Commissioner of Income Tax, Bihar and
Orissa, Patna Vs. S. P. Jain  INSC 231 (19 September 1972)
REDDY, P. JAGANMOHAN REDDY, P. JAGANMOHAN
KHANNA, HANS RAJ
CITATION: 1973 AIR 997 1973 SCR (2) 334 1973
SCC (3) 824
D 1985 SC1572 (4) RF 1986 SC1428 (18,19,31) R
1986 SC1483 (4)
Income tax-Tribunal-Findings of
fact-Circumstances justifying interference.
The Income Tax Officer included a sum of Rs.
10,80,000/found invested in shares in the name of R as the assesee's income
from undisclosed sources. The income tax officer had informed the assesee that
on the basis of information available with him he had reason to believe that R
was the assessee's benamidar. The assessee took no steps to produce R for
examination by the Income Tax Officer. The source not having explained the
income tax officer assessed the sum as the assess's Income from undisclosed
sources. The Appellate Assistant Commissioner confirmed this order. In the
appeal the Tribunal declined to consider certain documents on record. After
rejecting these documents, the Tribunal found 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 was 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 income 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 tribunal the Court must be satisfied that there are grounds 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 Tribunal has
misunderstood the statutory language or it has 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 acting and properly
instructed as to the relevant law could have come to the determination reached.
In all such cases the findings arrived at are vitiated. Unless the Tribunal has
been asked to refer a question impugning 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 the legality or otherwise of the assessment
would alone require to be considered by the High Court. 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 bed-rack 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
335 of whether they are sustainable in law or on the materials on record. in
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. [344G, 346D]
Karnani Properties 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.
Commissioner of Incometax, Bombay, 30 I.T.R. 181, Omar Salav Mohamad Sait v.Commissioner
_of Income-tax, Madras, 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 I.T.R. 28 at 50, referred to.
(Hi) Inthe present case the Tribunal failed
to take into account the relevant material on record in arriving at its
finding. Further it acted on inadmissible evidence, based its conclusions on
conjectures, surmises and wrong facts, and failed to consider the probabilities
of the case on which the Income-tax Officer and the Appellate Assistant Commissioner
placed a great deal of emphasis. On the basis of the material on record the
Income-tax Officer and the Appellate Assistant Commissioner 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 Incometax
Officer or the Appellate Assistant Commissioner. They had a duty to examine the
reasons given by those authorities before rejecting them. [359 B]
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-General of
India, S. K. Aiyar,R. N. Sachthey and S. P. Nayar, for the appellant.
V.S. Desai, M. Natesan, Neel Rattan Khaitan,
D. P. Mohanty and S.Gopalkrishnan, for the respondent.
The Judgment of the Court was delivered by
JAGANMOHAN REDDY, J. These appeals are by he COmmissioner of Income Tax, Bihar
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 questions referred to it in favour of the assessee and against the
We shall presently set out the questions
called for by the High Court, but before we do so, it is necessary to state the
facts on which those questions have to be determined.
The assessee is an individual having income
from salary, interest on securities, rents from house properties, dividends
etc. In the year 1954-55 for which. the previous year is 1st November 1952 to
31st October, 1953, the assessee filed a return on 28th February 1955 declaring
a total income of Rs. 2,60,737/-. On 336 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 September, 1958 on a total income
of Rs. 21,15,845/which included a. sum of Rs. 10,80,000/treated as the
assessee's income from undisclosed sources "for investment, in shares in
the name of Sri Kalyan Shum Shere J. B. Rana" (hereinafter referred to as
'the Rana'). The assessee disputed the inclusion of this amount of Rs.
10,80,000/-. The Income-tax Officer treated this amount as income from
undisclosed sources for the following 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. 1. Ltd.) to Dalmia Jain Collieries Ltd.
(D.J.C. Ltd.). Another 10,000 shares of R. 1. 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, viz., 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. 1. Ltd. for
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 respective dates against two promissory notes and
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 following conclusions :"(i) The Rana could not be
contacted at 22, Circus Avenue, Calcutta. The Inspector of the Department found
that the tenant 337 of the first floor of 22, Circus Avenue, Calcutta was someone
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 of 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.
(iv) 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. 1. Ltd. declared dividends on 2nd June
1954 and S. K. G. Ltd. on 23rd April 1954. The dividends in all amounted 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 cur-rent 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 lakhs. During April to December, 1955
deposits were over Rs. 22 lakhs 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/-. Ail 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 sold, namely, of R. 1. Ltd. and S. K. G. Ltd.
all belonged to Sahu Jain Group and under the
complete control of the assessee, who is the head of Sahu Jain Group.
