DAWOOD CORPORATION LTD. vs COMMISSIONER OF INCOME-TAX

1. ' SALEEM AKHTAR, J.-- The applicant is a corporation which had its branches in East Pakistan. In the return of income for the assessm ent year 1972-73, endig 30-6-1972 the applicant did not disclose any income from the East Pakistan branches. The Income-Tax Officer estimated it as Rs,5,00,000.

2. He further added Rs,17,26.906 the amount lying to the credit of East Pakistan branches as income of the applicant. The applicant filed appeal before the Tribunal where partial relief was granted and the estimated income was reduced to 50% and the treatment to the sum of Rs, 17,26,906 was maintained as follows:- "The next objection was against taking the sum of Rs,17,26,906 due by the Head Office, to the East Pakistan Branches as trading receipts. In fact the appellant had claimed it as an amount payable to East Pakistan Branches and the Income-tax Officer reduced the gross losses by the amount. He did so quite rightly because the appellant failed to prove that they were not trading receipts. When an assessee fails to prove the receipts they have to be taken as Income receipts. Therefore, the Income-tax Officer rightly set it off against East Pakistan losses."

3. ' The reference application filed by the applicant was dismissed. It has filed application under section 66(2) stating that the following question of law arises from the order of the Tribunal which may he decided:- "Whether on the facts and in the circumstances of case and especially in view of addition of Rs, 17,26,906 to the income of the appellant, there was any material to support further addition of Rs, 2,50,000 in regard to East Pakistan Branches."

4. ' Mr. Iqbal Naim Pasha the learned counsel for the applicant contended that the Tribunal having treated Rs, 17,26,906 as trading receipt against which East Pakistan losses were set-off there was neither material nor justification for addition of Rs, 2,50,000 as income from East Pakistan Branches.

5. On the other hand Mr. Shaikh Haider contended that as the applicant had not disclosed any income from East Pakistan the Income Tax Officer was justified in estimating it under section 23(3) of the Income Tax Act.

6. ' There does not seem to be any dispute that the question of law arises from the order of the Tribunal. We, therefore, proceed to consider the question raised by the applicant.

7. ' The applicant had shown Rs, 17,26,906 as credit of East Pakistan Branches but this plea was rejected and it was treated as income from those branches because the applicant had failed to prove that this amount was "not trading receipts". It was therefore treated as business income and not income from undisclosed sources. The Income-tax Officer has vast powers under section 23 (3) but he is not required to act arbitrarily and without any material on record. Even the estimate has to be based on facts and circumstances of the case as borne out from the record and not on the basis of whims and desires. In Gurmukh Singh v. C.I.T. 19441 T R 393 (F.B.) Muhammad Munir, J. (as he then was) observed as follows:- "Though the Income Tax Officer has very vide powers and is not fettered by technical rules of evidence and pleadings, there is one overriding restriction on his judgment and that is that he must act honestly on the material, however inadequate, before him, and not vindictively, capriciously or arbitrarily."

8. ' In the present case having treated Rs, 17,26,906 as income from East Pakistan Branches in the absence of any material or facts further addition towards income from those branches was arbitrary and without any basis or jurisdiction.

9. ' We therefore answer the question in the negative.