Sir
Shadi Lal Sugar and General Millsltd. & ANR Vs. Commissioner of Income Tax,
Delhi [1987] INSC 193 (31 July 1987)
MUKHARJI,
SABYASACHI (J) MUKHARJI, SABYASACHI (J) OZA, G.L. (J)
CITATION:
1987 AIR 2008 1987 SCR (3) 692 1987 SCC (4) 722 JT 1987 (3) 189 1987 SCALE
(2)153
ACT:
Income
Tax Act, 1961: ss. 256, 271 & 274/Income Tax Act, 1922: s. 66--Income-tax
Reference--Finding of fact by Tribunal--When could be transformed into question
of law and interfered with.
HEADNOTE:
The
assessee company, which derived its income from the manufacture and sale of
sugar and confectionery, was assessed for the years 1958-59 by the Income Tax
Officer under the Income Tax Act, 1922 by making additions of Rs.48,500 for
cane cost, Rs.67,500 for shortage in cane, and Rs.21,700 for salary of
outstation staff. The assessee did not challenge the said assessment order.
Later in the year 1963 the Income Tax Officer issued notice under s. 274 read
with s.
271
of the Income Tax Act, 1961 in respect of the assessment year 1958-59 for
imposing penalty. Before the Inspecting Assistant Commissioner the assessee
admitted that these amounts, which were not included in the return by the company,
represented income. On finding that there was deliberate understatement of
income he imposed a penalty of Rs.70,000.
On
appeal the Tribunal held that the mere fact that the amounts were agreed to be
taken into account by the assessee did not ipsofacto indicate any criminality
in its action to conceal any portion of the income, and that the assessee could
very well have argued against the additions of the two sums, namely, Rs.67,500
and Rs.21,700. As regards the sum of Rs.48,500 it found that the assessee had
agreed to similar addition in the earlier years and so the penalty was war-
ranted in similar amount for this year and taking into consideration that the
sum involved was Rs.48,500, it considered that a smaller penalty of Rs.5,000
was imposable.
The
High Court took the view that the onus of proving concealment was on the
Revenue because proceedings for penalty were penal in character, and held that
so far as the sum of Rs.48,500 was concerned it was not proved that there was
any deliberate concealment, that the Tribunal had not set aside the finding of
the Assistant Inspecting Com- 693 missioner that the assessee surrendered the
amount of Rs.67,500 when it was faced with facts which clearly established
concealment, that the assessee in fact had surrendered the amount only after
the Income Tax Officer had conclusive evidence in his possession that the
amount represented its income, that acceptance by the assessee was material to
give proper weight to judge the criminality of the action which in its opinion
was not given, and that the Tribunal omitted to take into account the fact that
the assessee had admitted that the amount of Rs.21,700 represented its income.
In
the appeal by special leave on the question as to how far the High Court in a
reference could interfere with a finding of fact and transform the same into a
question of law on the ground that there has been non-consideration of all
relevant facts.
Allowing
the appeal,
HELD:
1.1 In an income tax reference a finding on a question of pure fact could be
reviewed by the High Court only on the ground that there was no evidence to
support it or that it was perverse. If the High Court found that there was no
such evidence, those circumstances would give rise to question of law and could
be agitated in a reference. [700G-701A, 702H-703A]
1.2
When a conclusion has been reached on an appreciation of a number of facts
established by the evidence, whether that is sound or not must be determined
not by considering the weight to be attached to each single fact in isolation,
but by assessing the cumulative effect of all the facts in their setting as a
whole. Where an ultimate finding on an issue is an inference to be drawn from
the facts found, on the application of any principles of law, there would be a
mixed question of law and fact, and the inference from the facts found in such
a case would be a question of law. But where the final determination of the
issue equally with the finding or ascertainment of the basic facts did not
involve the application of any principle of law, an inference from the facts
could not be regarded as one of law. The proposition that an inference from.
facts is one of law is, therefore, correct in its application to mixed
questions of law and fact, but not to pure questions of fact. In the case of
pure questions of fact an inference from the facts is as much a question of
fact as the evidence of the facts.
