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Petitioner: COMMISSIONER OF INCOME-TAX CALCUTTA VS Respondent: BIJU PATNAIK
1988 P T D 950
1988 P T D 950
[Supreme Court (India)]
Present: R. S. Pathak and Sabyasachi Mukharji, JJ
COMMISSIONER OF INCOME-TAX CALCUTTA
Versus
BIJU PATNAIK
Civil Appeals Nos. 1793 to 1798(NT) of 1974, decided on 9th May, 1986.
(a) Income-tax-
---Reference---Question of law--Trust--Finding of Income-tax Appellate Tribunal that investments made by trust with assessee were from Trust's own funds--Fact as to from whom donations were received by Trust not considered by Tribunal--Question arising out of Tribunal's finding, held, was question of law.
The cash credits appearing in the books of accounts of the assessee individual in the name of Trust were treated by the Income-tax Officer as moneys coming out of the undisclosed sources of the assessee and were accordingly assessed as assessee's income from undisclosed sources on ground that no Trust really exited and even if it existed, it had no funds of its own and that the name of the Trust was used by the assessee as a camouflage to put through his unaccounted money. The Tribunal on appeal held that the investments made by the Trust in the assessee's group of industries or with the assessee were from its own resources and funds and such investments were guided by business expediency and prudence, and directed the deletion of addition made by the I.T.O. There was, however, no evidence as to who were the persons from whom the money was collected for the Trust, how was the money received and how was the money invested? Particulars of the persons from whom donations were collected were not supplied nor examined nor were they produced to prove the genuineness of their donations, their capacity to make the donations.
Held: Ignoring of the fact as to whose money was donated to the Trust and by whom was ignorance of a vital fact influencing the decision. Therefore, the questions, which arose on this aspect were questions of law.
(b) Income-tax--
---Reference--Question of law--Question whether assessee was real owner of certain shares ostensibly standing in name of others- Income-tax Appellate Tribunal giving its finding on question without consideration of financial capacity of shareholders, held, would give rise to a question of law.
JUDGMENT
SABYASACHI MUKHARJ1, J.--Whether, question of law referable to the High Court, arises out of the order of the Appellate Income-tax Tribunal in this case, is, the question that arises in these appeals by special leave from the decision of the Orissa High Court (ILR (1974) Cut 374). Several questions of law were sought for from the Tribunal to be referred out of the decision of the Tribunal under section 256 (1) of Income-tax Act, 1961 (hereinafter called the Act'). The Tribunal refused to refer these questions. An application was made under section 256 (2) of the Act asking for reference on those questions from the High Court. The High Court rejected the applications and refused to call for a statement of case on those questions. This appeal by special leave is from the said decision of the High Court.
2. It is not necessary to refer to all the questions that were pressed before the High Court because all these questions were not pressed before this Court.
3. The following questions were, however, canvassed before this Court:
"(1) Whether, the findings of the Appellate Tribunal, are vitiated in law by reason of it having ignored relevant and admissible evidence and having relied on incorrect facts and misstatement of facts?
(2) Whether, on the facts and in the circumstances of the case, the conclusion of the Tribunal that the Kalinga Foundation Trust into existence in 1947 and that it was distinct from the Trust created by the assessee in 1949 logically followed from the materials on record or it was perverse in the sense that no reasonable man could come to it on the said materials'?
(3) Whether, on the facts and in the circumstances of the case, in arriving at the finding that the Kalinga Foundation Trust had acquired property from donations from the public, the Tribunal erred in law in not giving due consideration to the several matters relevant for determination of the points which had been considered by the Income-tax Officer in the assessment order?
(4) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the income from dividend shown in the name of the Kalinga Foundation Trust, the interest on the loans advanced in the name of the Kalinga Foundation Trust and all investments, remittances, receipts and actual payments in the name of Kalinga Foundation Trust did not belong to the assessee and should therefore be deleted from the assessment of the assessee?
