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PETITIONER: COMMISSIONER OF INCOME TAX, CULCUTTA

       Vs.

RESPONDENT: KARAM CHAND THAPAR & BROS. (P) LTD.

DATE OF JUDGMENT14/02/1989

BENCH: KANIA, M.H. BENCH: KANIA, M.H. SHARMA, L.M. (J)

CITATION:  1989 AIR 1045            1989 SCR  (1) 638  1989 SCC  (2)  31        JT 1989 (1)   304  1989 SCALE  (1)421

ACT:     Constitution  of  India,  1950--Article  136--Tribunal’s decision  on  question  of fact--Such a finding  not  to  be interfered with unless it is based on irrelevant material or perverse.     Income-tax  Act,  1961: Section 256--Reference  to  High Court-Question  of  fact or law--Assessee claiming  loss  on sale  of  shares-Whether capital loss, or business  loss  or genuine or bogus--Only question of fact--Tribunal’s decision final--Tribunal need not specifically state its taking  into account the cumulative effect of the circumstances-Court not to interfere unless Tribunal’s decision is based on  irrele- vant consideration or perverse.

HEADNOTE:     For the assessment year 1959-60, the Income Tax  Officer disallowed  the loss claimed by the Respondent-assessee,  on the  sale of certain shares, to its allied concern,  on  the grounds that the sale price was much below the market quota- tion and that the motive behind the transactions was to  set off the loss against the profits and hence the  transactions were not genuine.     On  appeal by the assessee the Appellate Assistant  Com- missioner  held  that the losses on  both  the  transactions cannot be held to be business losses.     ion  a  further  appeal by the  assessee,  the  Tribunal observed  that there was nothing to show that  the  transac- tions in question had anything to do with the control of the companies  concerned. It also relied upon  the  circumstance that  the sales were at the market rates or going rates  and held  that  there was no question of making  a  bogus  loss. Based  on these facts and circumstances, the  Tribunal  held that  the  losses in respect of the sales of the  shares  in question, were liable to be allowed as business losses. 639     The  Commissioner of Income Tax made an  application  to the Tribunal for referring certain questions for the  deter- mination  of the High Court. The Tribunal declined to  refer the questions on the ground that they were not questions  of law, which deserved to be referred to the Court for determi- nation. This order of the Tribunal was confirmed by the High

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Court.     This appeal, by special leave, is against the said order of the High Court. Dismissing the appeal,     HELD:  1. Where the Tribunal has come to the  conclusion that the loss incurred by the assessee in the sale of shares held by it was a trading loss and it is not the case of  the Department that in arriving at its decision the Tribunal had taken  into consideration any irrelevant material or  failed to  take into consideration any relevant material, there  is no  room for interference by the court. It is  well  settled that the Tribunal is the final fact finding body. The  ques- tions  whether  a  particular loss is a trading  loss  or  a capital  loss and whether the loss is genuine or  bogus  are primarily  questions  which  have to be  determined  on  the appreciation of facts. The findings of the Tribunal on these questions  are not liable to be interfered with  unless  the Tribunal has taken into consideration any irrelevant materi- al  or  has failed to take into consideration  any  relevant material  or  the conclusion arrived at by the  Tribunal  is perverse in the sense that no reasonable person on the basis of  the  facts before the Tribunal could have  come  to  the conclusion to which the Tribunal has come. [645B-D]     C.I.T., Bihar & Orissa v. Dalmia Jain & Co. Ltd., [1972] 83 ITR 438, relied on.     2.  It is equally well settled that the decision of  the Tribunal  has  not to be scrutinised  sentence  by  sentence merely  to find out whether  all facts have been set out  in detail by the Tribunal or whether some incidental fact which appears  on record has not been noticed by the  Tribunal  in its  judgment. If the court, on a fair reading of the  judg- ment  of the Tribunal, finds that it has taken into  account all  relevant  material and has not taken into  account  any irrelevant  or impermissible material in basing its  conclu- sions,  the  decision of the Tribunal is not  liable  to  be interfered with, unless, of 640 course,  the  conclusions  arrived at by  the  Tribunal  are perverse -[645DF]     3.  In the instant case, the Tribunal has taken note  of all  the relevant circumstances which appear on  record  and which  were referred to by the Departmental  Representatives before  the  Tribunal.  It has not taken  into  account  any material which could he said to be irrelevant in arriving at its conclusions. In considering whether the shares of Bharat Starch  & Chemicals Ltd. and Greaves Cotton & Co. Ltd.  were held  by the assessee as stock-in-trade or as  capital,  the Tribunal  has taken into account the fact that the  assessee was earlier treated by the Department as a dealer in shares, that  circumstances  cannot he regarded as  irrelevant.  The decision  arrived  at by the Tribunal cannot be said  to  he perverse. [645F-H]     Karam  Chand Thapar & Bros. (P) Ltd. v. Commissioner  of Income-tax  (Central), Calcutta, [1971] 82 I.T.R.  899;  re- ferred to.     4. It is not necessary for the Tribunal to state in  its judgment specifically or in express words that it has  taken into  account the cumulative effect of the circumstances  or has  considered  the totality of facts, as if  that  were  a magic formula; if the judgment of the Tribunal shows that it has, in fact, done so, there is no reason to interfere  with the decision of the Tribunal. [646B-C]

