# COMMISSIONER OF INCOME TAX, BIHAR AND ORISSA, PATNA v. S. P. JAIN

- **Citation:** [1973] 2 S.C.R. 334
- **Court:** Supreme Court of India
- **Decided:** 1972-09-19
- **Case number:** Civil Appeals Nos. 320 to 322 of 1969
- **Bench:** K. S. Hegde, P. Jaganmohan Reddy, H. R. K1Janna
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/commissioner-of-income-tax-bihar-and-orissa-patna-v-s-p-jain-5853
- **Pages:** 26

## Headnote

Income rax--Tribunal-Findings >f
fact-Circwnsrances
justifying
imerference.
The Income Tax Officer included 'II sum of Rs. 10,80,000/- found invested in shares in the name of R as rtie assessee's income from updisclosed sources.. The income tax offic.er had· informed the asse see tba~
on the basis of information available with him he had reason to believe
thnt R ms the assessee's benamidar.
The assessce took no r-teps to
produce R for examination by the Income Tax Officer.
The source not
having beetn explained the income tax officer assessed the sum as tho
assessee's income from unoisc1osed sources.
The Appellate Assistant
Commissioner confirmed this order.
In the appeal the Tribwial declined
to consider cenain dociunents on record. After rejecting these documents,
the Tribunal fowid that the purchase of shares was :not a benami transaction and was legally valid.
The High Court confirmed the Tribunal's
conclusions.. In this Court it wac contended on behalf of the Revenue
that Tribunal based its conclusions on inadmissible evidence and on wrong
facts, gave no cogent reasons for rejecting the findings of the inoome tax
Officer, failed to take into account the relevant material or record and based
its conclusions on mere conjectures and surmises.
Allowing the appeal,
HELD : (i) Before rejecting the findings of the tribwial the Court
must be satisfied that there are ground· recognised by law which empower the court to interfere with those findings.
' (ii) The High Court and this Court have always the jurisdiction to
intervene if it appears that either the Tribwial has misUinderstood the
statutory language or it has 'llrrived at a finding
based 011 no evidenc.e,
or where the finding is inconsistent with the evioonce or contradictory
of it or it bas acted on 'l!aterial partly releva:i;t and partly irrelevant,
or where the Tribwial draws updn its own imagination, imports facts
and circumstances n6t apparent from the record, or bases its conclusions
on mere conjectures or surmises or where no person judicially acting and
properly instructed as to the relevant law could have come to the determination reached. In all nuch cases the findings arrived at are vitiated.
Unless the Tribunal has been asked to refer a question im?Ugoir>g the
validity of the findings sustainable or any principle of law,
the facts
stated in the statement of the case would form the basis on which th.
legality or otherwise of the assessment would alone require to be con·
sidered by the High Coun. · What has to be safeguarded ugainst is that
'lllY erystallizz.tion of the views of this Court and its reluctance to interfere with the findings of fa~! should not make the tribunals or the Incornetax authori•ies smug in the belief that a
0 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 ipsi dixit
that they are findings of 'fact, wish it to be so assumed irrespective
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of whether they are sustainable in law or on the materials on record.
In number of case3 t'1is Court has set out the principles upon which
it will interfere with the findings of fact arrived at by the Tribunal. [344G,
3460]
Korna11i P1•operties Ltd. v. C.I.T. West Bengal, 82 I.T.R. 547 at 554,
Edwards (Inspector of Taxes) v. Birstow, 28 I.T.R. 579 at 594, Mehta
Parikh & Co. v. Commission<V" of Income-tax, Bombay,, 30 I.T.R. 181,
Omar Sa/av Mohamad Sail v. Commissioner of Income-tax, Madra8, 37
I.T.R. 151 at 170, Lalchand Bhagat Ambica Ram v.
Commissioner of
Income-tax, Bihar and Orissa, 37 I.T.R. 288 at 295 and Meenakshi Mills,
Madurai v. Commissioner of Income-tax, 31 J.T.R. 28 at 50, referred to.
(iii) Jn the present case the Tribunal failed to take into account the
relevant material on record in arriving at its findi:ng,
Further it acted
on inadmissible evidence, based its conclusions on conjectures, sur

## Text

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334
COMMISSIONER OF INCOME TAX,
BIHAR AND ORISSA, PATNA
v.
S. P. JAIN
A
September 19, 1972
B
[K. S. HEGDE, P. JAGANMOHAN REDDY AND H. R. K1JANNA, JJ.]
Income rax--Tribunal-Findings >f
fact-Circwnsrances
justifying
imerference.
The Income Tax Officer included 'II sum of Rs. 10,80,000/- found invested in shares in the name of R as rtie assessee's income from updisclosed sources.. The income tax offic.er had· informed the asse see tba~
on the basis of information available with him he had reason to believe
thnt R ms the assessee's benamidar.
The assessce took no r-teps to
produce R for examination by the Income Tax Officer.
The source not
having beetn explained the income tax officer assessed the sum as tho
assessee's income from unoisc1osed sources.
