1960 PLP 1217 (PTD)

KAYANI, J.‑This is a reference by the Income‑tax Appellate Tribunal under section 66 (t) of the Income‑tax Act at the instance of Messrs Bombay Cloth House, Lahore, in respect of the assess ment for the year 1943‑

44. The assessee has an extensive business in piece‑goods at Lahore and other places. In connection with the year of assessment under notice the Income‑tax Officer called upon him to produce the accounts of the three preceding years. These accounts were not produced and it was pleaded that they had been lost in transit. The Income‑tax Officer thought the books had been deliberately withheld and consequently computed the income under section 23 (4) of the Act. The assessee had closed the accounts of the previous year on the 16th of June 1942 that is to say, two months and six teen days after the close of the financial year. The accounts relating to this period were not produced. In respect of the period following the 17th of June 1942 the assessee declared an income of Rs. 78,366 on a return of Rs. 3,57,

902. The figures were based on entries in the pakki rokar. It transpired subsequently that according to the kachi rokar, the sales amounted to Rs. 5,80,

133. In addition to this, one of the partners, Muhammad Siddiq, stated that purchases amounting to Rs 1,55,778 had not been accounted for either in the pakki rokar or in the kachi rokar. The Income‑tax Officer on these facts proceeded to assess the income to the best of his judgment and in respect of the second period he estimated the sales at Rs. 7,50,000 computing the gross profits by applying a flat rate of 25%. For the first period he estimated the sales at Rs. 1,97,300 in proportion to the amount for the rest of the year. On appeal the Appellate Assistant Commissioner agreed in rejecting the version given by the assessee in respect of the loss of account books and accepted the flat rate of profits but reduced the estimate of sales to Rs. 1,83,300 and Rs. 6,96,159 for the first and second periods, respectively. The Income‑tax Officer preferred an appeal to the Tribunal, which restored the order of the Income tax Officer. The assessee made no appeal. On the application of the assessee for a renewal of registration under section 26‑A in connection with the assessment year 1943‑44, the Income‑tax Officer, exercising discretion under section 23 (4), refused registration on the ground that the assessee had "boldly executed" a "glaring fraud" by deliberately suppressing the account books for the earlier years and spinning an incredible story about the loss of books. On appeal the Assistant Commissioner did not agree with the Income‑tax Officer and directed him to allow regist ration. Against the decision of the Assistant Commissioner, the Income‑tax Officer preferred an appeal to the Tribunal which was admittedly time‑barred but which was admitted under sub section (2‑A) of section

