# MEEN AKSHI MILLS, MADURAI v. THE COMMISSIONER OF INCOME-TAX, MADRAS

- **Citation:** [1956] 1 S.C.R. 691
- **Court:** Supreme Court of India
- **Decided:** 1956
- **Case number:** Civil Appeals Nos. 124 to 126 of 1954
- **Bench:** S. R. Das C. J, Venkatarama Ayyar, Jafer Imam
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/meen-akshi-mills-madurai-v-the-commissioner-of-income-tax-madras-1258
- **Pages:** 44

## Headnote

691
Income·ttix-Referet1ce to High Court-Question of law-In·
ference from findinqs of fact, when a qitcstion of law-Test-Profits
earned by the assessee Company by sale of aood s entered in the names
of d1immy fi1·ms aml Conipanies-Benami, Meaning of-Finding of
the stcitm of wch firms and Companies, if and when material-Ac·
crnal of liability-Manner of dealing with the profits by a registered
Company, if affects its liability--Apportionment of pmfits between
place of mannjc:,ct1tre and pince of sale, if a question of law-Indian
Incomg-tax Act, (XI of 1922), ss. 66(1). 42(1), 42(8).
A finding of fa.ct, even when it is an inference from other facts
found on evidence, is not a question of law within the meaning of
s. 66(1) of the Indian Income Tax Act that can be refei;.red to the
High Court for its deoision. Such an inference can be a question
of law only when the point for determination is a mixed question
of law and fact. On the principles established by authorities, only
such questions as relate to one or other of the following matters can
be questions of law under the section:-
(1) the construction of o. statute or a document of title;
(2) the legal effect of the facts found where the point for
determinatioI? ie a mixed question of lr.w and fa.ct;
(3) a finding of fact unsupporled by evidence or nnrea,ponable
r.nd perveri!e in nature.
Although a finding of fa.ct which is not supported by any evi·
dance or is unreasonable and perverse ma.y be challenged a.s an error
of la.w, where there is evidence to consider the finding of the Tribn·
na.l does not cease to be final simply because the Court may be
iI?clined to take a view different from tha.t of the Tribunal.
Great Western Railway Co. v. Bater, ((1922] 8 T. C. 231),
followed.
The soundness of a. conclusion ba.sed on a number of facts
found on evidence must be judged by the cumula.tive effect of a.11 the
facts and it is altogether a wrong approach to consider them indivi·
dually in an isolated manner in order to explain them and show
that inferences other than those drawn by the Tribunal could be
drawn from them.
00
1956
Sej>tember 26
1956
Meenakshi Mills,
Madurai
v.
Tlie Cointnissioner
of Income-tax,
Madras
692
SUPREME COURT REPORTS
[1956]
Edwards (Inspect-01' of Taxes) v. Bairstow, ([1955] 28 I.T.R.
579), referred to.
Misa.pprecia.tion of evidence does not amount to want of evi ..
dence a.nd unless the eviden'ce can be shown to be irrelevant or
inadmissible, the conclusion of the Tribunal cannot be challenged
on the ground that it is based on no lega'l evidence.
The test as to whether a question is 'one of fact or one of mixed
law and fact is this that while in determining II question of fact no
application of any principle of law is required in finding either the
ha.sic facts or arriving at the ultimate conclusion, in a mixed question of law and fact the ultimate conclusion has to be drawn by
applying the relevant principles of law to the basic findings,
Herbert v. Samuel Fox and Co. Ltd., ([1916] 1 A.O. 405) and
The Queen v. Special Commissioners of Income-tax ((1894] 3 T. 0. 289),
followed.
The view expressed in a number of English decisions that an
inference from facts is a question of la.w has reference really to questions of mixed law and fact.
Edwards(Inspect01· of Taxes) v. Bairstow, ([la55J 28 I.T.R. 579),
Bamford v Osborne, ([1942] A.O. 14), Thomas Fattorini (Lancashire)
Ltd. v. Commissioners of Inland Revenue, ([l!J42) A.O. 643), and
Camer<m v. Prendergast, ([1940] A.O. 549), referred to and explained.
The Gramaphone and. Tvpewriter Oompan11 Ltd. v. Stanle11
((1908] 2 K.B. 89), held inapplicable.
Tha American Thread Compan11.v. Jo11ce, ((1911] 6 T.C. 1) and
The American Thread Company v. JOflC•, ((1918) 6 T.C. 168), relied.
on.
Nor do the observations made by the Privy Council in a number
of cases lend any snpport tp the broad contention that inferences
from facts are always and necessarily question• of law.
Ram Gopal v. Shamskhat<m, ([1892] L.R. 19 I.A. 228), Na

## Text

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S.C.R.
SUPREME COURT REPORTS
MEEN AKSHI MILLS, MADURAI
v.
THE COMMISSIONER OF INCOME-TAX,
MADRAS.
[S. R. DAS C. J., VENKATARAMA AYYAR
and JAFER IMAM JJ.]
