BHIMRAJ NAGARMAL v. STATE OF BIHAR — 1953 DIGILAW 134 (PAT)

JUDGMENT RAMASWAMI and SINHA, JJ. These cases relate to assessment of sales tax on the petitioner firm Messrs. Bhimraj Nagarmal for the three quarters from 1st April, 1948, to 31st December, 1948. As the firm made a default in submitting returns, notices in Form XV were issued by the Sales Tax Officer asking the firm to produce books of account. The books of account were produced before the Sales Tax Officer, who upon examining the books of account held that they were unreliable. Actually the books of account indicated that for the period in question only salt and yarn were sold and it was claimed by the petitioner that these were not taxable commodities and as there was no sale of any other commodity, the petitioner was not liable to pay tax or to submit any return. The Department, however, had ample evidence that the petitioner had obtained between April and December, 1948, large consignments of cloth and had hold it through a firm called Messrs. Ramsaroop Mohanlal which was created in May, 1948, and closed down in October, 1948. The two partners of the firm Ramsaroop Mohanlal were Ramsaroop and Mohanlal who are both sons of Nagarmal who was senior partner of the firm Messrs. Bhimraj Nagarmal. The Sales Tax Officer was of opinion that the firm of Ramsaroop Mohanlal was merely a pretence and the sales of the petitioner firm were made through Ramsaroop Mohanlal merely for the purpose of evading sales tax. The Sales Tax Officer accordingly held that the sales of cloth in the name of Messrs. Ramsaroop Mohanlal were really sales of the petitioner firm, upon whom was imposed the liability to pay the tax. For the three quarters in question the Sales Tax Officer computed upon the material available before him that the petitioner was liable to pay tax on the sale of cloth to the extent of Rs. 1,05,800, Rs. 1,56,400 and Rs. 18,400. The Sales Tax Officer further held that the petitioner had suppressed also the sale of food-grain to the extent of Rs. 93,533-5-0 for each of the three quarters. Assessment was made upon the petitioner according to these figures. Appeals were taken by the petitioner to the Commissioner of Sales Tax against the order of the Sales Tax Officer but the appeals were dismissed. Revision petitions were then preferred before the Board of Revenue but these petitions were also rejected. 93,533-5-0 for each of the three quarters. Assessment was made upon the petitioner according to these figures. Appeals were taken by the petitioner to the Commissioner of Sales Tax against the order of the Sales Tax Officer but the appeals were dismissed. Revision petitions were then preferred before the Board of Revenue but these petitions were also rejected. At the instance of the petitioner the High Court has required the Board of Revenue to refer the following questions of law : "(1) Whether the turnover of the separate business of a partner could be amalgamated with the turnover of the assessee firm ? (2) Even if the firm sold some cloth, whether the addition of Rs. 1,05,800 or corresponding amount on account of such sales is based on any material or is absolutely arbitrary ? (3) Whether there was any material to justify the addition of Rs. 93,533-5-0 on account of sale of food-grains, etc. specially because the licence for food-grains granted to this firm appears to have been cancelled in the year 1945 ?" After argument in these cases were heard it appeared to us that the first question should be reframed as follows in order to bring out the real point in controversy between the parties : 'Whether the sale of cloth in the name of Messrs. Ramsaroop Mohanlal could be assessed as sale of cloth in the name of Messrs. Bhimraj Nagarmal ?" Upon the first question the argument was put forward by the learned counsel for the petitioner that there was no material upon which the Sales Tax Authorities could come to a finding that the firm of Messrs. Ramsaroop Mohanlal was a bogus firm, merely created by the assessee firm Bhimraj Nagarmal for the purpose of evading sales tax. Learned counsel pointed out that there was no material to support the finding of the Board of Revenue that Jaydayal Bajaj was a servant of Nagarmal Modi. It was contended on the contrary that Jaydayal was a partner of the firm and had one-fourth share and Nagarmal had three-fourth share. It was conceded by the counsel for the petitioner that the question involved is primarily a question of fact but the argument was that there was no evidence or material to support the finding and so the question becomes a question of law. It was conceded by the counsel for the petitioner that the question involved is primarily a question of fact but the argument was that there was no evidence or material to support the finding and so the question becomes a question of law. We are unable to accept the argument that the finding of the Sales Tax Authorities on this question is not supported by any material. The