Since it was not likely that 338 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 believethat 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 shares
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
Income-tax Officer treated the source of investment of Rs. 10,80,000/as
belonging to the assessee. The source not having been explained, the Incometax
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 Officer 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 :(1) 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 antecedents of the Rana were modest.
339 (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 thetwo companies
Shri H. D.Bisoni, did not know about the transactions in question.
(6) Sri Durga Prasad changed his earlier
statement and said that the loans received by him were from the two companies
(7) The sale to Rana was made at Patna below
the market rates.
(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 Onkamal
Dalmia, 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 was legally valid.
The conclusions of the Accountant Member
which win be referred to as that of the Tribunal so far as they are relevant
for 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, which the companies purchased were
340 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 established 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 in favour
of thetwo 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 advanced 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 fact had been confirmed in
a letter to the Income-tax Officer dated 27th July 1956 by General Baber
Shamshir J. B. Rana who stated that 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 at 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 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 "it 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 not take further action by
seeking any clarification from the Indian Ambassador. He held that there was no
material to hold that the Rana was not financially in a position to make the
investment in question of over Rs. 10 lakhs.
341 (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 possessedsufficient means whereas if he was weak
financially he would have tried to collect. the dividends immediately on
(6) Ananta 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 Ananta 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 con clusions arrived at by the Accountant Member however added "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 (1) 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 banded over the purchase price and the
share scrips respectively to the vendors and the purchaser 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 department 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 1953 by
the Rana, in my opinion, the assessee has successfully rebutted any positive
evidence produced by the department. I have a feeling that if the department
had acted in time, it could possibly have unearthed materials and evidence to
strengthen and support this case. In spite of the serious misgivings in my mind
I am constrained to hold that the department has 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. 1, therefore, concur with the order made by the Accountant Member."
On the Tribunal's findings, the following questions were referred to the High
Court (1) Whether on the facts and in the circumstances of the case, the
Tribunal was justified in law in declining to consider the documents which were
already on record and which the Department wanted to adduce as evidence ? (2)
Whether on the facts and in the circumstances of the case, the 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 conclusions.
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 the 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 343 was, and that Rana was merely 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 assesses. 30th
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 appeals 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 has 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 benamidar for
The findings reached by the Tribunal are
prima facie findings of fact. Before rejecting those findings, we must be
satisfied that here are grounds in this case recognised by law which empower is
to interfere with those findings.
If the Department succeeds a 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 benamidar of the assessee. The
question which naturally arises on the very threshold is, whether it is
permissible for this Court to go behind the findings of fact as found by the
Tribunal upon which it had come to the conclusion that the Rana was the deal
In Kernani Properties Ltd. v. C.I.T. West
Bengal(1) this Court (consisting of one of us (Hegde, J.) and Grover, J.
had indicated the limitations 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 flats and was providing. various
services and amenities. It claimed that its income should be assessed under the
head "business". The Income-tax 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.10. Neither the department nor the assessee contended that that Dart was
assessable under s. 9.
The High Court thought that some of the facts
found by the Tribunal were not correct and on a reappraisal 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 (1) 82 1. T. R. 547 at 554.
344 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 this Court pointed out. (see p.
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 stated in the
statement of the case unless the question whether the findings of the Tribunal
are vitiated for one or the other of the reasons recognised by law is before
it." In our view there can be no doubt that unless the Tribunal has been
asked to, refer a question impugning the validity of the findings sustainable
on any principle of law, the facts stated in the statement of the case would form
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 its
application under s.6 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. 1
0,80,000 paid for the purpose of the shares was not assessees own income was
preverse finding havingregard to the evidence on the record?" This
question was repeated in its application under s.66(2) but perhaps the High
Court thought that questions 2 and 3 or 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 which the reference has
been made impugn the findings and the validity of the Tribunal's conclusion
that Rs. 10,80,000 was not an income from undisclosed sources, but was the,
product of a genuine sale by the vendor companies. Though this question does
raise the validity of the finding given by 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 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 has misunderstood the statutory language, because the proper
construction of the statutory language is a matter of law, or it has 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 345
acting and properly instructed as to the relevant law could have come to the
determination reached. In all such cases the findings arrived at are vitiated.
The learned Additional Solicitor General
referred to certain observations of Lord Radcliffe in Edwards (Inspector of
Taxes) v. Bairstow(1) 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 of Warrington and Atkin L.JJ. in
Cooper v. stubbs (1925-2 K.B. 753).