691
Income·ttix-Referet1ce to High Court-Question of law-In·
ference from findinqs of fact, when a qitcstion of law-Test-Profits
earned by the assessee Company by sale of aood s entered in the names
of d1immy fi1·ms aml Conipanies-Benami, Meaning of-Finding of
the stcitm of wch firms and Companies, if and when material-Ac·
crnal of liability-Manner of dealing with the profits by a registered
Company, if affects its liability--Apportionment of pmfits between
place of mannjc:,ct1tre and pince of sale, if a question of law-Indian
Incomg-tax Act, (XI of 1922), ss. 66(1). 42(1), 42(8).
A finding of fa.ct, even when it is an inference from other facts
found on evidence, is not a question of law within the meaning of
s. 66(1) of the Indian Income Tax Act that can be refei;.red to the
High Court for its deoision. Such an inference can be a question
of law only when the point for determination is a mixed question
of law and fact. On the principles established by authorities, only
such questions as relate to one or other of the following matters can
be questions of law under the section:-
(1) the construction of o. statute or a document of title;
(2) the legal effect of the facts found where the point for
determinatioI? ie a mixed question of lr.w and fa.ct;
(3) a finding of fact unsupporled by evidence or nnrea,ponable
r.nd perveri!e in nature.
Although a finding of fa.ct which is not supported by any evi·
dance or is unreasonable and perverse ma.y be challenged a.s an error
of la.w, where there is evidence to consider the finding of the Tribn·
na.l does not cease to be final simply because the Court may be
iI?clined to take a view different from tha.t of the Tribunal.
Great Western Railway Co. v. Bater, ((1922] 8 T. C. 231),
followed.
The soundness of a. conclusion ba.sed on a number of facts
found on evidence must be judged by the cumula.tive effect of a.11 the
facts and it is altogether a wrong approach to consider them indivi·
dually in an isolated manner in order to explain them and show
that inferences other than those drawn by the Tribunal could be
drawn from them.
00
1956
Sej>tember 26
1956
Meenakshi Mills,
Madurai
v.
Tlie Cointnissioner
of Income-tax,
Madras
692
SUPREME COURT REPORTS
[1956]
Edwards (Inspect-01' of Taxes) v. Bairstow, ([1955] 28 I.T.R.
579), referred to.
Misa.pprecia.tion of evidence does not amount to want of evi ..
dence a.nd unless the eviden'ce can be shown to be irrelevant or
inadmissible, the conclusion of the Tribunal cannot be challenged
on the ground that it is based on no lega'l evidence.
The test as to whether a question is 'one of fact or one of mixed
law and fact is this that while in determining II question of fact no
application of any principle of law is required in finding either the
ha.sic facts or arriving at the ultimate conclusion, in a mixed question of law and fact the ultimate conclusion has to be drawn by
applying the relevant principles of law to the basic findings,
Herbert v. Samuel Fox and Co. Ltd., ([1916] 1 A.O. 405) and
The Queen v. Special Commissioners of Income-tax ((1894] 3 T. 0. 289),
followed.
The view expressed in a number of English decisions that an
inference from facts is a question of la.w has reference really to questions of mixed law and fact.
Edwards(Inspect01· of Taxes) v. Bairstow, ([la55J 28 I.T.R. 579),
Bamford v Osborne, ([1942] A.O. 14), Thomas Fattorini (Lancashire)
Ltd. v. Commissioners of Inland Revenue, ([l!J42) A.O. 643), and
Camer<m v. Prendergast, ([1940] A.O. 549), referred to and explained.
The Gramaphone and. Tvpewriter Oompan11 Ltd. v. Stanle11
((1908] 2 K.B. 89), held inapplicable.
Tha American Thread Compan11.v. Jo11ce, ((1911] 6 T.C. 1) and
The American Thread Company v. JOflC•, ((1918) 6 T.C. 168), relied.
on.
Nor do the observations made by the Privy Council in a number
of cases lend any snpport tp the broad contention that inferences
from facts are always and necessarily question• of law.
Ram Gopal v. Shamskhat<m, ([1892] L.R. 19 I.A. 228), Najar
Chandra Pal v. Shukur ((1918] L.R. 451.A. 183), Dhanna Mal v. Moti
Sagar, ([1927] L.R. 54 I.A. 178), Wali Mohammad v. Mohammad
Baksh, ([1929] L.R. 57 I.A. 86), Secretary of State for India in Coun·
cil v. Rameswaram Devasthanam, ((1934] L.R. 61 I.A. 163) and
Lakshmidhar Misra v. RangalaZ, ([1949] L.R. 76 I.A. 271), referred to
and esplained.
Conseqnently, in a case where, as in the present, the Appellate
Tribnno.l, on the basis of certain findings of fact, amply supported
by the evidence and eminently reasonable, came to the conclusion
that certain sales entered in the books of the assessee Company in
the names of certain intermediaries, firms and Companies, which
were bronght into existence by the assessee solely for the purpose of
concealing its own profi~s. and appeared to have done no other busi·
ness except the sales in qnestion, were fictitions and the profits
ostensibly earned by those firms and Companies were, in fact,
S.C.R.
SUPREME COURT REPORTS
693
earned by the a.ssessee which had itself sold the goods to the real
purchasers and received the prices, and should be added to the
a.mounts shown as profits in its accounts, no question of law arose
for reference under s. 66(1) of the Act.