(5) Whether, on the facts and in the circumstances of the case, there was any evidence in support of the Tribunal's findings that the assessee had collected donation from the public for the Kalinga Foundation Trust?
(6) If the answer to question 5 (rearranged by us) be in the negative, then whether the Tribunal was right in holding that the amounts donated by the assessee to the said trust were satisfactorily explained and accordingly they were not to be included in the assessment of the assessee?
(7) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the revenue authorities were bound to accept the decision of the Supreme Court in S.P. Join v. Kalinga Tubes Ltd. as to the ownership of 39,000 shares of M/s. Kalinga Tubes Ltd. in spite of the materials collected by the Income-tax Officer subsequent to the delivery of the judgment in the said case?
(8) If the answer to question 7 (rearranged by us) be in the negative then whether the finding of the Tribunal that the persons in whose names the said shares stood were not the Benamidar of the assessee was perverse and was arrived at without due consideration of the material considered by the Income-tax Officer in detail on the point?"
4. The controversy in these appeals related to the various additions made by the revenue to the total income of the assessee relating to the assessment years 1962-63, 1963-64 and 1964-65. The assessee claimed in his assessment, deduction in respect of payments of interest on loans taken from Kalinga Foundation Trust and others and certain dividend transactions relating to the shares of Kalinga Tubes Ltd.
5. While examining the evidence in support of these claims, the Income-tax Officer issued a detailed letter dated 17th October, 1965 to the assessee informing him about the evidence available with the revenue against him and requesting him, inter alia, to produce evidence and prove (i) that the cash credits appearing in his account in the name of Kalinga Foundation Trust were genuine, and (ii) that 39,00a shares of Kalinga Tubes Ltd. standing in the names of B. K. Mall, Sm. Swaran Oberoi Shri K. C. Dalai, Shri G. C. Patnaik etc. were not really his own investment. After examining the assessee's evidence and or, the basis of documentary evidence and Government records and on the basis of local enquiries made, the Income-tax officer had come to the conclusion that no trust in the name of Kalinga Foundation Trust really existed and even if it existed, it had no funds of its own and that the name 'Kalinga Foundation Trust' was used by the assessee as a camouflage to put through his unaccounted money. Accordingly, all cash credits appearing in the books of accounts of the assessee himself or in the books of other concerns or persons or remittances of actual payments in the name of trust were treated by the Income-tax Officer as moneys coming out of the undisclosed sources of the assessee and accordingly assessed the same as his income from undisclosed sources. All interest and dividend received in the name of the trust were included by the Income-tax Officer in- the assessment of the assessee as his own income. The Income-tax Officer was also of the opinion that the moneys advanced in the name of the trust to several persons in connection with the acquisition of 39,000 shares of Kalinga Tubes Ltd. which, were issued in 1958 actually belonged to the assessee. Accordingly, the dividend of the said shares was treated as the income of the assessee and the expenses incurred in that connection were allowed as deduction. The persons in whose names the 39,000 shares of Kalinga Tubes Ltd. stood, were treated by the Income-tax Officer as Benamidars of the assessee. Thus, in respect of the assessment years under consideration several items were included as income in the hands of the assessee on this score. It is not necessary to set out the items.
6. Against the orders of assessment, appeals were filed by the assessee before the Appellate Assistant Commissioner. As grievance was made before .the Appellate Assistant Commissioner that there was violation of due opportunity being given to the assessee, the Appellate Assistant Commissioner disposed of the appeals by setting aside the assessments for the years under consideration and remanded the matters back, to Income-tax Officer to frame issues and give due opportunity to the assessee to cross-examine the witnesses in the light of the observation made in the order. Against the order of the Appellate Assistant Commissioner, the appeals were filed. A prayer was made that the appeals should be remanded back to the Appellate Assistant Commissioner. The Tribunal, however, disposed of the appeals on the relevant materials on record.
