2001-VIL-365-RAJ-DT

Equivalent Citation: [2001] 252 ITR 528, 171 CTR 135, 117 TAXMANN 613

RAJASTHAN HIGH COURT

Date: 12.01.2001

COMMISSIONER OF INCOME TAX.

Vs

RAO RAJA HANUT SINGH.

BENCH

Judge(s)  : RAJESH BALIA., KHEM CHAND SHARMA.

JUDGMENT

This is an application under section 256(2) of the Income-tax Act, 1961, for directing the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, to state the case and refer the following questions of law said to be arising out of its order passed in I. T. A. No. 49 of 1973-74 for the assessment year 1953-54 to this court for its opinion.

The assessee, the late Rao Raja Hanut Singh, since deceased and now represented by his legal representatives was a scion of the former administrator of the State of Marwar, Sir Pratap Singh, the Maharaja of Idar. The assessee was a renowned international polo player and sportsman of distinction having been conferred with titles and honours, both by the erstwhile British Government as well as after independence, by the Government of India. The assessee frequently used to visit Britain especially during the polo season. He had bank accounts in Britain throughout the relevant period which fell within the realm of the respective assessment years 1953-54 to 1969-70. During this period, the assessee received certain payments in the bank accounts in Britain in each year from the companies on the board of which members of the Leiners families were in controlling positions and the assessee has utilised that amount for meeting his expenses.

Apart from the three companies, namely, P. Leiner and Sons Ltd., P. Leiner and Sons (Wales) Ltd. and Treforest Chemical Co. Ltd. (hereinafter called the three "Leiner companies"), there was a fourth company, namely, Leiner Overseas Ltd. (hereinafter called "the Overseas"), which was incorporated on or about October 10, 1952, as a private company. This was a subsidiary of P. Leiner and Sons Ltd.

The assessee and two persons, namely, Hari Singh and Vijay Singh, were directors of the Hira Crushing (India,) Company Ltd. incorporated on or about January 19, 1953. This was a company of the assessee and the members of his family and relations inasmuch as all the shares of the company were held by the assessee and his near relations of Rao Raja Hanut Singh. Hari Singh, the son of the assessee, was an employee of the Overseas. On January 24, 1953, a "Technical consultancy agreement" was entered into between Hira Crushing Company and the said Overseas for which a separate agreement was executed. The entire considerations which were to be paid passed from one company to another under the said agreement was paid by the parties to the agreement about which there is no dispute.

In the original assessments for the year 1953-54 to 1966-67, the returns were filed and assessments were made without reference to money deposited in the bank account in the U. K. by the aforesaid first mentioned three Leiner companies. For the assessment years subsequent to 1965-66, namely, 1966-67, 1967-68, 1968-69 and 1969-70, wherein the question arose whether the amount paid in the assessee's account by the three P. Leiner companies were income received by the assessee by way of commission. With that enquiry, the assessments for the assessment years 1953-54 to 1966-67 were also reopened and the enquiries were made in those trans actions for the relevant period. During the course of these proceedings, the assessee claimed that the deposits made in the bank account of the assessee were not for any consideration or remuneration paid to the assessee but was only for reimbursement of expenditure incurred by him in the U.K. because of the hospitality extended by the three Leiner companies to him on account of personal relationship as well as on account of his status which the players thought might help in their business propositions at large because of his connections.

The Assessing Officer thought otherwise. According to him, the amounts deposited by the three Leiner companies in the account of the assessee were by way of commission paid to the assessee and were his revenue receipt by way of income. The fact that he has utilised the said receipt for meeting expenses while he was in the U. K. is of little consequence and therefore the entire deposits made in his accounts for the respective assessment years were included in the taxable income of the assessee for the respective year as income received in the U. K. In some of the assessment years finding that the assessee has expended in the U.K. in excess of the amount received in the bank account, the difference between the receipts in the bank account and excess expenditure estimated to have been made by the assessee by the Income-tax Officer was further added to the taxable income of the assessee by way of income from undisclosed sources.

These additional sums were for the assessment year 1954-55 and for the assessment years 1959-60 to 1966-67, as per the table showing a summary of findings in the assessment order dated June 16, 1972. In the said table, separate amount received and treated as income of the assessee for each assessment year from 1952-53 to 1969-70 was also detailed.

The assessee aggrieved by the order passed by the Income-tax Officer appealed before the Appellate Assistant Commissioner against the assessment of each year. The Appellate Assistant Commissioner by his order dated January 22, 1973, agreed with the explanation offered by the assessee and held that no element of income was there in the deposits made in the account of the assessee by the three Leiner companies with whom the assessee or Hira Crushing Co. Ltd. had no business connection whatever. The Appellate Assistant Commissioner also found that in the years in which the assessee has overspent the deposits as found by the Assessing Officer, for such excess expenses sources has been properly explained by the assessee, firstly, for the reason that estimate of the expenditure has been made on higher side and that excess expenditure in some of the deposits, if any could be met by the excess amount deposited in the earlier years.