[701A-D]
In the instant case, it is not said that the Tribunal had acted on material
which was irrelevant to the enquiry or considered material 694 which was partly
relevant and partly irrelevant or based its decision partly on conjectures,
surmises and suspicions. It took into account all the relevant facts in a
proper light in rendering a finding of fact. Therefore, no question of law
arises. [703BC, 701DE] Sree Meenakshi Mills Limited v. Commissioner of Income-
tax, Madras, 31 I.T.R. 28; Omar Salay Mohamed Sait v. Com- missioner of
Income-tax, Madras, 37 I.T.R. 151; Udhavdas Kewalram v. Commissioner of
Income-tax Bombay City 1, 66 I.T.R. 462 and Remeshwar Prasad Bagla v.
Commissioner of Income-tax, U.P., 87 I.T.R. 421, referred to.
2.1
The High Court was wrong in saying that proper weight had not been given to all
the evidence and admissions made by the assessee. The Tribunal had taken into
consideration the fact that the assessee had admitted the additions as its
income when faced with non-disclosure in assessment proceedings. The time when
the assessee admitted the additions was also considered. But to admit that
there has been excess claim or disallowance is not the same thing as deliberate
concealment or furnishing inaccurate particulars.
There
may he hundred and one reasons for such admissions, i.e., when the assessee
realises the true position it does not dispute certain disallowances but that does
not absolve the Revenue to prove the means are of quasi criminal offence.
[703BC, 702AB, 701A, 702BC]
2.2
It is for the Income-tax authority to prove that a particular receipt is
taxable. If however, the receipt is accepted and certain amount is accepted as
taxable, it could be added. But in the instant case, it was not accepted by the
assessee that it had deliberately furnished inaccurate particulars or concealed
any income. [702EF]
3.
The High Court observed that the time of admission was not noted by the
Tribunal and this fact had not been properly appreciated by the Tribunal. That
is not correct.
The
Tribunal had made additions during the assessment proceedings. In any event that
would be appreciation of evidence in a certain way, unless in such mis-appreciation
which amounted to non-appreciation no question of law would arise.
Non-appreciation
may give rise to the question of law but not mere mis-appreciation even if
there he any from certain angle. Change of perspective in viewing a thing does
not transform a question of fact into a question of law. [703CD] The High Court
in preferring one view to another view of factual 695 appreciation in the instant
case, has therefore, transgressed the limits of its. jurisdiction under the
Income-Tax Reference in answering the question of law. [703F]
CIVIL
APPELLATE JURISDICTION: Civil Appeal No. 1660 (NT) of 1974.
From
the Judgment and Order dated 23.12.1971 of the Allahabad High Court in
Income-tax Reference No. 53 of 1968.
H.K.
Puri for the Appellants.
Miss
A. Subhashini and H.B. Rao for the Respondent.
The
Judgment of the Court was delivered by SABYASACHI MUKHARJI, J. This appeal by
special leave is from the judgment and order of the Allahabad High Court dated
23rd December, 1971 in the Income Tax Reference. The assessee is a limited
company under the Indian Companies Act and derived its income from the
manufacture and sale of sugar and confectionery. The assessment for the
assessment year 1958-59 was completed under the Indian Income Tax Act, 1922. The
Income Tax Officer in the said assessment, inter alia made the following
additions besides others in respect of the following items:
(i)
For cane cost Rs.48,500/- (ii) For shortage in cane Rs.67,500/- (iii) For
salary of outstation staff Rs.21,700/- The assessee did not challenge the said
assessment order passed by the Income Tax Officer in so far as the additions of
the above amounts in appeal or otherwise. It was the case of the assessee that
it did not appeal because it wanted to keep good relations with the revenue
although, according to the assessee, the above additions made by the Income Tax
Officer were totally unjustified and illegal.
On
14th March, 1963 the Income Tax Officer issued notice under section 274 read
with section 271 of the Income Tax Act, 1961 (hereinafter called 'the Act') in
respect of the assessment year 1958-59 for imposing penalty.
The
assessee company demurred. After considering the reply the 696 Inspecting
Assistant Commissioner on 1st October, 1964 imposed a penalty of Rs.70,000
under section 274 read with section 271 of the Act holding inter alia that
there was concealment of income to the tune of Rs.1,37,700 and the maximum
penalty of Rs.1,06,317 was imposable in law but a sum of Rs.70,000 was imposed
as penalty considering the facts and circumstances of the case.
