have its business.
However, their respective rights of liabilities are determined under scheme of amalgamation but the corporate entity of the transferor company ceases to exist with effect from the date the amal gamation is made effective.
In view of the above discussion, we agree with the Tribunal 's view that the amalgamating company ceased to exist in the eye of law, therefore the appellant was not liable to pay tax on the amount of Rs.58,735.
The appeal is accordingly allowed and we set aside the order of the High Court and answer the question in favour of the assessee against the Revenue.
There will be no order as to costs.
V.P.R Appeal allowed.

summary/full:
Under the scheme of amalgamation and order of the High Court under Sections 391 and 394 of the on 28.9.1962 one Indian Sugar Company was amalgamated with the appellant assessee company.
The transferor company had been allowed expenditure to the extent of Rs.58,734.
The appellant transferee company claimed exemption on the amount of Rs.58,735 from income tax for the assessment year of 1965 66 on the ground that the amalgamated transferee compa ny was not liable to pay tax under Section 41(1) of the Income tax Act, as the expenditure had been allowed to the erstwhile transferor company.
The claim was disallowed by the Income Tax Officer.
The transferee appellant company 's appeal was also rejected by the Appellate Assistant Commis sioner.
The appellant company preferred appeal before the Income Tax Tribunal which was allowed on the ground that after amalgamation, the transferor company 's identity was lost and it was no longer in existence and the transferee company was a different entity.
When the question was referred to the High Court, it answered the reference in favour of the Revenue, holding that on amalgamation of the two companies, neither of them ceased to exist, instead both the companies continued their entities in a blended form and the amalgamated company was a successor in interest of the amalgamating company.
333 The Appellant Company 's application under Section 291 of the Income Tax Act read with Section 109, Code of Civil Procedure was dismissed by the High Court.
Hence the present appeal.
Allowing the appeal of the assessee Appellant company, this Court, HELD: 1.
Section 41(1) has been enacted for charging tax on profits made by an assessee, but it applies to the asses see to whom the trading liability may have been allowed in the previous year.
If the assessee to whom the trading liability may have been allowed as a business expenditure in the previous year ceases to be in existence or if the asses see is changed on account of the death of the earlier asses sees the income received in the year subsequent to the previous year or the accounting year cannot be treated as income received by the assessee.
[146C E] 2.
In order to attract the provisions of Section 41(1) for enforcing the tax liability, the identity of the asses see in the previous year and the subsequent year must be the same.
If there is any change in the identity of the assessee there would be no tax liability under the provisions of Section 41.
[146E] 3.
Two companies may join to form a new company, but there may be absorption or blending of one by the other, both amount to amalgamation.
When two companies are merged and are so joined, as to form a third company or one is absorbed into the other or blended with another, the amalga mating company loses its entity.
[147G] 4.
After the amalgamation of two companies the transfer or company ceased to have any entity and the amalgamated company acquired a new status and it was not possible to treat the two companies as partners or jointly liable in respect of their liabilities and assets.
[148E] 5.
The true effect and character of the amalgamation largely depends on the terms of.the scheme of merger.
But there can be no doubt that when two companies amalgamate and merge into one, the transferor company loses its entity as it ceases to have its business.
However, their respective rights or liabilities are determined under the scheme of amalgamation but the corporate entity of the transferor company ceases to exist with effect from the date the amal gamation is made effective.
[148H; 149A B] 334 Commissioner of Income Tax, Madhya Pradesh vs Hukumchand Mohanlal, and M/s. General Radio and Appliances Co. Ltd. & Ors.
vs M.A. Khader (dead) by L.rs., [1986] 2 S.C.C. 656; followed.
Halsbury 's Laws of England, 4th Edition Vol.
7 Para 1539; referred to.


judgement:
Appeals Nos. 271 272 of 1955.
Appeal by special leave from the judgment and order dated June 19, 1953, of the Calcutta High Court in Income tax Reference Nos. 6 & 7 of 1950.
A.V. Viswanatha Sastri, A. K. Dutt, section K. Kapur and Sukumar Ghose, for the appellant.
C.K. Daphtary, Solicitor General of India, R. Ganapathy Iyer, R. H. Dhebar and D. Gupta, for the respondent.
November 13.
The Judgment of the Court was delivered by VENKATARAMA AIYAR, J.