7. It was contended on behalf of the revenue (assessee?) before the Tribunal that the Kalinga Foundation Trust had come into existence as alleged in 1947 at a public meeting held at Killa Maidan, Cuttack and it was registered long thereafter on 28th November, 1959. It was stated that the trust was genuine and it had sufficient funds obtained by donations and consequently was in a position to lend the amounts found credited in the assessee's books and in the books of other concerns. The accounting year followed by the said trust was the calendar year whereas the accounting year followed by the assessee was the financial year ending on 31st March, 1962, 31st March, 1963 and 31st March, 1964, respectively for the three years in question. One of the points urged on behalf of the assessee was that if was intended to use the trust as a camouflage, the accounting year of the Trust would have been the same as that of the assessee. It was further contended that the Minute Book and Books of accounts were maintained by the Trust and that the Trust had its own written constitution by way of Memorandum and Articles of Association and Rules. The funds of the Trust were lying in trust with the Maharaja of Sonepur as he was the honorary Treasurer of the Trust. It was further pointed out on behalf of the assessee that the eminent persons were members of the Trust.
8. On behalf of the revenue, it was, however, contended before the Tribunal that on the basis of the 'facts emerging on an examination of assessee's evidence and facts found on the basis of documentary evidence, the Appellate Assistant Commissioner should have confirmed the assessment-;. It was further stated by the revenue that local inquiries and oral testimony had been used by the Income-tax Officer to support the conclusions already arrived at on an examination of assessee's own evidence and corroborated by documentary evidence and therefore the Appellate Assistant Commissioner should not have set aside the assessment on the ground that the persons who were examined by the Income-tax Officer should have been allowed to be cross-examined by the assessee. It was submitted that the gist of the enquiries had been communicated to the assessee to enable him to meet the case against him and it was for the assessee to produce before the Income-tax Officer the persons who had collected the funds for the Kalinga Foundation Trust as the income-tax Officer was not bound by the technical rules of evidence.
9. So far as-the acquisition of 39,000 shares of Kalinga Tubes Ltd. was concerned, it was submitted by the revenue that it had collected evidence to prove that these shares were purchased by the assessee Benami in the names of Shri B. K. Mall, Shri G. C. Patnaik etc. It was pointed out by the revenue that the assessee had created a private registered Trust in 1949 out of his own properties having the same name as Kalinga Foundation Trust and that a reference to Kalinga Foundation Trust in some of the documents produced by the assessee was to this private trust and not to any public trust of the same name alleged to have been created at a public function.
10. After considering the materials, the Tribunal held that the Kalinga Foundation Trust come into existence in 191-7 and continued after its registration in 1959 under the same name and style and the fund of the Trust was built up by collection of donations from the public at large.
11. It may be, pointed .out and we are of the opinion that this is the core, of the controversy in this case, i.e., whether there was no evidence substantial or reliable produced to indicate who were the persons who, had contributed to the Trust, how much they had contributed to the Trust, the identity and the credit worthiness of the donors to the said trust.
12. It was contended on behalf o1 the assessee that the said trust, which came into existence was a separate and distinct entity and the assessee was only holding an executive post in that trust. It was held by the Tribunal that seven persons who were designed by the Income-tax Officer as Beramidars of the assessee for the purchase of the shares of M/s. Kalinga Tubes Ltd. were not Benamidars and the money required for the purchase of these shares had been raised by themselves. The Tribunal held that the investments made by the trust in the assessee's group of industries or with the assessee were from its own resources and funds and such investments were guided by business expediency and prudence. The finding of the Tribunal is that the Trust was comprised of persons of public repute and the control and management of the trust styled as 'Kalinga Foundation Trust's were under the effective control of the Board of Trustees comprised of persons of public reputation. The Tribunal accordingly held that the income from interest, dividend,' or any other usufruct arising out of the investments' made by the trust in the various concerns, and the investments of the Trust which were included in the assessments of the assessee in the rears under reference should be excluded as appertaining to a separate and distinct entity and therefore directed the Income-tax Officer to exclude these amounts from the assessments of the assessee in all these three years. The revenue did not accept the findings of the Tribunal as correct as mentioned hereinbefore and sought reference to the High Court on several questions.
