# SHRI KANHAIYALAL LOHIA v. THE COMMISSIONER OF INCOME-TAX, WEST BENGAL

- **Citation:** [1962] 2 S.C.R. 839
- **Court:** Supreme Court of India
- **Decided:** 1962
- **Bench:** S. K. Das, M. Hidayatullah, J.C. Shah
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/shri-kanhaiyalal-lohia-v-the-commissioner-of-income-tax-west-bengal-2301
- **Pages:** 9

## Headnote

Income-Tax-Appeal from High Court's order-ProcedureAppeal from order of the Tribunal by,passing High Court's orderAppeal if competent-Income-tax
Act, 1922(11
~f 1922),
88. 66(1), 66(2) and 66(a).
The appellant supported his brother and his nephew for
a number of years as they were doing no work.
In the year
1943 he made a gift of Rs. 7,60,000 odd to them though he
had to overdraw his account with the Bank and to pay interest
or the amount borrowed to raise the money.
He also made a
transfer of some of his businesses to them. His explanation
was that these gifts were made to set these two persons up in
business. The Income-tax Officer held that the gifts were not
bonafide and he assessed the income of all the businesses in
the hands. of the appellant.
The appellant had produced
letters from some businessmen in support of his case.
One
such person was one M. who was examined by the Income-tax
Officer without notice to the appellant. Later, however, a
copy of the statement of M. was taken by the appellant's counsel and at his request M. was summoned for cross-e~amination
but on the date fixed none appeared for the appellant who
was also absent.
The appellant made a petition under s. 66(1) of the
Income-tax Act to the Tribunal asking that a number of
questions of law be referred to the High Court. Only one
question was referred by the Tribunal which declined to
refer the other questions. In the High Court the question
referred by the Tribunal was answered against the appellant
on the admission of his counsel. The High Court was moved
also under s. 66(2) to order a reference of the remaining
questions but the High Court rejected the application, l"he
appellant did not appeal against these two orders of the High
Court and instead tiled appeals against the orders of the
Tribunal. The appellant relied upon two cases of this Court
viz.
Dhakeshwari Cotton Mills' Gase and Balaev Singh'• case
and contended that the appeal to this court was competent.
Held, that the appeals were incompetent in view of the
decisions of this Court in Ol.'andi Prasad Ohokhani v. State <1f
Bihar and The Indian Aluminium Go., Ltd.
1961
July, 17.
1961
Sh. Kanhaiyalal
Lohia
v.
TM,
Commissioner
of Income-tax,
West Bengal.
M. H idriyatulkth
.T.
Slif'REl\IE f'OlTRT REPOltT8
[1962)
.
!hid. further, that an appeal agaimt an order of the
ll1gh Court deciding a question reli:rred nr ar,ainst ,1 refusal
to call for a statement can only be brought_ before the Supreme
Court under s. 66(A) of the Income-tax Act if the Hiah
Court decides the question referred, and uncle; Art. 136 °0 f
the Constitution if the High Court refuses to call for a statement. There can be no direct appea: to the S11p1eme Court
by passmg the decisions of the High Court.
Hehl. aho, that there was neither anv breach of the
principles ~f natural justice in th is case no; the existence o
circumstances as rxis.ted in Baldr1: Singh.' . ., case to ju~tify the
•ppeal.
Held, that where a witness hag been exarmned by the
Income-'"'' Ofhcer behmd the back of the assessee but a copy
of the statement of the witness is made available, lo the asscsseo
and an opportunity is given to him to cross·,xamine the
witne«, there is no breach of the principle of natural justice.
rJlwndi
Pmsad Chokltani v. State of Bihar. (1962)
~ S.C.R. 276 and Indian Aluminium Co., Ltd., v. Commis-
"ioner 1.f Income-tax.
(Ci1:il Appeal No. 171i of 19511, der.ided
""April 24, /91ilj followed.
Dhakeshwari Cotwn Milk Ltd. v. Commissioner of Incometax (1955) i S.C.R. 941 and Sardar Baldev Singh v. Commissumer of Income-tax, Delhi and Ajmer. (1961) 1 S.C.R. 482,
explained.