1956
Meenakslii Mills,
Madurai
v.
The question of benami is purely a question of fact and not a The Commissiot1cr
mixed question of law and fact as it does not involve the application
of Income-tax,
of any legal principle for its determination.
Madras
Gangadhara Ayyar v. Subramania Sastrigal,
(A.LR. 1949
F.C. 88) and Misrilal v. Surji, (A.I.R. 1950 P.O. 28), referred to.
The word 'benami' is used to denote two classes of transactions
which differ from each other in their legal character and incidents.
In one, the usual class, the sale is genuine and title is transferred
but the real transferee is not the ostensible transferee but another
and in the other, where the term is inaccurately applied, the sale to
the benamidar is fictitious and the title of the transferor is not in·
tended to pass. The fundamental difference between these two classes
is that while in the former title vests in the transferee, in the latter
it remains with the transferor, and when a dispute a.rises the ques·
tion as to who pa.id the consideration becomes relevant only with
respect to the former class while in the latter the only question is
whether any consideration was paid at all.
The point actually in issue in the instant case, therefore, was a
bmami in the second sense and what the Tribunal had to decide
was whether any price had at all been paid by the intermediaries for
the goods ostensibly sold to them by the assessee. It was. not neces·
sary for it to decide whether apart from the sales the intermediaries
had an independent existence of their own, for such a decision
could not in any way affect the liability of the assessee to pay the
tax.
Smith, Stone and Knight v. Birmingham Corporation, ((1939] 4
All E.R. 116), distinguished and held inapplicable.
Under the Indian Income-tax Act liability to pay the tax arises
as soon as the income accrues, whether the assessee be an indi·
vidual or a registered Company, and the manner in which
such a Company chooses to deal with the profits cannot in a.:iy way
affect its liability. The provisions- of the Indian Companies Act,
designed to protect the interests of the share-holders, cannot in any
way affect the right of the state to levy the tax. Although the point
involved was a question of law appropriate for reference under
s. 66(1), since the assessee had failed to raise it in his application
under that section, this Court would not direct a fresh rekrence in
exercise of its powers under Art. 136 of the Constitution a.s the
point was no longer in doubt in view of the decision of this' Court.
Commissioner of Income-tax, Madras v. K.R.M.T.T. Thiagaraja
Chetty, ([1954] S.C.R. 258), referred to and followed.
The Tribunal was entirely right in refusing to refer the question
as to whether ss. 42(1) and 42(3) of the Indian Income·ta.x Act
1956
l\feenakshi Mills.
Madurai
v.
The Commi'ssi'oner
o/ lncome·tax,
Madras
694
SUPREME COURT REPORTS
[1956)
applied only to non-residents as was nrged on bebalf of the assesseo.
Those sections apply both to residents and non-residents.
Commissioner of Income·la"' v • .A.hmedbhai Umarbhai and Co.,
((1950] S.C.R. 335), referred to and followed.
Tho qnestion of apportionment of tho profits between tho place
of manufacture and tho place of sale and correctness of· the ratio
fixed by the Tribunal is a pure question of fact and cannot be referred
to Court under s. 66(1) of tho Act.
CIVIL APPELLATE JURISDICTION:
Civil Appeals
Nos. 124 to 126 of 1954.
Appeals by special leave from the judgment and
order dated the 10th day of March 1952 of the Madras
High Court in C.M.P. Nos. 10427, 10425 and 10426 of
1951 arising out of the order dated the 23rd day of
February 1951 of the Income Tax Appellate Tribunal, Madras Bench in Reference Applications Nos. 312,
310 and 311 of 1950-51.
P. R. Das, B. Sen, V. Sethuraman and S. Subramaniam for the appellant.
C. K. Daphtary, Solicitor-General for India, Porus
A. Mehta and R. H. Dhebar for P. G. Gokhale for the
respondent.
1956. September 26. The Judgment of the Court
was delivered by
VENKATARAMA AYYAR J.-These appeals arise out
of orders of assessment made on the appellant by the
Appellate Tribunal, Madras Bench, for the years of
account 1941-42, 1942-43 and 1943-44. The appellant
applied under section 66(1) of the Indian Income-tax
Act (hereinafter referred to as the Act) to refer to
the High Court certain questions which according to
it arose out of the orders; but the Tribunal rejected
the applications. The appellant then moved the H~h
Court under section 66(2) of the Act for an order
requiring the Tribunal to refer those questions to the
court, but the learned Judges held that the questions
on which reference was sought by the appellant were
pure questions of fact, and dismissed the applications. The matter now comes before us by way of
special appeal.
S.C.R.
SUPREME COURT REPORTS
695
The facts material for the purpose of these appeals
1956
may shortly be stated. The assessee is a public comMeenakshi Mills,
pany registered under the Indian Companies Act, and
Madurai
its Managing Agents a.re the firm of Messrs K. R.
v.