Board of Revenue has pointed out that Ramsaroop and Mohanlal who were the partners of the new firm were the sons of Nagarmal Modi who was the major partner of the assessee firm. Before the Commissioner who heard the appeals, it was argued on behalf of the State that Jaydayal Bajaj was servant of Nagarmal Modi and this argument was not refuted by the learned counsel who appeared for the petitioner assessee. It was also not denied at the hearing of the appeals that the petitioner firm Messrs. Bhimraj Nagarmal and the firm of Ramsaroop Mohanlal had business in the same premises and they operated on the same bank account. The Commissioner noted and this fact has been referred by the Board of Revenue in the course of its order that a railway claim of Rs. 600 in favour of Ramsaroop Mohanlal was cashed by Messrs. Bhimraj Nagarmal. In these circumstances it is impossible to accept the argument of the learned counsel for the petitioner that there was no material to support the finding of the Sales Tax Authorities that the firm of Ramsaroop Mohanlal was a bogus firm created by the firm of Bhimraj Nagarmal for the purpose of the sale of cloth and for the purpose of evasion of sales tax. The question is primarily a question of fact and the finding of the Sales Tax Authorities on this question is supported by sufficient material. The second question is somewhat more difficult. The contention of the petitioner is that even if the sale of cloth made by Ramsaroop Mohanlal was held to be really sale of cloth in the name of Messrs. Bhimraj Nagarmal, there was no material before the Sales Tax Authorities which would justify the order made against the petitioner. We have already said that for the three quarters from 1st April, 1948, to 31st December, 1948, the Sales Tax Officer had calculated the sale of cloth to be Rs. 1,05,800, Rs. 1,56,400 and Rs. 18,400. Bhimraj Nagarmal, there was no material before the Sales Tax Authorities which would justify the order made against the petitioner. We have already said that for the three quarters from 1st April, 1948, to 31st December, 1948, the Sales Tax Officer had calculated the sale of cloth to be Rs. 1,05,800, Rs. 1,56,400 and Rs. 18,400. The argument of the petitioner is not wholly right for the Sales Tax Authorities had relied upon certain railway consignments which had been shown to have been delivered either to Messrs. Bhimraj Nagarmal or to Ramsaroop Mohanlal. These consignments are set out at page 4 of the paper book as follows :- Messrs. Bhimraj Nagarmal R/R No. Station Consignor Quantity Date of Total from delivery during quarter 7681/99 W. Bunder J. Ram Lal 10 bales 12-4-1948 7683/15 Do. Do. 4 " 12-4-1948 7796/90 Do. Do. 10 " 28-5-1948 9373/38 Ahmedabad R. Babu Lal 3 " 25-6-1948 80841 Virangam Prabhat 1 " 30-6-1948 Stores 80842 Do. Do. 1 " 30-6-1948 7796/91 W. Bunder J. Ram Lal 17 " 30-6-1948 -------- 46 bales 7815/87 W. Bunder J. Ram Lal 25 " 1-7-1948 14615/38 Ahmedabad M. Mehta & 7 " 19-7-1948 & Co. 14868/38 Do. P. Chand 1 " 19-7-1948 -------- 33 bales 8069/8 W. Bunder J. Ram Lal 4 " 20-10-1948 -------- 4 bales Messrs. Ram Swarup Mohan Lal. 15432/38 Ahmedabad Vishun 14 " 29-7-1948 7980/82 W. Bunder Bala Chand 1 " 26-8-1948 7992/80 Do. R. Mohan Lal 20 " 15-9-1948 -------- 35 bales 38/21278 Ahmedabad Chatterbhuj 4 " 1-10-1948 4 bales It is manifest therefore that there was material before the Sales Tax Authorities upon which assessment could be made on the petitioner firm for sale of cloth. If there was proof that all the 15 consignments as set out above were delivered either to Messrs. Bhimraj Nagarmal or to Messrs. Ramsaroop Mohanlal, the second question should be answered against the assessee. But the difficulty is that there is proof that at least four out of these 15 consignments have been delivered not to Bhimraj Nagarmal or to Ramsaroop Mohanlal but they were delivered to Chotanagpore Umbrella Works, Dharamchand Jwalla Dutta and Nagarmal Chandi Prasad. In this connection, counsel for the petitioner referred us to the judgment of the Assistant Commissioner of Sales Tax in the connected Sales Tax Appeal No. 536, 537 and 538 of 1949-50 dated the 17th of January, 1950. In this connection, counsel for the petitioner referred us to the judgment of the Assistant Commissioner of Sales Tax in the connected Sales Tax Appeal No. 536, 537 and 538 of 1949-50 dated the 17th of January, 1950. In the course of this order the Assistant Commissioner states that out of the 15 consignments only 12 were verified and from the evidence of the clerk it appeared that out of the 12 consignments one was delivered to Chotanagpore Umbrella Works, one to Dharamchand Jwalla Dutta, two to Nagarmal Chandi Prasad and one to Bhimraj Nagarmal or Ramsaroop Mohanlal. It follows therefore that as regards the four consignments which were delivered to Chotanagpore Umbrella works, Dharamchand Jwalla Dutta and Nagarmal Chandi Prasad, the assessment made on the petitioner for the sale of cloth is arbitrary. So far