C1VIL APPELLATE .J t'IH8Dif"l'lO:N :
Civil Appeals
NoH. 347 to 350 of HJ(lO.
•
Appeals Ly 8\WOial leave· from the judgment
and order dated .January 18, 1953, of the fncometax Appellate Tribun~l:., ~lcutta Bench, in h1cm!ie-
'
tax Appeals NoH. 7062-1064 and C.P.T.A. No. '148
of 1951-52.
!'i. C. Chatterj6e, A. r. l"·ioimuatha Saotri and
/J . .V. iJ:lukherjee, for ihe appcllantH

## Text

'
2 S.C.R. SUPREME COURT REPORTS
839
SHRI KANHAIYALAL LOHIA
v.
THE COMMISSIONER OF INCOME-TAX,
WEST BENGAL
(S. K. Das, M. HIDAYATULLAH and J.C. SHAH, JJ.)
Income-Tax-Appeal from High Court's order-ProcedureAppeal from order of the Tribunal by,passing High Court's orderAppeal if competent-Income-tax
Act, 1922(11
~f 1922),
88. 66(1), 66(2) and 66(a).
The appellant supported his brother and his nephew for
a number of years as they were doing no work.
In the year
1943 he made a gift of Rs. 7,60,000 odd to them though he
had to overdraw his account with the Bank and to pay interest
or the amount borrowed to raise the money.
He also made a
transfer of some of his businesses to them. His explanation
was that these gifts were made to set these two persons up in
business. The Income-tax Officer held that the gifts were not
bonafide and he assessed the income of all the businesses in
the hands. of the appellant.
The appellant had produced
letters from some businessmen in support of his case.
One
such person was one M. who was examined by the Income-tax
Officer without notice to the appellant. Later, however, a
copy of the statement of M. was taken by the appellant's counsel and at his request M. was summoned for cross-e~amination
but on the date fixed none appeared for the appellant who
was also absent.
The appellant made a petition under s. 66(1) of the
Income-tax Act to the Tribunal asking that a number of
questions of law be referred to the High Court. Only one
question was referred by the Tribunal which declined to
refer the other questions. In the High Court the question
referred by the Tribunal was answered against the appellant
on the admission of his counsel. The High Court was moved
also under s. 66(2) to order a reference of the remaining
questions but the High Court rejected the application, l"he
appellant did not appeal against these two orders of the High
Court and instead tiled appeals against the orders of the
Tribunal. The appellant relied upon two cases of this Court
viz.
Dhakeshwari Cotton Mills' Gase and Balaev Singh'• case
and contended that the appeal to this court was competent.
Held, that the appeals were incompetent in view of the
decisions of this Court in Ol.'andi Prasad Ohokhani v. State <1f
Bihar and The Indian Aluminium Go., Ltd.
1961
July, 17.
1961
Sh. Kanhaiyalal
Lohia
v.
TM,
Commissioner
of Income-tax,
West Bengal.
M. H idriyatulkth
.T.
Slif'REl\IE f'OlTRT REPOltT8
[1962)
.
!hid. further, that an appeal agaimt an order of the
ll1gh Court deciding a question reli:rred nr ar,ainst ,1 refusal
to call for a statement can only be brought_ before the Supreme
Court under s. 66(A) of the Income-tax Act if the Hiah
Court decides the question referred, and uncle; Art. 136 °0 f
the Constitution if the High Court refuses to call for a statement. There can be no direct appea: to the S11p1eme Court
by passmg the decisions of the High Court.
Hehl. aho, that there was neither anv breach of the
principles ~f natural justice in th is case no; the existence o
circumstances as rxis.ted in Baldr1: Singh.' . ., case to ju~tify the
•ppeal.
Held, that where a witness hag been exarmned by the
Income-'"'' Ofhcer behmd the back of the assessee but a copy
of the statement of the witness is made available, lo the asscsseo
and an opportunity is given to him to cross·,xamine the
witne«, there is no breach of the principle of natural justice.
rJlwndi
Pmsad Chokltani v. State of Bihar. (1962)
~ S.C.R. 276 and Indian Aluminium Co., Ltd., v. Commis-
"ioner 1.f Income-tax.
