Capital estimation in income-tax cases may rely on past history and later years are not bound by earlier findings.

In income-tax proceedings, a capital estimate for a money-lending business may be upheld if it is based on relevant material such as original capital, past income, expenditure, and surrounding circumstances, rather than mere suspicion or guesswork; on that basis, the estimate of capital was sustained. An earlier year's assessment finding does not bind later years because res judicata does not apply to income-tax assessments, although prior findings may remain relevant; the authorities were therefore free to depart from the earlier capital figure where later material justified a different view.

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Issues: (i) Whether the estimate of Rs. 1,00,000 as capital invested in the assessee's money-lending business was justified on the material available; (ii) whether the income-tax authorities were bound by the earlier year's finding that only Rs. 80,000 was available as business capital.

Issue (i): Whether the estimate of Rs. 1,00,000 as capital invested in the assessee's money-lending business was justified on the material available.

Analysis: The assessment was made after rejecting the correctness of the assessee's accounts and considering the original capital, the past income from the business, the expenditure incurred, and other surrounding circumstances. A tax estimate need not be exact, but it must rest on relevant material and not on mere suspicion or bare guess. Past history may itself furnish sufficient material where it is complete enough to support a reasonable inference about the capital available in the relevant year.

Conclusion: The estimate of Rs. 1,00,000 was justified and was not shown to be arbitrary or based on irrelevant considerations, and this issue is decided against the assessee.

Issue (ii): Whether the income-tax authorities were bound by the earlier year's finding that only Rs. 80,000 was available as business capital.

Analysis: An assessment for one year is final only for that year. The rule of res judicata does not apply to income-tax proceedings, though an earlier decision is a relevant factor. The authorities may depart from the earlier finding if later material shows that the prior view did not take into account all relevant facts or was otherwise not conclusive for the later year.

Conclusion: The earlier finding did not bind the authorities for the later assessment years, and this issue is decided against the assessee.

Final Conclusion: The reference was answered in favour of the department, sustaining the estimate of capital for the relevant assessment years.

Ratio Decidendi: In income-tax proceedings, a later assessment is not bound by an earlier year's finding, and an estimate based on past history may be upheld if it rests on relevant material from which a reasonable inference can be drawn for the assessment year.

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