The Appellate Assistant
Commissioner confirmed this order.
In the appeal the Tribwial declined
to consider cenain dociunents on record. After rejecting these documents,
the Tribunal fowid that the purchase of shares was :not a benami transaction and was legally valid.
The High Court confirmed the Tribunal's
conclusions.. In this Court it wac contended on behalf of the Revenue
that Tribunal based its conclusions on inadmissible evidence and on wrong
facts, gave no cogent reasons for rejecting the findings of the inoome tax
Officer, failed to take into account the relevant material or record and based
its conclusions on mere conjectures and surmises.
Allowing the appeal,
HELD : (i) Before rejecting the findings of the tribwial the Court
must be satisfied that there are ground· recognised by law which empower the court to interfere with those findings.
' (ii) The High Court and this Court have always the jurisdiction to
intervene if it appears that either the Tribwial has misUinderstood the
statutory language or it has 'llrrived at a finding
based 011 no evidenc.e,
or where the finding is inconsistent with the evioonce or contradictory
of it or it bas acted on 'l!aterial partly releva:i;t and partly irrelevant,
or where the Tribwial draws updn its own imagination, imports facts
and circumstances n6t apparent from the record, or bases its conclusions
on mere conjectures or surmises or where no person judicially acting and
properly instructed as to the relevant law could have come to the determination reached. In all nuch cases the findings arrived at are vitiated.
Unless the Tribunal has been asked to refer a question im?Ugoir>g the
validity of the findings sustainable or any principle of law,
the facts
stated in the statement of the case would form the basis on which th.
legality or otherwise of the assessment would alone require to be con·
sidered by the High Coun. · What has to be safeguarded ugainst is that
'lllY erystallizz.tion of the views of this Court and its reluctance to interfere with the findings of fa~! should not make the tribunals or the Incornetax authori•ies smug in the belief that a
0 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 ipsi dixit
that they are findings of 'fact, wish it to be so assumed irrespective
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of whether they are sustainable in law or on the materials on record.
In number of case3 t'1is Court has set out the principles upon which
it will interfere with the findings of fact arrived at by the Tribunal. [344G,
3460]
Korna11i P1•operties Ltd. v. C.I.T. West Bengal, 82 I.T.R. 547 at 554,
Edwards (Inspector of Taxes) v. Birstow, 28 I.T.R. 579 at 594, Mehta
Parikh & Co. v. Commission<V" of Income-tax, Bombay,, 30 I.T.R. 181,
Omar Sa/av Mohamad Sail v. Commissioner of Income-tax, Madra8, 37
I.T.R. 151 at 170, Lalchand Bhagat Ambica Ram v.
Commissioner of
Income-tax, Bihar and Orissa, 37 I.T.R. 288 at 295 and Meenakshi Mills,
Madurai v. Commissioner of Income-tax, 31 J.T.R. 28 at 50, referred to.
(iii) Jn the present case the Tribunal failed to take into account the
relevant material on record in arriving at its findi:ng,
Further it acted
on inadmissible evidence, based its conclusions on conjectures, surmises
and wrong facts, and failed to consider the probabilities of the c- on
which the lncome-taic Officer and the Appellate Assistant Commissioner
placed a great deal of emphasis. On the basis of the material on record
the lricome·taic Officer a1nd the Appellate Assistant Commhsioner were
fully justified in drawing inference that R was a name lender for the
assessee.
Neither the Tribunal nor the High Court has given good reasons for displacing the conclusions reached by the Income-tax Officer or
the Appellate Assistant Commissioner.. They had a duty to examine the
reasons given by thi!se wthorities before rejecting them. [359 BJ
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 320 to
322 of 1969.
Appeals by special leave from the judgment and order dated
February 29, 1968 of the Patna High Court in Tax Cases Nos.
16, 17 and 18 of 1965.
F. S. Nariman, Additional Solicitor-Ge11eral of India, S. K.
Aiyar, R. N. Sachthey and S. P. Nayar, for the appellant.
V. S. Desai, M. Natesan, Neel Rattan Khairan, D. P. Mohantv
and S. Gopalkrishnan, for the respondent.
·
The Judgment of the Court was delivered by
.
JAGANMOHAN REDDY: J. These appeals are by he Commiss10ner. of Income Tax, B1har and Orissa, against the judgment of
the High Court of Patna in references under s.
66 ( 2) of the
Income-tax Act, 1922 (hereinafter called
the 'Act')
which
answered the quesiions referred to it in favour of the assessee and
aga.ihst the appellant.
We shall presently set out the questions called for by the High
Co~rt, but before. we do so, it is necessary to state the facts on
which those questlons have to be detennined.
.
The assessee ,i~ an individual having income from
salary,
mtere.;t on secun11es, rents from house properties, dividends etc.
In the year 1954-55 for which the previous year is 1st November
1_952 to 31st October: 1953, the assessee filed a return on 28th
February 1955 declanng a total income of Rs. 2,60,737/-. On
336
SUPREME COURT REPORTS
(1973] 2 S.C.R.