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JUDGMENT: CIVIL  APPELLATE JURISDICTION: Civil Appeal No. 1119(NT)  of 1975.     From  the  Judgment and Order dated  16.12.1974  of  the Calcutta High Court in I.T. Reference No. 256 of 1974. S.C. Manchanda, Ms. A. Subhashini and K.C. Dua, for the Appellant.     Dr. D.-Pal, Ms. M. Seal, Ms. Mridula Ray and H.K.  Dutt, for the Respondents. The Judgment of the Court was delivered by KANIA, J. This is an appeal filed by the Commissioner of 641 Income-tax, Calcutta, by Special Leave against an order of a Division  Bench  of  the Calcutta High  Court  declining  to direct  the Income-tax Appellate Tribunal  (hereinafter  re- ferred  to  as  "the Tribunal") to refer to  the  Court  for determination of certain questions raised by the Commission- er of Income-tax.     It is necessary to set out a few facts for the apprecia- tion of the controversy in this appeal. In its agreement for the Assessment Year 1959-60 the respondent-assessee  claimed deductions inter alia in respect of the loss of the sale  of certain shares of Bharat Starch & Chemicals Ltd. and Greaves Cotton  & Co. Ltd. for the relevant previous year.  The  re- spondent-assessee  had  sold in the relevant  previous  year 2500  shares of Bharat Starch & Chemicals Ltd. to  M/s  K.C. Thapar  & Sons Ltd., a company belonging to the same  group. These shares were purchased on 22nd February, 1958 and  were sold on 31st March, 1959. The loss claimed was of Rs.26,465. The Income-tax Officer concerned disallowed this case on the ground  that the sale price was shown at Rs.2.50  per  share whereas the market quotation on 31st March, 1959 was Rs.8.06 per  share.  The  Income-tax Officer also  relied  upon  the circumstances  that  the shares had been sold to  a  company which  was an allied concern of the assessee, that  is,  be- longing to the Thapar group. The Income-tax Officer took the view  that  the sale had been affected only  to  enable  the assessee  to  claim  the loss and could not  be  allowed  as genuine.  The respondent-assessee had also sold 3000  shares of  Greaves Cotton & Co. Ltd. on 4th February, 1959  to  M/s K.C. Thapar & Sons Ltd., and claimed a loss of Rs.47,878.55p on this transaction. The Income-tax Officer held that  these shares  had  also been sold to a company  belonging  to  the Thapar  group and under the control of that group.  The  In- come-tax  Officer took the view that the motive for  selling the  aforesaid  shares  and some other shares  was  to  make losses   and   set  them  off  against   the   profits   and these  .transactions  could not be considered to be  in  the normal course of business. He held that this type of  trans- action  could not be regarded as genuine and disallowed  the claim.     The  assessee preferred an appeal to the  Appellate  As- sistant  Commissioner  against the order of  the  Income-tax Officer.  In  respect of the sale of the  shares  of  Bharat Starch & Chemicals Ltd. the Appellate Assistant Commissioner accepted  that  the  market quotation  of  these  shares  at Rs.8.06 on 31st March, 1959, was a nominal quotation 642 and  there was no transaction in these shares at  that  rate because  there was no buyer at that price and that  the  In- come-tax Officer was wrong in relying upon this circumstance to  come to the conclusion that the transaction of  sale  of these shares was not genuine. He also took the view that the Income-tax  Officer was in error when he took the  view  be- cause  these  shares  had changed  hands  between  companies