The
assessee preferred an appeal against the said order.
The
Tribunal after considering the entire matter, reduced the penalty to Rs.5,000.
The Tribunal referred the three following questions, two at the instance of the
assessee and one at the instance of the revenue, to the High Court for
determination:
"1.
Whether, on the-facts and in the circum- stances of the case, the Tribunal was
correct in holding that the provisions of section 271 of the Income Tax Act, 1961
are applicable to the present case;
2.'Whether,
there is any material to warrant the finding that the assessee company had
concealed the particulars of its income or deliberately furnished inaccurate
particulars thereof within the meaning of section 271(2) of the Income Tax Act,
1961; and
3.
Whether, on the facts and in the circum- stances of the case, the Tribunal is
correct in reducing the penalty under section 271(1)(c) from Rs.70,000 to
Rs.5,000?" The High Court was of the opinion that the third question did
not clearly bring out the matter in dispute between the parties and as such it
was reframed as follows:
"Whether,
on the facts and in the circum- stances, the finding of the Tribunal that the
assessee had not concealed income to the extent of Rs.67,500 and Rs.21,700
within the meaning of section 271(1)(c) of the Indian Income Tax Act, 1961, is
correct in law?" The High Court noted that the Income Tax Officer had made
certain additions and disallowed certain expenses and of the various amounts disallowed
only three amounts were required to be considered by the High Court namely; (i)
inflation in price of sugar-cane of an amount of Rs.48,500, (ii) excess
shortage claimed for cane 697 Rs.67,500 and (iii) salary of out-station staff
of loading contractors of Rs.21,700. So far as the first question is concerned
the High Court held in favour of revenue and answered the question in the
negative. The answer to this question is no longer in dispute here. So far as
the second question is concerned the High Court answered the question in the negative
and in favour of the assessee. There is no dispute about that question too, in
so far as there is no appeal by the revenue. As regards the third question re-
framed as mentioned hereinbefore, it was answered by the High Court in the
affirmative and in favour of the revenue.
The
assessee has come up in appeal to this Court challenging the correctness of
that answer. In this appeal we are concerned with the correctness or otherwise
of the answer given to this question and the appeal must be confined to the
correctness of the answer given to the third question as reframed.
The
Income Tax Officer in his assessment order out of which this penalty
proceedings arose noted that there were several disallowances in various
accounts and he mentioned altogether 19 items totaling Rs.3,01,787. All these
were on account of disallowances. Main item was shortage in cane and the amount
was Rs.67,500. Another items was salary of out- station staff and the amount
was Rs.21,700. There was also addition of Rs.48,500 on account of inflation in
the price of sugar cane. The Inspecting Assistant Commissioner in his order
noted, inter alia three items, namely, (i) inflation in price of sugar cane
Rs.48.500 (ii) excess shortage claimed for cane Rs.67,500 and (iii) salary of
outstation staff of loading contractors Rs.21,700. It was found so far as the
last item was concerned that the amount was disallowed being a false debit. It
was found that the assessee attempted to understate the income by debiting a
false expenditure of Rs.48,500. The Inspecting Assistant Commissioner noted
that actual shortage was 21,143 Mds. valuing Rs.26,429 while the assessee had
claimed Rs.1,34,661 for shortage at 2%. The excess claim was also indicative of
the real position that the shortage was fictitiously claimed at a high figure.
Faced with these facts the assessee eventually surrendered Rs.67,500.