24th February 1958 a revised return was filed including therein
property income amounting to Rs.
550/-. The Income Tax
Officer completed the assessment on 30th Septembe~. 1958 on a
total income of Rs. 21,15,845/-
which included a sum of
Rs. 10,80,000;'- treated as the assess~·s income frilm undisclosed
sources "for investment in shares in the name of Sri Kalyan Shum
Shere J. B. Rana" (hereinafter referred to as 'the Rana'). The
•t~sessee disputed the inclusion of this amour.I of Rs. 10,80,000/~.
The Income-tax Officer treated this amount as income fronl undisclosed sources for· the folloiving reasons :-
From the statement of case, it would appear that on July 1,
1952 the assessee sold 50,000 ordinary shares of Rhotas Industries Limited (R. I. Ltd.) to Dalmia Jain Collieries Ltd. (D.J.C.
Ltd.).
Another 10,000 shares of R. I. Ltd. were sold on the
same day to Maheshpur Collieries ( M. C. Ltd.).
He also sold
40,000 and 35,000 ordinary shares of S. K. G. Sugar Ltd. the
former to D. J. C. Ltd. and the latter to M. C. Ltd. on the same
day, vi::., 31st July, 1952.
Thereafter, in the year
1953, the
two vendor companies are alleged to have sold these shares for a
sum of Rs. 10,80,000/- to one Rana as follows :-
(a) On 30th May 1953 the D. J.C. Ltd. sold 40,000 ordinary shares to S. K. G. Sugar Ltd. for Rs. 3,20,000/-; Again on
28th August 1953, the D. J. C. Ltd. sold 50,000 ordinary shares
to R. I. Ltd., for Rs. 4,00,000/-;
(b) On 30th May 1953, M. C. Ltd. sold 35,000 ordinary
shares of S. K. G. Sugar Ltd. for Rs. 2,80,000/-; and on 28th
August 1953, the same company sold another 10,000 ordinary
shares to R. I. Ltd. for Rs. 80,000.'-.
The shares which were delivered allegedly to Rana by Mr.
J. F. Wood, General Manager of the Allahabad Bank after collecting the sale price of Rs. 10,80,000/- in cash paid on
30th
May 1953 and 28th August 1953 and that the sum so received
was given as loan to one Sri Durga Prasad of Tumsar through
Sri J. F. Wood who paid to him the two amounts aggregating to
Rs. 10,80,000/- on the respectiv" dates against two promissory
notes and receipts.
,
Though the Rana is shown to have purchased the shares in
May and August 1953, he got them transferred to his own name
only in April, 1955.
On the material on record the Income-tax Officer came to the
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following conclusions :-
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"(i) The Rana could not be contacted at 22, Circus Avenue,
Calcutta. The Inspector of the D~partment found that the tenant
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of the first floor of 22, Circus A venue, Calcutta was some
one
else and that the flat had never been let out to the Rana.
(ii) The Income Tax Officer's own personal enquiries showed
that the Rana could never have 'been in a position to invest a sum
nf over Rs. 10 lakhs in the shares in question.
(iii) Neither the two vendor companies nor the Rana nor
Sri Durga Prasad of Tumsar had any account with the Allahabad
Bank at that time and the shares were not in the Bank's custody.
The letter of Mr. J. F. Wood confirming the transaction did not
appear in the Issue No. of the Bank and no office copy of the
letter was forthcoming in the bank. A person with sufficient
financial influence with the Bank alone could have brought about
such a transaction and the Rana should therefore be a benamidar.
(jv) Though the Rana is alleged to have purchased shares in
May and August, 1953 the Rana had never attended any general
meeting of the shareholders nor appointed any proxy to attend in
the general meeting on his behalf.
(v) R. I. Ltd. declared dividends on 2nd June 1954 and
S. K. G. Ltd. on 23rd April 1954.
The dividends in all amount·
cd to Rs. 21 lakhs but the Rana did not take steps to have the
same recorded as the registered shareholder and to collect the
dividends.
(vi) The Rana opened a current account in Allahabad Bank
in April, 1955 with a cash deposit of Rs. 500 and the dividends
were then collected by the bank.
During April to December,
1955 deposits were over Rs. 22 lakhs and withdrawals Rs.
20
hums.
During April to December, 1955 deposits
were
over
Rs. 22 Iakhs and withdrawals Rs. 20 lakhs.
During the calendar
year 1955 the deposits were Rs. 14.97 lakhs and withdrawals
Rs. 16.85 lakhs; in the calendar year 1957 there was one deposit
of Rs. 1,30,125 and withdrawal of Rs. 1,41,000/-. All these
deposits were by cheques and withdrawals involving over Rs. 38
lakhs in the three years were all by bearer cheques and endorsed
in favour of Ananta Chandra Das.
Along with
the cheques,
letters of authorisation were also issued in his favour.