In view of these findings the additions made by the Income-tax Officer on account of income by way of commission as well as income from undisclosed sources received in the U. K. were deleted.

Aggrieved by the orders passed by the Appellate Assistant Commissioner, the Revenue preferred second appeal before the Income-tax Appellate Tribunal. Before the Income-tax Appellate Tribunal the Revenue also moved an application for permitting to lead its additional evidence in support of its contentions that the deposits made by the three Leiner companies were by way of commission paid to the assessee and not by way Of reimbursement of expenses incurred by the assessee during his visits to the U. K.

So far as the prayer of the Revenue for leading additional evidence was concerned, the Tribunal held that the exercise of discretion in the matter of admitting fresh evidence was governed by the conditions prescribed under rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963. The Departmental Representative also agreed that the parties were not entitled to produce the additional evidence as a matter of right. The principle governing the admission of additional evidence by the Tribunal was stated by the Tribunal as under:

"The position is that the Tribunal can admit the additional evidence if it requires it to enable it to pass orders or for any other substantial cause and further the Tribunal has to record its reasons for admitting the additional evidence. We brought to the notice of Shri Joshi the principle of the decision in the case of Velji Deoraj and Co. [1968] 68 ITR 708 (Boni), laying down the above-mentioned decision and making it clear that the mere fact 1 that the evidence said to be produced may strengthen the case of the party does not provide a substantial cause to allow its admission at the appellate stage.

In the instant case, it is stated on behalf of the Department that the additional evidence was not available right up to the stage at which the Appellate Assistant Commissioner passed orders. This is being doubted on behalf of the assessee but we need not go into the truth of the matter because the test in the matter of admitting additional evidence is quite different as stated above. We indicated to learned counsel for both sides that we may proceed in the first instance to hear them on the basis of the evidence available on record and if we should feel that additional evidence was required to enable us to pronounce the judgment or for any other substantial cause, we may consider admitting fresh evidence. Having heard the parties, we have not. found it necessary to admit any fresh evidence and we have not done so."

On the merits of the case, the Tribunal recorded a categorical finding that the material on the record does not show that the receipts in question were of the nature of commission and taxable income. Thus, the Tribunal reached its conclusions despite noticing that the burden of proving, when the source of receipt is disclosed, that it is taxable income is on the Department, independent of the question of burden of proof. This is apparent from the following statement in the order:

"However, in the present case, it is not necessary to decide the issue merely from the angle said burden has been discharged or not. We are of the opinion that any finding that material on the record does not show the receipts in question were not of the commission, thus taxable income."

The Tribunal after taking into consideration each and every document produced by the assessee as well as by the Revenue and taking note of the fact that the expenditure incurred by the assessee did not exceed the amount deposited in his account agreed with the finding recorded by the learned Appellate Assistant Commissioner that the payments towards reimbursement of expenses and not for any known or unknown service.

Before us it is not in dispute that if additional evidence said to be produced by the Revenue is not taken on record, the conclusions reached by the Tribunal are conclusions of fact based on appreciation of evidence and could be reached by the Tribunal, does not give rise to any question of law.

Undoubtedly, whether certain payments were received by a person for services rendered or for reimbursing the expenditure incurred by him as a pure hospitality is ordinarily a pure question of fact and does not involve any question or application of principle for law for reaching such conclusions on evidence.

The only contention on which emphasis was made by learned counsel for the Revenue was that when the Revenue has moved an application for leading additional evidence, the Tribunal ought to have allowed that application and taken the additional evidence on record and then decided the question of fact in the light of the additional evidence.

Thus, the only question which at best can be said to be raised for consideration before this court is whether allowance or disallowance of a request for additional evidence to be produced before the Income-tax Appellate Tribunal is a question of law.

Having given our thoughtful consideration, we are of the opinion that the law is well settled by a catena of decisions of the Supreme Court that production of additional evidence at the appellate stage is not a matter of right to the litigating party but within the discretion of the court which is to be exercised judiciously. The question whether the discretion has been exercised judiciously or not cannot obviously be ordinarily a question of law unless it can be disputed or found that in exercising that discretion, the Tribunal has ignored some well settled legal principle in the matter of exercise of such discretion or has acted so grossly or arbitrarily that no authority trained and disposed to adjudicate the rights of the litigating parties as a judicial or quasi-judicial Tribunal would exercise such discretion in that manner.

