COMMISSIONER OF INCOME-TAX Vs. SARANGPUR COTTON MANUFACTURING COMPANY

JUDGEMENT

(1.) THIS is an appeal from a judgment of the High Court of Judicature at Bombay dated March 28, 1935, upon a question of law referred to the High Court by the present appellant under Section 66 of the Indian Income-tax Act, 1922.

(2.) THE question arises out of the assessment of the respondents to income-tax for the financial year ending March 31, 1932, and concerns the computation of the profits or gains of their business for the year of account ending on December 31, 1930, under Section 10 of the Act.

(3.) ON an appeal by the assessees, the Assistant Commissioner of Income-tax confirmed the assessment by his order dated November 22, 1932. The assessees then applied to the present appellant to review the above orders under Section 33 of the Act, or, alternatively, to make a reference of questions of law to the High Court under Section 66 (2) of the Act. The appellant declined to review the orders, and, on the ground that no legal point was involved, he also declined to make the reference. Thereafter the High Court, on an application by the assessees, under Section 66 (3) of the Act, required the appellant to make a reference, and he made the present reference with the question of law as formulated by the High Court, viz. : Whether in view of the provisions of Section 13 of the Income-tax Act or otherwise the Income-tax Officer was right in computing for the purpose of Section 10 of that Act income, profits and gains in accordance with the method of accounting re-gulariy employed by the assessee whether or not that method in fart shows the true income, profits and gains. The appellant suggested the substitution of another question, but his suggestion was not adopted by the High Court. The Court, however, without referring the case back, amended the question referred as follows : Whether, in the circumstances of the case the Income-tax Officer was entitled to compute the income, profits and gains of the assessees upon the basis of the printed copy of the profit and loss account sent with the letter of the assessees of July 18, 1931, without regard to any undervaluation of the Stock which may have been or may be proved to have been made. By their order, dated March 28, 1935, the High Court amended the question accordingly and answered the amended question in the negative. Their opinion was that the covering letter of July 18, 1931, formed part of the method of accounting employed by the assessees within the meaning of Section 13 of the Act, and that the Income-tax Officer was not entitled to split up the method of accounting and to regard the profit and loss account apart from the covering letter ; that the Income-tax Officer had only accepted a portion of the method, without taking the method as a whole, which he was not entitled to do. They therefore held that the matter was still at large for the proper decision of the Income-tax Officer.