1986 (5) TMI 2 - SC - Income Tax

Reference under s.256(2) required where decision ignored material evidence on donations, donor identity, and share ownership

SC held the HC erred in refusing to direct a reference under s.256(2) because questions of law arose from the Tribunal's failure to appreciate material ... Questions of law arising from findings of fact - no evidence to support finding / perverse finding - use of irrelevant or inadmissible material vitiating factual conclusion - mixed question of law and fact - benami ownership - reference under section 256(2) of the Income tax Act, 1961 Reference under section 256(2) of the Income tax Act, 1961 - questions of law arising from findings of fact - mixed question of law and fact - High Court's refusal to call for a statement of the case under section 256(2) in respect of the questions framed by the Revenue was in error. - HELD THAT: - The Court applied established principles governing when a question of law is referable from Tribunal findings that rest on appreciation of facts. Authorities were cited to show that a factual finding is open to review only if there is no evidence to support it, it is perverse, it rests on material partly irrelevant or inadmissible, or it is based on conjecture or surmise. On the materials before it the Court found that the aspects identified by the Revenue raised questions of law because the Tribunal may have failed to consider relevant evidence and may have acted on matters which could render its factual conclusions vitiated. In that view the High Court should have directed a reference and therefore its refusal was held to be erroneous. High Court's order refusing reference set aside and Tribunal directed to send a statement of the case to the High Court. No evidence to support finding / perverse finding - use of irrelevant or inadmissible material vitiating factual conclusion - questions of law arising from findings of fact - Whether the Tribunal's conclusions that the Kalinga Foundation Trust had genuine public donations and was a separate entity were sustainable or were vitiated by non consideration of vital material and absence of evidence as to identity and capacity of donors. - HELD THAT: - The Court identified as the core factual controversy the absence of proof as to who the donors were, how much they contributed and their capacity to make such donations, together with other improbabilities (large cash donations retained in cash, absence of receipts or donor lists, funds kept with an individual without interest, and no bank deposits or earlier investments). The Tribunal's finding that the trust was built by public donations and was distinct from the assessee's private trust did not adequately address these material lacunae. Failure to appreciate or discuss these vital facts amounted to non consideration of relevant material and raised questions of law on the authorities cited; accordingly the matter requires consideration by the High Court by way of a reference. Issue remanded for statement of the case to be sent to the High Court for determination. Benami ownership - no evidence to support finding / perverse finding - questions of law arising from findings of fact - Whether the 39,000 shares of Kalinga Tubes Ltd. issued in 1958 were the property of the ostensible allottees or were in fact held benami for the assessee, and whether the Tribunal properly considered materials collected by the Revenue subsequent to earlier decisions. - HELD THAT: - The Court noted that the Income tax Officer had gathered post judgment material indicating improbabilities in the ostensible allottees' capacity to have acquired the shares (wealth and income returns, non realisation of share moneys, and other indicia), and that those materials did not appear to have received proper consideration by the Tribunal. Given that the question touches on benami ownership and involves assessment of whether the Tribunal's factual conclusion could be sustained in light of newly collected material (and in the context of prior judicial decisions), the point raises a question of law fit for reference rather than mere reweighing by the High Court or this Court. Issue remanded for inclusion in the statement of the case to be sent to the High Court for adjudication. Final Conclusion: The judgment and order of the Orissa High Court are set aside. The Tribunal is directed to send a statement of the case on the identified questions for the three assessment years 1962-63, 1963-64 and 1964-65 to the High Court at Cuttack within six months; appeals are allowed and costs shall abide the result of the reference. Issues Involved1. Whether the findings of the Appellate Tribunal are vitiated in law by ignoring relevant evidence and relying on incorrect facts.2. Whether the Tribunal's conclusion about the existence and distinct nature of the Kalinga Foundation Trust is logically supported by the materials on record.3. Whether the Tribunal erred in law by not considering relevant matters in determining the Kalinga Foundation Trust's acquisition of property from public donations.4. Whether the Tribunal was correct in holding that income from the Kalinga Foundation Trust should not be included in the assessee's income.5. Whether there was any evidence supporting the Tribunal's finding that the assessee collected donations from the public for the Kalinga Foundation Trust.6. Whether the Tribunal was right in excluding amounts donated by the assessee from his assessment if the answer to the previous question is negative.7. Whether the Tribunal was correct in holding that the Revenue authorities must accept the Supreme Court's decision regarding the ownership of 39,000 shares of Kalinga Tubes Ltd.8. Whether the Tribunal's finding that the persons in whose names the shares stood were not benamidars of the assessee was perverse.Detailed Analysis1. Ignoring Relevant Evidence and Relying on Incorrect FactsThe Tribunal's findings were challenged on the grounds that it ignored relevant and admissible evidence and relied on incorrect facts. The Supreme Court emphasized that when a conclusion is reached based on an appreciation of several facts, the cumulative effect of all facts must be assessed rather than considering each fact in isolation. The Tribunal's decision must be supported by evidence and should not be perverse or based on conjectures and surmises.2. Existence and Distinct Nature of the Kalinga Foundation TrustThe Tribunal concluded that the Kalinga Foundation Trust came into existence in 1947 and was distinct from the trust created by the assessee in 1949. This finding was based on the materials on record, including the trust's registration in 1959 and its collection of public donations. However, the Supreme Court noted that the identity and creditworthiness of the donors were not established, raising questions about the genuineness of the trust.3. Acquisition of Property from Public DonationsThe Tribunal was criticized for not giving due consideration to relevant matters in determining whether the Kalinga Foundation Trust acquired property from public donations. The Supreme Court highlighted that there was no evidence of who contributed to the trust, how much was contributed, and the donors' capacity to make such contributions. This lack of evidence was deemed a significant omission.4. Income from Kalinga Foundation TrustThe Tribunal held that the income from dividends, interest on loans, and other investments in the name of the Kalinga Foundation Trust did not belong to the assessee and should be excluded from his assessment. The Supreme Court questioned whether there was sufficient evidence to support this finding, particularly given the lack of clarity about the trust's funds and their sources.5. Evidence Supporting Collection of DonationsThe Tribunal found that the assessee collected donations from the public for the Kalinga Foundation Trust. The Supreme Court noted that while some names of collectors were provided, there was no evidence about the donors or their capacity to donate. This lack of evidence raised doubts about the Tribunal's finding.6. Exclusion of Donated Amounts from AssessmentIf the finding that the assessee collected public donations is negative, the Tribunal's decision to exclude the amounts donated by the assessee from his assessment must be reconsidered. The Supreme Court emphasized the need for proper evidence to support the exclusion of these amounts.7. Acceptance of Supreme Court's Decision on Share OwnershipThe Tribunal held that the Revenue authorities were bound to accept the Supreme Court's decision in a previous case regarding the ownership of 39,000 shares of Kalinga Tubes Ltd. The Supreme Court noted that new evidence collected by the Income-tax Officer after the previous decision should have been considered by the Tribunal.8. Benami Ownership of SharesThe Tribunal found that the persons in whose names the 39,000 shares stood were not benamidars of the assessee. The Supreme Court questioned whether the Tribunal properly considered the evidence, including the financial capacity of the persons named and the circumstances under which the shares were acquired. The Tribunal's failure to consider these factors was seen as a significant oversight.ConclusionThe Supreme Court concluded that the High Court erred in not directing a reference on the questions of law raised. The Tribunal was directed to send a statement of the case to the High Court within six months, and the High Court was urged to dispose of the reference quickly due to the age of the matter. The appeals were allowed, and costs were to abide by the ultimate order in the reference.