COMMISSIONER OF INCOME-TAX, CENTRAL ZONE `B' VS MESSRS FARROKH CHEMICAL INDUSTRIES, 1992 PTD-SUPREME-COURT 523 (1991)

(On appeal from the judgment/order of High Court of Sindh at Karachi dated 11th October, 1982 in Income-tax References Nos.16/67, 28/72, 81/72, 724 to 727 and 811/72)

(a) Income-tax Act (XI of 1922)---

----S. 66(1)---Constitution of Pakistan (1973), Art. 185(3)---Leave to appeal was granted to consider the contention that question 'referred to the High Court was patently a pure question of fact and was not referable as a question of law in terms of S. 66(1) which only permits the Appellate Tribunal to refer to the High Court any question of law arising out of an order of the Appellate Tribunal on an appeal filed by the assessee and that the High Court had erred in deciding the Reference on a question of law not forming part of the Reference expressly or by implication.

(b) Income-tax---

----Principle of res judicata---Application---Previous decision of an Income-tax. Authority when will not operate as a bar.

The principle of res judicata cannot be applied with the same strictness to decisions of the Income-tax Authorities as it is applicable to cases decided by Courts or judicial Tribunals.

A previous decision of an income-tax authority will not be a bar in the following cases:

(i) where the earlier decision is clearly open to some objection;

(ii) if it is a decision which is not reached after proper enquiry;

(iii) if it is a decision as could not reasonably have been reached on the material before the authority;

(iv) if it is a decision which suffers from such a defect which falls within the purview of the grounds mentioned in S. 100, C.P.C. and liable to correction thereunder in second appeal, if it were a decision of a Civil Court; and

(v) if fresh evidence having ,a material bearing on the point decided in the previous decision is available.

New Jehangir Vakil Mills Ca. Ltd. v. Commissioner of Income-tax, Bombay North Kutch and Saurashtra (1963) VIII Taxes 268; M.M. Ipoh and others v. Commissioner of Income-tax, Madras (1968) 67 ITR 106; Seth Ramnath Daga v. Commissioner of Income-Tax. Bombay City (1971) 82 ITR 287; Karnani Properties Ltd. v. Commissioner of Income Tax, West Bengal (1971) 82 ITR 547; Parian Pillai v. Commissioner of Income Tax 1929 4 ITC 217; AIR 1939 Mad 113; Kaniram Ganpat Rai v. Commissioner of Income Tax 1941 9 ITR 332 (Pat); Tejmal Bhojraj v. Commissioner of Income-tax (1952) 22 ITR 208 (Nag.); Omar Salay Mohamed Sait v. Commissioner of Income-tax (1959) 37 ITR 151 (SC); Abdul Ghafoor Trust v. Commissioner of Income Tax, Colombo (1961) 2 All ER 436 (PC); Joint Family of Udayan Chinubhai etc. v. Commissioner of Income-tax (1967) 63 ITR 416; (1967) 1 S.C.R. Kaniram Ganpat Rai v. Commissioner of Income-tax; Mst. Samina Shaukat Ayub Khan v. Commissioner of Income-tax PLD 1981 SC 85; Commissioner of Income-tax v. Messrs Universal Engineering Company PLD 1963 Kar. 487 and Messrs Ellahi & Co. v. Commissioner of Income-tax PLD 1963 Kar. 490 ref.

Commissioner of Income Tax d. Wahiduzzman 1965 PTD 283 distinguished.

(c) Res judicata---

----Principle of---Income-tax proceedings---Application of principle of res judicata---Extent.

(d) Income-tax Act (XI of 1922)---

----S. 66(1)---Reference to High Court---High Court while deciding the Reference was not entitled to proceed on its own findings on a question of fact but has to proceed on the facts and circumstances found by the Income-tax Appellate Tribunal.

(e) Income-tax Act (XI of 1922)---

----S. 66(1)---Reference to High Court---Interference by High Court in findings of fact reached by the Income-tax Appellate Tribunal---Extent---Held, as long as the rational process was applied by the Income-tax Appellate Tribunal to the material or other facts brought before it, the mere fact that the High Court would have come to a different finding, would not justify the conclusion that the finding of the Tribunal was based on conjectures, suspicions or irrelevant material.

(f) Income-tax---

----Principle of res judicata---Application---Previous decision---Bar of--?Previous assessment order was not reached after proper enquiry and on the basis of material placed before the assessing officer and was not a decision of the nature which was not liable to correction in second appeal under S. 100, C.P.C: ---Said previous order did not place any fetters on the jurisdiction of the Income-tax Officer or the Income-tax Appellate Tribunal, to re-examine the same question in the subsequent assessment year---Bar of such order thus was not attracted:

Sheikh Haider, Advocate Supreme Court and Muzaffar Hassan, Advocate-on-Record for Appellant. .