(Ci1:il Appeal No. 171i of 19511, der.ided
""April 24, /91ilj followed.
Dhakeshwari Cotwn Milk Ltd. v. Commissioner of Incometax (1955) i S.C.R. 941 and Sardar Baldev Singh v. Commissumer of Income-tax, Delhi and Ajmer. (1961) 1 S.C.R. 482,
explained.
C1VIL APPELLATE .J t'IH8Dif"l'lO:N :
Civil Appeals
NoH. 347 to 350 of HJ(lO.
•
Appeals Ly 8\WOial leave· from the judgment
and order dated .January 18, 1953, of the fncometax Appellate Tribun~l:., ~lcutta Bench, in h1cm!ie-
'
tax Appeals NoH. 7062-1064 and C.P.T.A. No. '148
of 1951-52.
!'i. C. Chatterj6e, A. r. l"·ioimuatha Saotri and
/J . .V. iJ:lukherjee, for ihe appcllantH.
I{. N.
Rr~j1Jyop1tl
!·h~tri :iml I I. r htpl1', for
ITtipoudP rit ..
1961.
July 1 i. The Judgment of the Court
was delivered by
HIJJAYATULLAH, J.--These appeals with special
leave were filed by one Kanhaiyalal Lohia, who
died during the pendency of the appeals, and who
2 S.C.R.
SUl'HEME OOURT REPORTS
841
is now represented by the executors appointed
under his will.
By these
appeals,
whic11
al'!'
consolidated, the appellants q1kHtion au order
dated Jauuary 8, 1953, of the Ineome-tax Appellate
Tribuual (Calcutta Beneh) in appeals filed by the
Department. against the order of the Appellate
Assistant Commissioner.
The Tribunal reversed
the order of the Appellate Assistant Oornmissioner
and restored that of the Income-tax Officer.
Kanhaiyalal Lohia made Jlctitions under '· 66 (1)
to the TribuI?-al, setting out a numbc•r rif yl!estions
of which the following was referred h.1 th" High
Court :
"Whether in the cirumstances of this
case where the Income-tax Offi1·pr, Distrir-t
III (2), separately assessed the busiJ1ess run
in the name of Brijlal Nandkishore as belonging to a partnership firm consisting of Brijlal
and Nandkishore, the Income-tax Officer,
Non-Companies E. P. T., District can assess
the income from the Harne busiuess in the
hands of the assPssee ?"
This question was answered against him. Kanhaiyalal
Lohia also applied under s. 66 (2) to the High
Court of Calcutta for reference of the other questions, but failed. No appeal has been filed by him
against the order of the High Court refusing to
direct the Tribunal to state a case or against the
decision on the question referred, and the present
appeals have been filed against the decision
of
the Tribunal.
At the hearing of these appeals, we asked
counsel for the appellants how, in view of the
recent decisions of this Court in Okandi Prasad
Okokhani v. State of Bikar (1) and Indian Aluminium
Oo. Ltd. Y. Oommi88ioner of Income-tax (2), these
appeals were maintainable, if the two decisions of
the High Court
had become final.
Mr. A. V.
Viswanatha Sastri relied upon the decisions in
(I) ( 1962) 2 S.C.R. 27G.
(2) Civil Appeal No. I 76 nf I Y.i'l r!ecidrrl on April 24, 1961.
1961
Sh, Kanhaiyalal
Lohia
v.
l'he
Commissioner
of I ncome-kix:
!Vest Bengal.
Hidayatullah J
1961
Sh. Kanhaiyalal
Lohia
v.
The
Oommis.Wnner
of I ncome-taz,
West Benval.
Hidayatullah J.
842
SUPREME COURT REPORTS
[1962]
Dhakeswari Cotton Mills Ltd. v. Commissioner of Income-tax, West Ilengal (1) and Sardar Baldev Singh v.
