Patna High Court
Commissioner Of Income-Tax, Bihar And ... vs S. P. Jain. on 29 February, 1968
Equivalent citations: [1968]70ITR752(PATNA)
JUDGMENT
RAMRATNA SINGH J. - These references under section 66(2) of the Income-tax Act were heard together, as the practices are the same and they relate to the same subject-matter. The Income-tax Appellate Tribunal refused to state a case to the High Court under section 66(1) of the Act. The petitioner, i.e., the Commissioner of Income-tax, then came up to the High Court with an application in each of the three cases, to direct the Tribunal to state a case on certain questions of law, and this court directed the Tribunal to state a case on three points of law, two of which are common to the three case and are reproduced below :
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in declining to consider the documents which were already on record and which the department wanted to adduce as evidence ?
(2) Whether on the facts and in the circumstances of the case, the Tribunals finding that the purchase of the shares by the Rana was not benami transaction was legally valid ?"
The third question of law was as follows :
Tax Case No. 16 : "Whether on the facts and in the circumstances of the case, the finding of the Tribunal that the dividend income of Rs. 1,81,300 and the profit on sale of shares amounting to Rs. 28,47,652 were not assessees own income is a perverse finding having regard to the evidence on record ?"
Tax Case No. 17 : "Whether, on the facts and in the circumstances of the case, the finding of the Tribunal that a sum of Rs. 1,87,500 dividend income was not assessees own income is a perverse finding having regard to the evidence on the record ?"
Tax Case No. 18 : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the sum of Rs. 10,80,000 from the total income of the assessee by holding that the Rana was not the benamidar of the assessee ?"
Case No. 16 is in respect of the assessment year 1956-57, Case No. 17 in respect of the assessment year 1955-56 and Case No. 18 in respect of the assessment year 1954-55. The principal question in all the cases in whether the purchase of some shares in May and August, 1953, by Kalyan Shum Shere Bahadur Rana (hereinafter referred to as Rana) was a benami transaction, inasmuch as the opposite party, S. P. Jain (hereinafter referred to as Jain), the assessee, had purchased the same in the name of Rana.
It is submitted that in July, 1952, Jain sold 50,000 ordinary shares of Rohtas Industries Ltd. and 40,000 ordinary share of S. K. G. Sugar Ltd. to Dalmia Jain Colleries Ltd. and 10,000 ordinary shares of Rohtas Industries Ltd. and 35,000 ordinary shares of S. K. G. Sugar Ltd. to Maheshpur Colliery Ltd., both the vendee companies being located at Dalmianagar. The vendee companies sold these shares in May and August, 1953, to Rana, and the total sale price was Rs. 10,80,000. This amount is the subject-matter of the dispute in case No. 18. The Tribunal refused to accept the case of the petitioner that Rana was really benamidar for Jain and that is why the third question in this case speaks of the justification or otherwise for the Tribunal deleting this amount from the total income 9of the assessee in the assessment year 1954-55. Case No. 16 relates to the dividend income of Rs. 1,81,300 plus Rs. 28,47,652 as profit on the sale of shares during the previous year for the assessment year 1956-57. Case No. 17 relates to the dividend income of Rs. 1,87,500 in the foresaid years for the assessment year 1955-56.
For the assessment year 1954-55, the Income-tax Officer made the assessment under section 23(3) of the Act on September 30, 1958, after deciding that Rana was benamidar of Jain in respect of these shares. The Appellate Assistant Commissioner of Income-tax, Patna range, made some observations and remanded the case back to the Income-tax Officer for further investigation in June, 1966. The remand reports were received by him from the Income-tax Officer in two installments, and ultimately he accepted the decision of the Income-tax Officer recording this transaction, though he made some modifications in respect of other items included in the income of the assessee by the Income-tax Officer. The Appellate Tribunal, however accepted the case of Jain and held that the transaction was not benami but it was a real transaction in favour of Rana. Thereafter, the petitioner took steps for getting the reference made to this court.
In order to appreciate the arguments of learned counsel for the two parties, it is necessary to state certain well-established principles which have been culled out from the decision of the Supreme Court cited at the bar. Most of the principles find place in Sree Meenakshi Mills Ltd. v. Commissioner of Income-tax. The relevant portions of the placitum which correctly summarise the views of the court are reproduced below :
"Findings on questions of pure fact arrived at by the Tribunal are 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 conclusion to which they have come; and this is 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 finding can be reviewed only on the ground that there is no evidence to support it or that it is perverse.
When a conclusion has been reached on an appreciation of a number of facts established by the evidence, whether that is 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.
