Full Judgment Text
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PETITIONER:
SHRI KANHAIYALAL LOHIA
Vs.
RESPONDENT:
THE COMMISSIONER OF INCOME-TAX,WEST BENGAL
DATE OF JUDGMENT:
17/07/1961
BENCH:
HIDAYATULLAH, M.
BENCH:
HIDAYATULLAH, M.
DAS, S.K.
SHAH, J.C.
CITATION:
1962 AIR 1323 1962 SCR (2) 839
CITATOR INFO :
F 1962 SC1326 (5)
F 1962 SC1621 (115)
RF 1963 SC 835 (2)
ACT:
Income-Tax--Appeal from High Court’s order--Procedure-Appeal
from order of the Tribunal by-passing High Court’s order-
Appeal if competent--Income-tax Act, 1922(11 of 1922), ss.
66(1), 66(2) and 66(a).
HEADNOTE:
The appellant supported his brother and his nephew for a
number of years as they were doing no work. In the year
1943 he made a gift of Rs. 7,60,000 odd to them though he
had to overdraw his account with the Bank and to pay
interest or the amount borrowed to raise the money. He also
made a transfer of some of his businesses to them. His
explanation was that these gifts were made to set these two
persons up in business. The Income-tax Officer held that
the gifts were riot bonafide and he assessed, the income of
all the businesses in the hands of the appellant. The
appellant had produced letters from some businessmen in
support of his case. One such person was one M. who was
examined by the Income-tax Officer without notice to the
appellant. Later, however, a copy of the statement of M.
was taken by the appellant’s counsel and at his request M.
was summoned for cross-examination but on the date fixed
none appeared for the appellant who was also absent.
The appellant made a petition under s. 66(1) of the Income-
tax Act to the Tribunal asking that a number of questions of
law be referred to the High Court. Only one question was
referred by the Tribunal which declined to refer the other
questions. In the High Court the question referred by the
Tribunal was answered against the appellant on the admission
of his counsel. The High Court was moved also under s.
66(2) to order a reference of the remaining questions but
the High Court rejected the application. The appellant did
not appeal against these two orders of the High Court and
instead filed appeals against the orders of the Tribunal.
The appellant relied upon two cases of this Court viz.
Dhakeshwari Colton Hills’ Case and Baldev Singh’s case and
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contended that tile appeal to this court was competent.
Held, that the appeals were incompetent in view of the
decisions of this Court in Chandi Prasad Chokhani v. State
of Bihar and The Indian Aluminium Co., Ltd.
840
Held. further, that an appeal against an order of the High
Court deciding a question referred or against a refusal to
call for a statement can only be brought before the Supreme
Court under s. 66(A) of the Income-tax Act, if the High
Court decides the question referred, and under Art. 136 of
the Constitution if the High Court refuses to call for a
statement. There can be no direct appeal to the Supreme
Court by passing the decisions of the High Court.
Held,. also, that there was neither any breach of the
principles of natural justice in this case nor the existence
of circumstances as existed in Baldev Singh’s case to
justify the appeal.
Held, that where a witness has been examined by the Income-
tax Officer behind the back of the assessee but a copy of
the statement of the witness is made available, to the
assessee and an opportunity is given to him to cross-examine
the witness, thereis no breach of the principle of natural
justice.
ChandiPrasad Chokhani v. State of Bihar. (1962) 2 S.C.R.
276and Indian Aluminium Co., Ltd., v. Commissioner of
Income-tax. (Civil Appeal No. 176 of 1959, decided on April
24, 1961) followed.
Dhakeshwari Cotton Mills Ltd. v. Commissioner of Income. tax
(1955) 1 S.C.R. 941 and Sardar Baldev Singh v. Commissioner
of Income-tax, Delhi and Ajmer. (1961) 1 S.C.R. 482,
explained. ,
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 347 to 350
of 1960.
Appeals by special leave from the judgment and order dated
January 18, 1953, of the Incometax Appellate Tribunal,
Calcutta Bench, in Incometax , Appeals Nos. 7062-7064 and
C.P.T.A. No. 548 of 1951-52.
N.C. Chatterjee, A. V. Viswanatha Sastri and D.N.
Mukherjee, for the appellants.
K.N. Rajagopal Sastri, and D. Gupta, for respondent.