Excepting
for the signatures of the Rana, the other entries in the cheques
were in different handwriting and the authorisation letters were
all typed in identical form.
Ananta Chandra Das was found to
be a representative of Sri B. D. Dujari, Accountant of Ashoka
Marketing Ltd. and one of the lieutenants of the assessee.
(vii) The vendor companies and the companies whose shares
were sol~, namely, of R. I. Ltd. and S. K. G. Ltd. all belonged to
Sahu Jam Group and under the complete control of the assessee
who is the head of Sahu Jain Group.
Since it was not likely that
338
SUPREME COURT REPORTS
[ l 973] 2 S.C.R.
the assessee could afford to allow these shares pass out of his control to an outsider, the transaction of purchase of the shares from
the vendor companies would have been by the assessee in
the
name of the Rana.
On 28th February, 1968 the Income-tax Officer informed the
assessee that on the basis of information available with him, he
had reason to believe that the Rana was the assessee's benamidar
in the transaction of purchase of the shares in question for
Rs. 10,80,000/- from the two vendor companies and called upon
the assessee to state his objections, if any, and also to adduce
evidence in support of his contentions and also to produce the
Rana before him.
On 13th March 1958 the assessee denied the
purchase of the shares by him through the alleged benamidar. On
3rd September 1958 the assessee's accountant forwarded to the
Income-tax Officer a statement or letter by the Rana, dated 26th
August 1958 confirming the purchase of share~ by him.
Since
the assessee took no steps to produce the Rana for examination
by the Income-tax Officer in view of "the utter uselessness" of the
Rana's letter and in the absence of "necessary evidence and conclusive proof" about the Rana's financial capacity, the Incomctax Officer treated the source of investment of Rs. 10,80,000/- as
belonging to the assessee.
The source not having been explained,
the Income-tax Officer assessed the sum as the assessee's income
from undisclosed sources.
In appeal against the assessment,
the
Appellate
Assistant
Commissioner remanded the case to the Income-tax Ofllcer as he
found that the evidence of Sri Durga Prasad had been taken without giving any opportunity to the assessee to cross-examine him
and that Anant Chandra Das was not examined, nor was
any
evidence of the officers of the two vendor companies recorded
The Appellate Assistant Commissioner
further
directed
the
Income-tax Officer to examine the assessee and also to investigate
the physical movement of the shares in question during the period
covered by the transactions and the subsequent history including
their ultimate disposal. It would appear from
the Appellate
Assistant Commissioner's order that the Income-tax Officer submitted two remand reports in which he made out the following
salient points :-
(I) The assessee did not avail of the opportunity of producing the Rana.
( 2) The Income-tax Officer visited Nepal and found that the
present position and ante~edents of the Rana were modest. .
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(3) Ananta Chandra Das was found to be an employee of
Ashoka Marketing Ltd.
Later, the Income-tax Officer succeeded
in contacting Ananta Chandra Das whose statement was
also
recorded .
( 4) The statement of Onkarmal Dalmia recorded on 9th
December 1958 showed that the share scrips of the two companies involved, which were stated to have been purchased by
D. J. C. Ltd. and Mahespur Collieries Ltd. were found to have
been in the custody of the Accountant of the Ashoka Marketing
Ltd.
(5) The Principal Officer of the two. companies Shri H. D.
Bisoni, did not know about the transactions in question. .
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( 6) Sri Durga Prasad changed his earlier statement and said
that the loans received by him w.ere from the two companies concerned.
(7) The sale to Rana was made at Patna below the market
D · rates.
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( 8) Some details regarding the movement of the shares were
noted by the Income-tax Officer but their subsequent. history was
· not traced out .
(9) The statements of Sarvashree Onkarmal Dal!nia, H. D.
Bisoni the appellant, Ananta · Chandra Das and Thakur Das
Dujari were enclosed."
After the receipt of the remand reports, the Appellate Assistant Commissioner was of opinion that if the cumulative picture
was visualised and considered not in isolation but generally as a
whole, great weight has to be attached to the Income-tax Officer's
conclusion that the investment of Rs. 10,80,000/- was the assessee's income from undisclosed sources.
An appeal against this
order was taken to the Income-tax Appellate Tribunal. The
Tribunal declined to consider certain documents in Annexure
D-1 to D-33 of the statement of the case.
After rejecting these
documents, the Tribunal found that "the purchase of shares by
Rana was not a benami transaction" and '"'.as legally valid.
·
The conclusions of the Accountant Member which will be
referred to as that of the Tribunal so· far as they are relevant fot
the disposal of this appeal have been stated by him as under :-
( 1) At the relevant time in 1953, it was not in dispute that
the two vendor companies were the actual owners of 75,000
ordinary shares of S. K. G. Ltd. and 60,000 ordinary shares of
R. I. Ltd. The shares, whit:h the companies purchased were
340.
SUPREME COURT REPORTS
[ 1973] 2 S.C.R.
pledged with the Commissioner of Income-tax by the assessee and
with his permission subsequently sold to- the above companies.