Respondents: Ex parte.

Date bf hearing: 13th May, 1991.

JUDGMENT

ZAFFAR HUSSAIN MIRZA, J.---These eight appeals by the leave of this Court, arise out of common judgment of a Division Bench of the Sindh High Court, dated 11th October, 1982 disposing of eight references in which a common question of law was referred to the High Court by the Income-tax Tribunal under section 66(1) of the Income-tax Act, 1922, at the instance of the assessee. We also propose to dispose of - these appeals by this common judgment.

The facts that formed the background which led to the references before the High Court, as stated in the judgment were as follows: The admitted position is that M/s: Farrokh Chemical Industries. which had assets both in the former West and East Pakistan, was the proprietary concern of Mr. Captain and it was assessed accordingly by the Income-tax Authorities until the year 1957-58. However, upon the promulgation of Martial Law to 1958, the said Mr. Captain and his wife Mrs. Captain, separately declared excess income under MLR-43 arising from the firm of M/s. Farrokh Chemical Industries. Mr. Captain, declared a total excess income of Rs.83,533 whereas Mrs. Captain declared a total excess income of Rs.2,84,520 for the period 1952-53 to 1957-58. It appears that the processing authority which was appointed for scrutinizing the declarations made under MLR-43, treated the two declarations of excess income filed by Mr. and Mrs. Captain as one, in view of the fact that M/s. Farrokh Chemical Industries was all along treated and assessed as a proprietary concern of Mr. Captain and tax recovered as such.

It may be observed that the concern known as Farrokh Chemical Industries, Karachi was commenced somewhere in 1951 by Mr. Captain. The production of the concern was in Sodium Sillicate which was carried on in the then West Pakistan as well as in East Pakistan. Admittedly sometime in 1953 Mrs. Captain lent a sum of Rs.1,50,000 to her husband. It is also admitted position that the assessments upto the year 1957-58 in respect of the business carried on in both the then wings of Pakistan were made in the name of Mr. Captain. Then intervened the imposition of Martial Law and as stated earlier excess income was declared by both husband and wife. Mrs. Captain's concealed income was attributed to her share of profits from the concern. However, according to the statement of the case contained in the references, under section 66(1) of the Income-tax Act, the concerned authorities assessed the entire declared income by both in the hands of Mr. Captain. The income from both the wings was assessed in the status of an Association of Persons for the charge year 1958-59. For the next assessment year, namely, 1959-60 it was claimed that during this year the business had been bifurcated and the East Pakistan factory had been transferred to Mrs. Captain. This claim of the division of business into two separate entities was accepted by the Department, with the result that the West Pakistan income was assessed in the hands of Mr. Captain and that relating to East Pakistan business was treated as income of Mrs. Captain.

When the assessment for the assessment year 1960-61 was taken up, it' was found that the bifurcation was artificial and not a genuine transaction, with the result that the income from both the wings was assessed as the income of Mr. Captain alone. The assessing officer also rejected the account version of both the wings and resorted to his own estimate both in the turn over and the gross profit rate. The appeal filed before the Income-tax Appellate Tribunal against the aforesaid mode of assessment was also dismissed. The rest of the facts may be narrated from the Statement of the Case contained in the References in para 4 as under:

"After considering the arguments of the parties the Tribunal upheld the decision of the assessing officer and refused to accept ownership of Mrs. Captain of East Pakistan factory. What really weighed with the Tribunal was that in view of the lady's letter to the Income-tax Officer Chittagong, she never had anything over and above the amount of the alleged loan given somewhere in 1952. This letter completely negatives the assertion that she was having share of profits. On the Tribunal's inquiry it was admitted that never any share of profits was credited in her name in the books of the concern. Trust in marital relations in understandable but when there is question of transfer of property it must be by proper means and methods. True that the facts considered in the year 1960-61 were always there but they appear not to have been thoroughly considered on the earlier occasions. Be that as it may since separation was accepted in the immediately preceding year and for the still earlier year the lady was treated as a member of Association of Persons it appears to us that the decision given by the Tribunal involves a mixed question of law and facts on the issue of bifurcation of the business in the two wings. Mr. Ali Athar agrees that his purpose would be served if question No.6 alone is referred to the High Court and that question is:-

Whether in the facts and circumstances of the case there is any material or evidence on the record to support the finding of the Tribunal that the transfer of the East Pakistan business in favour of Mrs. Captain had not taken place and is not this finding based on mere suspicions, surmises and conjectures?'

and the same we refer for consideration by the High Court."