The appellant was a Hindu undivided family carrying on business as piecegoods merchants in the city of Calcutta.
The present proceedings relate to the assessment of its income for the year 1946 47, the previous year thereto being June 12, 1944, to April 24, 1945.
In the course of the assessment, the appellant filed a petition under section 25 A of the Incometax Act, 1922, claiming that there had been a partition in the family on April 24,1945.
On May 27,1945, the In.
come tax Officer enquired into both these matters, the factum of partition and the quantum of income charge.
able to tax, and pronounced orders thereon on June 30, 1945.
On the petition under section 25 A, he held that the partition was true, and that the family had become divided into five groups.
As regards the income assessable under section 23, the dispute related to six sums aggregating to Rs. 2,30,346 shown in the accounts as the sale proceeds of ornaments.
The case of the appellant with reference to these sums was that at the partition the jewels of the family were sold in six lots, that the price realised therefrom was invested in the business, and that the credits in question related thereto.
The Income tax Officer declined to accept this explanation.
He observed that while the books of the appellant 417 showed that what was sold was ornaments, the accounts of Chunilal Damani to whom they were stated to have been sold, showed sale of gold.
He also pointed out that while the weight of the ornaments according to the partition agreement, exhibit A, was 3422 tolas, the weight of gold which was actually sold to the purchaser was 3133 tolas.
The explanation given by the appellant for this discrepancy was that the jewels in question had come down to the family through several generations, and were not pure.
The Income tax Officer rejected this explanation, because he held that the weight which was actually deducted for impurities in the accounts of the purchaser was almost negligible, and that what was sold was thus pure gold and not gold in old family jewels.
He also remarked that the sales were in round figures of 500 tolas, and that "if the assessee had been taking old ornaments broken or unbroken for sale it is inconceivable that on three occasions out of six he took gold weighing 500 tolas in round figure." He also referred to the fact that there was no list of the family jewels, and that there was nothing in the family accounts to show what jewels were held by the family.
He accordingly held that the story of sale of family jewels was not true, and that the sum of Rs. 2,30,346 represented concealed profits of the business, and he included the said amount in the taxable income.
He also followed it up by an order imposing tax on the appellant under the Excess Profits Tax Act.
The appellant took both these orders in appeal to the Appellate Assistant Commissioner who again went into the matter fully, and observed that the appellant had been changing his version as to the true character of the sales from time to time.
Dealing with the discrepancy of 289 tolas between the weight shown in the partition agreement, exhibit A, and that appearing in the accounts books of Chunilal Damani, he remarked that while the explanation of the appellant before the Income tax Officer was that it was due to alloy and brass in the jewels, before him the position taken up was that it was due to pearls and stones which 53 418 had been removed from the jewels, and that the gold contained in the jewels was pure gold.
He did not accept this explanation as, in his opinion, the jewels which were stated to have been in existence for three or four generations should have contained much more of alloy than was shown in the accounts of the purchaser.
He also considered that the sale of gold in round figures of 250 or 500 tolas was a circumstance which threw considerable doubt as to the truth of the appellant 's version.
In the result, he confirmed the findings of the Income tax Officer, and dismissed the appeals.
Against these orders, the appellant appealed to the Appellate Tribunal.
There, he sought to rely on a certain proceedings book as showing that the family jewels were really broken up, and that what was sold to Chunilal Damani was the gold thus separated.
As this proceedings book forms the real sheet anchor of the appellant 's contention before us, it is necessary to refer to the facts relating thereto in some detail.
On February 20, 1945, the members of the family entered into an agreement, exhibit A, to divide their joint proper.
ties among the five branches, of which it was constituted.
In sch.
B to this document are set out the jewels to be divided, and their total weight is, in round figure, 3422 tolas.
Then we have the proceedings book, and that purports to be a record of the decisions taken by the members of the family from time to time for implementing exhibit A.
The minutes of the meeting held on February 23, 1945, show that the pearls and stones imbedded in the jewels were to be removed and divided among the members, and that a goldsmith called Inderban was engaged for the purpose of breaking up the jewels.
Then we have the minutes of a meeting held on February 28, 1945, and therein, it is recited that the weight of the pearls, stones and copper removed was, again in round figure, 289 tolas, and deducting this out of 3422 tolas being the weight of the jewels set out in exhibit A, the gold which was available for partition was 3133 tolas.