Where an ultimate finding on an issue is an inference to be drawn from the facts found, on the application of any principles of law, there is a mixed question of law and fact, and the inference from the facts found is in such a case, a question of law. But where the final determination of the issue equally with the finding or ascertainment of the basic 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 is one of law is 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 evidence of the facts. The observations contained in some judgments of the English courts that what inference is to be drawn from the proved facts is a question of law refers to this distinction.
The position that emerges from the decided cases is that :
(i) When the point for determination is a pure question of law such as construction of a statute or document of title the decision of the Tribunal is open to reference to the court under section 66(1).
(ii) A finding on a question of fact is open to attack under section 66(1) as erroneous in law when there is no evidence to support it or if it is perverse.
(iv) when the finding is one of fact, the fact that it is itself an inference from other basic facts will not alter its character as one of fact.
An inference from the facts of a case that a transaction is benami transaction does not involve the application of any principles of law to the facts established in the evidence, and is a pure question of fact which cannot be made the subject of reference under section 66 of the Income-tax Act."
The earliest decisions are however, reported in Dhirajlal Girdharilal v. Commissioner of Income-tax and Dhakeswari Cotton Mills Ltd. v. Commissioner of Income-tax. In the first case, it was observed :
"It is well established that when a court of fact acts on material partly relevant and partly irrelevant, it is impossible 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 theory an issue of law arises."
In the second case, their Lordships said :
"...... we are in entire agreement with the learned Solicitor-General when he says that the Income-tax Officer is not fettered by technical rules of evidence and pleadings and that he is entitled to act on material which may not be accepted as evidence in a court of law, but there the agreement ends; because it is equally clear that in making the assessment under sub-section (3) of section 23 of the Act, the Income-tax Officer is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. There must be something more than bare suspicion to support the assessment under section 23(3). The rule of law on this subject has in our opinion been fairly and rightly stated by the Lahore High Court in the case of Seth Gurmukh Singh v. Commissioner of Income-tax."
In the Punjab case, the High Court said :
"(a) An Income-tax Officer is not bound to rely on such evidence produced by the assessee as he considers to be false. . . .
(c) If he proposes to make an estimate in disregard of the evidence oral or documentary, led by the assessee, he should in fairness disclose to the assessee the material on which he is going to found that estimate.
(d) He is not, however, debarred from relying on private sources of information, which sources he may not disclose to the assessee at all.
(e) In case he proposes to use against the assessee the result of any private enquiries made by him he must communicate to the assessee the substance of the information so proposed to be utilised to such an extent as to put the assessee in possession of full particulars of the case he is expected to meet and should further give him ample opportunity to meet it if possible."
In C. Vasantlal and Co. v. Commissioner of Income-tax the Supreme Court observed :
"The Income-tax Officer is not bound by any technical rules of the law of evidence. It is open to him to collect materials to facilitate assessment even by private enquiry. But if he desires to use the material so collected, the assessee must be informed of the material and must be given an adequate opportunity of explaining it. . . .
The jurisdiction of the High Court under section 66 of the Income-tax Act is merely advisory. The High Court does not sit in appeal over the judgment of the income-tax authorities : it is not concerned to decide whether the conclusion of the Tribunal on appreciation of evidence is correct. There was apparently a mass of evidence on which the conclusion of the Appellate Tribunal could be founded and the question which fell to be determined by it was purely one of fact. It is true that a finding of fact which is not supported by any evidence or is unreasonable and perverse may be open to challenge on the ground that it is not supported by any material on the record, . . ."
Some of the aforesaid principles were reiterated in Homi Jehangir Gheesta v. Commissioner of Income-tax, and the following portion of the placitum correctly summarises the relevant observations :
"In determining whether an order of the Appellate Tribunal would give rise to a question of law the court must read the order of the Tribunal as a whole to determine whether every material fact, for and against the assessee, has been considered fairly and with due care; whether the evidence pro and con has been considered in reaching the final conclusion; and whether the conclusion reached by the Tribunal has been coloured by irrelevant considerations or matters of prejudice.
The decisions of the Supreme Court in Dhirajlal Girdharilal v. Commissioner of Income-tax and Omar Salay Mohamed Sait v. Commissioner of Income-tax do not, however, require that the order of the Tribunal must be examined sentence by sentence, through a microscope as it were, so as to discover a minor law here or an incautious opinion there to be used as peg on which to hang an issue of law. In considering probabilities properly arising from the facts alleged or proved, the Tribunal does not indulge in conjectures, surmises or suspicions."
In Bhaichand Amoluk & Co. v. Commissioner of Income-tax, the aforesaid observations were repeated, and their Lordships further said :
"Though the Tribunal would be well-advised to leave out altogether speculation and surmises, the mere fact that the Tribunal has also referred to some additional reasons which may be characterised as surmises, would not give rise to a question of law, if the finding is based on such solid facts that the surmises would not make any material difference to the finding." (placitum).