The learned Judges of the Division Bench oaf the High Court who decided the references on the aforesaid question of law referred to the fact of two separate returns of income filed for the year 1959-60 by Mr. and Mrs. Captain in their individual capacity on the basis of the said bifurcation of business. Learned Judges then reproduced relevant portion of the order of the I.T.O. dealing with the business in West Pakistan of Mr. Captain. They also referred to the order of assessment by the I.T.O. in respect of the business in East Pakistan claimed to have been transferred to Mrs. Captain for the same, year. In the events that happened, however, in the assessment year 1960-61, the return filed by Mr. Captain as proprietor of West Pakistan business only was not accepted by the I.T.O., who held that tire transfer of East Pakistan business to Mrs. Captain was only an ostensible transaction but in fact Mr. Captain was the proprietor of both the businesses in East and West Pakistan. He therefore lumped together the income arising from the trading activities of the concern, in East Pakistan with the income from West Pakistan.

Learned Judges after referring to the grounds that were adopted by the Income-tax Officer for holding that the businesses in the two wings of Pakistan were the single proprietary concern of Mr. Captain observed that the assessee Mr. Captain filed separate appeals against the assessment orders for the years 1959-60 and 1960-61. It was said that the appeal of the assessee against the assessment year 1959-60 was accepted by the Tribunal, in so far as various addbacks made by the I.T.O. were allowed to be deleted and the book results shown by the assessee were accepted by the Tribunal. Learned Judges pointed out that although Mr. Captain had filed the return for the year 1959-60 as the proprietor of only the West Pakistan business, yet the Department did not agitate the point before the Tribunal in the proceedings of the appeal challenging the position taken by the assessee that he is only the proprietor of the business located in West Pakistan. In other words, the Department did not assert at that stage that the two businesses were of single proprietorship owned by Mr. Captain.

As already stated in the appeal against the order for the assessment year 1960-61 the Appellate Tribunal maintained the order of the I.T.O. that the business both in East and West Pakistan belonged to Mr. Captain and that Mrs. Captain's name as proprietor of East Pakistan business was only a camouflaged arrangement. In coming to this conclusion, it was stated, the, Tribunal adopted the same reasoning as prevailed with the I.T.O. On the same basis assessment orders for subsequent years of 1962-63 to 1966-67 framed by the I.T.O. had been upheld by the Tribunal. In these circumstances, the references were submitted before the High Court.

The learned Judges after referring to the arguments addressed by the learned counsel of either side, laid down the following proposition of law in order to proceed further for the decision of the controversy before them:

"We are of the view that although the principles of res judicata and estoppel may not in strict sense apply to proceedings before the Income-tax Authorities but in order to avoid uncertainty in the mind of an assessee and to give some degree of finality to the decision of Income-tax Authorities it is necessary that these authorities should not be allowed to change their decision once taken by them after the consideration of all the material before them unless after taking the decision some new facts or information are laid before them which makes it necessary to change their earlier view. Such a view is not only desirable but is necessary for due administration of justice and any contrary course will result in uncertainties and anomalies."

On the question whether the principles of res judicata are applicable in proceedings before the Income-tax Authorities, learned Judges referred to this Court's decision in Commissioner of Income-tax v. Wahiduzzaman 1965 PTD 283. The learned Judges then examined the question whether the earlier decision of the Income-tax Authorities accepting the bifurcation of the firm and transfer of its assets in West Pakistan to Mr. Captain and those in East Pakistan to Mrs. Captain, "was passed after proper inquiry and was such as could reasonably have been reached on the material before the authority and it did not suffer from such defect which could render it liable to be set aside under section 100, C.P.C. in second appeal if it was a decision of a Civil Court". The final conclusion was then expressed by the learned Judges as mentioned hereunder:

"We are, therefore, of the view that there was no new material or fact before the Tribunal which could justify the change in the basis of assessment of the Income of assessee on the ground that transfer of, East Pakistan business in favour of Mrs. Captain had not taken place and that the findings in this regard proceeded on mere suspicions, surmises and conjectures."

The assessee then moved an application for reference under section 66(1) of the Income-tax Act, 1922 in respect of all the assessment orders which were processed on the basis of the aforesaid decision that the businesses located in the then East and West Pakistan were the proprietary concern of Mr. Captain. The above-stated question was accordingly referred to the High Court in all the references.

The question was replied in the negative in the manner already stated hereinabove.

Being aggrieved the Commissioner of Income-tax called in question the common judgment of the High Court before this Court in the aforesaid references by separate petitions for leave to appeal and leave was granted to consider the following contentions:

"(i) That the question referred to the High Court was patently a pure question of fact and was not referable as a question of law in terms of section 66(1) of the Income-tax Act, 1922, which only permits the Appellate Tribunal to refer to the High Court any question of law arising out of an order of the Appellate Tribunal on an appeal filed by the assessee.