(2) The transactions of sale by the vendor companies· have
been establi,hed according to the entries in the account books of
the companies and by the factum of actual advance of loans
amounting to Rs. 10,80,000/- to Durga Prasad who executed the
requisite promissory notes iri favour of the two companies.
According to the evidence of Sri Durga Prasad and the letter of
Sri J. · F. Wood, General Manager of the Allahabad Bank the
sale proceeds were received by him on behalf of the vendor companies from the Rana and paid over to Sri Durga Prasad after
obtaining the promissory notes. It was not the department's
case that Sri S. P. Jain had adv:inced Rs.
10,80,000/- · to Sri
Durga Prasad.
The vendor companies did not have cash to make
the advances except after the sale of the shares.
From the facts
recorded it followed that the two vendor companies effected the
actual. sale· of shares in question and made the loans aggregating
to Rs. 10,80,000/- to Shri Durga Prasad.
( 3) Rana did not claim to be a tenant of 22, Circus Avenue,
Calcutta. . He had given his address as "Thapathali Darbar Nepal
C/o Smt. Pooku .Maiya Saheba, 22, Circus Avenue, Calcutta".
In 1956, Rana seems to have been present at Calcutta and this
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fact had been confirmed in a letter to the Income-tax Officer dated
27th July 1956 by General Baber Shamshir J. B. Rana who
'tated th:it the Rana left his home (Nepal) some months back for
treatment in India but he did not know Rana's address.
The
department had commenced its enquiries early in 1956 .and af
that time the Rana had substantial cash balances left in the Allahabad Bank.
Since Rana never claimed to be a· tenant and the
departmental enquiries did not result in a positive finding that the ·
Rana never stayed at No. 22, Circus Avenue, Calcutta, no adverse
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inference could be drawn against the assessee from the failure to
contact the Rana. If it was a fact that the Rana had given a
bogus address, his financial standing and credit could be assailed.
As the facts stood the fact that the. Rana could not be contacted
· at 22 Circus Avenue could not warrant an inference that the
Rana was a benamidar.
( 4) That the assessee had produced at the remand stage a
letter dated 15th March 1959 from the Indian Ambassador, Nepal
to the affect that the Rana was a person of large means and resources and enjoyed respectable position.
The department did
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not take further action by seeking any clarification from the
Indian Ambassador.
He held that there was no material to hold
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that the Rana was not financially in a position. to· make the
investment in question of over Rs. 10 lakhs.
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( 5) The Income-tax Officer drew an· adverse inference that
the Rana was a benamidar from the fact that the Rana did not
get himself registered as a shareholder for nearly a year and did
not promptly collect . the
dividends - declared.
The
Tribunal
thought that this was possible if Rana possessed sufficient means
whereas if he was weak financially he would have tried to collect
the dividends immediately on declaration.
· ( 6) A nan ta Chandra Das was ultimately located by the
Income-tax Officer as an employee working in New Central Jute
Mills. · He was subjected to prolonged cross-examination by the
Income-tax Officer in November and December 1962. It was
not elicited from Anania Chandra Das that the moneys collected
by him from Allahabad Bank Ltd. against the cheques of the
Rana were paid to the cashier or accountant of. the Ashoka
Marketing Ltd. or of any other concern under the assessee's control.
Ananta Chandra Das, on the other hand, specifically stated
that the Rana utilised his services for getting the moneys from the
Bank and the moneys were duly handed over to the Rana. Ananta
Chandra Das's evidence failed to establish that the moneys collected from Allahabad Bank were for the assessee's benefit.
The Judicial Member though he agreed with the main conclusions arrived at by the Accountant Member however addec! :-
"The following circumstances of this · case have
caused serious doubts in my mind as to the bona fides
of the transactions of the purchases or sales of these
shares· by the· Rana (I) that there was no evidence· of
any negotiation for the sale of this huge lot, of shares
by the two colliery companies to the Rana.
Certainly
no brokers were involved; (2) That the two large sums
of Rs. 6 lakhs and Rs. 4,80,000/- were handed over in
cash by the Rana on 30th May 1953 and 28th August
1953 though admittedly the Rana had no bank account
and no residence of his own in Calcutta where the cash
could be kept in safety; (3) That though neither of the
two colliery companies nor the Rana were constituents
of the Allahabad Bank, yet the General Manager of the
Bank actually handed over the purchase price and the
share scrips respectively to the vendors and the pur-
. chaser and no reference could be found in the official
records of the bank; ( 4) The unsatisfactory nature of
the evidence given by Nandlall Poddar and (5) Lastly,
the manner of withdrawal of nearly Rs. 37 lakhs in
cash from the Allahabad Bank.
Although the depart-·
ment has been able to point out the circumstances
which raise an element of doubt as to the genuineness
of the transaction of the purchases of these shares in
342
SUPREME COURT REPORTS
[ 1973] Z S.C.R.