as assessment is based upon the other 11 consignments, which is set out at page 4 of the paper book, it must be held that assessment is based upon proper material. It is for the Sales Tax Authorities to ascertain which of the four consignments of those mentioned at page 4 of the paper book were delivered to the outsiders and to make a proportionate alteration in the assessment made on the petitioner for the sale of cloth. We answer the second question in the manner indicated above. The third question is whether there was any material to justify the addition of Rs. 93,533-5-0 on account of sale of food-grain etc., specially because the licence for food-grains granted to this firm was cancelled in the year 1945. On this point the argument put forth on behalf of the petitioner is that there is no material to justify the assessment except certificate of registration which states that the petitioner is entitled to purchase the following goods free of tax for resale : "Yarn, food-grains, spices, soap, vegetable ghee, oil seeds, oil, gunny bags and ghee." In our opinion this can hardly be any material to support the assessment. The reasoning of the Sales Tax Authorities is that because the petitioner has suppressed sale of cloth between April and December of 1948, it must be assumed that the petitioner has carried on sale of food-grains and the suppression of sale of food-grains must be to the same extent. The reasoning of the Sales Tax Authorities is that because the petitioner has suppressed sale of cloth between April and December of 1948, it must be assumed that the petitioner has carried on sale of food-grains and the suppression of sale of food-grains must be to the same extent. The reasoning appears to be wholly fallacious for the suppression as regards sale of cloth is supported by material, viz., the railway consignments of which receipts were produced before the Sales Tax Officer. But as regards the business of food-grain there is nothing to show that for the period in question the petitioner firm had conducted any business of food-grain or that the extent of the business was exactly the same as the business of the petitioner in cloth. The finding of the Sales Tax Authorities on this question appears to be merely speculative. It is true that in these cases the petitioner has failed to submit his return and it is also true that account books produced before the Sales Tax Authorities were found to be unreliable. The authorities therefore proceeded to assess the petitioner under Section 13(4) of the Act to the best of their judgment. Ex hypothesi an assessment made under Section 13(4) must be based on inadequate material; but that does not authorise the Sales Tax Officer to make assessment capriciously or without any regard to available material. An assessment made under Section 13(4) is assessment "to the best of his judgment" and the word "judgment" implies and connotes a fair and reasonable consideration of the material which is available to the Sales Tax Officer. In the present case there case there is no material before the Sales Tax Authorities for holding that the petitioner had in fact conducted sale of food-grain for the period in question or that sale of food-grain was conducted by the petitioner to the extent of Rs. 93,533-5-0. The assessment made by the Sales Tax Authorities must be regarded as wholly arbitrary and not supported by any material. In this connection it is important to refer to a passage from the judgment of the Judicial Committee in Income-tax Commissioner v. Badridas Ramrai Shop ([1937] 5 I.T.R. 170; 64 I.A. 102 at p. 114) : "Their Lordships find it impossible to extract these requirements from the language of the Act, which after all is, in such matters, the primary and safest guide. The officer is to make an assessment to the best of his judgment against a person who is in default as regards supplying information. He must not act dishonestly, or vindictively or capriciously because he must exercise judgment in the matter. He must make what he honestly believes to be a fair estimate of the proper figure of assessment, and for this purpose he must, their Lordships think, be able to take into consideration local knowledge and repute in regard to the assessee's circumstances, and his own knowledge of previous returns by and assessments of the assessee and all other matters which he thinks will assist him in arriving at a fair and proper estimate; and though there must necessarily be guess-work in the matter, it must be honest guess-work." In our opinion the third question must be answered in favour of the assessee and it must be held that there is no material to justify the addition of Rs. 93,533-5-0 on account of sale of food-grains etc., for any of the three quarters in question. There will be no order for costs of this reference. The petitioner is however entitled to a refund of the sum of Rs. 300 which he paid under Section 25(1) of the Sales Tax Act. Reference answered accordingly.