A.S. Sivan Pillai vs The Commissioner of Income Tax

Rajagopalan, J.—The question referred to this Court was

Whether on the facts and circumstances of this case, there is any material to support the estimate of the excess receipt of Rs. 42,000 by the

assessee on the sale of onions?

The assessee had his headquarters at Tuticorin. He had a branch at Colombo in Ceylon. The assessee used to export onions of his own to his

branch at Colombo for sale there. The assessee also used to export onions belonging to others for sale at his Colombo branch on a commission

basis. One of those for whom he exported onions in the year of account was his son-in-law, Sethuramalingam Pillai, who had his shop in Tinnevelly

and who traded under the Vilasam of V.A.S. Arumugham Chettiar and Sons.

During the year of account, the assessee sold to the Ceylon Government through his branch at Colombo 4699 cwts. of onion. That these were

sold at the controlled rates was not in dispute. During the year of account the assessee also sold in the open market 3746 cwts. He claimed to

have sold the goods in the open market also at the controlled rates and showed the total receipts on that basis.

The Income Tax Officer was of the view that the assessee must have sold his goods in the open market at rates higher than the controlled rates,

and he added a sum of Rs. 42,000 to the gross receipt disclosed by the assessee in his books. That was confirmed on appeal by the Assistant

Commissioner and on further appeal, by the Tribunal.

The initial difficulty we experienced was to find out what exactly the finding of the departmental authorities and the Tribunal was. The Income

Tax Officer recorded:

I have therefore no hesitation in rejecting the assessee''s explanation and holding that the assessee too must have sold onions at the prevailing

market rates but has not accounted for the prices realised in excess of the controlled rate.

That would imply that the assessee, like other dealers similarly situate, had an opportunity of selling his goods at black-market rates, but that

does not necessarily imply that he availed himself of that opportunity and did sell at prices in excess of the controlled rates. The Assistant

Commissioner recorded:

I am, therefore, satisfied that the appellant did realise extra amounts over and above the controlled rates on the sale of 3287 cwts.

That, at any rate, was clear. But when the matter went up on appeal to the Tribunal, the Tribunal recorded, adopting the formula used by the

Income Tax Officer:

The assessee must have collected substantial extra prices over and above the controlled prices in Colombo, the whole of which he has suppressed.

In the statement of the case what the Tribunal recorded in paragraph 11 was:

The Tribunal duly considered all the above facts and circumstances and found that, along with the other onion importers in Colombo, the assessee

too had collected substantial extra prices over and above the regulated price.

But this statement in paragraph 11 does not truly represent what the Tribunal recorded in paragraph 2 of its order on appeal. As we pointed

out, the Assistant Commissioner left one in no doubt as to what his finding was. He recorded that sales had taken place in excess of the controlled

price and that the assessee was in receipt of the excess sums. But that was certainly not the form in which either the Income Tax Officer or the

Tribunal recorded its views.

Apart from the difficulty of discovering what precisely the finding of fact of the Tribunal was and any express finding of fact of the Tribunal is

certainly binding on us--there is the further difficulty of discovering what exactly was the evidence on which an implied finding could be inferred that

the Tribunal took the view, that the excels price of Rs. 42,000 had, in fact, been collected at Colombo by the assessee''s agents in charge of its

branch at Colombo. The statement recorded the details of some transactions entered into by one Dharmaperumal Pillai, another assessee, who had

also dealings in exporting onions for sale at Colombo. That Dharmaperumal Pillai was able to sell at prices in excess of the controlled rates did not

necessarily imply that the assessee also did break the law by selling his goods at prices in excess of the rates fixed by the Government. There is no

presumption in favour of any illegality of a transaction. In fact, the presumption is the other way about. There must be evidence to show that the

assessee did sell goods in excess of the controlled prices, but such direct evidence there was none.