(ii) That the High Court has erred in deciding the Reference on a question of law not forming part of the Reference expressly or by implication."

We have heard Mr. Shiekh Haider in support of these appeals but no one has appeared to defend these appeals as the respondent-assessee is ex parte. Learned counsel for the appellant has urged that the learned Judges of the Division Bench have erred in holding that the two assessment orders of the Income-tax Officers in respect of the assessment year 1959-60 accepting-the transfer of East Pakistan business to Mrs. Captain, can neither be said to have been passed without proper inquiry nor can they be described to be such, as could not have been reasonably reached by the I.T.Os. concerned on the basis of material before them. The finding of the learned Judges that the nature of orders passed by the said Income-tax Officers was not such as could have been liable to correction under section 100, C.P.C. in a second appeal, if they were decisions of the Civil Court, which was the test laid down by this Court in the: case of Commissioner of Income-tax v. Wahiduzzaman (supra), was also challenged.

Learned counsel has referred us to a number of decisions on the legal proposition that the doctrine of res judicata as such was not applicable to income-tax proceedings. Reference was made in this connection to New Jehangir Vakil Mills Co. Ltd. v. Commissioner of Income-tax, Bombay North Kutch and Saurashtra (1963) VIII Taxes 268 (Supreme Court of India) in which it was held that in matters of taxation there may be no question of res judicata. The learned Judges observed "The extent to which a decision given by an Income-tax Officer for one assessment year affects or binds a decision for another year has been considered by Courts several times and speaking generally it may be stated that the doctrine of res judicata or estoppel by record does not apply to such decisions; in some cases it has been held that though the Income-tax Officer is not bound by the rule of res judicata or estoppel by record, he can reopen a question previously decided only if fresh facts come to light or if the earlier decision was rendered without taking into consideration material evidence, etc."

The next case referred to was M.M. Ipoh and others v. Commissioner of Income-tax, Madras (1968) 67 ITR 106 in which learned Judges of the Supreme Court of India reiterated their view more emphatically in. the, following words:

"The doctrine of res judicata does not apply so as to make a decision on a question of fact or law in a proceeding for assessment in one year binding in another year. The assessment and the facts found are conclusive only in the year of assessment; the findings on questions of fact may be good and cogent evidence in subsequent years, when the same question falls to be determined in another year, but they are not binding and conclusive:"

Reliance was also placed on Seth Ramnath Daga v. Commissioner of Income-tax, Bombay City (1971) 82 ITR 287 and Karnani Properties Ltd v. Commissioner of Income-tax, West Bengal (1971) 82. ITR 547. In the first mentioned case, in somewhat similar circumstances as in the present case, the assessee pleaded the bar of res judicata on the basis of previous years' assessments in which findings were recorded by the Income-tax Tribunal and it was contended that these questions could not be reagitated in the subsequent assessment proceedings of the same assessee. The Bombay High Court observed: "The question of res judicata need not detain us long, as there is a plethora of decisions which hold that the income-tax authority is not a Court and the decision of an income-tax authority in a prior year does not operate as res judicata in the assessment proceedings of the subsequent years. To quote a few, they are: Perian Pillai v. Commissioner of Income-tax (1929) 4 ITC 217 ; AIR 1939 Mad 113, Kaniram Ganpat Rai v. Commissioner of Income-tax (1941) 9 ITR 332 (Pat), Tejmal Bhojraj v. Commissioner of Income-tax (1952.) 22 ITR 208 (Nag.), Omar Salay Mohamed Sait v. Commissioner of Income-tax (1959) 37 ITR 151 (SC), Abdul Ghaffoor Trust v. Commissioner of Income-tax, Colombo (1961) 2 All ER 436 (PC) and Joint Family of Udayan Chinubhaetc, v. Commissioner of Income-tax (1967) 63 ITR 416; (1967) 1 SCR. In Kaniram Ganpat Rai v. Commissioner of Income-tax, it was held by the High Court of Patna that the Income-tax Officer is not bound by the rule of res judicata or estoppel and he can reopen the assessment if fresh facts came to light which on investigation would entitle the officer to come to a conclusion different from that of his predecessor. Similarly, in Tejmal Bhojraj v. Commissioner of Income-tax, it has been held that "the principle of res judicata or estoppel by record has no application and the previous finding or decision may be reopened by the department when the previous decision has not been arrived at after due enquiry, the said decision is arbitrary or fresh facts come to light. In view of this, if the assessee in a subsequent year is able to satisfy the income-tax authority that the previous finding is not correct either because it was not arrived at after due enquiry or because it is arbitrary or if the assessee put forth before the income-tax authority fresh facts from which a different conclusion can be arrived at, then in that case the income-tax authority would 6e justified in arriving at a different conclusion than what was arrived at in the previous proceeding." The second case was cited in support of the proposition that the High Court when deciding a Reference upon a question which speaks of "on the facts and in the circumstances of the case" is not entitled to decide the reference on facts and circumstances that may be found by it, on its own examination of the material but that it means on the facts and circumstances found by the Tribunal. The Supreme Court of India in this case observed:

"Neither the High Court nor this Court has jurisdiction to go behind or to question the statement of facts made by the Tribunal. The statement of the case is binding on the parties and they are not entitled to go behind the facts found by the Tribunal in the statement:"

The reason that prevailed wrath the learned Judges was simply that the question as to the correctness of the facts found by the Tribunal was not before the High Court nor before the Supreme Court as it was not within the Province of the Court to re-appreciate the evidence on record.

Again reference was made to this Court's decision in Mst. Samina Shaukat Ayub Khan v. Commissioner of Income-tax PLD 1981 SC 85 in which two cases of the Sindh High Court, namely, Commissioner of Income-tax v. M/s. Universal Engineering Company PLD 1963 Karachi 487 and Messrs Ellahi & Co. v. Commissioner of Income-tax PLD 1963 Karachi 490 were approved which laid down the proposition that a cash credit entry in the account styled as "Deposit Account" in the books of the assessee could be' regarded as income, as it was purely a question of fact and acceptance of assessee's explanation depended on facts and circumstances of the case; and further that a cash credit entry in the name of assessee's wife could legitimately be regarded as secreted profits of the assessee in the absence of any satisfactory explanation.

The legal question as to how far the principle of res judicata is applicable to proceedings before the income-tax authorities need not detain us. This question directly arose for decision, in view of the question framed under section 66 of the Income-tax Act in the case of Commissioner of Income-tax v. Wahiduzzaman (supra). It was held that the principle of res judicata cannot be applied with the same strictness to decisions of the Income-tax Authorities, as it is applicable to cases decided by Courts or judicial tribunals. The bar of res judicata was' postulated to be applicable within the limits as observed in the following dictum:

"Under the circumstances the ends of justice will be served by confining the bar of res judicata in relation to decision of Income-tax authorities to cases where the decision is not clearly open to some objection. It should be a decision which is reached after proper enquiry, which is such as could reasonably have been reached on the material before the authority, and which does not suffer from such a defect as would render it liable to be set side under section 100, C.P.C. in second appeal if it was a decision of a Civil Court. Also a matter can always be re-opened on the ground that fresh evidence having a material bearing on the point decided is available."

It is not necessary, therefore, to go to the decisions cited by the learned counsel for the appellant on this point. It may be reiterated that a previous decision of an income-tax authority will not be a bar in the following cases:

(i) where the earlier decision is clearly open to some objection;

(ii) if it is a decision which is not reached after proper enquiry;

(iii) if it is a decision as could not reasonably have been reached on the material before the authority;

(iv) if it is a decision which suffers from such a defect which falls within the purview of the grounds mentioned in S. 100, C.P.C. and liable to correction thereunder in second appeal, if it were a decision of a Civil Court; and

(v) if fresh evidence having a material bearing on the point decided in the previous decision is available.

The above-said tests laid down by this Court is the substance of the decisions cited by the learned counsel at the Bar before us on this point. It may however be pointed coat at this stage that in the case of Wahiduzzaman, as already observed the question referred to the Court was so framed that the question of res judicata came up for adjudication directly. The frame of the question and the wordings employed therein in the present case are such that the question of res judicata was not referred for decision. Therefore the Court was not called upon to decide that legal question. The question in the present case was whether the tribunal had before itself any material or evidence to support the finding' recorded by it to the effect that the transfer of the East Pakistan business in favour of Mrs. Captain had not taken place and whether this finding was based or mere suspicion, surmises and conjectures. It would therefore appear that there was no controversy between the parties, so far as the question referred to the Court was concerned, that if there was material or evidence to support such a finding and the finding' is not speculative, then the Tribunal was competent to uphold the decision of the I.T.O. reopening the question of transfer of the business in question in favour of Mrs. Captain. Looked at in this perspective the controversy would be confined to a narrow compass. For this purpose, therefore, it was necessary to analyse the order of the Income-tax Appellate Tribunal, and the evidence or material referred to therein, because the order of the I.T.O. upon appeal merged in the said order of the Income-tax Appellate Tribunal. However, the learned Judges of the Division Bench seem to have examined the order of the Income-tax Officers alone. Further the learned Judges examined the previous orders of the Income?-tax Officers in respect of the assessment year 1959-60 accepting the transfer of East Pakistan business to Mrs. Captain, in the light of the decision laid down by this Court as mentioned above. The question referred to them, as discussed above, did not call for any examination on these lines.