If so, I would say, with very great respect,
that I think it 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 if they have been positively wrong in law. The court is not a second
opinion, where there is reasonable ground for the first. But there 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 universally 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 (1) 28 I.T.R. 579 at 594.
346 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 that 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 to 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 but 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 bed-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 aresustainable 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
Income-tax, Bombay(1) two Hon'ble Judges of this Court after referring to
Edwards case (supra) said that the Court would be entitled 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 was 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 (1) 30 I.T.R. 181.
(2) 37 I.T.R. 151 at 170.
347 own conclusions, of fact after due
consideration of the, evidence before it this court will not interfere. It is
necessary, however 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 would 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 explained by the assessee, the assessee
should be given; an opportunity of doing so. On: no account whatever should the
Tribunal base its findings on suspicions, conjectures or surmises nor should it
act on no evidence at all or on improper rejection 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 I this court." These
observations were again referred to and adopted. in Lalchand Bhagat Ambica Ram
v. Commissioner of Income-tax, Bihar and Orissa(1). See also Meenakshi Mills,
Commissioner of Income-tax(2) where
Venkatarama Ayyar, J.
summed, up the position emerging on the
several decisions referred to by him "It appears to us that apart from the
circumstances to which we have referred justifying an interference with, the
findings set out in the statement of the case,, what has to be considered in
all those cases is, whether on the materials on, record, the, true and the only
reasonable conclusion is the one which is contrary to that found by the
Tribunal'." The Tribunal 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 on conjectures, surmises
and wrong facts.
It ha(] further failed to consider the
probabilities of the case on which the Income-tax Officer and the Appellate
Assistant Commissioner placed a great deal of emphasis. It' seems to have been
influenced greatly (1) 37 I.T.R. 288 at 295. (2) 31 I.T.R. 28 at 50.
L498 SupCI/73 348 by the fact that the sale
of the shares by the vendor companies to Rana took place in the Allahabad Bank
in the, presence of Wood, the General Manager, without taking the probabilities
of the case into consideration in support of which four letters of Wood
produced by the assessee were relied upon. It may be noted that no material is
placed on the record to show as to how Wood came into the picture. At the time
the impugned transactions look place, neither the companies that sold the
shares nor the Rana were the customers of Allahabad Bank. The share scrips were
not in the possession of the Bank nor the, sale transactions were put through
the Bank. The name of Wood was either dragged to give it an air of credibility
to the transaction or Wood was a busy body who was willing to lend his name to
apparently 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 proof 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 unusual 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 kind
of correspondence before the Rana agreed 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 to 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, who else could the Income-tax Officer
examine? It was the duty of the assessee to produce correspondence if there was
any, but 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. Calcutta give no reference number nor are there any office copies of
those letters in the bank. In fact the case of the assessee is that the sales
on behalf of the vendor companies were effected in May and August 1953. In
respect of the transactions, on each of these occasions it is said that there
are two letters of Wood dated the 30th May, 1953 and 28th August, 1953. One
letter of 30th May, 1953 is addressed to M. C. Ltd., intimating 349 to them
that 35,000 ordinary shares in S. K. G. Sugar Co., Ltd. were duly delivered to
Rana against payment of Rs.2,80,000/which amount has been paid to Durga Prasad.
The other letter on the same day was addressed to D. J. C. Ltd.
in respect of which 40,000 ordinary shares in
S. K. G. Sugar Co. Ltd. were duly delivered to Rana against payment of Rs.
3,20,000/which amount was also said to have
been paid to Durga Prasad. It may be observed that these two letters are with
reference to the letters of the vendor companies of the day before i.e., the,
29th May, 1953 but the letters referred to have not been produced by the
assessee. If such letters were actually written to Wood by the vendor companies
on 29th May 1953 the assessee could have produced or got them to be produced in
the same way as he has produced the letters of Wood from the custody of the
respective vendor companies. It may also be noticed that in the two letters of
30th May, 1953 of Wood there is no mention of Durga Prasad having executed any
promissory notes and receipts in favour of the vendor companies in respect of
the money said to have been paid to him. In the two letters of the 28th August
1953 addressed to the vendor companies, there is no reference to any prior
correspondence with then, but there is a reference to the pronote and receipts
which are said to have been handed over by Durga Prasad to the respective
companies in respect of Rs. 80,000/received from the Rana against the delivery
of 10,000 ordinary shares of R. 1. Ltd. belonging to M. C. Ltd. and Rs.
