Full Judgment Text
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PETITIONER:
PATNAIK & CO. LTD.
Vs.
RESPONDENT:
THE COMMISSIONER OF INCOME TAX, ORISSA
DATE OF JUDGMENT16/07/1986
BENCH:
PATHAK, R.S.
BENCH:
PATHAK, R.S.
MUKHARJI, SABYASACHI (J)
CITATION:
1986 AIR 1483 1986 SCR (3) 207
1986 SCC (4) 16 JT 1986 202
1986 SCALE (2)12
ACT:
Business loss-Purchase of Government bonds or
securities with the object of increasing the assessee’s
business with the Government and/or retaining the goodwill
of the authorities for the purpose of its business and loss
incurred thereby-Whether capital loss or revenue loss.
Jurisdiction of the High Court in reference under the
Income Tax Act-Interference with finding of facts, whether
permissible.
Supreme Court Rules, 1966 Order XLVII Rule 6-Supreme
Court can itself decide the questions referred to the High
Court to avoid further delay instead of remanding the case.
HEADNOTE:
The assessee deals in automobiles and also sells spare
motor parts. For the assessment year 1963-64 the assessee
claimed a loss of Rs.53,650 sustained by it on disposing of
its subscriptions to the Orissa Government floated Loan
1972. It claimed that the loss suffered by it was revenue
loss and, therefore, deductible against the profits for
future years. The Income Tax Officer and the Appellate
Commissioner of Income Tax negatived the claim of the
assessee. But on second appeal, the Appellate Tribunal
accepted the contention that the subscription to the
Government loan was conducive to its business and that the
loss arose in the course of the business, and that
therefore, the assessee was entitled to a deduction of the
loss claimed by it. But the High Court on a reference to it
at the instance of the revenue, held that the loss was a
capital loss. The High Court was of the view that the
factual substratum of the case had been misconceived by the
Appellate Tribunal and that it was, therefore, entitled to
re-examine the evidence and arrive at its own findings of
fact. Hence this appeal by special leave.
Allowing the appeal, the Court,
208
^
HELD: 1.1 Whether Government bonds or securities were
purchased by the assessee with a view to increasing his
business with the Government or with the object of retaining
the goodwill of the authorities for the purpose of his
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business, the loss incurred on the sale of such bonds or
securities was allowable as a business loss. [212F-G]
1.2. Having regard to the sequence of events and the
close proximity of the investment with the receipt of
Government orders it is clear that the investment, in the
instant case, was made in order to further the sales of the
assessee and boost its business. In the circumstances, the
investment was made by way of commercial expediency for the
purpose of carrying on the assessee’s business and therefore
the loss suffered by the assessee on the sale of the
investment must be regarded as a revenue loss. [211H;212A-B]
1.3 No enduring benefit was brought about by the
assessee investing in the loan so far as the orders from the
Government Departments were concerned. The material on
record shows that on August 30, 1961 it was decided to
purchase 16 jeeps, 8 trucks and 4 one-tonne pick up vans.
There was nothing to show that there was any reason for the
assessee to hold on to the investment in the loan
indefinitely. The investment did not bring in an asset of a
capital nature, and that in the circumstances of the case
the loss suffered by the assessee was a revenue loss and not
a capital loss. [212D-F]
Commissioner of Income-Tax v. Industry and Commerce
Enterprises (P) Ltd., [1979] 118 ITR 606 (Orissa);
Additional Commissioner of Income-tax, Madras-II v.
B.M.S.(P) Ltd., [1979] 119 ITR 321 (Mad); Commissioner of
Income-tax, Tamil Nadu-V v. Dhandayuthapani Foundry (P)
Ltd., [1980] 123 ITR 709 (Mad) approved.
2. It is now well settled that the Appellate Tribunal
is the final fact-finding authority under the Income-tax Act
and that the Court has no jurisdiction to go behind the
statements of fact made by the Tribunal in its appellate
order. The Court may do so only if there is no evidence to
support them or the Appellate Tribunal has misdirected
itself in law in arriving at the findings of fact. But even
there the Court cannot disturb the findings of fact given by
the Appellate Tribunal unless a challenge is directed
specifically by a question framed in a reference against the
validity of the impugned findings of fact on the ground that
there is no evidence to support them or they are the result
of a misdirection in law. [210E-G]
209
India Cements Ltd. v. C.I.T., 60 ITR 52, 64; Hazarat
Pirahomed Shah Saheb Roza Committee v. CIT, 63 ITR 490, 495-
6; C.I.T. v. Greaves Cotton & Co. Ltd., 68 ITR 200; C.I.T.
v. Meenakshi Mills Ltd., 63 ITR 609, 613; C.I.T. v. Madan
Gopal Radhey Lal, 73 ITR 652, 656; Hooghly Trust Ltd. v.