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controlled  by the same group that fact vitiated  the  sale. He, however, took the view that the disallowance was correct as the shares were, in fact, purchased at Rs.2.50 per  share and  sold at the same rate, that is, he disagreed  with  the average cost worked out by the assessee and pointed out that the basis on which such average cost was worked out had  not been shown to him. He further took the view that the  25,000 shares  of this company sold by the assessee  constituted  a large block  and  was connected with the acquiring of control  over  the Bharat Starch & Chemicals Limited and hence the loss  should be  regarded as an investment loss and not a business  loss. As far as the loss on the sale of shares of Greaves Cotton & Co.  Ltd.  was concerned, after referring to the  ground  on which  the Income-tax Officer had disallowed this  loss  the Appellate  Commissioner  took the view that the  holding  of these  shares could be reasonably attributed to the  invest- ment  portfolio and hence, the said loss was a capital  loss and  not a business loss or a revenue loss. He  further  re- ferred to the fact that the shares of this company,  namely, Greaves  Cotton  &  Co. Ltd. were not quoted  in  the  stock exchange  market.  On the basis of  these  circumstances  he disallowed the loss.      The  assessee went in further appeal to  the  Tribunal. The Tribunal relied upon the fact that in the earlier years, the  profits made by the assessee on the sale of shares  had been treated as business income and this would show that the assessee in the earlier years had been regarded as a  dealer in  shares. The Tribunal rightly observed that  under  these circumstances,  there was no reason why the assessee  should not be treated as a dealer in shares in the relevant  previ- ous year either. The Tribunal also pointed out that  nothing was shown on the record which would suggest that the  acqui- sition  and purchase of these shares was for anything  other than  normal commercial purposes or that the sales were  not made  in the ordinary course of business. The Tribunal  held that  the  mere  fact that the shares have been  sold  to  a company  belonging  to the same  group and  under  the  same control  would not be conclusive to show that  the  transac- tions were bogus or 643 not  in the normal course of business or were for  an  extra commercial consideration. It was pointed out to the Tribunal by  the  Departmental Representative  concerned  that  these shares  were  shown by the assessee as  investments  in  the balance  sheet. The Tribunal pointed out that  this  circum- stance  would not necessarily lead to a conclusion that  the shares  were  held in the investment portfolio  and  not  as stock-in-trade  and in this connection, the Tribunal  placed reliance on the decision of this Court in Karam Chand Thapar and  Bros. P. Ltd. v. Commissioner of Income-tax  (Central), Calcutta, [1971] 82 I.T.R. 899 wherein it was held that  the circumstances that the assessee had shown certain shares  as investment  shares  in its books of account as well  as  its balance  sheet was by itself not a  conclusive  circumstance indicating  that the shares were held on investment  account or  capital  account but it was a relevant  circumstance  on which the Tribunal could rely for drawing an inference  that the loss on the sale of the said shares was a capital  loss. It  may be noted that this decision shows that although  the manner  in  which shares are shown in the balance  sheet  or books  of account of the assessee is relevant, it is  not  a conclusive  factor  in determining whether the  shares  were held  as  an investment or as stock-in-trade.  However,  the view taken by this Court in that case was that the loss  was

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a  capital loss as the sale of the shares was made  after  a long period of over ten years. In the case before us, howev- er,  the shares have been sold within a much shorter  period which would suggest, although by no means conclusively, that the sales were in the nature of a business transaction.  The Tribunal  also pointed out that the circumstances  that  the transactions  were between companies in which  Thapar  group had a controlling interest and also in respect of shares  of companies  belonging to the same group by  themselves  would not  support  the  conclusion  that  the  transactions  were stage-managed,  although it might arouse suspicion and  call for  a closer scrutiny. In respect of both the said lots  of shares,  the Tribunal pointed out that there was nothing  to show  that the purchase of these shares had anything  to  do with  the control of the companies concerned.  The  Tribunal relied  upon  the circumstances that the sales were  at  the market rates or going rates and hence, there was no question of  making a bogus loss. On the basis of these  conclusions, the Tribunal held that the losses in respect of the sales of shares  of  Bharat  Starch & Chemicals Ltd. as  well  as  of Greaves  Cotton  &  Co. Ltd. were liable to  be  allowed  as business losses. From  this  decision of the Tribunal,  the  Commissioner  of Income- 644 tax applied to the Tribunal for referring certain  questions for the determination of the High Court. The Tribunal passed an order referring one question to the Court for  determina- tion but declined to refer the other questions on the ground that  the decision of the Tribunal was arrived at purely  on the  appreciation of the facts brought out in  evidence  and that  these questions, in respect of which the  Commissioner wanted a reference, were not questions of law which deserved to  be  referred to the court for determination.  From  this decision  of the Tribunal, the Commissioner applied  to  the High  Court  for directing the Tribunal to  refer  the  said questions  also  to the Court for  determination.  The  High Court  by its impugned judgment rejected the  said  applica- tion. The present appeal is directed against the said  deci- sion of the High Court.     When the appeal reached hearing before us, Mr.  Manchan- da,  learned  counsel for the Commissioner  stated  that  he pressed  the appeal only in respect of two  questions  which are as follows:                     1.  Whether,  on the facts  and  in  the               circumstances  of the case, the  Tribunal  had               any evidence and had not relied on  irrelevant               or partly irrelevant materials in holding that               the transactions entered into by the  assessee               in. the purchase and sale of shares of  Bharat               Starch  & Chemicals Ltd. and Greaves Cotton  &               Co. Ltd. were genuine commercial  transactions               and  whether  such finding was  not  otherwise               unreasonable or perverse?                     2.  Without  prejudice to  Question  No.               (1), whether, on the facts and in the  circum-               stances  of the case, the  Tribunal’s  finding               that  the assessee entered into  the  transac-               tions of purchase and sale of 25000 shares  of               Bharat Starch & Chemicals Ltd. and 3000 shares               of Greaves Cotton & Co. Ltd. in the course  of               its  business as a dealer in shares was  based               on  no evidence or was otherwise  unreasonable               or perverse?      In  deciding the question whether the  Tribunal  should