It is recorded that this quantity should be sold in the market and the sale proceeds credited in the capital accounts of the business.
And then we have the last of the proceedings dated April 21, 419 1945, which record that gold weighing 3133 tolas was sold and the price credited in the accounts.
Now, if these minutes are genuine and give a correct picture as to what really took place, they would go a long way to support the version given by the appellant as to how he came by the sums making up a total Rs. 2,30,346.
Quite naturally, therefore, the appellant applied to the Tribunal to receive the proceedings book in evidence, and the ground given in support of the application was that it had been filed before the Income tax Officer but had not been considered by him.
Then the question was raised as to whether the proceedings book was, in fact, produced before the Incometax Officer.
The argument of the appellant was that the decision taken at the meeting dated April 21, 1945, which forms the concluding portion of the book had been translated into English at the instance of the Income tax Officer, the original being in Hindi, that the said translation was marked exhibit B and contained the endorsement of the Officer " Original produced ", and that accordingly the book must have been produced before the Officer.
But the Tribunal was not impressed by this argument.
It observed that the book iselft had not been initialled by the Officer, and that though the minutes of the meeting dated April 21, 1945, were genuine, there was no certainty that when it was shown to the Income tax Officer it was contained in the book now produced, that such minutes could have found a place in another book as well, and that, therefore, the book which was sought to be admitted before it in evidence was not proved to be the book which was produced before the Officer.
It was also of the opinion that the minutes of the previous meetings could not have been shown to the Officer.
It accordingly refused to receive the book in evidence, and relying on the other circumstances mentioned in the order of the Income tax Officer and the Appellate Assistant Commissioner, it held that the sum of Rs. 2,30,346 was not the proceeds of the family jewels sold but secret profits made by the appellant in business.
Another contention raised by the appellant before 420 the Tribunal was that in the proceedings under section 25A, the Income tax Officer had held, after making enquiry, that the partition set up by it was true, and that as according to the appellant, the partition consisted in the division, inter alia, of family jewels weighing 3422 tolas, the Income tax Officer must be held to have decided that the family was in possession of the jewels mentioned in exhibit A and had divided them in the manner set out in exhibit B, and that as that order had become final, it must conclude the present question in favour of the appellant.
The Tribunal repelled this contention on the ground that the order under section 25A only decided that there was partition in the family, and that it had no bearing on the issues which arose for decision in the assessment proceedings.
In the result, both the appeals were dismissed.
Pursuant to an order of the High Court of Calcutta dated December 7, 1950, passed under section 66(2) of the Act, the Tribunal referred the following questions for its Opinion: (1)" Whether the Income tax Appellate Tribunal was bound by the findings of fact of the Income tax Officer relating to the nature and division of the assets of the joint family in question which he arrived at in his enquiry under Section 25A(l) of the Indian Income tax Act ? (2)Whether there was any material or evidence upon which the taxing authorities could legally hold that the amount of Rs. 2,30,346 (Rupees two lakhs thirty thousand three hundred and forty six) represented undisclosed profits of the accounting year in question ? " The reference was heard by Chakravarti, C. J., and Lahiri, J., who by their judgment dated June 19, 1953, answered the first question in the negative and the second in the affirmative.
The appellant then filed an application under section 66A(2) for leave to appeal to this Court, and that having been dismissed, has preferred the present appeals on leave granted by this Court under article 136.
Mr. Viswanatha Sastri, learned counsel for the appellant, raised the following contentions: 421 (1) In view of the order of the Income tax Officer under section 25A, it was not open to the Department to contend that the sum of Rs. 2,30,346 does not represent the value of family jewels.
(2)The finding of the Income tax authorities that the said amount represents concealed profits of business is not supported by legal evidence and is, in any event, perverse.
(3)There is no evidence that the amount in question represents profits of business, and it was therefore not chargeable to tax under the provisions of the Excess Profits Tax Act.
(1)On the first question, the appellant relied on certain observations in the order of the Income tax Officer passed under section 25A as amounting to a decision that the family had the jewels mentioned in exhibit A, and that what was actually divided was only the price received therefor.
Now, when a claim is made under section 25A, the points to be decided by the Income tax Officer are whether there has been a partition in the family, and if so, what the definite portions are in which the division had been made among the members or groups of members.