It will now be convenient in the context of the foregoing discussion, first to refer to the assessment order of the Income-tax Officer for the assessment year 1959-60, when for the first time the alleged change of ownership of the concern located in East Pakistan in favour of Mrs. Captain was brought to the notice of the said officer. The relevant portion of the order passed by the Income-tax Officer in the said year reads as follows:

"There is a change in the ownership of the concern in this year. Last year it had been assessed as A.O.P., because Mr. and Mrs. Captain had been and were taken as members or partners thereof, whereas in this year separation in business took place and Mrs. Captain got her share out of her capital in the firm, in the shape of 2 branches in East Pakistan (i.e. Chittagong and Dacca). As such both have filed returns separately as individuals. It is reported that previously Mrs. Captain who is a Science Graduate, has been assisting Mr. Captain in the business of Chemical manufacturing actively, apart from her capital, investments in the firm, as per books of accounts. On 1st January 1958 the branches in East Pakistan as mentioned above were taken over by Mrs. Captain and the factory at Chittagong was registered in her name with the Chief Inspector of Factories, Director of Industries and Chief Controller of Import and Export. She also obtained sales tax manufacturing licence from the Sales-tax Officer, Survey Circle, Chittagong. The business in West Pakistan which is much more than that in East Pakistan fell to the share of Mr. Captain."

In the following year i.e. assessment year 1960-61 the assessing officer referred to the assessee having made a declaration in the year 1958 that East Pakistan factory had been taken away by his wife Mrs. Captain against the amount of credit standing in her name in the books of the assessee. He then observed that "enquiries made reveal that this bifurcation of business is artificial". This was the reason that actuated the Income-tax authorities to have a second look at the assertion of the two assessees that a bifurcation of their business has taken place in the year 19_58. The Income-tax Officer then gave eight reasons in support of his conclusion that the income earned by the wife Mrs. Captain through East Pakistan factory was treated as the income of the assessee Mr. Captain because in his opinion the alleged bifurcation was merely ostensible. As already stated the assessee took the matter in, appeal before the Income-tax Appellate Tribunal which carefully examined the question of the genuineness of the alleged bifurcation of business. In this behalf, as would' appear from paragraph 5 of the Tribunal's order, the assessee sought to challenge the finding arrived at by the Income-tax Officer holding that the East Pakistan and West Pakistan businesses were owned by the sole proprietor Mr. Captain on the following grounds:

(1) That Mrs. Captain had made a deposit of Rs.1,50,000 sometime in 1953 and that in view of this amount as also due to the allocation of some business profits which had accrued to her and which were kept outside the books of account, she took over the East Pakistan assets of this business in lieu of her investments in the concern of her husband.

(2) That in response to Marti4l Law Regulations No.43/48 Mrs. Captain had actually filed a separate declaration of her own, declaring her share of profits from this concern.

(3) That in the assessment year 1959-60 assessing authorities accepted this position that the business had been bifurcated.

(4) That in fact the Income-tax Officer for the year 1959-60 separately assessed Mr. and Mrs. Captain in respect of West Pakistan and East Pakistan branches.

(5) That the Department had in the year 1958-59 admitted the fact that Mrs. Captain was a partner in the firm of Messrs Farrokh Chemical Industries, in that, the assessment for that year was completed as Association of Persons comprising the two.

(6) That the principle of res judicata applied to this case as the issue of ownership of East Pakistan branch had already been thrashed out by the Income-tax Officer, which could not be reopened in the subsequent years.

(7) That the East Pakistan business was in fact transferred to Mrs, Captain, which is supported by the following circumstances:

(a) She had opened new account with the bankers.

(b) She had informed all her customers of the changed position.

(c) Government offices like Income-tax Department and Imports and Exports Department etc. were duly informed of the transfer.

These objections were controverted by the departmental representative. It was submitted that up to the assessment year 1957-58 the entire profits from the concern were shown to belong to Mr. Captain in his individual capacity. Mrs. Captain was attempted to be introduced as a partner and ultimately as owner of the East Pakistan branches, for the first time under the Martial Law Regulations. It was further urged that before the Income-tax Officer for the relevant year in question, there was enough material to show that the declaration of the assessee with regard to East Pakistan branches having been transferred to Mrs. Captain, in lieu of her capital investment, was not correct as there was not an iota of evidence to show that the so-called excess profits disclosed for the first time under the Martial Law Regulations, belonged to her. It was further argued that the status of-Association of Persons accepted in the year 1958-59 was of no consequence, as it made little difference to the assessing officer who was then completing the assessment. The departmental representative emphatically urged that the source of capital allegedly invested initially by Mrs. Captain was not proved by any evidence, nor was the increase of this capital proved in any manner. On the other hand, it was pointed out, that the declaration filed under Martial Law Regulations apportioning some of the concealed profits to Mrs. Captain was not accepted by the Department as the processing order of the Martial Law would show that the entire profits were treated and assessed as individual income of Mr. Captain. The consideration of Rs.1.50.000 for the East Pakistan concern valued at over Rs.4,50,000 was also challenged as apparently a fake transaction.. Finally, it was urged that even for this fictitious transfer there was no documentary evidence produced at all, in that, no agreement was drafted or terms of transfer drawn up. Also the source of the initial investment allegedly made by Mrs. Captain was not proved. Learned Tribunal after considering the respective arguments of the two sides repelled the contentions on behalf of the assessee and maintained the order of the I.T.O. by adopting - the line of reasoning which appears from the following extract of the order:

"We have considered all the facts of the case in all possible aspects. We, however, find that a cursory glance at the evidence, as available clearly reveals that the business was started sometime in 1951. Thereafter in 1953 sums of Rs.1,50,000 and Rs.56,000 appear to have been introduced in the business in the name of Mrs. Captain and another lady who is a sister of Mr. Captain. Assessments do not show that dispute so far as the ownership of the East Pakistan branches is concerned till 1957. It appears to us that only at the time when the excess income declaration was made, the appellant came forth with the huge excess income and made a disclosure for first time that Mrs. Captain had also a share in the declared profits by virtue of her investment in the business from the very beginning. For obvious reasons the Department turned down this attempt of the appellant. No documentary evidence whatsoever has been produced before us to show that Mrs. Captain, from the very inception of this business, had any interest in this business. As late as 25th January, 1958, Mrs. Captain appears to have made an application to the Income-tax Officer Chittagong to obtain a registration certificate to enable her to acquire import licences etc. for the East Pakistan branch, while describing herself as a proprietor of Farrokh Chemical Industries (East Pakistan). She states in the very first paragraph as under:-

"I am pleased to inform you that I have taken over the branches of M/s. Farrokh Chemical Industries situated in East Pakistan from my husband, Mr. KR.S. Captain the proprietor of M/s. Farrokh Chemical Industries, Head Office Usmanabad, Karachi-3, against the amount lent by me in the year 1952."

This declaration by Mrs. Captain clearly negatives the attempt that was made for the first time, at the time of the declaration of excess income under Martial Law Regulations, that Mrs. Captain was a partner in the concern styled as Farrokh Chemical Industries. It also belies the appellant's contention before us that she had acquired interest in the profits of the business by virtue of her investment. Her statement clearly shows that whatever amount she had invested in this business was by way of loan given by her in the year 1952. It would, therefore, be fantastic in our view to accept the position that her alleged loan of Rs.1,50,000 given sometime in 1952 and 1953 had continued to swell up and that by the time excess income declaration was filed she had accumulated substantial capital in consideration of which East Pakistan branches of the proprietary concern viz. Farrukh Chemical Industries could fall to her lot. We had also an occasion to enquire from the appellant's representative whether at any stage any' portion of the profit and loss was appropriated to her account. The reply was in the negative. We, therefore, hold that the Department had justifiably held that none of the profits declared under the Martial Law Regulations belonged to her and that she could not in her own right or in lieu of the capital invested acquire East Pakistan branches in satisfaction of this investment. In the second place we find that if this transfer was genuine some agreement showing the transfer should have been drawn up. After all East Pakistan branches had their assets and liabilities which were all to be taken over by Mrs. Captain as a result of this transfer. No documentary evidence to show any such arrangement or specification is available. In our view, therefore, the assessing authorities were correct in coming to. the conclusion that no such transfer had in fact taken place. There is no doubt that some evidence has been brought on record to show subsequent actions of Mrs. Captain to give her the semblance of a proprietor of East Pakistan branches. In a camouflaged arrangement, such acts become a necessary corollary. In order to give to the artificial bifurcation, the semblance of reality, a number of acts had to follow and these in fact did follow. But in our view none of these had the effect of transferring the ownership of the East Pakistan branches from Mr. Captain to Mrs. Captain. We find that Mr. Captain is as a matter of fact still controlling the entire business. He owns the same and his attempt to ?transfer the same was to escape proper liabilities. The transfer in our view had not taken place in fact. It is without adequate consideration and cannot save Mr. Captain from his liabilities. The principles of res judicata or estoppel on which reliance was sought cannot be invoked in face of the copious, factual and circumstantial evidence that has been brought on record by the Income-tax Officer for the year under consideration. We accordingly hold that the Income-tax Officer was well within his rights in holding that the proprietorship of the East Pakistan business continued to vest in Mr. Captain. The profits as such have been properly incorporated in his individual income."

