P L D 1967 Karachi 532 (PLP)

WAHIDUDDIN AHMED, J.-This order will dispose of Civil Reference No. 331 of 1960, 332 of 1960 and 333 of 1960 in which common question of law is involved. These have arisen in the following circumstances : The applicant Company carries on business of manufacturing art silk fabric at Karachi under the name of Messrs Haroon Textile Mills Ltd. It started the production of art silk cloth for the first time on 1st May 1952. The accounts of the applicant company were closed for the first time on 31st May 1953 which fell to be assessed in Income-tax year 1954-55. Its accounts showed gross profit of 12 %. From the quantitative statement supplied by it, it appears that out of one pound of yarn 4 yards of cloth were produced. The Income-tax Officer concerned was dissatisfied with the statement supplied to him and called upon the applicant to explain the low production. According to the Company it was due to the fact that they had been producing heavier quality of cloth. This explanation was not accepted by the Income-tax Officer. He held that 5 yards of cloth per pound should have been produced. Further, relying upon the fact that no record was maintained to show daily production in terms of poundage and yardage he fixed the output at 5 yards per pound and added to the disclosed income of the assessee a sum of Rs. 1,80,000 representing the average sale price of 85,727 yards. On appeal the Appellate Assistant Commissioner, Income-tax reversed this finding by order dated 20th October 1957. The Department challenged this order before the Income tax Appellate Tribunal and by order dated 23rd September 1959 the learned Tribunal allowed the appeal on the following observations:- "Keeping in view the low percentage of the profit, absence of day to day record of the issue of the yarn and manufacture of cloth and the fact that the two other companies referred to above had themselves shown 5 yards of satin to a lb. the add back of Rs. 1,80,000 by the Income-tax Officer was well founded and the order of the Appellate Assistant Commissioner knocked off the addition cannot be sustained."

2. The applicants being dissatisfied with this order made an application under section 66.(1) of the Income-tax Act, 1922 and called upon the Income-tax Appellate Tribunal to refer the case of the applicant on the following points of law to the High Court:- (a) Was there any legal and relevant evidence on the record to prove that production of all kinds of satin cloth must be 5 yards to a pound of yarn? (b) Was there any evidence on the record to prove that the applicant Company's yield was more than what was disclosed -by the account books? (c) When regular accounts are maintained and no defect or omission is found therein, can the Income-tax Authorities make additions only because some other manufacturers in other years showed higher yield? (d) In the facts and circumstances of the case; was the action of the Tribunal in admitting and relying on two other cases produced by the Departmental Representative, without communicating to the applicants (assessees) details thereof sufficient to enable them to explains the reason for difference, legal? (e) In the facts and circumstances of the case, was the action of the Tribunal in disregarding the facts of the case in I. T. A. No. 146 of 1956-57 relied upon by the applicants (i.e. assessees) legal? (f) Was there any evidence on the record to show that in addition to maintaining daily production Register, factory records are also required to be maintained? (g) Is there any evidence on the record to prove that the applicants had manufactured 85,727 yards of satin cloth in excess of what their account books showed and had made sales of Rs. 7,80,000 in excess of what the account books disclosed? The learned Tribunal dismissed this application by a lengthly order dated 23rd February 1960. It came to the conclusion that there is no question here of construction of any statutory provision or document of title or mixed question of law and fact. They came to the conclusion that the real issue which arose for determination was whether there was material for the finding that one pound of yarn should yield 5 yards of cloth. This, according to them, was essentially a question of fact and the finding of the Tribunal was amply supported by evidence. The applicants have now come to this Court under section 66 (2) of the Income tax Act, 1922.