The question as to what the income of the family assessable to tax under section 23(3) was, would be foreign to the scope of an enquiry under section 25A.
That section was, it should be noted, introduced by the Indian Income tax (Amendment) Act, 1928 (3 of 1928), for removing a defect which the working of the Act as enacted in 1922 had disclosed.
Under the provisions of the Act as they stood prior to the amendment, when the assessee was an undivided family, no assessment could be made thereon if at the time of the assessment it had become divided, because at that point of time, there was no undivided family in existence which could be taxed, though when the income was received in the year of account the family was joint.
Nor could the individual members of the family be taxed in respect of such income as the same is exempt from tax under section 14(1) of the Act.
The result of these provisions was that a joint family which had become divided at the time of the assessment escaped tax altogether.
To 422 remove this defect, section 25A enacted that until an order is made under that section, the family should be deemed to continue as an undivided family.
When an order is made under that section, its effect is that while the tax payable on the total income is apportioned among the divided members or groups, all of them are liable for the tax payable on the total income of the family.
What that tax is would depend on the assessment of income in proceedings taken under section 23, and an order under section 25A would have no effect on that assessment.
It is in this context that we must read the observations in the order under section 25A relied on for the appellant.
In fact, that order does not expressly decide that the family had the jewels mentioned in exhibit A, and that they were converted into cash as claimed by the appellant.
Nor could such a finding be implied therein, when regard is had to the scope of the proceedings under section 25A and to the fact that the order under section 23(3) holding that the sum of Rs. 2,30,346 did not represent the value of the family jewels sold was passed on the same date as the order under section 25A and by the very same officer.
(2)The next question is and that is what was really pressed before us whether the sum of Rs. 2,30,346 represents the price of family jewels sold or whether it is concealed business profits.
That clearly is a question of fact the finding on which is open to attack in a reference under section 66 only if it could be shown that there is no evidence to support it or that it is perverse.
Now, the contention of Mr. Viswanatha Sastri for the appellant is that the finding that it is concealed profits was reached by the Income tax Officer and by the Appellate Assistant Commissioner by ignoring the very material evidence furnished by the proceedings book, and that the Appellate Tribunal had erroneously refused to receive the book in evidence.
This contention raises two controversies: (i) Was the proceedings book which was produced before the Tribunal the book which was produced before the Income tax Officer ? (ii) If it was, were the minutes of the meeting prior to April 21, 1945, relied on by the appellant before the Income tax Officer ? Whatever 423 view one might be inclined to take on the former question, so far as the latter is concerned, it is perfectly plain that they were not.
On May 27, 1947, the enquiry was held on both the petitions under s, 25A and on the quantum of income assessable to tax under section 23(3).
Exhibit D is an extract from the order sheet of the Income tax Officer, and it runs as follows: "Regarding credits amounting to Rs. 2,30,346 6 3 in the a/c.
Udoyaram Bhaniram the representatives state that besides the evidence produced, which are noted below, they are not in a position to produce any further evidence, (i) Account books of the assessee containing the details of the amounts aggregating the aforesaid sum.
(ii) Sale statements rendered by Chunilal Damani,copies of which have been filed.
(iii)Roker of Chunilal Damani containing entries for purchase of gold, sold by the assessee family along with Surajrattan Bagri the accountant of Chunilal Damani.
(iv) Statement of Lakhmichand Bhiwaniwalla and Pannalal Bhiwaniwalla, member of the assessee family.
" This statement is signed by the counsel for the appellant.
It is clear from the above that the proceedings book was not relied on as evidence on the character of the receipts making up the sum of Rs. 2,30,346.
The fact appears to be that the appellant produced the proceedings book in support of his petition under section 25A for the purpose of establishing that there was a completed partition, and relied only on the minutes of the meeting held on April 21, 1945, in proof thereof, and that is why that alone was translated in English and marked as exhibit B. It is also to be noted that there is no reference in the order of assessment by the Income tax Officer under section 23(3) to the minutes of the meetings prior to April 21, 1945, and that they were not even translated, as was the record of the meeting dated April 21, 1945.
The obvious inference is that they were not relied on by the appellant, and were therefore not considered by the Officer.
It is also 424 significant that the order of the Income tax Officer refers to sale of ornaments broken or unbroken.
