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Issues: (i) Whether there was material to justify the Tribunal's finding that Rs. 30,000 represented income from undisclosed sources and not business receipts; (ii) Whether the High Court could answer the second question when no request had been made under Section 66(1) of the Income-tax Act, 1922 for a reference on that question.
Issue (i): Whether there was material to justify the Tribunal's finding that Rs. 30,000 represented income from undisclosed sources and not business receipts.
Analysis: The Tribunal's conclusion was founded on surrounding circumstances, including the pattern of receipts and payments during the relevant period, and on the evaluation of affidavits produced by the assessee. The governing principle was that a finding of fact can be interfered with only where there is no evidence to support it, or where the inference drawn is unreasonable, arbitrary, or impossible. Direct evidence is not indispensable if circumstances reasonably support the inference.
Conclusion: The finding was supported by material and the inference drawn by the Tribunal was a reasonable one. The question was answered in favour of Revenue and against the assessee.
Issue (ii): Whether the High Court could answer the second question when no request had been made under Section 66(1) of the Income-tax Act, 1922 for a reference on that question.
Analysis: The jurisdiction under Section 66(2) arises only after a refusal by the Tribunal to state a case on a question lawfully sought under Section 66(1). Where no request was made to refer a particular question, the Tribunal's failure to refer it cannot be treated as a refusal within the statutory scheme. Jurisdiction cannot be created by an order of the Court where the statute does not confer it.
Conclusion: The High Court held that it had no jurisdiction to answer the second question.
Final Conclusion: The reference was answered only on the first question, which was decided against the assessee, while the second question was declined for want of jurisdiction.
Ratio Decidendi: A Tribunal's finding of fact may be sustained on circumstantial evidence if the inference is reasonable, and the High Court's reference jurisdiction under Section 66(2) extends only to questions for which a reference was first sought and refused under Section 66(1).
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