It is seen from the order of the Tribunal that apart from pleading interest of justice no other cause was pleaded for taking additional evidence on record. In order to raise a question of law which would entitle a party before the income -tax appellate authority to seek mandamus for reference of such question to the High Court for seeking its decision thereon is inhibited by inherent limitation.

Firstly, a question which is not a question of law but a question of fact cannot be made the subject-matter of reference.

Secondly, even if it be a question of law, if the answer is evident or is settled by the decisions of the Supreme Court, such questions need not be referred to the court for its opinion.

We are of the opinion that this application must fail on both counts.

Firstly, there is no dispute about the fact that a litigant cannot claim as a matter of right to lead additional evidence before the appellate authority and the power of the Tribunal in the matter of taking additional evidence on record is circumscribed by the rule. Exercise of such power to permit a party to produce additional evidence before the Income-tax Appellate Tribunal is absolutely within the discretion of the Tribunal and cannot be claimed as a matter of right.

This proposition emanates from a reading of rule 29 itself which enables the Tribunal to permit any party before it to lead additional evidence. Rule 29 of the Appellate Tribunal Rules, 1963, reads as under:

"29. Production of additional evidence before the Tribunal.-The parties to the appeal shall not be entitled to produce additional evidence either oral or documentary before the Tribunal, but if the Tribunal requires any documents to be produced or any witness to be examined or any affidavit to be filed to enable it to pass orders or for any other substantial cause, or, if the income-tax authorities have decided the case without giving sufficient opportunity to the assessee to adduce evidence either on points specified by them or not specified by them, the Tribunal, for reasons to be recorded, may allow such document to be produced or witness to be examined or affidavit to be filed or may allow such evidence to be adduced."

Thus, there is a statutory mandate that the parties are not entitled to produce additional evidence, oral or documentary before the Tribunal. The discretion of the Tribunal to take the additional evidence required to be produced by the parties on record is circumscribed by the condition that if the Tribunal requires the said evidence to be produced before it, to enable it to pass orders or for any substantial cause.

The other condition which obviously has no application on the facts of the present case is if the income-tax authorities have decided the case without giving sufficient opportunity to the assessee to adduce evidence either on points specified by them or not specified by them. It is not a case where the assessee has raised any grievance that the assessing authority has decided the case without giving sufficient opportunity to adduce evidence on any specified or unspecified points. Therefore, this limb of the condition obviously is not invoked in the present case.

So far as the first condition in the rule, namely, "if the Tribunal requires the additional evidence to enable it to pass orders or for any other substantial cause", is concerned it is to be noticed that this expression is often used in the statutes in clothing the appellate courts or Tribunal with power to allow parties to lead additional evidence and does not give rise to any new principle than what has been settled by a long chain of decisions of various High Courts, the Privy Council as well as of the Supreme Court.

The principle is well settled. This expression finds place in Order 41, rule 27(1)(b), of the Code of Civil Procedure which is a provision governing the authority of the appellate courts to permit any party to lead any additional evidence, which otherwise is prohibited, in the circumstances narrated therein.

Like rule 29 referred to above, Order 41, rule 27(1)(b), of the Civil Procedure Code, reads as under:

"27. Production of additional evidence in appellate court.-(1) The parties to an appeal shall not be entitled to produce additional evidence, whether oral or documentary, in the appellate court. But if-. . .

(b) the appellate court requires any document to be produced or any witness to be examined to enable it to pronounce judgment, or for any other substantial cause, the appellate court may allow such evidence or document to be produced, or witness to be examined."

The language itself makes it clear that this is not to enable a party to produce additional evidence whether oral or documentary in the appellate court, but it enables the appellate court where such appellate court requires any document to be produced or any witness to be examined for pronouncing its judgment or for any substantial cause. This requirement of the court for the present purpose may be read as requirement of the Tribunal, to enable it to pronounce judgment has received the judicial consideration. The true test is whether the appellate court is able to pronounce judgment on the materials before it without taking into consideration the additional evidence sought to be adduced. The legitimate occasion, therefore, for exercise of discretion under this rule is not before the appellate court hears and examines the case before it, but when on examining the evidence as it stands, some inherent lacuna or defect becomes apparent to the appellate court coming in its way to pronounce judgment the expression "to enable it to pronounce judgment" can be invoked. Reference is not to pronounce any judgment or judgment in a particular way, but is to pronounce its judgment satisfactorily to the mind of the court delivering it. The provision does not apply where with existing evidence on record the appellate court can pronounce a satisfactory judgment. It is also apparent that the requirement of the court to enable it to pronounce judgment cannot refer to pronouncing judgment in one way or the other but is only to the extent whether satisfactory pronouncement of judgment on the basis of material on record is possible.

In support of the aforesaid, we may usefully refer to a few decisions.