The story that the gold which was separated from the jewels after removing the pearls and stones was melted and sold in quantities of 250 or 500 tolas, which was the argument pressed before us, was not put forward before him.
It is argued that in the appeal against the order of the Income tax Officer the ground was definitely taken that the proceedings book had been produced before him, and that it was also prominently mentioned in a petition supported by affidavit filed by the appellant.
But the order of the Appellate Assistant Commissioner does not deal with this matter either, and it is inconceivable that he would have failed to consider it if it had been pressed before him.
It is also to be noted that the appellant who had obtained a return of the proceedings book from the Income tax Officer did not file it before the Appellate Assistant Commissioner, nor did he move for its admission in evidence.
Apart from taking the grounds to which we were referred, the appellant appears to have presented his case before the Appellate Assistant Commissioner precisely on the same lines on which lie pressed it before the Income tax Officer.
In view of these facts, we are unable to hold that in refusing to admit the proceedings book as evidence in the appeal, the Appellate Tribunal acted perversely or unreasonably.
Indeed, counsel for the appellant did not contend in the High Court that the Tribunal had acted illegally or unreasonably in refusing to admit the proceedings book in evidence.
That being so, it cannot be said that the finding given by the Tribunal on an appreciation of the facts and circumstances already set out is unsupported by evidence or is perverse.
The position may thus be summed up: In the business accounts of the appellant we find certain sums credited.
The explanation given by the appellant as to how the amounts came to be received is rejected by all the Income tax authorities as untenable.
The credits are accordingly treated as business receipts which are chargeable to tax.
In V. Govindarajulu 425 Mudaliar vs The Commissioner of Income tax, Hyderabad (1), this Court observed: " There is ample authority for the position that where an assessee fails to prove satisfactorily the source and nature of certain amounts of cash received during the accounting year, the Income tax Officer is entitled to draw the inference that the receipts are of an assessable nature.
" That is precisely what the Income tax authorities have done in the present case, and we do not find any grounds for holding that their finding is open to attack as erroneous in law.
(3)Lastly, the question was sought to be raised that even if the credits aggregating to Rs. 2,30,346 are held to be concealed income, no levy of excess profits tax can be made on them without a further finding that they represented business income, and that there is no such finding.
When an amount is credited in business books, it is not an unreasonable inference to draw that it is a receipt from business.
It is unnecessary to pursue this matter further, as this is not one of the questions referred under section 66(2).
In the result, the appeals fail and are dismissed with costs.
Appeals dismissed.
(1) , 810.

summary/full:
For the assessment year 1946 47 the appellant, a Hindu undivided family carrying on business, filed a petition before the income tax Officer, under section 25A of the Indian Income tax Act, 1922, claiming that there had been a partition in the family on April 24,1945.
As regards the income assessable under section 23 Of the Act, the appellant 's case regarding six sums aggregating to Rs. 2,30,346 shown in the accounts as the sale proceeds of ornaments, was that at the partition the jewels of the family were sold and that the price realised therefrom was invested in the business.
The Income tax Officer held that the partition was true and that the family had become divided into five groups, but as regards the amount of Rs. 2,30,346 aforesaid he rejected the explanation given by the appellant as to how the amount came to be received and held that the amount was not the proceeds of the family jewels sold but represented concealed profits of the business.
He accordingly included the said amount in the taxable income.
The appellant 's contentions, inter alia, before the Appellate Tribunal were (1) that the order passed under section 25A of the Act by the Income tax Officer must be held to have decided the factum of a partition in the family as well as the 'possession and division of the jewels, as set up by the appellant, and that it was not open to the Department to contend that the amount in question did not represent the value of the family jewels; and (2) that, in any case, there was no evidence to show that the amount represented undisclosed profits.
Held, that when a claim is made under section 25A of the Indian Income tax Act, 1922, the points to be decided by the Incometax Officer are whether there has been a partition in the family, and, if so, what the definite portions are in which the division had been made among the members or groups of members.
The question as to what the income of the family assessable to tax under section 23(3) was, would be foreign to the scope of an enquiry under section 25A, and any finding thereon would not be conclusive in assessment proceedings under section 23.
416 Held, further, that the assessee in the present case having failed to explain satisfactorily the truth of what is a credit in business accounts, the Income tax Officer was entitled to draw the inference that the amount credited represents in reality a receipt of an assessable nature.