1961. July 17. The Judgment of the Court. was delivered
by
HIDAYATULLAH, J.-These appeals with special leave, were
filed by one Kanhaiyalal Lohia, who died during the pendency
of the appeals, and who
841
is now represented by the executors appointed under his
will. By these appeals, which are consolidated, the
appellants question an order dated January 8, 1953, of the
Income-tax Appellate Tribunal (Calcutta Bench) in appeals
filed by the Department against the order of the Appellate
Assistant Commissioner. The Tribunal reversed the order of
the Appellate Assistant Commissioner and restored that of
the Income-tax Officer. Kanbaiyalal Lohia made petitions
under s. 66 (1) to the Tribunal, setting out a number of
questions of which the following was I referred to the High
Court :
"Whether in the cirumstances of this case
where the Income-tax Officer, District III
(2), separately assessed the business run in
the name of Brijlal Nandkishore as belonging
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to a partnership firm consisting of Brijlal
and Nandkishore, the Income-tax Officer, Non-
Companies E. P. T., District can assess the
income from the same business in the hands of
the assessee ?"
This question was answered against him. Kanhaiyalal Lohia
also applied under s. 66 (2) to the High Court of Calcutta
for reference of the other questions, but failed. No appeal
has been filed by him against the order of the High Court
refusing to direct the tribunal to state a case or against
the decision on the question referred, and the present
appeals have been filed against the decision of the
Tribunal.
At the hearing of these appeals, we asked counsel for the
appellants how, in view of the recent decisions of this
Court in Chandi Prasad Chokhani v. State of Bihar (1) and
Indian Aluminium Co. Ltd. v. Commissioner of Income-tax
(2), these appeals were maintainable, if the two decisions
of the High Court had become final. Mr. A. V. Viswanatha
Sastri relied upon the decisions in
(1) (1962) 2 S.C.R. 276.
(2) Civil Appeal No. 176 of 1959 decided on April 24, 1961.
842
Dhakeswari Cotton Mills Ltd. v. Commissioner of Income-tax
West Bengal (1) and Sardar Baldev Singh v. Commissioner of
Income-tax Delhi and Ajmer (2), and pointed out that in
those cases, appeals were entertained from the Tribunal’s
order, though he conceded with his usual frankness that
special circumstances must exist. He contended that this
was a case in which such circumstances existed. We shall
deal with the appeals from that point of view, because
unless special circumstances exist, the appeals must be
regarded as not competent, in view of our recent rulings
above mentioned.
Kanhaiyalal Lohia, who was a prosperous dealer in jute, had
his head office in Calcutta. He had no issue, and his
family consisted of his wife,, his brother, Brijlal Lohia
and Brijlal’s son, Nandkishore Lohia. The properties of
Kanhaiyalal Lohia were self-acquired, and he was always
assessed as an individual. He maintained accounts according
to the Ramaswami year. In his return for the account year,
April 14, 1943 to April 1, 1944 corresponding to the
assessment year, 1944-45), he indicated that he had closed
down in the middle of 1943 his purchasing centres in East
Bengal, which stood in the name of Nandkishore, and that, he
had gifted to his brother Rs. 5,1 1, 1. 01 on July. 12,
1943, and to his nephew, Rs. 2,50,000 on September 30, 1943.
He showed income of his East Bengal business only up to the
closure of that business.
Brijlal and Nandkishore entered into partnership between
themselves, and started a business under the name and style
of "Brijlal Nandkishore." They took over the purchasing
centres in East Bengal. They opened accounts in banks in
the name of "Brijlal Nandkishore", and became members of
the Baled Jute Association, and the Jute ,Baler,sAssociation,
and traded in their own names. A deed of partnership between
them was also executed on August 5, 1953. The business of
Kanhaiyalal Lohia and of "Brijlal Nandkishore
(1) (1955) 1 S.C.R. 941.
(2) (1961) 1 S.C.R. 482.
843
was within the jurisdiction of the same Incometax Officer.