4,00,000/in respect of 50,000 ordinary shares of the same company belonging to
D. J. C. Ltd. The promissory notes and receipts mentioned in these letters were
again not produced by the assessee nor did he cause them to be produced from
the vendor companies. In spite of these serious infirmities, the Tribunal has
strongly relied on these letters assuming wrongly that they were either
admitted or proved.
The letters of the General Manager Wood say
that the cash received from Rana on the two occasions on account of the vendor
companiees was paid to Durga Prasad at the bank counter by him. The Tribunal
states that the department has not questioned the fact that the share scrips
were handed over to Rana aGainst the receipt of cash or that when the cash was
received, it was advanced as loan to Durga Prasad.
In fact it asserts that "where the
factum of. sale of shares by the two companies has not been challenged the fact
that they took place in the presence of Mr. J. F. Wood cannot be questioned
irrespective of whether the Rana was acting on his own behalf or as name lender
of anybody else". It further states : "once the signature is genuine
and the letters are found to have been typed from the bank's typewriter we
cannot cast any doubt on the genuineness of the letters in the absence of
evidence to establish any fraud or forgery." There is absolutely no
evidence or suggestion to justify the statement that the four letters of Wood
350 were typed on the Bank's typewriter. An example of the manner in which the
Tribunal speculated is illustrated by the following "The two colliery
companies were also not called upon to explain how the transaction was actually
finalised. In these circumstances we can only speculate on how the Rana came to
make a definite offer, and actually purchased the' shares across the counter of
Allahabad Bank Ltd. We must assume that having promised to, arrange the loan of
Rs. 10,80,000/to Sri Durga Prasad, the assessee might have explored the means
of keeping up the promise.
Evidently he should have suggested to the two
colliery companies to dispose of their holdings to R. 1. Ltd. and S. K. G. Ltd
especially when the companies would be making a profit of nearly Rs. 3,00,000/by
the sale of the shares at the market price. It is, quite conceivable that if
the assessee had met the Rana before the Rana might have talked to the assessee
about his intention to make some investments to, the tune of Rs. 10 lakhs and
the Rana ultimatelyhave expressed his willingness to invest thepurchase of S.
K. G. Ltd., and R. I. Ltd. shares.Having regard to the purchase of the sale of
the shares, and the fact that one single individual was prepared to take over
the shares at the market price,, we are of opinion that no importance could be
attached to the absence of any broker for effecting the transaction." In
our view there is ample justification for the comment of the learned Additional
Solicitor General that the Tribunal was misreadingthe evidence and was
indulging in conjectures and surmises. The Income-tax Officer after referring
to the fact that neitherthe vendor companies nor the alleged vendee or Durga
Prasad of Tumsar had any account with the Allahabad Bank at that time, that the
shares were not in the custody of the bank, that neither the Bank nor Wood has
given any explanation as to how the General Manager of the Bank came into the
picture observed that obviously such a transaction, could not have taken place
through the Bank unless some person having sufficient influence on the Bank was
behind it. Shri Kalyan Shum Shera J. B. Rana had no relations with the Bank at
that time. It is thus clear that someone else was behind the transaction and
that the Rana was merely acting as a benamidar. Even after the remand report,
the' Income-tax Officer observed that the sale to the Rana was unreal'. The
Appellate Assistant Commissioner pointed out in his order that the Income-tax
Officer bad treated the letter of Wood as a questionable document.
These findings and observations amply
demonstrate the error the Tribunal had committed in thinking that the
department had not questioned either the letters of 351 Wood or the fact that
the share scrips were handed over to the Rana against the receipt of cash or that
when the cash was received, it was advanced as a loan to Durga Prasad. In fact,
it was stated that Durga Prasad had admitted to have received the money in the
Bank. This would imply that Durga Prasad received Rs. 10,80,000/on two
occasions once on the 30th May and the other on 28th August 1953 and both the
times at the Allahabad Bank. According to the first statement of Durga Prasad
dated 21st December 1956 which was produced before us it appears that before
going to Calcutta on some business he had already had a talk in Delhi with the
assessee about securing a loan to expand his business and the assessee assured
him that he would help him. When he went to Calcutta, he met the assessee there
and the assessee granted him the loan of Rs. 10,80,000/-. He says that the sum
was received by him in currency notes at the counter of Allahabad Bank Ltd.,
Calcutta and that he took the cash in person, travelled to Sumsar in the
Calcutta Mail and handed it over to, his munshi, Kasheorao who entered it in
the cash book. He admits that he did not deposit it in any bank.
Later, after the remand, he changed his
statement and said that the assessee never agreed to arrange for the loan and
it was not true that he promised to grant the loan to him personally and that
the loan was arranged from the D. J. C.