Commissioner of Income-tax Delhi and Ajmer (2}, and
pointed out that in those cases, appeals wNe entertained from the Tribunal's order, though he conceded
with his usual frankness that spceial circumstances
must exist. He contended that this was a case
in which such circumstances existed. We shall deal
with the appeals from that point of view, because
unles special circumstances exist, the appeals must
be regarded as not competent, in view of our recent
rulings above mentioned.
Kanhaiyalal Lohia, who was a prosperous
dealer in jute, had his head office in Calcutta.
He
had no issue, and his family consisted of his wife,
his brother, Brijlal Lohia and Brijlal's son, Nandkishore Lohia. The properties of Kanhaiyalal Lohia
were self-acquired, and he was always assessed as
an individual. He maintained .accounts according
to the Ramnavami year. In his retu,rn for the
account year, April 14, 1943 to April 1, 1944
(corresponding to the asse•ment year, \944-45),
he indicated that he had closed down in the middle
of 1943 his purchasing centres in East Bengal,
which stood in the name of Nandkishore, and that,
he had gifted to his brother Rs. 5,11,101 on July
12, 1943, and to his nephew, Rs. 2,50,000 on September 30, 1943. He showed income of his East Bengal business only up to the closure of that business.
Brijlal and Nandkishore entered into partnership between themselves, and started a business
under the name and style of "Brijlal Nandkishore."
They took over the purchasing centres in East
Bengal.
They opened accounts in banks in the
name of "Brijlal Nandkishore", and became members of the Baled .Jute Association, and the Jute
Balers Association, and traded in their own names.
A deed of partnership between them was also
executed on August 5, 1953. The business of
.Kanhaiyalal Lohia and of "Brijlal Nandkishore"
(1) (1955) 1 S.C.R. 941.
(2) (1961) I S.C.R. 482.
2 S.C.R. SUPREME COURT REPORTS
843
was within the jurisdiction of the same Incometax Officer. In the assessment of the partnership firm, notices were issued to the partnership both under s. 22(2) and s. 34, and the partner
ship also applied for registration under s. 26A of the
Income-tax Act, which was granted. The partnership was also assessed for the years, 1945-46 and
1946-47.
The assessment of Kanhaiyalal Lohia
was completed by the Income-tax Officer, NonCompanies Income-Tax cnm Excess Profits Tax
District, and during the assessment for the year,
1945-46 a notice was issued under s. 22(4) of the
Income-Tax Act on August 24, 1949, calling for
accounts of the head office at Calcutta and also the
branches including the business being carried on as
"Brijlal Nandkishore", Kanhaiylal Lohia proved
the above facts, producing the books of account,
bank statements, registration certificate of "Brijlal
Nandkishore" and evidence showing the membership of "Brijlal Nandkishore" of the two Associations. He also produced letters from four persons
incl11ding one Sri A.L. Mazumdar who was questioned by the Income-tax Officer without notice to
Kanhaiyalal Lohia and whose statement was also
recorded. Kanhaiyalal Lohia objected to this procedure, but the Income-tax Officer, it is alleged,
paid no heed to his protests, and on March 31, 1950
the assessment was completed, and the income of
the branches under the direct control of "Brijlal
Nandkishore"
was pooled with the income of
Kanhaiyalal Lohia. The Income-tax Officer held
that the gifts were not bona fide, and were colourable transactions. He relied upon the statement of
Sri A. L. l\fazumdar, which was recorded when
Kanhaiyalal Lohia was not present.
Against the assessment, Kanhaiya.lal L0hia,
appealed to the Appellate Assistant Commissioner
before whom two more letters from leading businessmen were filed.
The Appellate Assistant Commissoner
accepted
the
letters
which were
filed, and held that the gifts were
proved
and were bona fide and directed the exclusion
1961
Sh. Kanlmi11alal
Lohia
v.
The
Oommm-ioner
of Incometao:
West Be.ngal
Hidayatullah J.
1961
Sh. Kanhaiyalal
Loki a
v.