C.I.T., 73 ITR 685, 690; C.I.T. v. Imperial Chemical
Industries (India) Ltd., 74 ITR 17; Aluminium Corporation of
India Ltd. v. C.I.T., 86 ITR 11 and Commissioner of Income-
tax, Bihar and Orissa v. S.P. Jain, 87 ITR 370 referred to.
3. In the case of a reference under the Income Tax Act
which has remained pending through its successive stages for
the last several years and as a result of the Supreme Court
setting aside the judgment of the High Court, the case has
to go back to the concerned High Court to answer the
question of law referred to it, the Supreme Court to avoid
further delay can itself decide the said question of law.
[211C-D]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1359
(NT) of 1974
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From the Judgment and Order dated 11.1.1974 of the
Orissa High Court in Special Jurisdiction Case No. 62 of
1972.
Govind Das, P.N. Misra, D.C. Taneja and P.K. Juneja for
the Appellant.
V.S.Desai, P.K. Bhatnagar and Miss A. Subhashini for
the Respondent.
The Judgment of the Court was delivered by
PATHAK, J. This appeal by special leave is directed
against the judgment of the High Court of Orissa and raises
the familiar question whether a loss suffered by the
assessee is a capital loss or a revenue loss.
The assessee deals in automobiles and also sells spare
motor parts. For the assessment year 1963-64, the relevant
accounting period being the year ended March 31, 1963, the
assessee claimed a loss of Rs.53,650 sustained by it on
disposing of its subscription to the Orissa Government
Floated Loan 1972. It claimed that the loss suffered by it
was revenue loss and, therefore deductible against its
profits for the year. The Income-tax Officer disallowed the
loss in the view that it was
210
a capital loss. The assessee’s appeal was dismissed by the
Appellate Assistant Commissioner of Income-tax. But on
second appeal the Income-tax Appellate Tribunal accepted the
contention of the assessee that the subscription to the
Government Loan was conducive to its business and that the
loss arose in the course of the business, and that
therefore, the assessee was entitled to a deduction of the
loss claimed by it. The Accountant Member and the Judicial
Member wrote separate but concurrent orders. At the instance
of the Revenue the Appellate Tribunal referred the case to
the High Court of Orissa for its opinion on the following
question of law.
"Whether, in the facts and circumstances of the
case, the loss of Rs.53,650 sustained by the
assessee on the sale of the Government Loan is a
capital loss or a revenue loss."
Disagreeing with the findings of the Appellate Tribunal
the High Court held that the loss was a capital loss and
accordingly answered the reference in favour of the revenue
and against the assessee.
At the outset, we find it necessary to note that the
High Court has taken the view that the factual substratum of
the case has been misconceived by the Appellate Tribunal and
that it is, therefore, entitled to re-examine the evidence
and arrive at its own findings of fact. We think the High
Court fell into serious error in doing so. It is now well
settled that the Appellate Tribunal is the final fact-
finding authority under the Income-tax Act and that the
Court has no jurisdiction to go behind the statements of
fact made by the Tribunal in its appellate order. The Court
may do so only if there is no evidence to support them or
the Appellate Tribunal has misdirected itself in law in
arriving at the findings of fact. But even there the Court
cannot disturb the findings of fact given by the Appellate
Tribunal unless a challenge is directed specifically by a
question framed in a reference against the validity of the
impugned findings of fact on the ground that there is no
evidence to support them or they are the result of a
misdirection in law. There is a long line of cases decided
by this Court laying down this proposition. See India
Cements Ltd. v. C.I.T., 60 ITR 52, 64; Hazarat Pirmahomed
Shah Saheb Roza Committee v. C.I.T, 63 ITR 490, 495-6;
C.I.T. v. Greaves Cotton & Co. Ltd., 68 ITR200; C.I.T. v.