Therefore, the Inspecting Assist- ant Commisioner held that the assessee was
certainly reducing the income by debiting false claims for excess shortage and
the action amounted to intentional concealment. Salary amounting to Rs.21,700
paid by the contractors to their staff working at out-centers was debited in
the books and while it was claimed that the staff working at these centers were
actually employed by the company, on investigation the claim was found to be
false. In this connection a reference was made to the statement of one Shri
Kedar Nath Kanodia. He had stated that he had employed five per- sons at the
out-centers and there was no employee of the mill working at the centers. The
mill had kept there neither any clerk not any chowkidar. He confirmed that he
had paid the employees out of his own funds and had categorically denied that
they were the employees of the mill or that they were paid by it. In his
statement he further stated that although the staff was actually paid by him
yet the company's accountant had obtained their signatures on salary sheets and
thus inflated the expenses by raising false debit in the salary account. This
procedure was followed in respect of other contractors also. The salary bill
was thereby inflated by Rs.21,700. The Inspecting Assistant Commissioner
therefore, held that the assessee had concealed income to the extent of
Rs.21,700. He had also come to the conclusion that the cane purchases noted
against these last entries were false and fictitious and the quantity covered
by these entries was 31, 561 Mds. valuing at Rs.48,500. This was a false debit.
The assessee debited the three items of Rs.48,500, Rs.67,500 and Rs.21.700. The
assessee admitted that these items represented income. It was also borne out by
records that the amounts were not included in the return by the company. The
offence of deliberate under-statement of income was, thus clearly established
according to the Inspecting Assistant Commissioner. He, therefore, found that
the tax sought to be evaded came to Rs.70,914 and the maxi- mum penalty worked
out to Rs. 1,06,37 1. Having regard to the facts and circumstances of the case,
he imposed a penalty of Rs.70,000.
In
appeal the Income Tax Tribunal was of the view that not much turned upon the
fact that the assessee agreed to the additions of the amounts in the
assessment. So far as the reliance placed upon Kanodia's statement by the
Inspecting Assistant Commissioner was concerned, it had no relevance or bearing
to the facts of the assessment year in question. He was not the contractor
employed by the assessee in the year of account. He came in only for a later
year.
One
Avinash Chand was the contractor in the year in question. He had specifically
stated that he was responsible for shortages. He had also admitted that there
was staff maintained by the mill at the centre at which he was the loading
contractor. In fact he had gone to the extent of and stated as to what staff
was maintained in that centre; there was a man in charge of the centre, a weigh
-ment clerk, a cane clerk and three to four chowkidars. He had also stated that
they were not his employees. According to the Tribunal in these circumstances
the assessee could very well have argued against the addition of the two sums,
699 namely, Rs.67,500 and Rs.21,700. But the assessee as we have noted had
agreed to the amounts being included. The Tribunal was of the view that the
mere fact that the amounts were agreed to be taken into account by the assessee
did not ipso facto indicate any criminality in its action to conceal any
portion of the income. The Tribunal found that so far as Rs.48,500 was
concerned in the inflation in the price of sugar-cane, the previous history was
against the assessee.
It
had agreed to the similar additions in the earlier years 1955-56 and 1956-57
the Tribunal noted. From the above facts, it was seen that the penalty was
warranted in similar amount for this year also, the Tribunal noted. Taking into
consideration that the sum involved against this year was Rs.48,500 the
tribunal considered that a smaller penalty was imposable. The Tribunal
accordingly imposed a total penalty of Rs. 5,000.
The
High Court reiterated that the onus of proving concealment was on the revenue
because the proceedings for penalty were penal in character. In that view of
the matter the High Court was of the opinion that so far as Rs.48,500 was
concerned it was not proved that there was any deliberate concealment. So far
as the other two amounts of Rs.67,500 and Rs.21,700 were concerned, it was
contended that the High Court noted the history of the order of the Inspecting
Assistant Commissioner and the circumstances of the case and the High Court was
of the view that the Tribunal had not at all considered the fact that the value
of the shortage was only Rs.26,429. According to the High Court, the Tribunal
had brushed aside the fact that the assessee had agreed to the addition of this
amount. According to the High Court, the Tribunal had not set aside the finding
of the Inspecting Assistant Commissioner that the assessee surrendered the
amount of Rs.67,500 when it was faced with facts which clearly established
concealment. The assessee according to the Inspecting Assistant Commissioner
had surrendered the amount only after the Income Tax Officer had conclusive
evidence in his possession that the amount represented its income. In other
words, what the High Court sought to state was that acceptance by the assessee
was material to give proper weight to judge the criminality of the action which
according to the High Court was not given.
The
High Court highlighted that so far as Rs.67,500 was concerned only on being
faced with facts from which there could possibly be no escape from the
inference that the amount represented his income, that the assessee agreed to
its inclusion. The High Court was of the view that the Tribunal was in error in
brushing aside consideration of these aspects while considering the question of
concealment.