13. Before the questions involved in these appeals are considered, it is necessary to bear in mind the scope of the jurisdiction of the High Court in directing reference on question of law where the decision rests primarily on appreciation of facts. This question has from time to time troubled the Courts--both the High Courts and this Court and several decisions have laid down the principles guiding such a situation. Though not exhaustive, these may be referred to as illustrations.
14. In Shree Meenakshi Mills. Ltd. v. Commissioner of Income-tax Madras, 31 ITR 28: (A I R 1957 SC 49). Venkatarama Ayyar, J. speaking for this Court said that findings on question of pure facts arrived at by the tribunal were not to be disturbed by the High Court on a reference unless it appeared that there was no evidence before the Tribunal upon which they, as reasonable men, could come to the conclusion to which they had come; and this was so even though the High Court would on the evidence have come to a conclusion entirely different from that of the Tribunal. The Court laid down the following propositions: '
(a) such a finding can be reviewed only on the ground that there was no evidence to support it or that it was perverse.
(b) when a conclusion had been reached on an appreciation of a number, of facts established by the evidence, whether that was sound or not must be determined, not by considering the weight to be attached to each single fact in isolation, but by assessing the cumulative effect of all the facts in their setting as a whole.
(c) where an ultimate finding on an issue was an inference to be drawn from the facts, on the application of any principles of law, that would be a mixed question of law and fact, and the inference from the facts found would in such a case, be a question of law. But where the final determination of the issue equally with the finding or ascertainment of the basis facts does not involve the application of any principle of law, an inference from the facts cannot be regarded as one of law,
The proposition that an inference from facts was one of law was therefore correct in its application to mixed questions of law and fact, but not to pure questions of fact. In the case of pure questions of fact an inference from the facts is as much a question of fact as the appreciation of the facts. Ayyar. J noted that the observations contained in some judgments of the English Courts that what inference was to be drawn from the proved facts was a question of law referred to this distinction. The position that emerges from the decided cases was that:.
(i) When the point for determination was a pure question of law, such as construction of a statute of document of title, the decision of the Tribunal was open to reference to the Court.
(ii) When the point for determination was a mixed question of law and fact while the finding of the Tribunal on the facts found was final, its decision as to the legal effect of those findings was a question of law which could be reviewed by the Court.
(iii) A finding on a question of fact was open to attack under reference under the relevant Act as erroneous in law when there was no evidence to support it or it if was pervese.
(iv) When the finding was one of fact, the fact that it is itself an inference from other basic facts will not alter its character as one of fact.
15. In Gouri Prasad Bagaria v. Commr. of Income-tax, West Bengal, (1961) 42 I T R 112, this Court held that when the assessee's statement was believed in a particular case and the finding of the Tribunal was based on that, then there was obviously material on which the finding of the Tribunal could be based; and to seek for other material was tantamount to saying that a statement made by an assessee was not material on which a finding could be given. The Tribunal having believed the assessee's statement, that was an end of the matter in so far as that fact was concerned, and if the finding was based upon a statement, which was good material on which it could be based, no question of law really arose.
16. In I. C. I. (India) Private Ltd. v. Commissioner of Income--tax West Bengal III, 83 I T R 710: (A I R- 1972 SC 1524), this Court observed that the jurisdiction in the matter of reference could be exercised: (i) when the point for determination was a pure question of law such as construction of a statute or document of title; (ii) when the point for determination was a mixed question of law and fact. While, however, the finding on facts was final, its decision as to the legal effect of those findings was a question of law. A finding on a question of fact was open to attack as erroneous in law when there was no evidence to support it or if it was perverse. When, however, the finding was one of fact, the fact that it was an inference from other basic facts would not alter its character 'as one of fact.
