KARAMAT HUSSAIN VS COMMISSIONER OF INCOME-TAX, AZAD JAMMU AND KASHMIR COUNCIL, MUZAFFARABAD
2001 P T D 1174
[Supreme Court (A J & K)]
Present: Sardar Said Muhammad Khan, C.J. and Muhammad Yunus Surakhvi, J
Ch. KARAMAT HUSSAIN
Versus
COMMISSIONER OF INCOME TAX, AZAD JAMMU AND KASHMIR COUNCIL, MUZAFFARABAD and another
Civil Appeals Nos. 73 and 74 of 2000, decided on 30/01/2001.
(On appeal from the judgment of the High Court dated 24-2-2000 in Income Tax Appeal No. 8 of 1998 and Income Tax Appeal No. 9 of 1997).
(a) Income Tax Ordinance (XXXI of 1979)---
----S. 136---Azad Jammu and Kashmir Interim Constitution Act (VIII of 1974), S.42---Reference---Appeal to Supreme Court---Contention of the Department that the references filed by the appellant before the High Court under S.136, Income Tax Ordinance, 1979 were incompetent because no law point was involved, having not been raised before the High Court and no cross appeals having been filed by the Department before Supreme Court, was not tenable at the stage of appeal before Supreme Court.
(b) Income Tax Ordinance (XXXI of 1979)---
----S. 32(3)---Method of accounting not regularly employed---Gross profit-- Determination---Income-tax Officer was authorised to compute the income, profit and gains on such basis and in, such manner as he thought fit in cases where no method of accounting was regularly employed---Calculation of income or gross profit of assessee for the purpose of collecting the income-tax---General meaning of "gross profit" were not necessarily to be adhered to, because income-tax was to be calculated according to relevant provision of law, which was S.32(3), Income Tax Ordinance, 1979-- Principles.
Words and Phrases, Vol. 18-A. by Gone-Gyrotiller and S. Ganesan v. A.K. Joseclyne AIR 1957 Cal. 33 distinguished.
Mian Muhammad Sharif & Co. v. Commissioner of Income-tax 1987 SCMR 1254 ref.
(c) Income Tax Ordinance (XXXI of 1979)---
----S. 32(3)---Method of accounting---Accounts not properly or effectively maintained---Gross profit---Determination---Principles---While adopting the method of calculation of gross profit or income, the nature of business and assessment years were important factors in view of the fluctuations of profit in particular business---Identical formula need not necessarily be applied for the calculation of the profit in all kinds of business ventures while exercising discretionary powers under. S.32(3), Income Tax Ordinance, 1979 or such powers were to be exercised irrespective of the period of assessment by applying a uniform formula.
Ch. Muhammad Afzal, Advocate for Appellant:
Ch. Muhammad Azam Khan, Advocate for Respondents.
Date of hearing: 22nd January. 2001.
JUDGMENT
SARDAR SAID MUHAMMAD KHAN, C.J.---As the above entitled appeals arise out of the consolidated judgment of the High Court we propose to dispose of the same through this single judgment,
2. The brief facts giving rise to Civil Appeal No. 73 of 2000, for t e assessment year 1991-92, are that the appellant purchased different kinds of timber costing Rs. 41,92,868 in different auctions made by the Azad Kashmir Logging and Sawmills Corporation at various depots and also made payment of the advance as envisaged under law. Thereafter, the appellant filed return declaring his gross income to the tune of Rs. 60,000 with a ratio of gross, profit at the rate of 4 %. The Assessment Officer applied 12 % gross profit, rate and assessed the income as Rs. 3,60,000. The appellant filed an appeal against the assessment order of the Income-tax Officer to the Appellate Additional Commissioner Income-tax who partly accepted the appeal and reduced the gross profit rate from 12% to 8%. Thereafter, the appellant and Income-tax Department filed cross appeals to the Appellate Tribunal Income-tax which rejected appeal filed by 'the appellant, herein, and accepted that of the department and enhanced the gross profit rate from 8% to 10% on sale price which was fixed by the Deputy Commissioner. Income tax. The appellant initiated reference to the High Court which dismissed the same and repelled the contention of the appellant that gross profit rate should have been applied to the purchase price and not to sale price.