Thya.garaja Chettiar and Co., whose partners are The. Commissioner
Mr. Thya.ga.raja Chettiar and his two sons. The com01 Income-tax,
pany is resident and ordinarily resident in British
Madras
India, its head office being a.t Madurai in the Madras
Venkatarama
State. It carries on business in the manufacture and
Ayyar J.
sale of yarn, and for the purpose of that business it
purchases cotton and occasionally sells it. Its profits
arise for the most part from the sale of yarn and to
some ex-tent from the re-sale of cotton. According
to the account books of the company, its profits
from business for the account year 1941-42 were
Rs. 9,25,364, for 1942-43 Rs. 24,09,832 and for 194344 Rs. 29,13,881. In its returns, the appellant showed
these amounts as its income chargeable to tax for the
respective years. The Department did not accept
the correctness of the figures as shown in the accounts.
It contended that the Company had earned more profits than were disclosed in its accounts, and that it
had contrived to suppress them by resort to certain
devices. According to the Department, the scheme
evolved by the appellant for this purpose was this:
Suppose the Company sold 25 bales of yarn to X for
Rs. 50,000 at the then market rate and received the
-
full amount of the price. The books of the Company
would show neither the sale to X nor its receipt of
Rs. 50,000. Instead, there will be an entry in its books
showing the sale of these very bales to A for Rs.
20,000 which will be about the cost price and in the
books of A these goods will be shown as sold by it to
X for Rs. 50,000. If the sale by the Company to A
and the connected sale by A to X were genuine, the
Company would have made no profit on the sale,
whereas A would have made a profit of Rs. 30,000 on
it. But, in fact, both these sales were sham transactions; the only sale that took place was that by the
Company to X and the price actually received by it
was not Rs . .20,000 but Rs. 50,000. As a result of
these paper transactions and manipulations, the
1956
Meenakshl Mills,
Madurai
v.
The Co1nmissioner
of Income.tax,
Madras
Vetikatarama
AyyarJ,
696
SUPREME COURT REPORTS
[1956]
profit of Rs. 30,000 made by the Company was sup·
pressed. This process was reversed when -the Com·
pany purchased cotton. The appellant purchased,
let us say, 100 bales of cotton from X for a price of
Rs. 5,000, and paid that amount to X. Neither this
purchase from X nor the payment of Rs. 5,000 to him
would appear in the books of the Company. Instead,
the books of A wil1i._show these goods as purchased by it
from X for Rs. 5,uOO, and the books of the appellant
will show a purchase from A of those very goods for Rs.
8,000.
Both these sales were fictitious, the only real
transaction was the sale by X to the Company and the
price actually paid therefor by the Company was only
Rs. 5,000. By the device of sale by X to A and by A
to the Company, the cost price had been inflated by
Rs. 3,000, and the real profit had been concealed to
that extent. The accounts of the Company, therefore, did not reflect the true position as to the profits
actually made by the appellant. The names of the
intermediaries who according to the Department
played the role of A in the above illustration-and
they will hereafter be referred to simply as intermediaries-are given below with the amount of profits made on the sale of yarn in their names and concealed, or the extent of the cost price inflated on the
purchase of cotton from them, as found by the Tribunal:
1941-42
1. Meenakshi & Co.
Sale of yarn
2. Sivagami & Co.
do.
3. Mangayarkarasi & Co.
do.
4. Alagu & Co.
Purchase of
cotton
1942-43
Rs. 35,830
Rs. 35,443
Rs. 34,579
Rs. 34,003
1. Meenakshi & Co.
Sale of yarn Rs. 53,635
· 2. Sivagami and Co.
do.
Rs. 58,103
3. ~ukman! & Co. Ltd. &}saleofyarnRs. 3,97;467
4. S1vagam1 & Co. Ltd.
5. Rukmani & Co., Ltd. Purchase of
cotton
Rs. 33,533
S.C.R.
SUPREME COURT REPORTS
697
1943-44
1. Pudukottah & Co., Ltd. Sale of yarn Rs.18,99,488
Do.
Purchase of
cotton
2. Rukmani & Co., Ltd.
do.
3. Rajendra Ltd.
Sale of yarn
Rs. 12,703
Rs. 22,~04
Rs. 1,06,436
1956
Meenakshi Mills,
Madurai
v.
The Commissioner
of Income-tax,
Madras
The contention of the Department was that the
Venkatarama
amounts shown as profits made by the intermediaries
Ayyar J.
and mentioned above represented in fact the profits
actually earned by the appellant, and that they
should be added to the figures shown in its accounts
as its profits. The appellant contested this position,
and maintained that the state of affairs disclosed by
its accounts was true, that its sales in favour of the
intermediaries were genuine, and that, in fact, little
or no profits were made by it in those transactions,
that it purchased cotton only from the intermediaries
and did pay them the amounts as shown in the accounts. These contentions were closely examined by
the Income-tax Officer in the first instance, then again
by the Appellate Assistant Commissioner on appeal,
and finally by the Appellate Tribunal, and on an
elaborate consideration of the materials placed before
them, they held that the following facts were established:
I. The sale of yarn by the appellant to the inter-
...
mediaries mentioned above was for a price very much
below the market rate, often for the cost price and
some times for even less. No acceptable explanation
had been given for this unusual feature. The yarn
was in that period a scarce commodity, and it was a
seller's market. The amounts lost by the Company
on these transactions during the three years, if they
were genuine, would far exceed Rs. 25 lakhs. The
sales therefore were not bona fide.