In the assessment of the partnership firm, notices were
issued to the partnership both under s. 22(2) and s. 34, and
the partner ship also applied for registration under s. 26A
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of the Income-tax Act,which was granted. The partnership
was also assessed for the years, 1945-46 and 1946-47. The
assessment of Kanhaiyalal Lohia was completed by the Income-
tax Officer, Non Companies Income-Tax cum Excess Profits Tax
District, and during the assessment for the year, 1945-46 a
notice was issued under s. 22(4) of the Income-Tax Act on
August 24, 1949, calling for accounts of the head office at
Calcutta and also the branches including the business being
carried on as "Brijlal Nandkishore", Kanhaiylal Lohia
proved, the above facts, producing the books of account,
bank statements, registration certificate of "Brijlal
Nandkhore" and evidence showing the membership of "Brijlal
Nandkishore" of the two Associations. He also produced
letters from four persons including one Sri A.L. Mazumdar
who was questioned by the Income-tax Officer without notice
to’ Kanhaiyalal Lohia and whose statement was also recorded.
Kanhaiyalal Lohia objected to this procedure, but the
Income-tax Officer, it is alleged, paid no heed to his
protests, and on. March 31, 1950 the assessment was
completed, and the income of the branches under the direct
control of "Brijlal Nandkishore" was pooled with the income
of Kanhaiyalal Lohia. The Income-tax Officer held that the
gifts were not bonafide, and were colourable transactions.
He relied upon the statement of Sri A. L. Mazumdar, which
was recorded when Kanhaiyalal Lohia was not present.
Against the assessment, Kanhaiyalal Lohia, appealed to the
Appellate Assistant Commissioner before whom two more
letters from leading businessmen were filed. The Appellate
Assistant Commissioner accepted the letters which were
filed, and held that the gifts were proved and were bona
fide and directed the exclusion
844
of the income of "Brijlal Nand kishore" from the assessment
of Kanhaiyalal Lohia. The order of the Appellate Assistant
Commissioner was pronounced on December 27, 1951. The
Department appealed to the Appellate Income-tax Tribunal,
Calcutta Bench. The Tribunal disagreed with the Appellate
Assistant Commissioner, all held on January 8, 1953, that
the gifts were not proved by the assessee by unimpeachable
evidence, and that the income of "Brijilal Nandkishore" was
rightly included in the assessment. As stated already,.
applications under s. 66 (1) and s. 66 (2) were made to the
Tribunal and the High Court respectively. The Tribunal
referred one question, but declinedto refer the. other
quest-ions. The High Court then moved under s. 66 (2) but
without success. The High Court agreed with the Tribunal
and answered the question which was referred, against
Kanhaiyalal Lohia. Before the High Court, Kanhaiyalal’s
counsel, Dr. Pal, admitted that he. could not persuade the
Court to answer the referred question against the,
Department, and it appears that it was conceded by the
Department before the High Court that the assessment of
"Brijlal Nandkishore" would be cancelled. Kanhaiyalal Lohia
then filed the present appeals against the order of the
Tribunal dated January 8, 1953.
This Court has pointed out in Chandi Prasad, Chokhani v.
State of Bihar(1) and Indian Aluminium Co., Ltd. v.
Commissioner of Income-tax (2) that the two cases in which
this Court interfered with appellate orders of a Tribunal
and relied upon before us, were of a special kind. In
Dhakheshwari Cotton Mills case(3) there was a breach of the
principle, of natural justice, and that was held sufficient
to entitle an aggrieved party to come to this Court against
the appellate order of the Tribunal under Art. 136. In
(1) (1962) 2 S.C.R. 276.
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(2)Civil Appeal No. 176 of 1959 decided on April 24, 1961.
(3) (1955) 1 S.C.R. 941.
845
Baldev Singh’s case (1) this Court entertained an appeal
against the appellate order of the Tribunal, because
limitation to take other remedies was IS barred without an
fault of the assessee concerned. The ratio in each of these
cases is that a circumstance which cannot be corrected by
the procedure of a stated question of law on a statement of
the case may afford a ground for invoking the jurisdiction
of Court under Art. 136. That ratio does not apply, where a
question of law can be raised, and is capable of being
answered by the High Court or on appeal by this Court. An
appeal against an order of the High Court deciding a
question referred or against a refusal to call for a
statement can be brought before this Court under s. 66A, if
the High Court decides the question referred and under Art.
136, if the High Court refuses to call for a statement.