In Arjan Singh v. Kartar Singh, AIR 1951 SC 193, interpreting the aforesaid provision of Order 41, rule 27, the court said:

"The legitimate occasion for the application of Order 41, rule 27, is when, on examining the evidence as it stands, some inherent lacuna or defect becomes apparent, not where a discovery is made, outside the court, of fresh evidence and the application is made to import it. The true test, therefore, is whether the appellate court is able to pronounce judgment on the materials before it without taking into consideration the additional evidence sought to be adduced."

In the aforesaid case the lower court had admitted additional evidence without examining the existing material on record for finding whether it is possible to pronounce judgment on the basis of existing material. The Supreme Court opined that the discretion exercised by the lower appellate court to be vitiated for having failed to take into consideration the essential requirement of invoking Order 41, rule 27(1)(b).

Again in Natha Singh v. Financial Commissioner, Taxation, AIR 1976 SC 1053, the court said:

"The true test to be applied in dealing with applications for additional evidence is whether the appellate court is able to pronounce judgment on the materials before it, without taking into consideration the additional evidence sought to be adduced."

Thus, reiterating the principle enunciated in Arjun Singh alias Puran's case, AIR 1951 SC 193, as the court did not experience difficulty in rendering the judgment on the basis of the material already before it did not allow the application for leading additional evidence in support of this case by the appellant.

In Syed Abdul Khader v. Rami Reddy AIR 1979 SC 555, the court said:

"It is well established that Order 41, rule 27 of the Civil Procedure Code, does not confer a right on the party to produce additional evidence."

The court further expressed its opinion that where the appellate court has exercised its discretion in the matter of its power to admit additional evidence, the same ought not to be ordinarily interfered with by the Superior Court.

In connection with the like provisions in the Income-tax Act, the settled principle has found its expression in a number of decisions. Reference may be made to Velji Deoraj and Co. v. CIT [1968] 68 ITR 708, the Division Bench of the Bombay High Court said:

"The admission of additional evidence at the appellate stage is not referable to any right of the party to produce the evidence but is dependent solely on the requirement of the court and what the court has to decide is whether it requires such evidence for pronouncing its judgment or for any other substantial cause. The mere fact that the evidence sought to be produced is vital and important does not provide a substantial cause to allow its admission at the appellate stage."

With these principles settled no contention on that ground has been raised that the Tribunal has not correctly enunciated the principle on the basis of which the discretion is to be exercised. The only question which requires further consideration is whether the finding of fact which is otherwise recorded by the Tribunal on the basis of the material before it can be made the subject-matter of reference merely on the basis that such discretion has not been exercised in favour of the Revenue for permitting to lead additional evidence when it found that it could pronounce satisfactory judgment on the basis of the existing material.

We are of the opinion that once conclusions are reached by the Tribunal by appreciating the evidence which are not otherwise liable to be interfered with by the court by its scrutiny and there is no dispute also about exercise of discretion in a judicious manner, no question of law can be said to be arising merely because in exercise of' its discretion, the Tribunal could also have allowed the Revenue to lead additional evidence.

In Om Parkash v. CIT [1986] 159 ITR 973, the Bench of the Punjab and Haryana High Court said:

"That the acceptance or rejection of any piece of evidence by the Tribunal would squarely fall within the ambit of appreciation of evidence and ordinarily would not give rise to a question of law. The Tribunal for valid reasons rejected the affidavit furnished by the assessee's grandmother-in-law and assessed the amount as the assessee's income from undisclosed sources. The finding of the Tribunal was a finding of fact and no question of law arose for reference and the application under section 256(2) is, therefore rejected."

In the like situation a Bench of the Delhi High Court in R. Dalmia v. CIT [1978] 113 ITR 522, discussing the propositions in connection with the provisions of section 66(2) of the Indian Income-tax Act, 1922, corresponding to the provisions of section 256 in the Act of 1961, said:

"The Appellate Tribunal has a discretion to decide whether to admit additional evidence or not and, in the absence of any suggestion that it had acted on any wrong principle, no question of law can arise from the Tribunal's decision to admit additional evidence and remand the case back to the Appellate Assistant Commissioner to give the assessee an opportunity to explain the additional evidence and record such further evidence as the assessee might wish to produce and forward it to the Tribunal."

We are of the opinion that in view of the principles enunciated aforesaid, and keeping in view the facts narrated above which are admitted, on the basis of the settled principle in the matter of exercise of discretion in allowing or disallowing a party to lead additional evidence by the appellate court, the answer in the present case is self-evident and no other conclusion can be reached.

We, therefore, are of the opinion that the order of the Tribunal in rejecting the application under section 256(1) was not erroneous in holding that no question of law arises out Of its appellate order.

Hence, this application under section 256(2) of the Income-tax Act, 1961, deserves to be rejected and is hereby so rejected.

No order as to costs.

 

 

 

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