2.
The firms of Meenakshi and Co., Sivagami and
Co., Mangayarkarasi and Co., and Alagu and Co.,
who were the intermediaries for the year 1941-42 were
all newly started for the first tirue in 1941. The partners of the firm were men of no means, and were all
relations of Mr. Thyagaraja Chettiar, the chief
1956
Meenakshi Mills,
Madurai
v.
The Commissioner
of Income-tax,
Madras
Venkatarama
Ayya•J.
698
SUPREME COURT REPORTS
[1956]
partner of the Managing Agents firm and a dominant
figure in charge of the Company's affairs. None of
them had done any business in yarn befare. The
personnel of these firms was drawn in different combinations from a group of half a dozen pe1 sons who
were all the creatures of Mr. Thyagaraja Cl1ettiar.
3. During the year 1942-43, two of the firms,
Mangayarkarasi and Co., and Alagu and Co., were
closed, and their place was taken by tvi o private
limited companies called Rukmani and Co .. Ltd. and
Sivagami and Co., Ltd. The shareholder 1 of these
companies were again drawn from the sma: l group of
persons who were partners of the firms, and they were
all Mr. Thyagaraja Chettiar's men. These Jompanies
declared 110 dividends, even though they rnade considerable profits and the shareholders r1 ceived no
dividends nor even sta.tements of accounts. In truth,
they had no beneficial interest in the concerns.
4.
The .business of the intermediaries, both firms
and the companies, consisted solely in th1 purchase
.of yarn from the appellant and not from any other
person, and the entirety of the yarn pure ~ased was
sold by them en broc to constituents of the appellant.
Thus, the business of the intermediaries wi.s, in fact,
only a part of the business carried on by lhe appellant.
5.
The sales by the appellant in favo1 r of these
intermediaries were of large quantities of yarn and
sometimes on a scale far higher than oth ir genuine
commercial transactions, as for example, the sale of
1850 bales on 17-4-1942 to Rukmani and C1,, No securities were taken from the intermediarie J for this
transaction. Having regard to the magnLude of the
business, the capital of the intermediari,~s even on
paper was negligible.
6.
The intermediaries had most of then no offices
of their own. Even when they had offices, these were
arranged by the officers of the appellant. The concerns had no godowns, and their staff v·as meagre
and recruited from the employees and servants of
the appellant. Apart from signing the contracts, the
intermediaries did nothing.
....
S.C.R.
SUPREME COURT REPORTS
699
7.
The profits earned by the firms were shown in
their books as cash in their possession, but on a surprise raid the authori_ties were unable to discoyer an_y
cash with them. The amount shown as profits in their
accounts was, in fact, in the possession of the appellant Company.
8,
The intermediaries had, in fact, never to pay
to the appellant for any of the purchases made by
them, the course of the business being that they sold
the goods purchased from the appellant to its old
customers, who paid therefor.
9. The intermediaries did not issue any delivery
orders on the appellant in favour of the customers to
whom they ostensibly sold the goods, but the goods
were despatched directly by the appellant to the
customers and delivered to them.
10. The customers to whom the goods were delivered by the appellant as aforesaid paid the full
price for which they purchased them from the intermediary firms, not to those firms with whom alone
they had privity of contract but to the appellant
direct, and these payments appear as receipts in the
books of the appellant.
11.
After the Limited Companies were started in
1942-43 and 1943-44, the course of business adopted
by the appellant showed a further mystification.
There was firstly a sale of certain quantity of yarn by
the appellant to company A, which sold it in turn
to company B which in turn sold it to C, which ultimately sold it to the usual customers of the appellant. In spite of the number of links between the
appellant and the customers, the goods were directly
despatched by the former to the latter, who paid by
cheques the full amount due by them -to their seller C,
who straightaway endorsed them in favour of the
appella.nt. The intermediaries A and B did no act,
and took no part in the ultimate payment of the price
by th~ purchasers.
12. Some of the intermediaries, firms and companies had been formed in Pudukottah State. At that
time, that State was foreign territory, and the profit
91
1956
JU"enalalli Mills,
Madurai
v.
Tire Commissioner
of Income-tax
Madras
Vt'nkatara11u1
. AyyarJ.
1956
Meenak&hl Mills,
Madurai
v,
The Co1nmissioner
of Income-tax,
Madras
Venkatarama
Ayyar J.
700
SUPREME COURT REPORTS
[1956)
earned there would become taxable only if it was
remitted to British India.
Pudukottah is neither a
cotton producing area, nor was. a market for cotton
there. The object with which the intermediaries had
been set up in Pudukottah was obviously to screen
portions of the profit earned by the appellant.
On these facts, the Tribunal came to the conclusion
that the contentions of the Department had been
fully established, namely, that the intermediaries were
dummies brought into existence by the appellant for
concealing its profits, that the sales standing in their
names were sham and fictitious, and that the profits
ostensibly earned by them on those transactions were,
in fact, earned by the appellant, and should be added
to the amounts shown as profits in its accounts. The
point for decision is whether there arises out of the
order of the Tribunal any question which can be the
subject of reference under section 66(1) of the Act.