3. The brief facts giving rise to Appeal No. 74 of 2000 are that the appellant purchased various kinds of timber costing Rs. 88,31,457 from AKLASC in public auctions made at various depots. The purchase figures of the appellant were accepted by the department and advance income-tax was also paid to the tune of Rs. 2,64,952. In the return filed by the appellant, the appellant declared his income as Rs. 1,50,000 with ratio of profit at the rate of 4.76% but the Income-tax Officer enhanced the sale amount from Rs. 92,73,028 to Rs.1,03,85,791 and assessed the income of the appellant as Rs. 8,30,865. The appellant filed an appeal before the Appellate Additional Commissioner Income-tax who partly accepted the appeal by reducing the gross profit rate from 12% to 8%. However, the appellant as well as the department filed cross-appeals to the Appellate Tribunal Income-tax which rejected the appeal tiled by the appellant and accepted the cross-appeal filed by the department and increased the gross profit from 8% to 10% on the sales. The appellant initiated a reference/appeal before the High Court against the findings of the Appellate Tribunal Income-tax which partly accepted the same and reduced the sales from Rs. 1,03,85,791 to Rs. 98,12,507. Thus, the gross profit was calculated on the reduced sale price which was reduced from Rs. 10,38,597 to Rs. 9,81,250; consequently, the income-tax which was calculated on the sale price was reduced from Rs. 6,92,398 to Rs. 6,24,167. It is against the aforesaid rejection of the references that present appeals, by leave; have been preferred to this Court.
4. Ch. Muhammad Afzal, Advocate, the learned counsel for the appellant, had contended that the Income-tax Authorities as well as the High Court has committed an error by refusing to calculate the gross profits of the appellant on difference between 'purchase price' and 'sale price', in alternative, he has contended that in any case, the gross profit should be calculated only on 'purchase' and not on 'sale' as was done in many other cases during the previous assessment years.The learned counsel has vehemently argued that there is no authority to support the view that gross profit should be calculated on the sales price instead of purchase price. He has referred to the orders of the Income-tax Officer in many cases where the gross profits were calculated on purchase price and not on the sale price. The said income-tax orders pertain to the assessment years falling between the years 1984 to 1986 and are related to tobacco business and not the timber business which is relevant in the instant case. The learned counsel has also elaborated the meaning of expression 'gross profit' by referring to a treatise title, 'Words and Phrases" (Vol. 18-A) by Gone ----Gyrotiller and has maintained that expression 'gross profit' means difference between 'purchase price' and 'sale price'. He has also referred to the following authorities contending that the same support his view that the gross profit should, be calculated on difference between 'purchase price' and 'sale price' or in any case on the purchase price and not on the sale price:--
In a case reported as Commissioner of Income-tax Calcutta v. Metal Corporation of India Ltd. (1982) 133 ITR 130, it has been observed that different aspect of a question could be agitated before the High Court if the point was raised before the Tribunal. It was held that as the main controversy related to the question of 'expenditure', the question as to whether expenditure was of revenue nature could be gone into by the High Court in reference made under section 226(2) of the Income Tax Act, 1961.
In a case reported as Evans Fraser & Co. Ltd. v. Commissioner of Income-tax, Bombay City-11 (1982) 137 ITR 493, it has been held that although the question referred to the High Court did not, in express terms, refer to the transfer of goodwill of the assessee, yet the goodwill being an asset of the business, the question whether the goodwill could be subjected to charge under section 12-B of the Indian Income-tax Act, 1922, could be gone into by the High Court.
In a case reported as Duncan Brothers & Co. Ltd. v. Commissioner of Income-tax, Central, Calcutta (1981) 128 ITR 302, it was observed that as the question before the Tribunal was about the correct computation of the capital of the assessee for the purpose of surtax, the point whether the provision of taxation was deductible from its cost of investments, was an aspect of the question referred and, thus, .the High Court could go into the same, despite the fact that the said aspect was not considered by the Tribunal.
In a case reported as Harish Chandra Golecha (HUF) v. Commissioner of Income-tax, Rajasthan (1981) 132 ITR 806, it has been held that if a point of law is implicit in or covered by the question referred by the Tribunal and no additional facts are necessary to support the point, it can b-- raised for the first time before the High Court in reference notwithstanding the fact that the same was not raised or considered by the Tribunal. It was further observed that the expression 'question of law arising out of such order' in section 66 of the Indian Income-tax Act, 1922, cannot be restricted only to those questions which have been argued and decided by the Tribunal.
In a case reported as Yaggina Veeraraghavulu and Mavuleti Somaraju & Co. v. Commissioner of Income-tax A.P. (1966) 62 ITR 528, it has been observed that the items which are allowed as deductions while computing gross profit in other comparable cases, must also be equally and consistently allowed as deductions in computing the profits of the assessee.
In a case reported as S. Ganesan v. A.K. Joseclyne (AIR 1957 Cal. 33), it has been observed that according to the authoritative definition of 'gross profit', current among Accountant, the term means the excess of the sales to the cost of the goods sold, including the expenses directly attributable to putting the goods in the saleable condition. The observation was made in a criminal case against an Accountant for committing misconduct under the Chartered Accountants Act, 1949, for issuing incorrect certificate.