3. The main contention of Mr. Ali Athar, the learned counsel appearing for the petitioner, is that the order of the Income-tax Appellate Tribunal is not referring the questions submitted by the applicants is erroneous. According to tae learned counsel the Income-tax Appellate Tribunal by allowing the appeal has in a sense rejected the book result of the applicants submitted for the relevant assessment year on wholly erroneous grounds and that order cannot be sustained in law. According to the learned counsel the Income-tax Appellate Tribunal has nut in so many words disbelieved or rejected the account books of the applicant, but in effect has come to this conclusion which they were only entitled to do under the proviso of section 13 of the Income-tax Act. The learned counsel contended that the proviso is applicable only to such cases where the method of accounting is not proper. In the present case no such point was involved. The Income-tax Appellate Tribunal had rejected the account books of the applicant only on the ground that low percentage of profit was shown and no record was maintained of the daily issue of the yarn; and that in other similar, mills the production was much more than what was shown by the applicant. The learned counsel submitted that the production relied upon in other mills is not of the relevant year but of much later date. It is, therefore, urged by the learned counsel that there was in law no material before the Income-tax Appellate Tribunal to reject the accounts submitted by the applicant. It is contended by him that this is a question of law which ought to have been referred to the High Court under section 66 (1) of the Income-tax Act, 1922. In support of' his contention the learned counsel has referred us to an unreported decision of this Court in Civil Reference No. 28 of 1960 decided by a Division Bench of this Court on 28-2-1962. In that case the following question was referred to the High Court by the Income-tax Appellate Tribunal:-- "Whether there was material for the Tribunal in disallowing manufacturing wastage to the extent of 2.5 % on the ground of being- excessive." Their Lordships answered this question in the negative and held that the order of the Income-tax Tribunal was not maintainable in law. Mr. Ali Athar further referred us to a decision of the Lahore High Court in The Pioneer Sports Ltd., Sialkot v. Commis sioner of Income-tax, Punjab and N.-W. F. P. (1934 I T R 305). In that case the question before the High Court was whether under the circum stances mentioned in the order of the Income-tax Officer an assessment under the proviso to section 13 could legally be made or whether the assessment should have been made under the first part of section

13. In that case the Income-tax Officer rejected the account books of the assessee under section 13 and it was urged before the High Court that any such decision did not involve any law point. This contention was rejected by the High Court on the following observations at page 307: "It is true that it has frequently been held by this Court that the Income-tax Officer is the sole arbiter for determining under the proviso to section 13 how the profits are to be computed. But it is a question of law, into which this Court is entitled to enquire, whether there is any evidence on which the Income-tax Officer could come to the decision that the method of accounting is such that the gains could not be computed except by the arbitrary method contemplated by the proviso. If there was no evidence to justify the Income-tax Officer's rejection of the method of accounting in the case, it is clear that the assessment should have been made under the first part of section 13 and not under the proviso." Thus it will be noticed that if there is no evidence to justify the Income-tax Officers rejection of the method of accounting the question whether the account books should be rejected was held to be a question of law.

3. On the other hand Mr. Mansoorul Arfin, the learned counsel appearing for the Department has strongly contended that the point now raised before the High Court was not raised before the Income-tax Appellate Tribunal. The learned counsel contended that the number of questions raised by the applicant are purely questions of fact and cannot be considered to be question of law. He further contended that this Court is not competent to .raise new questions of law with a view to call upon the Tribunal to state a case under section 66 (2). In support of his contention the learned counsel relied on a decision of the Supreme Court of Pakistan in Messrs Muhammad Idrees Barry & Co. v. Commis sioner of Income-tax (P L D 1959 S C (Pak.) 202) and a decision of this Court in Commissioner of Income-tax v. Kassimali Ismail (P L D 1963 Kar. 383). In the first case it was held that the High Court rule on a reference made under section 66 (1) of the Income-tax Act is advisory only and is confined to consider ing and answering the actual question referred to it. In the second case it was held that the fact that there was absence of day-to-day record of cleaning and packing done by the assessee and the entire shortage could not be verified and was excessive was sufficient material to support the Appellate Tribunal's action in reducing shortage allowed by the Appellate Assistant Commis sioner. It was further held in the last mentioned case that the Income-tax Officer was competent to accept account in toto or reject any unvouched item.

