Improper use of unadmitted evidence in residency finding requires rehearing on a proper evidentiary basis.

An appellate authority cannot refuse to admit additional evidence for want of prior production and lack of tested genuineness, yet still rely on that same material to support an adverse finding. The correspondence in question was material to whether the business was controlled and managed wholly outside the taxable territories, so the finding recorded without proper consideration of relevant evidence was defective. The Tribunal's disposal was therefore improper, the matter was to be reheard on a proper evidentiary basis, and the technical answer was in favour of the assessee.

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Issues: Whether the Tribunal's finding that the assessee-firm was resident within the meaning of section 4A(b) was vitiated by its refusal to properly consider relevant correspondence, and whether the matter required a fresh rehearing.

Analysis: The only material before the assessing authority was the statement of one partner, later sought to be explained by affidavit. The assessee then produced correspondence before the Tribunal to show that the other partner alone managed the business from Ceylon. The Tribunal declined to admit the letters as additional evidence because they had not been produced earlier and their genuineness was untested, but it nevertheless examined them and treated them as supporting the revenue. That approach was held to be unsatisfactory because the Tribunal could either admit the evidence and test its genuineness, or reject it outright, or remit the matter for proper consideration; it could not refuse to accept the documents and at the same time use them against the assessee. Since the correspondence was material to the question whether the control and management of the business was wholly outside the taxable territories, the finding recorded without full consideration of relevant evidence was treated as defective.

Conclusion: The Tribunal's disposal was held to be improper, the reference was technically answered in favour of the assessee, and the appeal was directed to be reheard after considering the relevant evidence.

Ratio Decidendi: Where the appellate authority rejects relevant additional evidence but still relies on it to sustain an adverse finding, the finding is defective and the matter must be reheard on a proper evidentiary basis.

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