5. In reply, Ch. Muhammad Azam Khan, Advocate, the learned counsel for the respondent, has controverted the arguments advanced by the learned counsel for the appellant. He has, maintained that the contention of the learned counsel for the appellant that gross profit is to be calculated on the difference of 'purchase price' and 'sale price' or on purchase price and not on sale price has been repelled not only by the Income-tax Authorities but also by the High Court. He has contended that the reference initiated by the appellant before the High Court were incompetent because no law point was involved therein. He has submitted that admittedly the appellant-assessee did not maintain any accounts and, thus, it was within the discretion of the Income-tax Officer to assess the gross profit by applying any appropriate mode of calculation which he deemed fit. The learned counsel has argued that it has not been shown that how the discretion exercised by the Income -tax Officer and affirmed by the appellate Income-tax Authorities and the High Court was violative of law. He has stressed that in absence of accounts, under subsection (3) of section 32 of the Income-tax Ordinance, 1979, the discretion has been given to the Income-tax Officer to calculate; profits and gains of an assessee oh such basis and in such manner as he deems fit. Thus, according to the learned counsel, no embargo can be placed on the discretion of the Income-tax Officer that he should follow a particular method of calculation of gross profit of an assessee. The learned counsel has referred to a case reported as Messrs Mian Muhammad Sharif & Co. v. Commissioner of Income Tax (1987 SCMR 1254), wherein it has been held that the assessee has the option to choose any method of accounting but is bound to show that he has followed the method regularly, i.e., the method of accounting However, when the Income Tax Officer is of the opinion that the income and gains cannot properly be deduced from the accounts, then he is clothed with the statutory authority, to compute the income of an assessee upon such basis and in such manner as he may determine. Thus, it was held that the Income tax Authorities were justified in computing the gross profit under section 13 of the Income-tax Act, 1922.
6. We have given due consideration to the arguments. The contention' of the learned counsel for the respondents that the references filed by the appellant before the High Court were incompetent because no law point was involved, is not tenable at this stage because no such point appears to have been taken before the High Court and no cross appeals have been filed before this Court. Therefore, it is too late in the day for the respondents to contend that the points agitated by the appellant in the High Court were not law points and the references were not competent under section 136 of the Income Tax Ordinance.
7. It is evident from the survey of case law submitted by the learned counsel for the appellant that the same is not relevant to question which needs resolution in the present appeals. As is obvious from the analysis of the authorities, made above, it has nowhere been held that in case the assessee does not maintain the accounts of his business, the Income-tax Officer is bound to follow a particular mode for calculation of his income or gains and profits etc. In almost all the authorities relied upon by the learned counsel for the appellant, the question involved was as to whether a particular point referred to the High Court was a question of law and the same would be deemed to have been referred to it or not. As is evident from what has been stated above, no such question is involved in the present appeals. The dictionary meanings of 'gross profit' referred to by the learned counsel for the appellant are correct in general sense but the same cannot be pressed into service to support the view for the calculation of the income or gross profit of an assessee for the purpose of collecting the income-tax; said meanings are not necessarily adhered to, because income-tax is to be calculated according to relevant provisions of law, which in the instant case is subsection (3) of section 32 of the Income Tax Ordinance. For convenience, the same is reproduced as under:---
32. (1)........................
(2) ..
"(3) Where no method of accounting has been regularly employed, or the method employed is such that, in the opinion of the Income to Officer, the income, profits and gains cannot be properly deduce therefrom, or where, in any case to which subsection (2) applies, the assessee fails to maintain accounts, make payments or record transactions in the form or manner, as the case may be, prescribe under the said subsection, then, the income profits and gains of the assessee shall be computed on such basis and in such manner as the Income-tax Officer thinks fit." (Underlining is ours)
A mode of calculation of income or profits by an Income-tax Officer may not be according to the wishes of an assessee-but all the same any mode of calculation of profits etc. which does not contravene any rule of law or is C not patently perverse, cannot be dubbed as illegal, especially so when the Income-tax Officer has been authorised to compute the income, profit and gains on such basis and in such manner as he thinks fit'.
8. It may be further observed that the orders of the Income-tax Officer in other cases, referred to above, wherein the gross profit was calculated on purchase price are not relevant, especially so when the same pertain to tobacco business and not the timber business. It may be observed that while adopting the method of calculation of gross profit or income, the nature of business and assessment years are important factors in view of the fluctuations of profit in a particular business. Thus, it cannot be said that identical formula should necessarily be applied for, the calculation of the Profits in all kinds of business ventures while exercising discretionary powers under section 32(3) of the Ordinance or such powers are to be exercised irrespective of the period of assessment by applying a uniform formula.
In the light of what has been stated above, finding no force in both the above entitled appeals, the same are hereby dismissed with costs.
M.B.A./ 153/SC(AJ&K) Appeal dismissed.