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 ... Scope of the jurisdiction of the High Court in directing a reference on a question of law where the decision rests primarily on appreciation of facts - question of law arise - Cash Credits - additions made by the Revenue to the total income - genuineness of the donations - Tribunal's failure to consider identity and credit worthiness of creditors - Whether there was no evidence, substantial or reliable, produced to indicate who were the persons who had contributed to the trust, how much they had contributed to the trust, the identity and the creditworthiness of the donors to the said trust. - Assessee claimed in his assessment deduction in respect of the payments of interest on loans taken from Kalinga Foundation Trust and others and certain dividend transactions relating to the shares of Kalinga Tubes Ltd. - HELD THAT:- It is not necessary nor it is proper at this stage for this court to express any opinion whether on these facts what conclusion should properly be drawn but the basic question, in our opinion, on the first aspect of the matter as to whether the donations alleged were given by the assessee were the moneys raised by the Trust as donations from various people or not remains. That question, in our opinion, should be considered in its proper perspective but does not seem to have been done. This is the most material portion and in not appreciating the material portion and discussing the evidence in respect of the same, in our opinion, there was non-consideration of a relevant factor on a factual aspect and on this, the questions, firstly, whether the Tribunal's decision was perverse in the sense that no man instructed properly at law could have acted as the Tribunal did and, secondly, whether there was ignoring of all the materials and relevant facts in considering this aspect, do arise. In our opinion, ignoring that fact is vital fact which influences the decision and a conclusion and must be judged in its proper perspective. Therefore, the questions which arise on this aspect are questions of law, on the principles enunciated by this court in the decisions noted hereinbefore. The Income-tax Officer was of the view that the facts suggested that the seven persons were benamidars of Shri Patnaik and whether they are so or not and what is the effect of the decision of this court on this point is another question. But these facts were not properly considered by the Tribunal to come to the conclusion as to whether 39,000 shares of Kalinga Tubes Ltd. belong to the assessee and not to the shareholders named. The Income-tax Officer has categorically found that Shri Mall was not assessed to income-tax as an individual. He was assessed as a member of a joint family on an income of Rs. 15,000 to Rs. 17,000. The total wealth of the family was about half a lakh. It was not possible to purchase shares of the face value of Rs. 9 lakhs on his own. The shares from 1959 to 1964 had gradually appreciated in value. In other words, even after deducting the loan incurred by acquiring these shares, the net worth of these shares during 1959 to 1967 was Rs. 2-1/2 lakhs to Rs. 7-1/2 lakhs. Shri Mall never filed his wealth-tax return which clearly showed that nowhere the shares were treated as his own. These and other factors taken in conjunction led the Income-tax Officer to the conclusion that the 39,000 shares belonged to Shri B. Patnaik. In that view of the matter, the materials gathered by the Revenue subsequent to the decision in S. P. Jain's case [1973] 87 ITR 370 (SC) on the aforesaid lines should have been appreciated and considered by the Tribunal. In our opinion, therefore, on the principles enunciated by this court in several decisions mentioned hereinbefore, these questions as questions of law mentioned above do arise. In our opinion, the High Court, in the facts and circumstances of the case, was in error in not directing a reference on the above named questions to the High Court under section 256(2) of the Act. 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.