Under that section, it is only a question of law that
can be referred for decision of the court, and it is
impossible to argue that the conclusion of the Tribunal is anything but one of fact. It has been held on
the corresponding provisions in the English Incometax statutes that a finding on a question of fact is
open to attack as erroneous in law only if it is not
supported by any evidence, or if it is unreasonable
and perverse, but that where there is evidence to consider, the decision of the Tribunal is final even
though the court might not, on the materials, have
come to the same conclusion if it had the power to
substitute its own judgment. In Great Western Railway Go. v. Bater('), Lord Atkinson observed:
"Their (Commissioners') determination of questions of pure fact are not to be disturbed, any more
than are the findings of a jury, unless it shou.Jd a ppear that there was no evidence before them upon
which they, as reasonable men, could come to the
conclusion to which they have come: and this, even
though the Court of Review would on the evidence
have come to a conclusion entirely different from
theirs".
(1) [1922] 8 T.O. 231, 244.
S.C.R.
SUPREME COURT REPORTS
701
There is no need to further elaborate this position,
1956
because the law as laid down in these observations is Meenakshi Mills,
well settled, and has been adopted in the construeMadurai
tion of section 66 of the Act.
Now, the determinav.
tion of the Tribunal in the present proceedings b.eing The Co1nmissioner
one of fact, it is open to review by the court only on
°1 Income-tax,
the ground that it is not supported by any evidence
Madras
or that it is perverse. The appellant understood this
Venkatarama
position quite correctly, and in its application under
AyyarJ.
section 66(1) it stated the only question which it
wanted the Tribunal to refer to the court with reference
to the present controversy in the following terms:
"Whether on the facts and in the circumstances
of the case there is any legal evidence to support the
finding that the four firms, Meenakshi and Co., Sivagami and Co., Mangayarkarasi and Co., and Alagu
and Co., were benamidars for the appellant and that
the profits made by these firms were profits made by
the appellant''.
This was for the accounting year 1941-42. The question was similarly worded for the subsequent years
also except that the names of the intermediaries were
different for the different years.
The question as
framed assumes, it will be noted, that the Tribunal
had held that the intermediaries were benamidars for
the appellant, and on this assumption were grounded
several contentions which were pressed on behalf of
the appellant.
Whether this assumption and the
contentions based thereon are weJl-founded is a different matter, and will be considered in due course.
But apart from that, it will be seen that the only
ground of attack which was directed against the
finding of the Tribunal was that there was no legal
evidence. This is of course a contention open to the
appellant; but has that been substantiated? Mr. P.
R. Das, learned counsel for the appellant, did, at the
start, put bis contention as high as that. But it became abundantly clear when his argument began to
unfold itself that it amounted to no more than this
that the conclusion drawn by the Tribunal from the
facts found by it was unsound and erroneous.
He
did not, it must be stated, dispute the facts them-
702
SUPREME COURT REPORTS
[1956)
1956
selves, but he took them one after another, and contended that they were susceptible of inferences other
Meenakshl Mills, than those drawn by the Tribunal.
He next offered
Madurai
v.
explanations for them which would make them conTh• commissianer sistent with the contention of the appellant. And he
oflm:ome.ta%,
finally wound up by saying that the conclusion
Madras
reached by the 'fribunal was not justified.
This
V•nkatarama
clearly is an erroneous approach to the whole quesA:narJ.
tion. 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
in the picture as a whole.
In Edwards (Inspector of
Taxes) v. Bairstow(1). Lord Radcliffe stated:
" .... I think that it is rather misleading to speak
of there being no evidence to support a conclusion
when in cases such as these many of the facts are
likely to be neutral in themselves, and only to take
their colour from the combination of circumstances
in which they are found to occur".
This furnishes the corrective to the course adopted
by. counsel for the appellant in his argument.
And a more serious objection to it, and one of substance is that it relates merely to matters of appreciation of evidence, and does not support the position
that there is no legal evidence in support of the finding of the Tribunal. For example, one of the facts on
which the Tribunal relied for its conclusion was that
the partners of the intermediary firms were new to
yarn business and came on the scene for the first time
in 1941. The appellant contends that no significance
could be attached to this, as the partners belonged
to the Nattukkottai Chetti caste, which was a trading
community. But surely this does not render the evidence irrelevant or inadmissible. It only affects the
weight to be attached to it. Then again, the Tribunal has made a point of it that the goods were sold
by the appellant to the intermediaries for a price far
below the market price, sometimes even below the
(11 [1955]28 I.T.R. 579.
-
S.C.R.
SUPREME COURT REPORTS
703
1956
cost price. The answer of the appellant to this was
that they were forward contracts and that the price Meenakshi Mills,
of yarn on the dates of those contracts was low. But
Madurai
the Tribunal declined to accept this explanation for
v.
the reason-and that, a good one-that there were The Commissioner
no contract registers from which the dates on which
01 Income-tax,
the contracts were entered into could be verified, and
Madras
that the contract notes themselves were not serially
V.nkatarama
nurnbered. If this is not a matter of pure appreAyyarJ.
ciation of evidence, it is difficult to see what else is.