Ltd. and M. C. Ltd. from out of the, sale
proceeds of shares, that there were two loans in May and August 1953, that the
sums were disbursed by the General Manager of the Bank on behalf of the
companies and that the Nepali Rana was present in the General Manager's room.
Even so, the statement, that he received Rs. 10,80,000 at the counter of the
Allahabab Bank, that he got the whole amount in one day and took. it to Tumsar
would itself belie the transaction because it is difficult to explain away the
statement that he took the money personally to, Tumsar in the Calcutta Mail. If
he received the amount in two instalments, he does not say when again be came
to Calcutta and bow he took the second instalment. The positive statement on
the first occasion and the incongruities in the second should have been
sufficient for the Tribunal, if it had cared to consider the evidence in a
reasonable manner it would have came to a different and opposite conclusion.
The Tribunal further states that admittedly the vendor companies had no cash
and found the money only on the sale of the shares.
There is absolutely no evidence for this
finding. Again the Tribunal held that the Income-tax Officer did not give a
finding that the assessee bad advanced Rs. 10,80,000/as a loan from out of his
secreted moneys. This statement is incorrect. The Income-tax Officer in his
order of 30th August 1958 did say that that amount was advanced by the
assessee. The attempt of the assessee to give respectability to the
transactions by putting forward the General Manager of the Allahabad Bank as
the man through whom the transaction took 352 place cannot succeed as the
letters produced are inadmissible in evidence.
It is further contended that the sale of the
shares was entered in the books of the respective vendor companies on 30th May
and 28th August 1953. This by itself does not show that the entries were
contemporaneous and have not been entered subsequently. This doubt is further
strengthened by the admission of Onkar Mal Dalmia, Secretary-cum-Accountant of
M. C. Ltd. and D. J. C. Ltd. that he went to Calcutta in August or September
1953 and obtained the shares from Mr. B. D. Dujari, Accountant of Ashoka
Marketing Ltd. and took them for inspection to the auditors after which he
returned the shares to Mr. B. D. Dujari. The shares which were alleged to have
been sold to Rana and delivered to him in May and August 1953 were in fact
lying in Ashoka Marketing Ltd.
which is a concern of the assessee and his
family. This company is debited with not only the personal expenses and the
salaries of domestic servants etc. but also with the assessee's salary of Rs.
8,000 a month.
The statement of Onkar Mal Dalmia was
recorded on 9th December 1958 and 50 days thereafter even though he admitted
that he received copies of his statement tried as an afterthought to explain
away his previous statement saying that the shares of R. 1. Ltd. and S. K. G.
were not shown to the auditors at that time
and that evidently what he stated was a mistake as by August or September the
respective companies had already sold away those shares. The, Income-tax
Officer had rejected this latter statement of Dalmia and the Tribunal has not
taken this fact into consideration. It cannot be said that the Income-tax
Officer or the Appellate Assistant Commissioner were not justified in rejecting
the explanation and acting on his first statement. According to the Accountant
Member the statement of Dalmia of his having seen the share scrips in the
Ashoka Marketing Co., was one among those he considered irrelevant. But such a
conclusion appears to us to be incomprehensible and totally unwarranted. It is
an important circumstance if established and in our view it had been so held to
have been established. The further observations that Dalmia's statement was due
to some confusion is merely to have recourse to special pleadings for
neutralising a vital circumstance.
The Tribunal has also not taken into
consideration another circumstance adverted to by the Income-tax Officer which
is that according to Bishnoi, the Director and Principal Officer of D.J.C. Ltd.
and M, C. Ltd. he had no knowledge of the transactions till they were confirmed
in the meeting of the Board of Directors. It 'has 'however been urged that Bishnoi
could not have any knowledge of the transaction earlier until the share
transfer matters 353 came up for confirmation in the meeting of the Board of
Directors. This is a rather surprising contention because if the assessee, as
the Tribunal stated, had no controlling interest in the vendor companies and
had in fact sold these shares to Rana, the Director and Principal Officer of
the Company would certainly be, expected to have knowledge of the transactions.
The fact is that though Rana is said to, have purchased the shares in May and
August 1953 these shares were in the custody of the Ashoka Marketing Ltd. from
September 1953 to April 1955 when they were transferred in the name of Rana.
The Income-tax Officer had also pointed out that dividends were declared in
April and June 1954 aggregating to Rs. 2,00,000/but no attempt was made by Rana
till April 1955 to claim these dividends. We cannot accept the Tribunal's
explanation as reasonable when it says : "If Rana was not of sufficient
means it could be said that he would be in haste to collect the dividends
amounting to about Rs. 2 lakhs". The Tribunal further states that Rana
could not collect the dividends till he got himself registered as a shareholder
"which he did in April 1955".