4. The learned counsel for the Department further referred us to another decision of this Court in Abdul Ghani & Co. v. Commissioner of Income-tax (P L D 1962 Kar. 635). It was held in that case that any question not raised before the Income-tax Appellate Tribunal could not be raised on an application under section 66 (2) and the High Court had no jurisdiction to entertain an application on a question which was not raised under subsection (1) of section 66 for the reason that there is in respect of such a question no decision of the Appellate Tribunal with regard to which the High Court may hold that it is not satisfied of its correctness. We are in respectful agreement with the observations in this case. A perusal of the questions submitted by the applicant would show that in essence he had asked the Income-tax Tribunal to refer the question whether there was any material before the Tribunal to reject the book result of the assessees and for adding Rs. 1,80,000 to their income. It is quite correct that the applicant raised as many as (a) to (g) questions but that cannot take away the essence of those questions. This Court is quite competent to resettle the questions suggested or canvassed by the applicant under section 66 (1); the only bar to its jurisdiction is not to raise new questions which were not raised before the Income-tax Appellate Tribunal. This aspect of the question was considered by a Division Bench of this Court in The Scindia Steam Navigation Co. Ltd. v. The Commissioner of Income-tax (P L D 1959 Kar. 527) to which one of us was a party. This very point was also urged before the High Court but it was held by the Division Bench that on a reference to the High Court a party is not entitled to raise a new question of law not covered by the question. But that. does not mean that if the question of law has been referred to the High Court and it was canvassed before the Income-tax Tribunal in a particular manner, the parties are debarred from canvassing the same question of law on different set of arguments. A distinction has to be drawn between those cases where a new question of law for the first time is raised in the High Court and those cases where the question of law is the same which is referred by the Tribunal, but an alter native argument is advanced though not advanced before the Income-tax Tribunal, based on the same facts, relevant and helpful for the answer of the question referred to the High Court. In our opinion, this argument is also applicable to the facts of the present case. The mere fact that the applicant did not frame proper question before the Income-tax Appellate Tribunal would not take away the substance of the essence of the questions submitted by them. In essence they raised before the Income-tax Appellate Tribunal the question whether there was any material on the record for the Tribunal to reject the book results of the assessed and for adding Rs. 1,80,000 to their income.

5. Lastly, Mr. Mansoorul Arfin relied on the decision of a Division Bench of this Court in Messrs' Pokardas Dwarkadas of Karachi v. The Commissioner of' Income-tax, Sind and Baluchistan (P L D 1957 Kar. 61) to which also one of us was a party. It was held in that case that the question relating to the Tribunal's power to reject the accounts in the circumstances of the case and apply a flat rate of profit is not a question of law which the Tribunal should be directed to state. This is clearly distinguishable. In that case the objection by the Income-tax Authorities was on the method of accounting and for that reason the assessed's account books were disbelived, rejected and not taken into consideration. In the present case no such point is involved. There is no finding by the Income-tax Authorities that the accounts of the applicants are not properly maintained, or is not maintained, according to the recognised methods of accounting. The account books of the assessees have not been rejected. Thus this case is of no help to the applicant. In the present case this Court has attempted only to clarify the real question involved in it. Octavius Steel & Company Ltd. v. The Commissioner of Income tax, Dacca (PLD1960 S C 371) this procedure was adopted in a case arising under section 66 (1) of the Income-tax Act and we do not find any bar in adopting this course to do justice between the parties in this case.

6. After hearing the learned counsel for the parties, we are satisfied that the applicant was fully justified in calling upon the Income-tax Appellate Tribunal to refer the question of law which arose out of the order allowing the appeal of the Department. We would, therefore, call upon the Department to refer the following question to the High Court under section 66 (2) for its consideration :- "Whether there was any material before the Income-tax Appellate Tribunal to reject the book result submitted by the assessed and for adding Rs. 1,80,000 to the income?"

7. The Income-tax Tribunal is further directed to submit this question in accordance with law after stating the case and referring all the documents which would be necessary for its disposal. It is not disputed by the Department that Reference Nos. 332 and 333 have arisen out of two consequential orders passed in S. T. A. No. 50 of 1957-58 and S. T. A. No. 32 of 1958-59 and raise identical questions. In these two matters the Tribunal is also directed to refer the above question and state the case under section 17 (1) of the Sales Tax Act.

8. In the result, subject to the above remarks, we would allow the reference, but in the special circumstances of these cases the parties are directed to bear their own costs. S. Q. Reference allowed.