In Bai Velbai v. Commissioner of Income-tax, the observations contained in Sree Meenakshi Mills v. Commissioner of Income-tax and Homi Jehangir Gheesta v. Commissioner of Income-tax were repeated. In Commissioner of Income-tax v. Indian Woollen Textile Mills, the Supreme Court said :
"It is not open to the court to discard the Tribunals finding of fact, if there is some evidence to support the finding of the Tribunal on a question of fact, even if on a review of the evidence the court might have arrived at a difference conclusion. It must, however, appear that the Tribunal had considered evidence covering all the essential matters before arriving at its conclusion. If the conclusion of the Tribunal is base upon some evidence, ignoring other essential matters, it cannot be regarded as a finding not giving rise to a question liable to be referred to the court."
It was consequently held that the Tribunal had misdirected itself in law in arriving at its finding and the High Court had erred in refusing to require the Tribunal to state a case. The principles laid down in Sree Meenakshi Mills v. Commissioner of Income-tax, were repeated in Commissioner of Income-tax v. Sivakasi Match Exporting Co. and Commissioner of Income-tax v. Daulatram Rawatmull. In Rattan Cloth House v. Commissioner of Income-tax, the High Court of Punjab and Haryana said that the findings of the Tribunal, even though on questions of fact, will be liable to be set aside by the High Court on a reference if the findings are based partly on evidence and partly on suspicions, conjectures or surmises, because the decision in Dhirajlal Girdharilal v. Commissioner of Income-tax and Bhaichand Amoluk & Co. v. Commissioner of Income-tax.
Besides the case of Sree Meenakshi Mills v. Commissioner of Income-tax, three decisions of the Privy Council were cited in respect of benami transactions. In Uman Parshad v. Gandarp Singh, the plaintiff-appellant contended that certain sale deeds were genuine, while the defendant-respondent asserted that they were mere benami transactions never acted upon and not intended to pass the title which was ostensibly conveyed. The Privy Council observed :
"With regard to all the other points it must be remembered that this is to the ordinary case of a benami dispute. In the ordinary case you have the benamidar or those claiming under him on the one side maintaining that the transaction is a real one; and you have the former owner and those claiming under him on the other side, maintaining that it is a sham; and each party has in his own power such receipts such evidence of payments, such connection with the agents concerned, as should suffice to prove his own case if it is a true one. But the peculiarity of this case is that the title of benamidar, and the title of the original true owner, coalesced in the person of Fatteh Kunwar within four years of the first transaction and within three years of the second; and it was she - and it is the defendant who is her representative - who have had in their hands the whole of the evidence necessary to prove whether the transaction was a sham or a real one. Therefore, the absence of evidence certainly does not tell against the plaintiff, but it rather tells against the defendant, who might have produced both witness and documents which would thrown light upon the case."
In Seth Maniklal Mansukbhai v. Raja Bijoy Singh Dudhuria, the decree-holder sued for a declaration as against the purchaser from his judgment debtor that the purchase was merely a benami conveyance, the Privy Council observed :
"There are some elements of suspicion. It is for these reasons that their Lordships have entered more minutely into the details of the case than they otherwise might have done; but upon the whole the decree holder did not discharge the burden of proof which was upon him and the suit was rightly dismissed by the Subordinate Judge.
In a not dissimilar case, Sreemanchunder Dey v. Gopaulchunder Chuckerbutty, their Lordships observed as follows :
Undoubtedly there are in the evidence circumstances which may create suspicion and doubt may be entertained with regard to the truth of the case made by the appellant; but in matters of this description it is essential to take care that the decision of the court rests not upon suspicion, but upon legal grounds, established by legal testimony."
In Po Kin v. Po Shein, there was a dispute regarding the property conveyed through some documents in the name of one Gale who was dead. The appellant who was Gales was benamidar for him. The Privy Council observed :
"Of course the burden is on the appellant to displace the natural inference to be drawn from that fact. The burden is no doubt a difficult one to discharge, because in all these benamidar transactions the very object of the parties is secrecy; but still the person who allege that property conveyed to another belongs to him must prove his allegation and prove it beyond reasonable doubt....."
* * * Having examined all the submissions of Mr. Mukherjee and the relevant materials, I am satisfied that the Tribunal did take into consideration all the materials for and against the parties along with the probabilities and arrived at findings of fact which cannot be called unreasonable or perverse and which are based on solid facts. Even though there might be a few irrelevant matters and a few surmised and conjecture here and there, they did not affect the findings and none of these findings involves any question of law.
All the questions referred to this court under section 66(2) of the Act are, therefore, answered in favour of the assessee and against the commissioner of Income-tax. There will be no order as to costs.
ANWAR AHMAD J. - I agree.