The
Commissioner
of Income-tax
West Bengal
Hidayatu llak J.
844
SUPREME COURT REPORTS
[1962)
of the
income of "Brijlal Nand kishore" from
the assessment of Kanhaiyalal
Lohia.
The
order of the Appellate Assistant Commissioner was
pronounced on December 27, 1951.
The Dep<irtment appealed to the Appellate Income-tax Tri-
. bunal, Calcutta Bench. The Tribunal disagrlled
with the Appellate Assistant Commissioner, and
held on January 8, 1953, that the gifts were not
proved by the assessee by unimpeachable evidence,
and that the income of "Brijilal Nandkishore'' was
rightly included in the assessment. As stated already, applications under s. 66 (1) ands. 66 (2) were
made to the Tribunal and the High Court respectively. The Tribunal referred one question, but
declined to refer the other questions. The High
Court was then mov2d under s. 66 (2) but without
suecess.
The High Court agreed witli the Tribunal
and answered the question which was referred,
against Kanhaiyalal Lohia.
Before the High
Court, Kanhaiyalal's counsel, Dr. Pal, admitted
that he could not persuade t.he Court to answer the
referred question against the Department, and it
appears that it was conceded by the Department
before the High Court that the assessment of
"Brijlal Nandkishore" would be cancelled. Kanhaiyalal Lohia then filed the present appeals
against the order of the Tribunal dated January 8,
1953.
This Court has pointed out in Chandi Prasad
Cho1chan·i v. State of Bihar(1) and Indian Al,uminium
Co., Ltd. v. Commissioner of Income-tax(') that the
two casiS in which this Court int.erfered with appellate orders of a Tribunal and relied upon before us,
were of a special kind. In Dha1cheshwari Cotton 211 ills
case(') there was a breach of the princ~ple of natural
justice, and that was held ~ufficient to e1,1title an
aO'arieved party to come to this Court aga10st the
appellate order of the Tribunal under Art. 136. In
(1) (1962) 2 S.C.R. 276.
(2) Civil Appeal No. 176 of 1959 decided on April 24,
1961.
(3) (1-955) 1 s.c.R. 911.
l_~
2 S.C.R.
SUPREME COURT REPDR1'N
84-5
Baldev Singh 's case (') this Court. entertained an
appeal against the·appellate order of the Tribunal,
because limitation to take other remedies was
barred without any fault of the assessee eoncerned.
The ratio in each of these cases is that a circnm·
stance which cannot be corrected by t)w procedure
of a statecl queRtion of la.won a statement. of the·
case may afford a ground for invoking the jurisdiction of Court ·under Art: 136. That ratio does not
apply, where a question of law can bE;l" raised, and
is capable of being answered by the High Court or
on appeal, by this Cburt.
An appeal against an
order of the High Court deciding a question referred
or against a refusa-1 to call for a statonrent. can ho
brought before this Court under s. 66A, if the High
- Court decides t.he question referred and {mder
Art. 136, if the High Court refuses to call for a
statement.
In the present case, the order of the High
Court on tbe question referred' was not brought
before this Court by the ordinary mode indicl:lted
in tho Indian Income-tax Acf,--pre.surnably oecause
of the concession of counsel that hC\ could not elaim
that the question he answered· in favour of the
assessee and the attitude of the Departmen,t that
tho assessment of "Brijlal Nandkislrnre" would be
cancelled.
The order refusing to call for a statement on questions other than the one referred is
als9 not questioned before us.
The attempt is to
bring this case within the rati.o of Dliakesliuwi
Cotton 21Iills' oase(2),and in support, it has been point.
ed out mainly that the examination of Sri A. L.
Maz11mdar in the absence of Kanhaiyalal Lohia
was against the principles of natural iv.stice.
The
statement of Sri A. L. Mazumdar was taken on
March 28, 1950, and it,is recorded as follows:
'
"Mr. Mazumdar is questioned b.Y me as
to what be knows reg~rding the alleged gift as
recorded in the bopks of Kanhailyalal Lohia in
favour of Brijlal and Nand Kiahore. He says
(I) (1961) I s.c.R. 482.