33. The Tribunal, agreeing with the Income‑tax Officer, restored his order and, among other things, made the following observations :‑ "To begin with, the Appellate Assistant Commissioner is obviously in error if he thinks that if a genuine firm is in exis tence, the Income‑tax Officer cannot in an appropriate case refuse registration in exercise of the powers conferred on him by section 23 (4). If there is no genuine firm in existence, registra tion has got to be disallowed under section 26‑A irrespective of whether the assessment has been made under section 23 (3) or 23 (4) " Thereupon the assessee applied to the Tribunal to refer the following two questions to this Court :‑ "(a) Whether in the circumstances of the case the so‑called facts and circumstances found by the Appellate Tribunal are such as to constitute `sufficient cause' for admitting a time‑barred appeal in the case of the Department‑respondent ? "(b) Whether in‑ the circumstances of the case the Income‑tax Officer, simply by virtue of the assessment having been madly 'under section 23 (4), was justified in exercising his discretion as contemplated by the provisions of the Act, in arbitrarily can celling the registration under section 26‑A, without judicial consideration ?" The Tribunal, being of the opinion that the first was a question of fact, refused to refer it, and referred the second question in the following form: "Whether in the circumstances of the case there was material justifying the Income‑tax Officer to make an order refusing renewal of registration by virtue of the provisions contained in section 23 (4) of he Income‑tax Act ?" The assessee has, on the refusal of the Tribunal to refer ,one of the questions proposed by him, applied to this Court under section 66 (2) of the Act to require the Tribunal to state the case in respect of the question relating to limitation. We shall first take up the question of limitation. A copy of the Assistant Commissioner's order was served on the Commissioner on the 4th July 1947. The appeal would have been in time if it had been instituted on or before the 13th of September 1947. Actually it was received in the office of the Registrar of the Tribunal on the 25th of November 1947. The Tribunal admitted the appeal with these remarks: "It appears that the constitution of the Tribunal was notified sometime in November and a Press Note published in December announced the location of the headquarters of the Tribunal's office at Lahore. During the material time the exact position concerning the constitution of the Tribunal and the set up of the office was not widely known. In the special circumstances of the case we condone the delay and admit the appeal." This ground has been thus amplified by the Tribunal in its order of reference: "The Tribunal was constituted in the second week of Novem ber 1947. The actual date of notification is the 18th of November 1947 but it was to be effective from the 15th of August 1947 and the fact was notified in the Gazette sometime during the last week of November. A Press Note published in December announced the location of the headquarters of the Tribunal at Lahore. In the meantime the Commissioner asked for instruction from the Central Board of Revenue, Karachi, in the matter of filing the departmental appeal. The Central Board of Revenue wrote back on the 2nd of September 1947, to say that such appeals should be kept ready and filed after the Tribunal for Pakistan was constituted. The appeal in question was accordingly made ready, signed and verified by the Income tax Officer concerned on the 8th of September 1947 and was eventually filed on the 25th of November 1947. In these circum stances, and apart from the question of whether limitation would be deemed in law to have started running when in fact there was no Tribunal in existence, this Bench felt satisfied that there was sufficient cause for condoning the, delay and admitting the appeal." It was contended for the assessee, however,‑that an Assistant Registrar to the Tribunal was posted at Lahore from the 6th of October 1947 and the Income‑tax Department ought to‑have been aware of this fact, relating as it did to its own department, that the first eight appeals to the Tribunal had been filed by private assessees from the 4th of November 1947 onwards and that the appeal of a certain assessee, Messrs Thakar Das Dev Mal of Karachi, filed early in November, had been dismissed by the Tribunal as time‑barred, although lodged in circumstances similar to the present case. On these facts we receive no guidance from the statement of the case. We shall however, examine the legal aspect of the matter. To begin with, a similarity of language is noticeable between section 33, subsection (2‑A) of the Income‑tax Act and section 5 of the Limitation Act, both of which deal with extension of time for the purpose of appeal. Under the former‑ "The Tribunal may admit an appeal after the expiry of the sixty days * * * * * if it is satisfied that there was sufficient cause for not presenting it within that period." According to section 5 of the Limitation Act‑‑ "Any appeal or application for a review of judgment may be admitted after the period of limitation prescribed therefore when the appellant or applicant satisfies the Court that he had some sufficient cause for not presenting the appeal or making the application within such period." The assessee's counsel, therefore, relied and I think rightly‑on some rulings based on section 5 of the Limitation Act in which it was held that the question whether a certain set of facts constituted "sufficient cause", was one of law. See Kanshi Ram v. Raga Mal (A I R 1932 Lah. 183) and Kishan Chand v. Muhammad Hussain (A I R 1942 Lah. 294) both by Tek Chand, J. and Arura v. Karam Din (A I R 1947 Lah. 76), by Abdur Rahman, J. It was held in Badri Prasad v. Amjad Ali (A I R 1933 All. 294), that discretion under section 5 exercised arbitrarily without due regard to principles is not properly, exercised and may be challenged in second appeal. But he relied most and again rightly on a judgment of the Privy Council in H. H. Brij Indar Singh v. Lala Kanshi Ram (104 P R 1917), which contains an instructive exposition on the use of discretion under section

