Full Judgment Text
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PETITIONER:
COMMISSIONER OF INCOME TAX,BIHAR AND ORISSA, PATNA
Vs.
RESPONDENT:
S. P. JAIN
DATE OF JUDGMENT19/09/1972
BENCH:
REDDY, P. JAGANMOHAN
BENCH:
REDDY, P. JAGANMOHAN
HEGDE, K.S.
KHANNA, HANS RAJ
CITATION:
1973 AIR 997 1973 SCR (2) 334
1973 SCC (3) 824
CITATOR INFO :
D 1985 SC1572 (4)
RF 1986 SC1428 (18,19,31)
R 1986 SC1483 (4)
ACT:
Income tax-Tribunal-Findings of fact-Circumstances
justifying interference.
HEADNOTE:
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
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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 Income-
tax, 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 rea-
sons for displacing the conclusions reached by the Income-
tax Officer or the Appellate Assistant Commissioner. They
had a duty to examine the reasons given by those authorities
before rejecting them. [359 B]
JUDGMENT:
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
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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 appellant.
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 Rs. 80,000/-.
The shares which were delivered allegedly to Rana by Mr. J.
F. Wood, General Manager of the Allahabad Bank after col-
lecting 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 receipts.
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 some
one else and that the flat had never been let out to the
Rana.
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(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 believe- that 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 by him.
Since the assessee took no steps to produce the Rana for
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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 Income-
tax 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 compa-
nies 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 the- two 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
concerned.
(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
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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 the-
two 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 possessed-
sufficient means whereas if he was weak financially he would
have tried to collect. the dividends immediately on
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declaration.
(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
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(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 assessee.
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 purchaser.
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
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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 from 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 having- regard 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
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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 com-
missioners. 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
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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 are- sustainable 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, Bom-
bay(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 Mo-
hamad 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
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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, Madurai v.
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
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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.
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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
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relations with the Bank at that time. It is thus clear that
some one 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
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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 after
thought to explain away his previous statement saying
that the shares of R. 1. Ltd. and S. K. G. Sugar Ltd.
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 observa-
tions 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
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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 the- market in lots
and whenever their- sale proceeds accumulated he would
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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
Accountant- Member 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 Income-
tax 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
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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
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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 country.
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 the picture.
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
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in his name for nearly If years. This circumstance again is
not explained.
8.The Rana did not care to collect the huge dividends
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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.
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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 rea-
lised 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 so-
called 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 some
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one 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 in- one 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 Marketing Co.
It is reasonable to assume that after the alleged sale, the
assessee was in possession of the shares through Ashoka
Marketing Company.
359.
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 Ran- a in the premises of the assessee Sahu Jain at, 1
1’ Clive Row.
From the circumstances above enumerated, the Income-tax.
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’.
For the reasons stated above, we answer questions Nos. 2
’and’ 3 ’referred to the High Court in the negative and in
favour of ’the Revenue. The answer to question No. I has
not been pressed and hence we need not answer it. In the
result these appeals are allowed with costs both in this
Court as well as in the High Court
K.B.N. Appeals allowed
360