In the present case, the order of the High Court on the
question referred was not brought before this Court by the
ordinary, mode indicated in the Indian Income-tax Act,
presumably because of the concession of counsel that he
could not claim that the question be answered in favour of
the assessee and the attitude of the Department that the
assessment of "Brijlal Nandkishore" would be cancelled. The
order refusing to call for a statement on questions other
than the one referred is also not questioned before us. The
attempt is to bring this case within the ratio of
Dhakeshwari Cotton Mills’ case(2),and in support, it has
been pointed out mainly that the examination of Sri A. L.
Mazumdar in the absence of Kanhaiyalal Lohia was against the
principles of natural justice. The statement of Sri A. L.
Mazumdar was taken on March 28, 1950, and it is recorded as
follows :
"Mr. Mazumdar is questioned by me as to what
be knows regarding the alleged gift as
recorded in the books of Kanhaiyalal Lohia in
favour of Brijlal and Nand Kishore. He says
(1) (1961) 1 S.C.R, 482. (2) (1955) 1 S.C.R. 941.
846
that I don’t remember things very distinctly
but 1 can say that the gifts to Brij Lal or
Nand.Kishore were not made in my presence as
alleged. Mr. Kanhaiyalal Lohia used to tell me
that his brother and nephew are idling away
their time hence I shall give them a. gift and
make them work by that money.
The partnership deed was most probably drawn
up by me. The gift, was reported to have been
made to Brij Lal and Nand Kishore before I
should have taken up the drafting of the deed.
Kanhaiyalal told me several times that he
wanted to separate his brother and nephew.
When the firm was started then Brijlal came to
me and asked me if father and son’s
partnership deed could be drawn up.-
I don’t know anything else than this in the
matter."
The lie given by Sri Mazumdar to the statement of
Kanhaiyalal Lohia has affect his credibility. The order
sheet shows that Mr. B. Sen Gupta took a copy of Sri
Mazumdar’s statement and expressed a desire to cross-examine
him; but when the opportunity was given, he failed to
appear. It is impossible to think in these circumstances
that there has been any breach of the principles of natural
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justice. The order sheets of March 29 and 30, 1950 clearly
record the absence of Mr. B. Sen Gupta. In our opinion,
there is no breach of the principles of natural justice in
this case to entitle the appellants to invoke the ruling in
Dhakeshwari Cotton Mills case
It was contended before us that the finding of the Tribunal
was perverse, and that on an examination of the total
circumstances, it is quite clear that the gifts were not
only real, but were acted upon. This was a matter within
the jurisdiction of
(1) (1955) 1 S.C.R. 941.
847
the Appellate Tribunal as the final fact-finding authority.
The Tribunal acted within its powers in refusing to accept
the evidence tendered, and looking at the circumstances of
the. case, we cannot say that the finding has been
perversely reached. For a number of years, the brother and
the nephew were supported by Kanhaiyalal Lohia, and it does
not appear that a gift of even a small sum was made to them
to put them on their legs. Suddenly in the year 1943,
’Kanhaiyalal Lohia made up’ his mind to put them in business
with a gift of the order of Rs. 7,60,000 odd. For this
purpose, he had to overdraw his accounts with the Bank and
to pay interest to the Bank. It does not appear why he felt
that the establishment of his brother and nephew in business
should be made on such a grand scale, which involved him in
debt. This circumstance, taken with the fact that Mr.
Mazumdar stated that he had always complained that they were
good for nothing and were idlers, makes the transactions
auspicious. It was presumably done with a view to reduce
the assessable profits in the hands of Kanhaiyalal Lohia,
and on the evidence, the Tribunal was entitled to hold, as
it did, that this was a sham transaction. In our opinion,
no special circumstances exist, on which the appellants can
claim to come to this Court against the decision of the
Tribunal, by passing the decision of the of High Court on
the question referred and there fusal ’the High Court to
call for a statement of the case from the Tribunal on
questions which the Tribunal refused to refer to the High
Court. The appeals are, therefore, within the rulings of
this Court in Chandi Prasad Chokhani v. State of Bihar (1)
and Indian Aluminium Co., Ltd. v. Commissioner of Income-
tax(2), and must be regarded as incompetent.
The appeals are dismissed with costs, one set.
Appeal dismissed.
(1) (1962) 2 S.C.R. 276.
(2) Civil Appeal No. 176 of 1939 decided on April 24, 1961
848