5. In that case the plaintiff applied for a review of an ex‑parte order against him and his application having been dismissed on the ground that the proper remedy was by way of appeal, he filed an appeal. This, however, was resisted on the ground that it was time‑barred. It would have been within time if the period spent in pursuing the review application had been excluded. Johnstone, J., who heard the appeal in the Chief Court, held (1) that a mistake in law never could be the foundation of an application for indulgence under section 5, and (2) that Karam Bakhsh N. Daulat Ram (183 P R 1888 (F B)), did not lay down any general rule when it said that the true guide for a Court in the exercise of discretion is "whether the appellant has acted with reasonable diligence in prosecuting his appeal" and that "he ought ordinarily to be deemed to have acted with ordinary diligence when the whole period between the date of the decree appealed against and the date of presenting the appeal . . . . does not, after excluding the time spent in prosecuting with due diligence a proper application for review of judgment, exceed the period prescribed by law for presenting the appeal." Upon an examination of the case law in British India and particularly of Karam Bakhsh v. Daulat Ram. Their Lordships of the Privy Council found it impossible to agree with Jhonstone, J., but it was contended before them that as the power in section 5 is admittedly a discretionary power, the Board ought not to interfere with the discretion exercised by Mr. Justice Johnstone. Repelling this contention, Their Lordships observed that the discretion must be a judicial and not an arbitrary discretion, and that "if the Judge who purports to exercise the discretion does so under the view that there is no general rule, when in fact there is one, if he has, to use an expression often used in another class of cases, misdirected himself as to the law to be applied to the case, he cannot exercise a judicial discretion, and the superior Court in this case the Board must either remit the case or use the discretion themselves:" As I understand the case, it leads to the following result: Section 5 leaves it to the discretion of the Court to admit an appeal after the expiry of limitation if it is satisfied that there was sufficient cause for delay. If the Court bases its discretion on a wrong notion of law, the use of discretion is arbitrary, not judicial. It must be clear that Their Lordships say nothing as to the sufficiency of cause. On the question of sufficiency of cause the learned counsel for the Department has referred us to Commissioner of Income‑tax Central and United Provinces v. Laxminarain Badridas (5 I T R 171 P C 1937), a judg ment of the Privy Council dealing with section 27 of the Income‑tax Act Section 27 is as follows: "When an assessee * * * * * satisfies the Income‑tax Officer that he was prevented by sufficient cause from snaking the return required by section 22 * * * * * the Income‑tax Officer shall cancel the assessment and proceed to make a fresh assessment in accordance with the provisions of section 23." The reference in this section is to the assessment which the Income‑tax Officer makes "to the best of his judgment when the assessee fails to make a return as required by section

22. In the case under notice, one of the questions referred to the High Court under section 66 (2) was "whether the circumstances alleged and approved by the assessee could not, in law, be deemed to be `sufficient cause' under section 27 of the Income‑tax Act." Their Lordships observed : "If the assessment in this case was made by the Officer to the best of his judgment, it must stand unless the assessee succeeds in satisfying the officer that he had not a reason able opportunity to comply or was prevented by sufficient cause from complying with the terms of the notice under section 22 (4) requiring him to produce or cause to be produced his accounts for three years. This is failed to do and upon the undisputed and indisputable facts of the case he necessarily so failed. His appli cation under section 27 for cancellation of the assessment was doomed to failure, and his appeal to the Assistant Commissioner under section 30, was equally incapable of success. There the matter should have ended, unless the Commissioner chose to pro ceed under section