The Tribunal also referred to the fact that the only
business which the intermediaries did was to purchase
yarn from the appellant and sell it to its own constituents. The answer of the appe11ant to this was
that there was no need for the intermediaries to purchase from other manufacturers when all their needs
were met by the appellant and that there was nothing
unusual in their selling all their yarn to its customers.
It is unnecessary to say anything about the worth of
this contention, for that is a matter exclusively for
the Tribunal to assess. What has now to be considered is whether this circumstance on which the
Tribunal relied is or is not cogent evidence in support
of its conclusion. It will be preposterous to contend
that it is not. No useful purpose will be served by
examining the contentions of the appellant with reference to the other facts on which the Tribunal relied
for its conclusion. They are of the same pattern as
the above, and bear, at their best, on the weight to
be attached to the facts and not to their relevancy or
admissibility, and there is no question of want of
legal evidence in support of the conclusion of the
Tribunal.
Reference should also be ma.de in this connection
to another contention which was pressed by Mr. P.R.
Das at a later stage of the argument. He contended
that the facts found showed that the intermediaries
were benamida.rs not for the appellant but for Mr.
Thyagarajan Chettiar of the Managing Agents firm.
The significance of this contention lies in this that it
grants-and Mr. P.R. Das was quite frank about it
-·that the facts found did point to the fact that the
1956
Meenakshi Mills,
Madurai
v.
The Commissione,.
of Income-tax,
Madras
Venkatarama
Ayyar J,
704
SUPREME COURT REPORTS
[1956)
intermediaries were dummies, leaving outstanding
for decision only the question whether on the evidence
they were benamidars for the appellant or for Mr.
Thyagarajan Chettiar. That is a question which will
be separately considered. But it is manifest that this
argument is destructive of the contention of the
appellant that there is no legal evidence to support
the conclusion of the Tribunal that the intermediaries
were mere dummies. The result then is that the
finding of the Tribunal viewed as one of fact, which
in truth it is, is supported by evidence, and is not
unreasonable and is not open to attack on any of the
grounds on which such a finding could be assailed in
a reference under section 66(1).
It was next contended for the appellant that inference from facts was a question of Jaw, and that as
the conclusion of the Tribunal that the intermediaries
were dummies and that the sales standing in their
names were sham and fictitious was itself an inference
from several basic facts found by it, it was a question
of law and that the appellant had the right under
section 66(1) to have the decision of the court on its
correctness, and support for this position was sought
from certain observations in Edwards (Inspector of
Taxes) v. Bairstow('), Bamford v. Osborne('), Thomas
Fattorini (Lancashire), Ltd. v. Commissioners of
Inland Revenue('), Cameron v. Prendergast(') and
The Gramophone and Typewriter Company, Ltd. v.
Stanley('). At the first blush, it dq,es sound somewhat
of a contradiction to speak of a fipding of fact as one
of law even when that finding is an inference from
other facts, the accepted notion being that questions
of law and of fact form antithesis to each other with
spheres distinct and separate. When the Legislature
in terms restricts the power of the court to review
decisions of Tribunals to questions of law, it obviously intends to shut out questions of fact from its
jurisdiction. If the contention of the appellant is
( 1) [1955] 28 I. T .R. 579.
(2) [19<12] A.O. a: 1942 I.T.R. Supplt 27.
(3) [1942] A.O. 649: 24 T.O. 328.
14) [1940] A.O. 649: 8 I.T.R. Supplt. 75.
(5) (1908) 2 K.B. 89: 5 T.C. 358.
-
-
S.C.R.
SUPREME COURT REPORTS
705
correct, then a finding of fact must, when it is an
7956
inference from other facts, be open to consideration
d b
Meenakshi Mills,
not only on the ground that it is not supporte
Y _ Madurai
evidence or perverse but also on the ground that it is
v.
not a proper conclusion to come to on the facts. In The Commissioner
other words, the jurisdiction in such cases is in the
of Income-tax,
nature of a regular appeal on the correctness of the
lfiadras
finding.
And as a contested assessment-and it is
Venkatarama
only such that will come up before the Tribunal under
Ayyar J.
section 33 of the Act, must involve disputed questions of fast, the determination of which must
ultimately depend on findings on various preJiminary
or evidentiary facts, it must result that practically
all orders of assessment of the Tribunal couk!_ be
brought up for review before courts. That will, in
effect, be to wipe out the distinction between questions of law and questions of fact and to defeat the
policy underlying sections 66(1) and 66(2).
Dne
should hesitate to accept a contention which leads
to consequences so startling, unless there are compelling reasons therefor.
Far from that being the
case, both principle and authority are clearly aJverse
to it.
Considering the question on principle, when there
is a question of fact to be determined it would usually
be necessary first to decide disputed facts of a subsidiary or evidentiary character, and the ultimate conclusion will depend on an appreciation of these facts.
Can it be said that a conclusion of fact, pure and
simple, ceases to be that when it is in tutu a deduction from other facts? What can be the principle on
which a question oi fact becomes transformed into a
question oflaw when it involves an inference from
basic facts?
