Full Judgment Text
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PETITIONER:
COMMISSIONER OF INCOME TAX, KARNATAKA
Vs.
RESPONDENT:
M/S BEDI & COMPANY PRIVATE LIMITED
DATE OF JUDGMENT: 18/02/1998
BENCH:
SUJATA V. MANOHAR, SYED SHAH MOHAMMED QUADRI
ACT:
HEADNOTE:
JUDGMENT:
J U D G M E N T
QUADRI, J.
The Revenue is in appeal, by special leave, against the
order of the karnataka High Court dated August 4, 1980, in
I.T.R.C. No. 180 of 1975, answering the following question
referred to it under Section 256(1) of the Income Tax Act.
1961, in the negative, that is, in favour of the assessee
and against the Revenue.
"Whether on the facts and
circumstances of the case the
Tribunal was justified in law in
upholding the assessment of the sum
of Rs. 32,58,500/- as the income of
the assessee for the assessment
year 1960-61."
A brief narration of the facts leading to reference of
the said question to the High Court, may be necessary to
appreciate the contention urged before us. On December 5,
1961 an order of regular assessment of the
respondent/assessee was passed for the assessment year
1960-61 for which the relevant accounting year ended on May
31, 1959. Subsequently it came to the notice of the Income
Tax Officer that a sum of Rs 32.58,500/- had been received
by the assessee purporting to be loan advanced under
agreement dated November 15, 1958 entered into between the
assessee and Parsons & Whittemore. The assessee promoted
M/s. Mandva National Paper Mills (for short "the Paper
Mills"). The capital requirement of the Paper Mills was
proposed to be met by issue of equity and redeemable
preference shares of rupees two crores and by arranging
supply on machinery of Rs. 1.82 crores from two of the
associates of Parsons & Whittemore. In that connection three
agreements including the loan agreement in question, were
entered into among different parties on the same date.
On the said information, the Income Tax Officer,
reopened the assessment of the assessee and issued notice
under Section 147(a) of the Income Tax Act on November 25,
1968. Finding that the reply given to the said notice was
not satisfactory, and disbelieving the plea that the amount
was advanced as loan, the Income Tax Officer treated it as
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income received from business and accordingly passed the
order of assessment, under Section 144 of the Income Tax
Act, bringing to tax the said amount of Rs. 32,58,500/- on
December 2, 1970. The respondent-assessee pursued the appeal
before the Appellate Assistant Commissioner who dismissed
the same on December 16, 1972. The assessee’s appeal before
the Income Tax Appellate Tribunal was also dismissed on May
21, 1974. From that order of the Tribunal the above said
question arose.
In the Tribunal the Accountant Member and Judicial
Member wrote separate orders but concurred on the dismissal
of the appeal filed by the assessee. The Accountant Member
agreed with the reasoning and conclusion of the Income Tax
Officer and the Appellate Assistant Commissioner that the
loan was not bonafide transaction; the Judicial Member took
the view that many of the circumstances relied upon by the
Revenue were neutral and the others raised suspicion against
the assessee but concurred in the conclusion reached by the
Accountant Member on the ground that the assessee had
suffered the assessment under Section 144 and there was
paucity of material.
The High Court took note of all the factors mentioned
in the order of the Tribunal but opined that the apparant
set of things disclosed that the said amount was loan and
that the burden of showing that the apparant was not real,
lay heavily on the Revenue but apart from relying on certain
circumstances no material was brought on record by the
Revenue to hold that the said amount was income from
business.
Mr. K.N. Shukla, learned counsel for the appellant-
Revenue, argued that the High Court erred in arriving at its
own finding of fact and that unless the findings recorded by
the Tribunal were perverse the High Court ought not to have
interfered with the findings of facts. In our view the
submission is too broad to merit acceptance. There cannot be
any doubt that High Court will not address itself to
recording findings of facts, unless the subject matter of
the question referred to it by the Tribunal, either under
sub-section (1) or sub-section (2) of Section 256 of the
Income Tax Act, relates to the perversity of the finding
arrived at by the Tribunal. That sort of question has to be
distinguished from a mixed question of facts and law, which
also requires consideration and discussion of facts but does
not warrant returning findings of facts inconsistent with
the findings recorded by the Tribunal while giving its
opinion on the question referred to the High Court. In
answering the question, in this case, the High Court had to
deal with various facts on record to determine whether the
amount in question was loan on income. if such discussion
of facts has led to arriving at the conclusion that the
amount was loan but not income. It cannot be urged that the
High Court disturbed the finding of fact recorded by the
Tribunal.
Here the Tribunal did not find any material to record
specific finding that the amount in question is in the
nature of commission paid by Parsons & Whittemore to the
assessee: it took note of the fact that the loan was
advanced by agreement dated November 15, 1958 and that the
Reserve Bank of India had accorded permission for obtaining
the loan; it has also taken into consideration an earlier
memorandum of understanding between the assessee and the
representative of foreign Creditor, of July 19, 1957,
recording that the proposal to grant loan would materialise
alongwith implementation of other agreements to be entered
into with the paper Mills Limited. The High Court in regard
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to the loan agreement dated November 15, 1958, observed that
the agreement provided that the amount would be utilised for
purposes of purchasing shares in the said Paper Mills and
that the shares were accordingly purchased and they were
treated as belonging to the assessee-company. The High Court
also referred to a letter of the foreign Creditor addressed
to the income Tax Officer in November 1970 in response to
his querry letter and opined that the Foreign Collaborator
maintained that the transaction was loan as late as in
November 1970. It also noticed the reasoning of the Revenue
as reflected in the orders of the Income Tax Officer and the
Appellate Assistant Commissioner. The High Court is also
justified in its comment that without recording any finding
that the amount was commission or business receipt, the
Tribunal was not justified in coming to the conclusion that
it could be assessed as income. In our view the High Court
has rightly held that the circumstance taken singally or
cumulative did not justify conclusion that the amount was
not received as loan as it purported to be but was anything
in the nature of commission or any receipt or business. In
arriving at the conclusion to which it did, it was necessary
for the High Court to refer to the facts and discuss them to
answer the mixed question of facts and law and that is what
the High court had done.
The facts on record apparantly indicate that the
transaction was one of loan. The circumstances relied upon
by the Revenue, namely that the loan had been advanced
without security, that the loan had not been repaid and no
interest on the loan was paid by the assessee and that the
agreement of loan was executed contemporaneously with other
two agreements with regard to supply of machine and
construction of building for the Paper Mill can not, without
any further material, lead to the inference that the amount
was not loan but business income. It appears to us that the
last mentioned circumstance supports the plea of the
assessee that the said amount was received as loan. For the
aforementioned reasons we do not find any illegality in
judgment of the High Court under appeal. The appeal is,
therefore, dismissed, but in the circumstances of the case
without costs.