33. The questions involved were purely questions of fact, indeed one might say of self‑evident fact, and no reference in regard thereto should have been made under section 66 (2). No question of law was involved: nor is it possible to turn a mere question of fact into a question of law by asking whether as a matter of law the officer came to a correct conclusion upon a matter of fact." Their Lordships repelled the argument that there was a wrongful exercise of judicial discretion and observed that it did not appear to be a case of exercising a discretion ; if the officer was not satisfied that the assessee was prevented by sufficient cause from complying with the notice, the assessment must stand. In other words, t re satisfaction was essentially that of the income‑tax Officer. A similar view was taken by a Bench of five Judges including Sir Arthur Page in 1931 in Abdul Bari Chowdhury v. Commissioner of Income‑tax, Burma (I L R Rang. 218). When, however, on the question of the exercise of discretion Their Lordships of the Rangoon Bench were referred to section 5 of the Limitation Act, Sir Arthur Page observed : "But in section 5 of the Limitation Act a discretion is expressly confined to the Court to grant or refrain from granting an extension of time." As to the sufficiency of cause, the language employed in sections 27 and 33 (2‑A) of the Income‑tax Act and section 5 of they Limitation Act is similar. In both Acts, the provision as to extension of limitation involves the use of discretion. In section 27 of the Income‑tax Act there is no room for the exercise of discretion. If the Income‑tax Officer is satisfied as to the sufficiency of cause he must cancel the assessment. In the matter of his satisfaction, lie is guided by his own honest intelligence and has no two courses open to him. If his intelligence is at fault, it is matter for appeal, but his finding is undoubtedly one of fact. In the same view, the Appellate Tribunal, when deciding whether there is suffi cient cause for delay, is deciding a question of fact. If, however, any part of its decision is based on an incorrect appreciation of law, the use of discretion which section 33(2‑A) involves will not be judicial, and a question of law would necessarily arise. Thus if the Department were misled by instructions from the Central Board of Revenue at Karachi into believing that an appeal could be lodged only on the day when the Appellate Tribunal was notified in the Gazette, and the Tribunal treated this as a sufficient cause for delay, it was not exercising its discretion on a wrong appreciation of law. But the Tribunal having been constituted on the 18th November 1947, and the appeal having been filed on the 25th November, the Tribunal failed to take notice of the established rule of law that the delay of everyday after the expiry of limitation should be explained (A I R 1984 Lah. 617, A I R 1027 Lah. 717). As it is not clear from the statement of the case whether the delay between the 18th November and the 25th November 1947 has been explained, we cannot say whether the Tribunal has exercised its discretion judicially. We, therefore, require the Tribunal, under section 66 (2), to state the case on this point and refer it to us. To the question equally referred by the Tribunal, we reserve our answer. The costs will abide the result. KAYANI, J.‑By our order of the 14th June 1951 we required the Income‑tax Appellate Tribunal under section 66 (3) of the Income‑tax Act to make a statement of the case relating to the question of limitation and refer it for decision. The Tribunal has now referred the following question :‑ "Whether in the circumstances of the case of Tribunal exer cised its discretion judicially in condoning the delay and admitting the time‑barred appeal preferred by the Income‑tax Officer, B' Ward, Lahore?" In our last order we pointed out that if the Department were misled by instructions from the Central Board of Revenue at Karachi into believing that an appeal could be lodged only on the day when the .Appellate tribunal was notified in the Gazette, and the Tribunal treated this as a sufficient cause for delay, the exercise of discretion by it was not based on a wrong appreciation of law ; but that the Tribunal having been constituted on the l8th Novem ber 1947, and the appeal having been filed on the 25th November, the Tribunal failed to take notice of the established rule of law that the delay of everyday after the expiry of limitation should be explained. The Tribunal has now disclosed the following facts. An Assistant Registrar had taken over charge of the office of the Tribunal with effect from the 16th of October 1947. The Income tax Appellate Tribunal, however, is a body unconnected with the Income‑tax Department is Finance, the Tribunal is under the Ministry of Law. No appeal or application either on behalf of the assessee or on behalf of the Income‑tax Department was filed before the 30th of October 1947. Between that date and the 25th of Novem ber 1947 sixteen appeals and three reference applications were filed, all at the instance of private assessees. Thus in our last order we laboured under a mistake of fact in assuming that the Board of Revenue from which the Income‑tax Commissioner received instructions was a different body from the Department itself. In effect these were not different from the instructions given by an employer to an employee that the latter was not to file an appeal until a certain date. If they misled the Department, other parties who were affected by them should not be made to suffer. It is not a sufficient explanation of the delay than the Income‑tax Department was asked by its superiors not to institute the appeal until the personnel of the Tribunal should be formally appointed. That the Tribunal itself existed is clear from section 9 of the Pakistan (Adaptation of Existing Pakistan Laws) Order, 1947, which states that "any reference in an existing Pakis tan Law to a tribunal, authority, officer or official body whose jurisdiction or authority immediately before the appointed day extends to the whole of India or British India or over parts of British India which do the said day (15th August 1947) fall partly within the Dominion of India and partly within the Dominion of Pakistan . . . . . shall be construed as reference to such tribunal, authority, officer or official body as the appropriate, Government may by notification in the Official Gazette constitute or appoint in that behalf, and any such direction may be given so as to have retrospective effect from the appointed day." The notification of the 18th November 1947 (No. F.‑14/47‑Law) assumed that a tribu nal existed and appointed to it two persons as resident and Member "in exercise of the powers conferred by section 5‑A of the Indian Income‑tax Act, 1922 . . . . . with headquarters at Lahore, with effect from the 15th August 1947." We have been informed by the Registrar of the Income‑tax Tribunal and the Commissioner of Income‑tax that the Assistant Registrar on his appointment had been instructed to report himself to tic Commissioner of Income tax and that this report had been made by him to tine Commis sioner on the 16th of October 1947. Even, therefore, if the Central Board of Revenue had instructed the Commissioner on the 2nd of September 1947 that appeals should be kept ready and filed after the Tribunal had been constituted, the appointment of an Assistant Registrar should have reasonably led the Commissioner to believe that at least for the purpose of filing appeals the office of the Tribunal had started functioning. We are, therefore, of the opinion that the delay in filing the appeals after the appointment of the Assistant Registrar has not been explained and that in these circum stances the appeals should not have been admitted. In this view of the case it is unnecessary to answer the first question referred by the Tribunal, namely, whether there was material justifying the Income‑tax Officer to make an order refusing renewal of registration of the firm. The reference is answered accordingly. Reference answered accordingly.