1953 by the Rana, in _iny opinion, the assessee has
successfully rebutted any positive evidence produced by
the depart~ent: I ~ave a feeling that if the department
bad a.cted m ttm~, it could possibly have
unearthed
matenals an~ evidence to strengthen and support this
case. In spite of the serious misgivings in my mind I
am constramed to hold that the departtnent bas failed
to establish beyond reasonable doubt that the Rana
acted merely as a benamider in the purchase of these
shares and also that he so acted on behalf of the
assessee, Sri S. P. Jain.
I, therefore, concur with the
order made by the Accountant Member."
On the Tribunal's findings, the following questions were referred to the High Court :-
·
.
(I) 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 Tribunal's finding that the purchase of the shares by the
Rana was not a benami transaction was legally valid ?
· ( 3) 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 ?
The. High Court confirmed the Tribunal's conclusions on more
or less similar reasoning which formed the basis of those conclu-
~ions.
On behalf of the revenue, it is contended by the learned Additional Solicitor General that the Tribunal based its conclusions on
inadmissible evidence and on wrong facts. It gave no cogent reasons for rejecting the findings of the Income-tax Officer. It disregarded and failed .to take into account the relevant material on
record and has based its findings on mere conjectures and surmises. For these reasons he invites us to ignore the bases
of the Tribunal's conclusion and hold that on the findings given
by the Income-tax Officer, Appellate Assistant Commissioner and
1he materials on record, the sale by the two vendor companies to
Rana was
a
sham and bogus transaction,
that in fact
Rs. 10,80,000/- alleged to have been paid for the price of those
shares was the assessee's income from undisclosed sources.
What has to be considered in this case is, whether the sale of
shares by the vendor companies to Rana on the date when it is
:alleged to have taken place was a sham and bogus one; and if it
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was and that Rana was m~rely a name-lender, whether the loan
alleged to have been advanced by the vendor companies to
Durga Prasad of Tumsur was in fact advanced by the assessee.
Both are inter-linked and unless the connection of the assessee
with the loan is established, the assessment in respect of that
amount as income from undisclosed sources cannot be sustained.
The two primary questions that arise for decision
in
these
(lppeals are :-
1. Whether the findings of fact reached by the Tribunal are
liable to be interfered with on any of the grounds recognised by
law, and
2. Whether the department ha> been able to establish that the
shares alleged to have been purchased by the Rana were actually
purchased by the assessee and that the Rana was a mere bcnamidar for the assessee.
The findings reached by the Tribunal are prima facie findings
of fact. Before rejecting those findings, we must be satisfied that
there are grounds in this ca5e recoginsed by law which empower
us to interfere with those findings. If the Department succeeds
in crossing this hurdle, it has to further establish not merely that
the Rana was not the real purchaser of those shares but that he
was the bcnamidar of the assessee. The question which naturally
(Irises on the very threshold is, whether it is permissible for this
Court to go behind !he findings of fact as found by the Tribunal
upon which it had come to the conclusion that the Rana was the
real purchaser.
In Kerna11i Properties Ltd. v.
C.l.T. Wew Benga/( 1 ) this
Court (consisting of one of us (Hegde, J.) and Grover, J. had
indicated the limi·tations imposed on the High Court and this
Court from interfering with the findings of fact arrived at by
the Tribunal. The assessee in. that case owned a number of residential fhts and was providing various services and ameni•ies.
It claimed that its income should be
assessed under the head
"business". The Income-~ax Officer split the receipts into two
parts, one part being treated as rent and. the other as "income
from other sources" taxable under s.12 of the Act. The Appellate Tribunal however held that the second part was assessable
as income from the business under s.I 0. Neither the department
nor the asses~ee contended that that part was assessable under
s. ?· The High Court thought that some of the facts found by the
Tnbu11al were not correct and on a re-aonraisal of the material
on record came to the conclusion that the income was assessable
under s. 9 of the Act.
This. the High Court could not do as it
had no jurisdiction to go behind or question the statements of fact
(!) 82 I. T. R. 547 at 554.
344
SUPREME COURT REPORTS
! 1973] 2 S.C.R.
made by the Tribunal unless a reference challenging the finding'
of fact arrived at by the Tribunal were made to it. It appears in
that case the question whether the findings of fact urged by the
Tribunal were vitiated for any reason was not before the High
Court. In those circumstances '!his Court pointed out. (seep. 551)
"The jurisdiction of the High Court in dealing
with a reference under section 66 is a very limited one.
It must take the fact as ~lated in the statement of the
case unless the question whether the findings of the Tri·
bunal are vitiated for one or the other of <the reasons
recognised by law is before it."'
In our view there can b.~ no doubt that unless the Tribunal has
been asked to refer a question impugning the validity of the
finding,c; sustainable on any principle of Jaw, the facts stated in
the statement of the case would from the basis on which
the
legality or otherwise of the assessment would alone require to
be considered by the High Court.
In this case the revenue had in tis application under s.66
of the Act asked for specific reference on the question :
"Whether on the facts and in the circumstances of the case
the findings of the Tribunal that a sum of Rs. 10,80,000 paid for
the purpose of the shares was not assessee's own income was a
preverse finding having regard lo the evidence on the record?"