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Meenakshi Mills Ltd., 63 ITR 609, 613; C.I.T. v. Madan Gopal
Radhey Lal, 73 ITR 652, 656; Hooghly Trust Ltd. v. C.I.T.,
73 ITR 685, 690; C.I.T. v. Imperial Chemical Industries
(India) Ltd., 74 ITR 17 and Aluminium Corpon. of India Ltd.
v. C.I.T., 86 ITR 11. The High Court has relied on Com
211
missioner of Income-tax, Bihar and Orissa v. S.P. Jain. 87
ITR 370 to justify its re-examination of the evidence and to
supersede the findings of fact rendered by the Appellate
Tribunal by findings of fact reached by itself. In that
case, however, the questions raised in the Reference before
the High Court included questions specifically challenging
the findings of fact reached by the Appellate Tribunal as
being invalid in law. In the present case the question
referred to the High Court was framed on the assumption that
it had to be decided in the factual matrix delineated by the
Appellate Tribunal: In the circumstances, the findings of
fact set forth in the judgment of the High Court must be
vacated. We would have sent the case back to the High Court
requiring it to answer the question of law referred to it on
the basis of the facts found by the Appellate Tribunal but
we refrain from doing so and propose to dispose of the
Reference ourselves on the statements of fact contained in
the appellate order of the Appellate Tribunal. The case has
remained pending through its successive stages for the last
over 20 years, and it is appropriate that it should be
disposed of now without further delay.
According to the statement of the case drawn up on the
basis of the appellate order of the Appellate Tribunal the
assessee was told that if it subscribed for the Government
Loan preferential treatment would be granted to it in the
placing of orders for motor vehicles required by the various
Government Departments and to the further benefit of an
advance from the Government up to 50 per cent of the value
of the orders placed. Pursuant to that understanding, an
advance to the extent of Rs. 18,37,062 was received by the
assessee and a Circular was also issued by the State
Government to various Departments to make purchases of the
vehicles required by them from the assessee. Because of the
advance received from the Government, the assessee was able
to save Rs.45,000 as bank interest during the year. It was
also noticed that the sales shot up substantially. On
September 4, 1961 the assessee made a deposit of Rs.5 Lakhs
consequent upon a Resolution of the Board of Directors
passed about 6 weeks before after a statement made by the
Chairman during the Board meeting that the Government had
approached him to subscribe to the Government Loan and that
the Company should do so as good orders could be expected.
The purchase of the loan was approved by the Board of
Directors and was ratified in the Annual General Meeting of
the shareholders held on December 31, 1961. The Appellate
Tribunal found that having regard to the sequence of events
and the close proximity of the investment with the receipt
of Government orders the conclusion was ines-
212
capable that the investment was made in order to further the
sales of the assessee and boost its business. In the
circumstances, the Appellate Tribunal held that the
investment was made by way of commercial expediency for the
purpose of carrying on the assessee’s business and that
therefore, the loss suffered by the assessee on the sale of
the investment must be regarded as a revenue loss. We are of
opinion that the Appellate Tribunal is right.
The High Court, as has been mentioned, re-examined the
facts on the record and found that the investment was not
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connected with the orders placed by the Government with the
assessee and the advance payment made by the Government
Departments to the assessee, and it was in that context that
the High Court held that the investment in the Loan was a
capital assest and the loss was a capital loss. The High
Court took the view that the investment was of enduring
benefit to the assessee and therefore it could not be
allowed. We find it difficult to hold that an enduring
benefit was brought about by the assessee investing in the
Loan. So far as orders from the Government Departments were
concerned the material on record shows that on August 30,
1961 it was decided to purchase 16 jeeps, 8 trucks and 4
one-tonne pick-up vans. There is nothing to show that there
was any reason for the assessee to hold on to the investment
in the loan indefinitely. There was no enduring advantage.
Accordingly we hold that the investment did not bring in an
asset of a capital nature, and that in the circumstances of
the case the loss suffered by the assessee was a revenue
loss and not a capital loss. It was held by the Orissa High
Court in Commissioner of Income-tax v. Industry and Commerce
Enterprises (P) Ltd., [1979] 118 ITR 606 and by the Madras
High Court in Additional Commissioner of Income-tax, Madras-
II v. B.M.S. (P) Ltd., [1979] 119 ITR 321 and again in
Commissioner of Income-tax, Tamil Nadu-V v. Dhandayuthapani
Foundry (P) Ltd, [1980] 123 ITR 709, that where Government
bonds or securities were purchased by the assessee with a
view to increasing his business with the Government or with
the object of retaining the goodwill of the authorities for
the purpose of his business, the loss incurred on the sale
of such bonds or securities was allowable as a business
loss.
We hold that the High Court has erred in the view taken
by it and that the Tribunal was right in allowing the
appeal.
213
In the result the appeal is allowed, the judgment of
the High Court is set aside and inasmuch as the loss is a
revenue loss the question referred to the High Court is
answered in favour of the assessee and against the Revenue.
The assessee is entitled to its costs of this appeal.
S.R. Appeal allowed.
214