To take an illustration, let us suppose
that in a suit on a promissory note the defence taken
is one of denial of execution. The court finds that
the disputed signature is unlike the admitted signatures of the defendant. It also finds that the attesting witnesses who speak to execution were not, in
fact, present at the time of the alleged execution.
On a consideration of these facts, the court comes to
the conclusion that the promissory note is not genuine,
1956
!tieenakshi Mills,
Madurai
v.
The Commissiontf'
of Income-tax.
Madras
Venkatar'ama
AyyarJ.
706
SUPREME COURT. REPORTS
[1956]
Here, there are certain facts which are ascertained, and
on these facts, a 1Jertain conclusion is reached which is
also one of fact. Can it be contended that the finding that the promissory note is not genuine is one of
law, as it is an inference from the primary facts
found? Clearly not. But it is argued against this
conclusion that it conflicts with the view expressed
in several English decisions, l!ome of them of the
highest authority, that it is a question of law what
inference is to be drawn from facts.
The fallacy
underlying this contention is that it fails to take into
account.the distinction which exists between a pure
question of fact and a mixed question of law and
fact, and that the observations relied on have reference to the latter and not to the former, which is
what we are concerned with in this case.
' In between the domains occupied respectively by
questions of fact and of law, there is a lai·ge area in
which both these questions run into each other, forming so to say, enclaves within each other. The questions that arise for determination in that area are
known as mixed questions ofla.w and fact. These questions involve first the ascertainment of facts on the evidence adduced and then a determination of the rights
of the parties on an application of the appropriate
principles of law to the facts ascertained. To take an
example, the question is whether the defendant has
acquired title to the suit property by adverse possession. It is found on the facts that the land is a vacant
site, that the defendant is the owrier of the adjacent
residential house and that he has been drying grains
and cloth and throwing rubbish on the plot. The
further question that has to be determined is whether
the above facts are sufficient to constitute ad>erse
possession in law. Is the user continuous or fugitive?
Is it as of right or permissive in character? Thus, for
deciding whether the defendant has acquired title by
adverse possession, the court has firstly to find on an
appreciation of the evidence what the facts are. So
far, it is a question of fact. It has then to apply the
principles of law regarding acquisition of title by
ad verse possession, and decide whether on the facts
..
-
S.C.R.
SUPREME COURT REPORTS
707
established by the evidence, the requirements of law
are satisfied. That is a question of law.
The ultimate finding on the issue must, therefore, be an inference to be drawn from the facts found, on the application of the proper principles of law, and it will
be correct tq_ say in such cases that an inference from
facts is a question of law. In this respect, mixed
questions of law and fact differ from pure questions
of fact in which the final determination equally with
the finding or ascertainment of basic facts does not
involve the application of any principle of law. The
proposition that an inference from facts is one of
law will be correct in its application to mixed questions of law and fact but not to pure questions of
fact.
The following observations of Lord Atkinson
in Herbert v. Samuel Fox and Go., Ltd. (1) clearly bring
out the principle above stated:
"' .... Your Lordships were pressed with the usual
argument, that as the County Court judge though a
judge of law and facts, ·is the sole judge of fact, his
findings cannot be disturbed if there was any evidence
before him upon which he, as a reasonable man,
could find as he has found.
That argument is quite
sound if it be applied to pure findings of fact.
It is
utterly unsound if it be applied either to findings on
pure questions of law or on mixed questions of law
and fact .... It is wholly illegitimate, in my view, in
cases such as the present, by finding in the words of
the statute to endeavour to secure for a finding on a
pure question of law, or on a mixed question of law
and fact, that unassailability which properly belongs
only to a finding on a question of pure fact".
These observations were made in a case under the
Workmen's Compensation Act, 1904.
But the same
principles have been applied to revenue cases, and it
has consistently been held that inferences from facts
may themselves be inferences of fact and not of kw,
and that such inferences are not open to review by
the court.
In The Queen v. Spscial Commissioners of Incometax(2) Esher M. R. observed:
(1) [1916) 1 A.O. 405, 413.
92
(2) [1894] 3 T.C, 289, 290·291.
1956
Meenakshi Mills,
Madurai
v.
The Commissi01111r
of Income·tax,
/.fadras
Venhatara111a
AyyarJ.
708
SUPREME COURT REPORTS
(1956)
7956
" ••. .it &eems to me that that is a question of fact.
M
-k
h" M.
11
It is a question of the· true inference which they
eena s •
1 s,. (C
· ·
) h d
d
f
'd
Madurai
omm1ss10ners
a to raw as a mattero ev1 ence.
v.
upon the facts which they had in evidence before
Th• Commi .. 1on<r them. But to draw an inference of fact from evidence
0! Income·t.,,,
before you is not a question of Jaw at aJI.
The inMadras
ference is a question of fact just as much as the direct
Venkatarama
evidence of fact, and it would be an appeal against
Ayyar J,
facts, which we are not entitled to entertain and consequently there can be no Mandamus".
A clearer and more emphatic refutation of the appellant's contention cannot be found.
The law is
thus summed up in Simon's Income Tax, 1952 Edi_tion, Volume I, page 281:
"There can be no doubt that it is for the Commissioners, and for the Commissioners alone, to distJover and state the basic or 'primary' facts of the
case ....