The question, however, is, why did not Rana
get the shares transferred in his name and why were they allowed to remain in
the possession of Ashoka Marketing Company when such a large sum of Rs.
2,00,000/which even a rich man, assuming that Rana was a substantial person would
not take steps to receive immediately and would forego a substantial income
from interest thereon for a whole year.
Dealing with the earlier statement of Onkar
Mal Dalmia, the Tribunal states that if the Income-tax Officer wished to adhere
to that statement, which would imply that D. J. C. Ltd. and M. C. Ltd. advanced
Rs. 10,80,000/to Durga Prasad from out of their own secreted profits on the
footing that there was no sale of shares to R. T. Ltd. and S. K. G. Ltd.
held by them, no question would arise of
treating the Rana as the benamidar of the assessees. Besides. according to, it,
that statement would be irrelevant once it is admitted that there has been a
real sale by the two companies in May and August 1 953. In this connection it
further observed that the factum of sale of the, shares by the two companies
has not been challenged nor the fact that the sale took place in the presence
of Wood been questioned, irrespective of whether the Rana was acting on his own
account or as name lender of anybody else. This entire conclusion is based on
an unwarranted assumption and a wrong reading of the Income-tax Officer's
finding . The case of the department throughout has been that there was no sale
of shares at all to Rana and that the real purchaser is the assessee.
The non-,examination of Rana is also a
significant fact and a great many excuses have been (riven for the emission to
examine him. Whether Rana was a Person who had substantial means or not need
not be considered but his evidence was essential for the 354 assessees case.
The Department gave every opportunity to the assessee to examine him. The
assessee as well as Podar with whom the as was concerned,. gave at least two
different addresses at which not only. was Rana not found but the, evidence was
that he never. stayed at pay of. those places.
The statement that the assessee could not be
expected to produce Rana and that the income-tax, Officer had even gone.
to Nepal to ascertain, his whereabouts and
having, traced him and met him, it should be, inferred that he must have
informed the Income-tax Officer that he had purchased the shares, is also
without substance. If the assessee could not produce him, he was at any rate
able to get a letter dated 26th 'August, 1956 from him which was wrongly described
as an affidavit. It was. on a plain paper 'and neither attested by anyone
authorised to attest affidavits nor marked or stamped by any judicial
authority. When the Rana was willing to oblige the assessee, he could have
easily expressed his willingness either to give evidence before the Income-tax
Officer or made his statement on affidavit. Neither of which was done.
Another important factor to be considered is
that after the shares were transferred in the name of Rana in 1955, Rana is
said to have opened, an account in his name in the Allahabad Bank and was said
to be selling them in themarket in lots and whenever theirsale proceeds
accumulated he would withdraw it by cheques. Nandan Lal Podar said he,
introduced Rana to the Bank. It also appears that Podar was a Director and a
close associate of the assessee. There is no discussion of this person's
evidence by the Accountant Member though Judicial Member thought that it was
unsatisfactory. In the course of one year i.e., from, April 1955 to 1956 Rana is
alleged to have withdrawn large amounts by nine cheques aggregating to Rs. 38
lakhs. These cheques were said to have been sent for by Rana sitting at 11
Clive Row, Calcutta, which is the address of the assessee and also of the Sahu
Jain concerns. These cheques were bearer cheques for lakhs of rupees and
encashed through one A. C. Das, peon of Ashoka Marketing Ltd. The letters of
authorisation given to Das were typed in identical form bearing only the
signature of Rana, the other entries having been filled up by someone else.
These large amounts brought by A. C. Das in, cash were handed over in the
office of Sahu Jain concerns. A. C. Das states that he was directed to render
this service for the Rana by T. D. Dujari. Dujari said that when he had gone to
Jain (assessee) for office work, the latter introduced him to Rana and asked
Dujari to assist Rana if the latter so desired and that some days later Rana
came to him with a request for a bearer to fetch money from the bank and that
Rana himself handed the cheques to A. C. Das. The Judicial Member thought that
this raises some doubt on the genuineness of Rana's transactions. The
AccountantMember thought that the statement 355 of A. C. Das was positive
evidence and the Department had not produced any material to show that the
moneys were actually withdrawn from the Bank and collected on behalf of the
assessed. This again was an unreasonable, assumption for the only way that fact
could have been proved is to establish primary facts. from which an inference
that it was the assessee to whom the amount was paid. It cannot be expected of
A. C., ])as, an employee of assessee's concern and who was reluctant to appear
before, the Incometax Officer to state that he in fact gave,, the money to the
assessee. The Accountant Member however would have relied on that evidence for
he says "if it had been established that A. C. Das was in the employ, of
Ashoka Marketing Ltd.