This question was repealed in its application under s.66(2)
but perhaps the High Court thought that questions 2 and 3 on
which it directed the Tribunal to state a case would cover the
scope and ambit of question 3 on which the revenue had asked
for reference. We think that the two questions on w}).ich the
reference has been made impugn the finding,s and the validity of
the Tribunal's conclusion that Rs. I 0,80,000 was not an income
from undisclosed sources, but was the product of a genuine sa!C
by the vendor companies. Though this question does raise the
validity of the finding given qy the Tribunal, we have to ask
ourselves the question, in what circumstances will this Court
interfere with the finding given by the Tribunal or arrive at a
different conclusion to that arrived by it.
In our view, the High ·Court and this Court have always the
jurisdiction to intervene if it appears that either the Tribunal bas
misunderstood the statutory language, because the proper construction of the statutory language is a matter of Jaw, or it bas
arrived at a finding based on no evidence or where the finding
is inconsistent with the evidence or contradictory of it, or it has
acted on material partly relevant and partly irrelevant or where
the Tribunal draws upon its own imagination imports facts and
circumstances not apparent from the record or bases its conclusions on mere conjectures or surmises or where no person judicially
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acting and properly instructed as to the relevant law could have
come 10 the determination reached. In all such cases the findings
arrived at are vitiated.
The learned Additional Solicitor General reiferred to certain
observations of Lord Radcliffe in Edwards (Inspector of Taxes)
v. Bairsrow (') and wishes us to adopt that basis for interference
with questions of fact found by the Tribunal. The passage to
which we were referred is stated at p.594 thus :-
"I •think it possible that the
English ·courts have
been led to be rather over-ready to treat these questions
as "pure questions of fact" by .some observations af
Warrington and Atkin L.JJ. in Cooper
i'.
stubbs
(1925-2 K.B. 753 ). If so, I would say, with very great
respect, that I think jt is a pity that such a tendency
should persist. As I see it, the reason why the courts do
not interfere with commissioners' findings or determinations when they really do involve nothing but questions
of fact is not any supposed advantage in the commissioners of greater experience in matters of business or any
other matters. The reason is simply that by the system
that has been set up the commissioner are the first tribunal to try an appeal, and in the interests of the efficient administration of justice their decisions can only
be upset on appeal i£ they have been positively wrong
in law. The court is not a second opinion, where there
is reasonable ground for the .first. But 1here is no reason
to make a mystery about the subjects that commissioners deal with or to invite the courts to impose any exceptional restraints upon themselves because they are
dealing with cases that arise out of acts found by commissioners. Their duty is no more than to examine those
facts with a decent respect for the tribunal appealed from
and if they think that the only reasonable conclusion
the facts found is inconsistent with the determination
come to, to say so without more ado."
This statement goes farther than what has been adopted by this
Court. On the other hand Viscount Simonds confined the interference to the view which has so far been prevailing in reference
under the tax laws. At p. 586 he observed :~
"For it is umversally conceded that, though it is a
pure finding of fact, it may be set aside on grounds
which have been stated in various ways but are, I think,
fairly summarised by saying that the court should take
(I) 28 1.T.R. 579 at 594.
346
SUPREME COURT REPORTS
(1973] 2 S.C.R.
that course if it appears that the Commissioners have
acted without any evidence or upon a view of the facts
which could not reasonably be entertained. It is for this
reason tliat I thought it right to set out the whole of the
facts as they were found by the Commissioners in this
case. For, having ·set them out and having read and reread them with every desire to support the determination
if it can reasonably be supported, I find myself quite unable io do so. The primary facts, as they are sometimes
called, do not, in my opinion, justify the inference or
conclusion which the Commissioners have drawn : not
only do they not justify it btrt they lead irresistibly to
the opposite inference or conclusion. It is therefore a
case in which, whether it be said of the Commissioners
that their finding is perverse or that they have misdirected themselves in law by a misunderstanding of
the statutory language or otherwise, their determination
cannot stand."
Whether we adopt the extended view advanced by Lord Radcliffe
or the view of Lord Simonds, what has to be safeguarded against
is that any crystallization of the views of this Court and its reluctance to interfere with the findings of fact should not make the
Tribunals or the Income-tax authorities smug in the belief that
as the courts do not interfere with the findings which form the
l:>ed-rock upon which the law will be based they can act on that
assumption in finding facts or by their more ipsi 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. In a
number of cases this Court has set out the principles upon which
it will interfere with the findings of fact arrived at by the Tribunal.
We need not in this case travel beyond the scope of those principles.
In Mehta Parikh & Co. v. Commissioner of lllcome-tax, Bombay(') two Hon'ble Judges of this Court after referring to Edward's
case (supra) s.aid that the Court would be ertitled to intervene if it
appears that the fact finding authority acted without any evidence
which cannot reasonably be entertained or the facts found are such
that no person acting judicially and properly instructed as to the
relevant law would have come to the determination in question.
