Case Note & Summary
This was an appeal by the Commissioner of Income Tax, Bihar and Orissa, against a judgment of the Patna High Court which had answered a reference under Section 66(2) of the Income-tax Act, 1922 in favour of the assessee, S.P. Jain. The dispute concerned the inclusion of Rs.10,80,000 in the assessee's total income as income from undisclosed sources, representing investment in shares in the name of one Kalyan Shum Shere J.B. Rana. The assessee was an individual deriving income from salary, interest on securities, house property, and dividends. For the assessment year 1954-55 (previous year 1 November 1952 to 31 October 1953), the assessee filed a return on 28 February 1955 declaring total income of Rs.2,60,737, and a revised return on 24 February 1958 including property income of Rs.550. The Income Tax Officer completed the assessment on 30 September 1958 on a total income of Rs.21,15,845, which included the disputed Rs.10,80,000 treated as the assessee's income from undisclosed sources for investment in shares in the name of Rana. The facts showed that on 31 July 1952 the assessee sold shares of Rohtas Industries Ltd and S.K.G. Sugar Ltd to Dalmia Jain Collieries Ltd and Maheshpur Collieries. Later, in 1953, the two vendor companies allegedly sold these shares to Rana for a total of Rs.10,80,000. The shares were delivered to Rana by J.F. Wood, General Manager of Allahabad Bank, after collecting the sale price in cash, and the amount was allegedly given as a loan to one Durga Prasad against promissory notes. Although the purchase was said to have occurred in May and August 1953, the shares were transferred to Rana's name only in April 1955. The Income Tax Officer found several circumstances indicating that Rana was a benamidar: Rana could not be contacted at the given address; the flat had never been let out to him; he could never have been in a position to invest over Rs.10 lakhs; neither the vendor companies, Rana, nor Durga Prasad had accounts with Allahabad Bank; the letter confirming the transaction did not appear in the bank's issue register; Rana never attended shareholder meetings or collected dividends; and after opening a current account in April 1955, the bank account showed large deposits and withdrawals by bearer cheques endorsed in favour of Ananta Chandra Das, a representative of the assessee's accountant. The vendor companies and the companies whose shares were sold all belonged to the Sahu Jain Group under the complete control of the assessee. The Income Tax Officer informed the assessee on 28 February 1958 that Rana was believed to be his benamidar and called upon him to produce Rana and adduce evidence. The assessee denied the allegation but did not produce Rana, stating it would be useless. The Income Tax Officer treated the investment as the assessee's income from undisclosed sources. The Appellate Assistant Commissioner initially remanded the case for further inquiry, but after the Income Tax Officer submitted remand reports, confirmed the assessment. The Tribunal, in appeal, declined to consider certain documents and found that the purchase of shares was not a benami transaction and was legally valid. The Patna High Court confirmed this conclusion, answering the reference in favour of the assessee. The Revenue appealed to the Supreme Court, contending that the Tribunal based its conclusions on inadmissible evidence and wrong facts, gave no cogent reasons for rejecting the Income Tax Officer's findings, failed to consider relevant material, and relied on mere conjectures and surmises. The Supreme Court reiterated the established principles for interfering with Tribunal findings: such interference is justified if the Tribunal misunderstood statutory language, based its finding on no evidence, acted on partly relevant and partly irrelevant material, drew upon its own imagination, imported facts not on record, based conclusions on conjectures or surmises, or reached a conclusion no person judicially acting and properly instructed could have reached. The Court warned that tribunals should not become complacent because courts are generally reluctant to interfere; a tribunal cannot by its mere ipsi dixit declare findings to be of fact when they are not sustainable in law or on the materials. Applying these principles, the Court held that in the present case the Tribunal failed to take into account relevant material, acted on inadmissible evidence, based its conclusions on conjectures, surmises and wrong facts, and failed to consider the probabilities which the Income Tax Officer and Appellate Assistant Commissioner had emphasised. The Income Tax Officer and Appellate Assistant Commissioner were fully justified in drawing the inference that Rana was a name lender for the assessee. Neither the Tribunal nor the High Court gave good reasons for displacing those conclusions, and they had a duty to examine the reasons before rejecting them. The Supreme Court allowed the appeals, set aside the High Court and Tribunal decisions, and restored the inclusion of Rs.10,80,000 as income from undisclosed sources.
Headnote
A) Income Tax Law - Appellate Tribunal Findings - Interference by High Court and Supreme Court - Income-tax Act, 1922, Section 66(2) - The High Court and Supreme Court have jurisdiction to interfere with findings of fact by the Income-tax Appellate Tribunal if the Tribunal misunderstood statutory language, arrived at a finding based on no evidence, acted on partly relevant and partly irrelevant material, drew upon its own imagination, imported facts not on record, or based conclusions on conjectures or surmises, or where no person properly instructed could have reached such a determination. The Court cautioned that tribunals cannot smugly rely on courts' reluctance to interfere and cannot by their ipsi dixit convert unsustainable findings into findings of fact. Held that in such cases findings are vitiated and interference is warranted. (Paras Not mentioned) B) Income Tax Law - Benami Transaction - Assessment of Undisclosed Income - Income-tax Act, 1922 - The Income Tax Officer assessed Rs.10,80,000 as income from undisclosed sources invested in shares in the name of Rana, holding Rana to be a benamidar of the assessee. The Tribunal ignored relevant material and acted on inadmissible evidence, basing its conclusion that the purchase was not benami on conjectures, surmises, and wrong facts, and failed to consider the probabilities relied upon by the Income Tax Officer and Appellate Assistant Commissioner. Held that the Income Tax Officer and Appellate Assistant Commissioner were fully justified in drawing the inference that Rana was a name lender for the assessee, and the Tribunal's contrary finding was unsustainable. (Paras Not mentioned) C) Income Tax Law - Duty of Tribunal and High Court to Examine Reasons - Income-tax Act, 1922 - When overturning findings of the assessing authorities, the Tribunal and High Court have a duty to examine the reasons given by those authorities before rejecting them. In the present case, neither the Tribunal nor the High Court gave good reasons for displacing the conclusions reached by the Income Tax Officer or the Appellate Assistant Commissioner. Held that the failure to examine and properly weigh the reasons for the original assessment vitiated the decision in favor of the assessee. (Paras Not mentioned)
Issue of Consideration
Whether the High Court and Supreme Court could interfere with the Income-tax Appellate Tribunal's findings of fact in a reference under Section 66(2) of the Income-tax Act, 1922, and under what circumstances such interference is permissible; whether the Tribunal's finding that the purchase of shares was not a benami transaction was sustainable when it allegedly ignored relevant material, acted on inadmissible evidence, and relied on conjectures and surmises.
Final Decision
The Supreme Court allowed the appeals, set aside the judgment of the Patna High Court and the order of the Income-tax Appellate Tribunal, and restored the Income Tax Officer's inclusion of Rs. 10,80,000 as income from undisclosed sources of the assessee.
Law Points
- Courts have jurisdiction to interfere with Tribunal's findings of fact if the Tribunal misunderstood statutory language
- found facts based on no evidence
- acted on partly relevant and partly irrelevant material
- drew upon its own imagination
- imported facts not apparent from the record
- based conclusions on conjectures or surmises
- or reached a determination no properly instructed person could have reached
- such findings are vitiated
- tribunals cannot rely on courts' reluctance to interfere to act on mere ipsi dixit that findings are of fact when unsustainable
- in present case Tribunal failed to consider relevant material
- acted on inadmissible evidence
- and based conclusions on conjectures
- surmises and wrong facts
- Income Tax Officer and Appellate Assistant Commissioner were justified in inferring benami.