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have  referred the aforesaid two questions to the court  for determination,  there  are certain well  settled  principles which  have to be borne in mind. In Commissioner of  Income- tax, Bihar and Orissa v. Dalmia Jain & Co. 645 Ltd.,  [1972] 83 I.T.R. 438 this Court held that  whether  a particular  loss  is  a trading loss or a  capital  loss  is primarily a question of fact. Where the Tribunal has come to the conclusion that the loss incurred by the assessee in the sale  of the shares held by it was a trading loss and it  is not  the  case  of the Department that in  arriving  at  its decision  the  Tribunal  had taken  into  consideration  any irrelevant material or failed to take into consideration any relevant material, there is no room for interference by  the court.  It  is well settled that the Tribunal is  the  final fact  finding body. The questions whether a particular  loss is a trading loss or a capital loss and whether the loss  is genuine  or bogus are primarily questions which have  to  be determined on the appreciation of facts. The findings of the Tribunal on these questions are not liable to be  interfered with  unless the Tribunal has taken into  consideration  any irrelevant material or has failed to take into consideration any  relevant material or the conclusions arrived at by  the Tribunal is perverse in the sense that no reasonable  person on the basis of facts before the Tribunal could have come to the conclusion to which the Tribunal has come. It is equally settled  that  the decision of the Tribunal has  not  to  be scrutinised sentence by sentence merely to find out  whether all  facts  have been set out in detail by the  Tribunal  or whether some incidental fact which appears on record has not been noticed by the Tribunal in its judgment. If the  court, on  a  fair reading of the judgment of the  Tribunal,  finds that it has taken into account all relevant material and has not taken into account any irrelevant material in basing its conclusions,  the decision of the Tribunal is not liable  to be  interfered  with,  unless, of  course,  the  conclusions arrived  at  by  the Tribunal are  perverse.  Keeping  these principles  in  mind in the present case, we find  that  the Tribunal  has taken note of all the  relevant  circumstances which  appear  on record and which were referred to  by  the Departmental  Representatives  before the Tribunal.  It  has been taken into account any material which could be said  to be irrelevant in arriving at its conclusions. In considering whether  the  shares of Bharat Starch & Chemicals  Ltd.  and Greaves  Cotton  &  Co. Ltd. were held by  the  assessee  as stock-in-trade  or as capital, the Tribunal has  taken  into account  the fact that the assessee was earlier  treated  by the Department as a dealer in shares, as pointed out by  Mr. Manchanda,  but  that  circumstance cannot  be  regarded  as irrelevant in view of the decision to which we have  already referred.  It is also not possible to say that the  decision of the Tribunal is perverse. Mr. Manchanda strongly contend- ed  before us that the Tribunal has nowhere stated in  terms that it 646 has  taken into consideration the totality of  circumstances or the cumulative effect of the circumstances pointed out to the Tribunal and hence the matter should be remanded to  the Tribunal. In our view, there is no substance in this submis- sion.  It is true that the Tribunal has not stated in  terms that it has considered the cumulative effect of the  circum- stances pointed out to the Tribunal, but, on the other hand, a  plain  reading of the judgment of the Tribunal  makes  it clear that the Tribunal has, in fact, taken into account the cumulative effect of the circumstances on record before  the

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Tribunal.  It is not necessary for the Tribunal to state  in its  judgment specifically or in express words that  it  was taken  into  account the cumulative effect  of  the  circum- stances or has considered the totality of facts, as if  that were a magic formula; if the judgment of the Tribunal  shows that it has, in fact, done so, there is no reason to  inter- fere  with  the decision of the Tribunal.  In  our  opinion, there is no merit in this appeal and it must fail. In the result, the appeal fails and is dismissed with costs. G.N.                           Appeal dismissed.                                 1 ?647