It appears that the learned Judges did not refer to this order of the Income-tax Appellate Tribunal but instead confined their consideration to the reasons that prevailed with the Income-tax Officer. In terms of the question referred to the High Court, they were required firstly to determine whether there was any material or evidence on the record to support the finding of the Tribunal, and 'secondly, whether the said finding was based on mere suspicions, surmises and conjectures. The reasoning part of the order of the Tribunal has been reproduced above and it speaks for itself. It would appear that all the relevant evidence was before the learned Tribunal and the finding has been reached on substantial grounds based on facts appearing from the record. For example, it was admitted position before the Tribunal that business profits allocated to the investment made by Mrs. Captain were got outside the books of account. This admission constitutes evidence or material which has been taken into account by the Tribunal, because according to the assessee this formed part of the consideration for the transfer of East Pakistan branches, The fact that it was for the first time that the status of Mrs. Captain as partner in the business was disclosed in the declaration before the Martial Law Authorities, but the same was rejected.

The Tribunal referred to two sums of money having been `introduced in the business in 1953, one in the name of Mrs. Captain and another in her husband's sister's name. Yet until 1957 the East Pakistan branches were solely shown as the part of the proprietary concern owned by Mr. Captain. These are cogent grounds in support of the conclusion reached by the Tribunal that it was not proved that Mrs. Captain had any interest in the business since its inception. Added to this washer own statement, which simply said that she had taken over the branches situated in East Pakistan from her husband, whom she described as proprietor of the whole concern, against a loan she had advanced to him in the year 1952. This statement was rightly construed as inconsistent with her claim as a partner in the concern or that any profits had accrued towards her share of investment. The Tribunal had also taken into account a statement made by the assessee's representative, who admitted that at no stage any portion of profit and loss was appropriated to Mrs. Captain's account. The complete lack of documentary evidence showing the terms on which the East Pakistan branches were transferred in favour of Mrs. Captain, is a relevant consideration; to say the least, in judging the veracity of the claim that she was the transferee of that business.

In view of the above, it is not possible to hold that the finding of the Tribunal was based merely on surmises or conjectures. The Statement of the Case, as referred to above, also speaks of some enquiries made by the Tribunal. Alai the assessment order passed by the Income-tax Officer refers to enquiries made after the assessment year 1959-60, which are said to have revealed that the bifurcation of business was artificial.

As already observed, the Court while deciding the References is not entitled to proceed on its own findings on a question of fact but has to proceed on the facts and circumstances found by the Income-tax Appellate Tribunal. There is no reason to doubt the correctness of the fact that some enquiries were made as mentioned above.

In view of the foregoing, on a proper approach to the question of law as referred to the Court, the answer ought to have been that there was material on the record. to support the finding of the Tribunal that the transfer of East Pakistan business in favour of Mrs. Captain had not taken place and that this finding is not based on mere suspicions, surmises and conjectures. However the Court proceeded to consider, instead, the question whether the previous decision of the Income-tax Officer in the year 1959-60 was a bar to the re?opening of the same question relating to the bifurcation of the business. It has Court to do so by raising a question of law not forming part of the References expressly or by implication. This contention seems to be well-founded, because as already discussed the substance of the question referred to the, Court was much narrower and confined to only the reasonability of the Tribunal's finding and whether there was material to support it.

Be that as it may, reading the Tribunal's order as a whole, it is difficult to hold that it proceeds on conjectures or irrelevant considerations. As long as the rational process is applied by the Tribunal to the material or other facts brought before it, the mere fact that the Court would have come to a different finding, would not justify the conclusion that the finding of the Tribunal is based on conjectures, suspicions or irrelevant material.

Even if the tests adopted by the learned fudges of the Division Bench, with regard to the binding nature of the earlier decision of the assessing authority, are applied to the facts of this case in the light of the order of the learned Tribunal, the inevitable conclusion would be that the bar was not attracted because it can hardly be said that the assessment order passed in the year 1959-60 was based on a decision which was reached after proper enquiry or that it was reasonably reached on the basis of material placed before the concerned authority or that it was not a decision of the nature which was liable to correction under section 100, C.P.C. Therefore, the earlier order did not place any fetters on the jurisdiction of the Income-tax Officer or the Appellate Tribunal to re-examine the same question in the subsequent assessment year.

For the foregoing reasons these appeals succeed and are allowed, with the result that the judgment of the High Court is set aside and the question referred is answered in the positive on the first part of the question and in the negative so far as the second part of the question is concerned.

As the respondent has not appeared to contest these appeals we make no order as to costs.

M.B.A./C-95/S.?????????????????????????????????????????????????????????????????????????????????? Order accordingly.