The other piece of evidence on which the department and the Tribunal relied was that afforded by the transactions carried out at the Colombo

branch on behalf of the son-in-law of the assessee, Sethuramalingam Pillai, whose consignments of onions the assessee handled, and which onions

were eventually sold at Colombo. It was also in evidence that one Lakshmana Pillai represented Sethuramalingam Pillai at Ceylon. It was admitted

by the assessee that SethuramaKngam Pillai consigned all his goods for sale only at the assessee''s shops at Colombo, and that there were no sales

of Sethuramalingam Pillai outside the assessee''s shop. It was further in evidence that the assessee sold those goods on commission, and that the

pattials that the assessee sent disclosed sales only at the controlled rates, on which basis alone commission was paid to the assessee. But there was

evidence which has been sent as Annexure A-2 which proved that Lakshmana Pillai sent an account to his principal Sethuramalingam Pillai, which

showed, among other things, that on 31st January, 1947, an excess price had been collected on the sale of 407 bags of onions, and on 31st

March, 1947, an excess price had been collected on sale of 327 bags of onions. With reference to the sale of 407 bags the average worked out to

Rs 2-2-6 per cwt. and the excess price of 327 bags of onions averaged Rs. 5-13-0 per cwt. In paragraph 6 of the statement of the case, details

were given of certain sales of Sethuramalingam Pillai''s goods effected at Colombo - partly by sales to Government and partly by sales in the open

market through the branch shop of the assessee. They do not tally with the sales recorded in Annexure A-2. What however is more significant is

that there was nothing in the evidence to indicate that either on 31st January, 1947 or on 31st March, 1947 there were any sales of the assessee''s

goods themselves at the shop in Colombo. It may be permissible to argue that, if on 31st January, 1947, 407 bags of Sethuramalingam Pillai had

been sold at prices in excess of the controlled prices, it was very unlikely that sales of the assessee''s goods effected on the same day were at

lower prices, the controlled prices. But as we pointed out, there was no evidence at all to show that the assessee had any transactions of his own

either on 31st January, 1947 or on 31st March, 1947.

Thus, analysing the evidence in relation to the sales of Sethuramalingam Pillai''s goods, the position comes to this. Some of his goods were sold

to the Government and there was no difficulty about the prices realised. Some of the goods were sold in the open market, and with reference to a

part of those sales Lakshmana Pillai certainly admitted realisation of excess prices. Whether those realisations were made through the assessee''s

branch shop at Colombo there was no evidence to show. The'' assessee himself accounted only for sales at controlled prices. Lakshmana Pillai

accounted to his principal Sethuramalingam Pillai for the excess amounts collected. Whether the excess amounts were collected by Lakshmana

Pillai or whether they were collected by the branch shop of the assessee at Colombo there was no evidence to show. In this state of the evidence it

is rather difficult to base any conclusion on the sales of some of Lakshmana Pillai''s goods, that the assessee''s goods also must have been sold in

the shop at prices in excess of the controlled rates.

As we said, the finding of the Tribunal itself is not clear. Evidence to sustain any possible finding by actual realisations it is difficult to discover

on the evidence on record. Sethuramalingam Pillai''s transactions have to stand by themselves and, in the absence of any connecting link they may

not serve any basis for finding out whether there were any actual realisations of excess prices on alb the goods of the assessee sold in the open

market in the year of account. No doubt, if there had been any evidence, what was the rate at which the excess price should be estimated would

arise for consideration. The average rate adopted by the department, which was confirmed by the Tribunal, was Rs. 13 per cwt. We have already

pointed out that the transactions referred to in Lakshmana Pillai''s account in Annexure A-2 disclosed Rs. 2-2-6 per cwt. on one transaction and

Rs. 5-13-0 per cwt. on another transaction. Certain transactions of Dharmaperumal Pillai were shown in Annexure G. The range was from Rs. 8-

13-6 to Rs. 19-2-7 per cwt. and the average worked out to Rs. 12-6-0 per cwt. Here again we have to point out that even if every one of the

dealers in the onion market had an opportunity to sell onions at prices above the controlled rate, what precisely was the excess amount realised

with reference to each transaction could not really be the basis of the realisations of the same dealer on another occasion or on even the averages

of the transactions of any one given dealer. But this question on what basis the estimate should be made does not arise for consideration ; and

estimating profits is certainly not within"" the jurisdiction of this Court.

We have to answer the question referred to us in the negative and in favour of the assesseee. The assessee will be entitled to the costs of this

reference. Counsel''s fee Rs. 250.