In
respect of the addition of Rs.21,700 the Inspecting Assistant 700 Commissioner
had relied upon the statement of Kedar Nath Kanodia as also the fact that the
assessee admitted that this item represented its income. The Tribunal did not
place reliance upon the statement of Kedar Nath Kanodia. It, however, omitted
to take into account the fact that the assessee had admitted that these items
represented its income. The High Court was of the view that such admissions
were made by the assessee but the Tribunal had not properly appreciated that
aspect. Therefore in respect of these two items the High Court was of the view
that the Tribunal was not right in holding that the assessee was not guilty of
any concealment. So far as question No. 2 was concerned which dealt with
Rs.48,500 the High Court confined itself to the disallowance in respect of
purchase of cane. So far as this question was answered in favour of the
assessee and there is no challenge by the revenue, it is not material any more.
The
High Court came to the conclusion that the finding of the Tribunal in respect
of the concealment of Rs.48,500 was not justified in law. It was urged before
us that as the second question which was in general form has been answered in
favour of the assessee, the third question as reframed could not have been
answered otherwise. We are unable to accept this contention. As evident from
the discussion by the High Court, the High Court confined to second question
with regard to disallowance in respect of purchase of cane that amounted to
Rs.48,500. So, therefore it cannot be said that in view of the answer given to
the second question, the third question was no longer open. The second question
was confined to only Rs.48,500.
So
far as whether there was justification for the answer given to the reframed
third question or was proper or not has to be judged on the basis as to how far
the High Court in a reference could interfere with a finding of fact and
transform the same into a question of law on the ground that there has been
non-consideration of all relevant facts. The law on this point is quite
settled.
The
question was considered by this Court exhaustively in Sree Meenakshi Mills
Limited v. Commissioner of Income- tax, Madras, 31 I.T.R. 28 where this Court
reiterated that findings on questions of pure fact arrived at by the Tribunal
were not to be disturbed by the High Court on a reference unless it appeared
that there was no evidence before the Tribunal upon which they, as reasonable
men, could come to the conclusion to which they have come; and this was so,
even though the High Court would on the evidence have come to a conclusion
entirely different from that of the Tribunal. In other words, such a finding
could be reviewed only on the ground that there was no evidence to support it
or that it was perverse.
When
a conclusion had been reached on an appreciation of a number of facts
established by the evidence, whether that was sound or not must be determined,
not by considering the weight to be attached to each single fact in isolation,
but by assessing the cumulative effect of all the facts in their setting as a
whole. Where an ultimate finding on an issue was an inference to be drawn from
the facts found, on the application of any principles of law, there would be a
mixed question of law and fact, and the inference from the facts found was in
such a case, a question of law. But where the final determination of the issue
equally with the finding or ascertainment of the basic facts did not involve
the application of any principle of law, an inference from the facts could not
be regarded as one of law. The proposition that an inference from facts was one
of law was, therefore, correct in its application to mixed questions of law and
fact, but not to pure questions of fact. In the case of pure questions of fact
an inference from the facts was as much a question of fact as the evidence of
the facts. In the instant case there is a finding of fact and unless it could
be said that all the relevant facts had not been considered in a proper light,
no question of law arises. In our opinion, the Tribunal took into account all
the relevant facts. The Tribunal had been accused by the High Court of not
taking into consideration the fact that the assessee had admitted these amounts
in the assessment. To admit that there has been excess claim or disallowance is
not the same thing as deliberate concealment or furnishing inaccurate
particulars. At least in the background of the law as it stood at the relevant
time that was the position. There have been some changes sub-sequently which we
have not noticed for the present purpose.
In
Omar Salay Mohamed Sait v. Commissioner of Income- tax, Madras, 37 I.T.R. 15 1,
this Court held that the In- come-tax Appellate Tribunal was a fact finding
tribunal and if it arrived at its own conclusions of fact after due
consideration of the evidence before it the court could not interfere. It was
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 colored by any irrelevant
considerations or matters of prejudice and if there were any circumstances
which required to be explained by the assessee, the assessee should be given an
opportunity of doing so. In this case, the Tribunal had taken into
consideration the fact that the assessee had admitted the additions as its
income when faced with non-disclosure in assessment proceedings.