One of the learned Judges, Venkatarama Ayyar, J. did not express
his opinion in that case.
It w1s again pointed out by Bhagwati, J. in Omar Salay Mohamad Sait v. Commissioner of Income-tax, Madras( 2 ) :-
"We are aware that the Income-tax Appellate Tribunal is a fact finding Tribunal and if it arrives at its
(I) 30 l.T.R. 181.
(2) 37 l.T.R. 151 at 170.
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own conclusions of fact after due consideration of the
evidence before it this court will not interfere:
It is
necessary, howeve(, that every fact for and against the
assessee must have been considered with due care and
the Tribunal must ·have given its finding in a manner
which wo!!ld clearly indicate what were the questions
which arose for determination, what was the evidence
pro and contra in regard to each one of them and what
were the findings reached on the evidence on record
before it.
The conclusions reached by the Tribunal
should not be coloured by any irrelevant considerations
or matters of prejudice and if there are any circumstances
which required to be ex plained by the
asses~ee, the
assessee should be given an opportunity of doing so.
On no account whatever should the Tribunal base its
findings on suspicions, conjectures or surntises nor
should it act on no evidence at all or on improper rejec..
tion of material and relevant evidence or partly on evidence and partly on suspicions, conjectures or surmises
and if it does anything of the sort, its findings, even
though on questions of fact, will be liable to be set
aside by this e,ourt."
These
observations
were
again
referred
to
and
adopted in LaJchand Bhagat Ambica Ram v. Cmomisispner ·of
Income-tax, Bihar and Orissa('). See also Meenakshi Mills, Madurai v. Commissioner of Income-tax(') where Venkatarama Ay5'ar;
.T. summed up the position emerging on the several decisions re-
-
fr;r"d to by him :
"It appears .to us that apart from the circumstances
to which we have referred justifying an iutcrfcrence with
the finding:; set out in th<l> statemen't of the case. what has
to be considered in all those cases is, whether on the
materials on record, the true and the only r~asonable
conclusion is the one \\ hich is contrary to ihat found by
the Tribunal."
The Tribuhal in .. our view has "failed to take ·into account the
relevant material on record in arriving at its findings.
It has
further acted on inadmissible evidence and also based its conclusion en ~onjectures, surmises and wrong facts. rt had further
foiled to consider the probabilities of the case on which the IncomeH
tax Officer and the Appellate. Assistant Commi"ioner placed a
great deal of emphasis. It seems to have fieen influenced .~reatfy
(I) 37 T.T.R. 288 at 295
S-498S.,pCl/7.1
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31 T.T.R. 28 ar .... o.
348
SUPREME COURT REPORTS
J 1973]-'S.C.L
.A
by the fact thar the sale of the shares by the vendor companie, "''
Rana toOK place in the Allahabad Bank in the presence of Woou ..
the General Manager, without taking the probabililles ot the cas•!'
into consideration m support of which tour Jetter-s ot Wood pru ·
<.luced by the assessee were relied upon. lt m11y be noted that 11u
material is placed on the record to show as to how Wood cumc
into the picture.
At the time tho impugned transactions
took.
place, neither the companies that sold the shares nor the Rana wer·;
the customers of Allahabad Bank. The share scrips were not in
the 'possession .of the Bank nor the sale transactions were
p,1:
through the Bank. The name of Wood was either dragged to giw
it an air of credibility to the transaction or Wood was a busy body
who was willing to tend his name to appargitly spurious transaction. The letters said to have been sent by Wood are not proved:
Wood was not examined. No explanation is forthcoming for his
non-examination.
The curious thing is that the Tribunal after
rejecting the statement of the present General Manager of the Bank
as inadmissible, relied on a portion of that statement for the proo~
of Wood's signature.
It may be noticed that there is no official.
record of the transaction, no prior correspondence, no broker, no
receipt for the cash money of Rs. 10,80,000/- nor is there any
valid reason given for the unusnal procedure adopted of routing
the money through Wood when neither the vendor company nor
Rana nor Durga Prasad had any bank accounts with the Allahabad
Bank, Calcutta. The force of this omission was felt by the Tribunal which was also of the view that "there should have been some
kirid of correspondence before the Rana a)!reed to purchase the
block of shares from the two collieries." It however slurred over
the lacuna by seeking to put the blame for the omission on the
Income-tax Officer who it thought ought to have questioned the
assessee and called on the vendor companies •o explain how the
transactions were actually finalised.
When as we will
see,
an
official of the vendor companies was called, he said that they were
kept in the dark about the transactions for nearly two years, wh<'
else could the Income-tax Officer examine ? Jt was the dut,· of
the assessee to produce correspondence if there was any. bui for
that omission no blame can attach to the Income-tax Officer. That
apart, Wood was not produced and there is nothing to show that
these letters were written by him. It is also apparent that these
letters though written on the official note paper of the Allahabad
Bank Ltd.