in 1955-56, it would have cast a serious
doubt about the acceptability of the evidence of A. C. Das." This
observation overlooks the fact that A. C. Das in his deposition made on 18th
December 1962 stated that he used to receive pay from M/s. Ashoka Marketing
Ltd. and in the Remand Report of I.T.O. dated 12th April 1963 it was observed
that there was documentary proof that A. C. Das was an employee of the Ashoka
Marketing Ltd. None of the contradictions in A. C. Das's evidence mentioned in
the remand report dated 12th April 1963 were adverted to or discussed by the
Tribunal. It also did not notice that A.
C. Das was really the assessee's witness
which is borne out by what was stated in that remand report that A. C. Das
continued to be an employee of Sahu Jain Group of Companies, that he was
ultimately found in the house of Sahu Jain at 1 1 Clive Row, Calcutta when a
notice under s. 37 was served on him on 9th November 1962 asking him' to,
appear on 12th November, 1962 and that he actually turned up on 17th November,
1962. Dealing with this aspect, the Income-tax Officer observed "this
period of absence was rather 'meaningful'." This has not been discussed or
commented upon by the Tribunal nor, has it considered any of the adverse
circumstances referred to by the Income-tax Officer in his remand report in
which he discussed the improbability of the story of the withdrawal of the
moneys by A. C. Das as an agent of Rana.
We have already pointed out the improbability
of the story of Durga Prasad that he received Rs. 10,80,000/at the counter of
the Allahabad Bank. The positive statement that the loan was given to him by
the assessee and that he took this amount personally to Tumsar travelling in
the Calcutta Mail, though retracted, was relied upon by the Income-tax Officer
for the conclusion that this amount was lent by the assessee and it was income
from undisclosed sources.
From the above discussion it is clear that
the findings reached by the Tribunal are wholly vitiated. No judicial tribunal
properly instructed could have arrived at those findings. We are therefore 356
constrained to ignore those findings and reexamine the issue arising for
decision on the basis of the material on record.
The question then is, whether the department
has satisfactorily established that Rana was not the real purchaser of the
shares and that he was a mere name lender.
We have broadly stated the relevant facts
earlier. We will now summarise the facts and circumstances-even at the risk of
some repetition-which go to establish that the Rana was a mere name-lender.
They are :1.There is not evidence to show that the Rana's financial position
was such that he was in a position to purchase the shares in question. It is
not shown that he had any bank balance either in this country or in any other
2.The Rana has not cared to appear before the
authorities under the Act though several opportunities were afforded to him to
do so for explaining the circumstances under which he purchased those shares.
3.The purchase price of the shares amounting
to several lakhs of rupees was not paid by cheque or cheques. The same is said
to have been paid in cash. This is a wholly improbable circumstance.
4.The Rana had not entered into any
correspondence with the companies concerned for the purchase of the shares. He
had not engaged the services of any brokers for making purchases. It is not
shown how the Rana came to know that the companies in question were wanting to
sell the shares.
5.It is not shown why the transactions in the
said shares should have taken place in the presence of Wood. Wood had nothing
to do with the transactions. Neither the Rana nor the companies which sold the
shares had any dealings with the Allahabad Bank at the relevant time. The share
scrips were not in the possession of the Allahabad Bank. The money was not paid
through the Allahabad Bank. The letters of Wood on which considerable reliance
was. placed did not bear any office serial number. No copies of those letters
were available in the Allahabad Bank. It is not explained how Wood came into
6.If Rana was the purchaser of the shares, he
should have been in possession of the share scrips. They were his documents of
title. We have earlier pointed out that the share scrips were in the possession
of Ashok Marketing Co. It is not explained how those scrips happened to be in
the possession of the Ashoka Marketing Co.
7.Even after the alleged sale of the shares
in favour of the Rana, Rana did not take any steps to have the sharer,
registered 357 in his name for nearly If years. This circumstance again is not
8.The Rana did not care to collect the huge
dividends that were declared in respect of those shares totalling about Rs. 2
lakhs for a year and half.
9.The Rana never cared to attend any general
meeting of the company nor did be appoint any proxy on his behalf.