The
High Court accused the Tribunal of not considering the time when the assessee
admitted the additions. We find that it was duly considered by the Tribunal. We
find that the assessee admitted that these were the income of the assessee but
that was not an admission that there was deliberate concealment. From agreeing
to additions it does not follow that the amount agreed to be added was
concealed. There may be hundred and one reasons for such admissions, i.e., when
the assessee realises the true position it does not dispute certain
disallowances but that does not absolve the revenue to prove the men area of
quasi criminal offence. In Udhavdas Kewalram v. Commissioner of Income-tax,
Bombay City 1, 66 I.T.R. 462, the Court held that the Income-tax Appellate
Tribunal performed a judicial function under the Income-tax Act and it was
invested with authority to determine finally all questions of fact. The
Tribunal must, in deciding an appeal, consider with due care all the material
facts and record its findings on all contentions raised by the asses- see and
the Commissioner in the light of the evidence and the relevant law. The
Tribunal was undoubtedly competent to disagree with the view of the Appellate
Assistant Commissioner, but in proceeding to do so, it had to act judicially
i.e. to consider all the evidence in favour of and against the assessee. An
order recorded on a review of only a part of the evidence and ignoring the
remaining evidence could not be regarded as conclusively determinative of the
question of fact raised before the Tribunal. It is for the Income-tax authority
to prove that a particular receipt is taxable. If, however, the receipt is
accepted and certain amount is accepted as taxable, it could be added but it
was not accepted by the assessee, however, that it hard deliberately furnished
inaccurate particulars or concealed any income. In our opinion, the Tribunal
has properly considered all the evidence in the instant case. In Rameshwar
Prasad Bagla v. Commissioner of Income-tax, U.P., 87I I.T.R. 421, this Court
again reiterated that it was for the Tribunal to decide questions of fact, and
the High Court in a reference under section 66 of the Act as at that time could
not go behind the Tribunal's findings of fact. The High Court could only lay
down the law applicable to the facts found by the Tribunal. The High Court in a
reference under section 66 of the Act, as at that time could, however, go into
the question as to whether the conclusion of the Tribunal on a question of fact
was based upon relevant evidence. If the High Court found that there was no
such evidence to support the finding of fact of the Tribunal, those
circumstances would give rise to a question of law and 703 could be agitated in
a reference. Here in the instant case that is not the position. This Court
again reiterated that it was also well-established that when a Tribunal acted
on material which was irrelevant to the enquiry or considered material which
was partly relevant and partly irrelevant or based on conjectures, surmises and
suspicions and partly on evidence, then in such a situation an issue of law
arose and the finding of the Tribunal could be interfered with. That is not the
position here. In the instant case, it is not said that the Tribunal had acted
on material which was irrelevant to the enquiry or considered material which
was partly relevant and partly irrelevant or based its decision partly on
conjectures, surmises and suspicions. The High Court was wrong in saying that
proper weight had not been given to all the evidence and admissions made by the
asses- see. The High Court further observed that the time of admission was not
noted by the Tribunal and this fact had not been properly appreciated by the
Tribunal. That is also not correct. The Tribunal had made additions during the assessment
proceedings. In any event that would be appreciation of evidence in a certain
way, unless in such mis-appreciation which amounted to non-appreciation no
question of law would arise. Non-appreciation may give rise to the question of
law but not mere mis-appreciation even if there be any from certain angle.
Change of perspective in viewing a thing does not transform a question of fact
into a question of law.
In
the instant case we are of the opinion that in preferring one view to another
view of factual appreciation, the High Court transgressed the limits of its
jurisdiction under the Income-tax reference in answering the question of law.
In
the premises, we are of the opinion that the High Court was in error in so far
as it held that the Tribunal had acted incorrectly. We are further of the
opinion that the reframed question must be answered in the affirmative and in
favour of the assessee.
The
appeal is allowed and the judgment and order of the High Court in so far as
answer to the question No. 3 is concerned is set aside. The assessee is
entitled to the costs of this appeal.
P.S.S.
Appeal al- lowed.
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