17. In Commr. of Income-tax (Central), Calcutta v. Daulat Ram Rawatmull, 87 I T R 349: (1972 Tax LR 1174), this Court held that the onus of proving that the apparent was not the real was on the party who claimed it to be so. It is not necessary to discuss other details of the facts involved in that case. It is sufficient to note, however, as was observed by this Court that there should be some direct nexus between the conclusion of facts arrived at by the authority concerned and the primary facts upon which that conclusion was based. The use of extraneous and irrelevant material in arriving at that conclusion would vitiate the conclusion of fact because it is difficult to predicate as to what extent the extraneous and irrelevant material had influenced the authority in arriving at the conclusion of fact: Findings on questions of pure fact arrived at by the Tribunal were not to be disturbed by the High Court on a reference unless it appears that there was no evidence before the Tribunal upon which they, as reasonable men, could come to the the conclusion to which they have come; and this was so even though the High Court would on the evidence have come to a conclusion entirely different from that of the Tribunal. In other words, such a finding could be reviewed only on the ground that there was no evidence to support it or that it was perverse. Further, when a conclusion had been reached on an appreciation of a number of facts, whether that was sound or not must be determined, not by considering the weight to be attached to each single fact in isolation, but by assessing the cumulative effect of all the facts in their setting as a whole. When a Court of fact acted on a material party relevant and partly irrelevant, it was impossible, this Court observed, to say to what extent the mind of the Court was affected by the irrelevant material used by it in arriving at its finding. Such a finding is vitiated because of the use of inadmissible material and thereby an issue of law arose. Likewise, i1 the Court of fact based its decision partly on conjecture, surmises and suspicions and partly on evidence, in such a situation an issue of law arose.
18. In Commr. of Income-tax, Bihar and Orissa v. S. P. Jain, 87 1 T R 370: (AIR 1973 SC 997), this Court noted that the questions referred to the High Court did not challenge the validity of the findings in that case given by the Tribunal, as the Tribunal had failed to take into account the relevant material on record in arriving at its finding and had further acted on inadmissible evidence and misread the evi0ence and based its conclusion on conjectures and surmises, the Court could ignore the findings of the Tribunal and re-examine the issues arising for decision on the basis of the material on record. This Court further reiterated that the High Court and this Court had always the jurisdiction to interfere with the findings of the Appellate Tribunal if it appeared that either the Tribunal had misunderstood the statutory language, because the proper construction of the statutory language was a matter of law, or it had arrived at a finding based on no evidence, or where the finding was inconsistent with the evidence or contradictory of it, or it had acted on material partly relevant and partly irrelevant or where the Tribunal drew upon its own imagination and imported facts and circumstances not apparent from the record or bases its conclusions on mere conjectures or surmises or where no person judicially acting and properly instructed as to relevant law could have come to the determination reached. In all such cases the findings arrived at were vitiated. This Court further observed that "any crystallization of the view of this Court and its reluctance to interfere with the findings of the fact should not make the Tribunals or the Income-tax authorities smug in the belief that at the Courts do not interfere with the findings which form the bed-rock upon which the law will be based they can act on that assumption in finding facts or by their mere ipse dixit that they are findings of fact wish it to be so assumed irrespective of whether they are sustainable in law or on the materials on record".
19. Now in the instant case, as mentioned hereinbefore, the first three questions challenge the genuineness of the donations alleged to have been contributed by the Kalinga Foundation Trust alleged to have come into existence are separate organisation at a public meeting in 1947 and the donations collected therefrom and the next question i.e. question No. 4 challenges the finding that the dividend shown in the name of Kalinga Foundation Trust and the interest and loans in the name of Kalinga Foundation Trust did not belong to the assessee. The basic question is the next question--whether the assessee had collected donations from the public. If the answer to that question is that it was from the public, the second aspect is whether the, revenue is bound to accept the decision of this Court in S.P. Jain as to ownership of 39,000 shares, in view of the materials collected by the Income-tax Officer subsequent to the delivery of the judgment in this case. '
20. Apparently the…
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