10.It was only when the price of those shares
went up in the market and that when they had to be sold the Rana is said to
have opened an account in the Allahabad Bank in which were credited sums of
about Rs. 38 lakhs; got by the sale of those shares. Practically all these
amounts were said to, have been realised by the Rana by issuing bearer cheques
in favour of a peon of Ashok Marketing Co. who had been casually introduced to
him. The Rana could not have been too big to go to the bank to collect these
huge amounts, if he was the real owner of the, money.
He is said to have waited in the premises
belonging to Sahu Jain Co. and sent these bearer cheques through the' said
peon. It is further said that with a view to see that the peon did not
misappropriate the money, Rana used to send his own driver with him. If that
was so, it is not explained why Rana did not give the bearer cheques to his
driver himself if the driver was so trustworthy And it is not explained what
the Rana did with the money so collected.
The above enumerated circumstances are
tell-tale. The only reasonable inference that can be drawn from those
circumstances is that the Rana was a mere name lender. The conclusion reached
by the Income-tax Officer and the Appellate Assistant Commissioner that the
Rana was a mere name-lender is a reasonable conclusion. Neither the Tribunal
nor the High Court has given any good reasons for rejecting those conclusions.
The next question is, whether the department
has established that the Rana was a benamidar for the assessee. As mentioned
earlier, it is not sufficient if the department establishes that the Rana was
the benamidar for somebody.
It must go further and establish that the
Rana was the benamidar of the assessee. There are good reasons to come to a
conclusion that the Rana was the benamidar of the assessee. These are, as have
been noted already 1.The close association of the assessee with the Rana, which
is evident from the record. It was the assesee who introduced the Rana to
Nandlal who was a close associate of the assessee and it was Nandlal who introduced
the Rana to the Allahabad Bank.
358 Rana did, not go to collect the money
from the Allahabad Bank but is said to have stayed in the premises of Sahu Jain
Co., a company with which the assessee was closely associated and further a
peon who gets the money from the bank was residing in the house of Sahu Jain,
11 Clive Row when the notice under s. 137 of the Act was served on him.
According to this peon, A. C. Das it was
Dujaria who asked him to render that service to Rana. According to Dujaria it
was the. assessee Jain who introduced him to Rana and asked him to assist the
Rana. It also appears from the evidence adduced on behalf of the assessee that
the huge amount of about Rs. 38 lakhs collected by the Allahabad Bank was realised
by the Rana by issuing bearer cheques to the above mentioned peon of Ashoka
Marketing Co., an assessee's concern. Further, it was the assessee who produced
the socalled affidavit of the Rana but at the same time would not produce the
Rana for examination for obvious reasons.
2.The D. J. C. Ltd. and M. C. Ltd., would not
have sold suddenly the shares without any previous correspondence or with-,out
even informing. the company's secretary or Director, unless of course, there
was intercession by someone who had influence ,.over those companies.
3.There is no admissible, evidence to
establish that Rana brought a bagful of currency notes and gave it to the
companies. Even if the Rana had paid, the price, in. cash to, the companies,
the companies would have deposited those amounts in some bank. 'On the other
hand, those companies are said to have given the, entire price realised by the
safe of the shares immediately as a loan to one, Durga Prasad on the basis of
the two promissory notes. In discussing this aspect.we had: pointed out the
incongruity in the first and the second statement of Durga Prasad to show that
the loan, of Rs. 10,80,000/was said to have been given to him by the vendor,
companies inone lumpsum, that he carried this huge amount from Calcutta to
Nagpur and gave it to his Munim and that he never deposited that amount in any
bank. There is also a total absence of any material to show how Durga Prasad
had spent these amounts. AR these circumstances would clearly indicate that the
story is a fictitious one and that the alleged loan to Durga Prasad is a pure
fabrication. It is therefore clear that Durga Prasad is no other than a mere
puppet of the assessee.
4. The shares alleged to have been purchased
by the Rana were found to be in possession of Ashoka Marketing Co., a concern
practically owned by the assessee. Unless the assessee was the purchaser of
those shares, the shares could not have been in the possession of the Ashoka
It is reasonable to assume that after the
alleged sale, the assessee was in possession of the shares through Ashoka
5.After the, shares were sold the money was
collected and. brought from the bank as pointed out above by the peon A. C.Das
of the Ashoka Marketing, Co. on nine bearer.
cheques and according to A. C. Das he paid
those amounts to the Rana in the premises of the assessee Sahu Jain at, 1 1'
From the circumstances above enumerated, the
Officer and the Appellate Assistant
Commissioner were fully justified in drawing an inference that the Rana 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 and the Appellate Assistant Commissioner They had a duty to examine the
reasons, given by those authorities before rejecting them'.