(2) (1955) I s.c.R. 941.
1961
Sh. Kanhaiyalal
l'ohia
v.
1'h<-
Oom1n.i~si.one>·
of Inco~-:ta;·,
W-.1. Bcngn/
Hidayatullah J.
1961
811. Kanhaiyala
Lohia
v.
The
Oommi&ioner
of I noometax,
Wesl Bengal
H idayatullah J.
846
SUPREME COURT REPORTS
(1962]
that I don't remember things very distinctly
but I can say that the gifts to Brij Lal or
Nand Kishore were not made in my presence
as alleged. Mr. Kanhaiyalal Lohia used to tell
me that his brother and nephew are idling
away their time hence I shall give them a gift
and make them work by that money.
The patnership deed was most probably
drawn up by me. The gift was reported to
have been made to Brij Lal and NandKishore
before I should have taken up the drafting of
the deed. Kanhaiyalal told me several times
that he wanted to separate his brother and
nephew. When the firm was started then
Brijlal came to me and asked me if father
and son's partnership deed could be drawn
up.
I don't know anything else than this in
the matter."
The lie given by Sri Ma:i:umdar to the statement of Kanhaiyalal Lohia has affected his credibility. The ord(fr sheet shows that Mr. B. Sen
Gupta took a copy of Sri Mazumdar's statement
and expressed a desire to cross-examine him; but
when the opportunity was given, he failed to appear. It is impossible to think in these circumstances that there has been any breach of the principles of natural justice. The order sheets of March
29 and 30, 1950 clearly record the absence of
Mr. B. Sen Gupta .. In our opinion, there is no
breach of the principles of natural justice in this
case to entitle the appellants to invoke the ruling
in Dhakeshwari Cotwn Mills case('}.
It was contended before us that the finding of
the Tribunal was perverse, and that, on an examination of the total circumstances, it is quite clear
that the gifts were not only real, but were acted
upon. This was a matter within the jurisdiction of
(1) (1955) 1 S.C.R. 941.
2 S.C.R. SUPREME COURT REPORTS
847
the Appellate Tribunal as the final fact-finding
authority. The Tribunal acted within its powers
in refusing to accept the evidence tendernd, and looking at the circumstances of the case, we cannot
say that the finding has . been perversely reached.
For a number of years, the brother and the nephew
were supported by Kanhaiyalal Lohia, and it does
not appear that a gift of even a small sum was
made to them to put them on their legs. Suddenly in the year 1943, Kanhaiyalal Lohia made up
his mind to put them in business with a gift of the
order of Rs. 7,60,000 odd. For this purpose, he
had to overdraw his accounts with the Bank and
to pay interest to the Bank. It does not appear
why he felt that the establishment of his brother
and nephew in business should be made on such a
grand scale, which involved him in debt. This circumstance, taken with the fact that Mr. Mazumdar
stated that he had always complained that they
were good for nothing and were idlers, makes the
transactions suspicious. It was presumably done
with a view to reduce the assessable profits in the
hands of Kanhaiyalal Lohia, and on the evidence,
the Tribunal was entitled to hold, as it did, that
this was a sham transaction. In our opinion, no
special circumstances exist, on which the appellants
can claim to come to this Court against the decision of the Tribunal, by passing the decision of the
of High Court on the question referred and there fusal
the High Court to call for a statement of the case
from the Tribunal on questions which the Tribunal
refused to refer to the High Court. The appeals
are, therefore, within the rulings of this Court in
Chandi Prasad Chokhani v. State of Bihar (') and
Indian Aluminium Co., Ltd. v. Commissioner of
income-tax('), and must be regarded as incompetent.
The appeals are dismissed with costs, one set.
Appeal dismissed.
(I)
(1962) 2 S.C.R. 276.
(2) Civil Appeal No. 176 of 1959 decided on April 24, 1961
.1961
Sh. Kanhaiyalal
Lohia
v.
The
Oomrnissioner
of I ncorne-tax,
West Bengal
Hidayatutlah J.