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PETITIONER: PATNAIK & CO. LTD.

       Vs.

RESPONDENT: THE COMMISSIONER OF INCOME TAX, ORISSA

DATE OF JUDGMENT16/07/1986

BENCH: PATHAK, R.S. BENCH: PATHAK, R.S. MUKHARJI, SABYASACHI (J)

CITATION:  1986 AIR 1483            1986 SCR  (3) 207  1986 SCC  (4)  16        JT 1986   202  1986 SCALE  (2)12

ACT:      Business   loss-Purchase   of   Government   bonds   or securities with  the object  of  increasing  the  assessee’s business with  the Government  and/or retaining the goodwill of the  authorities for the purpose of its business and loss incurred thereby-Whether capital loss or revenue loss.      Jurisdiction of  the High  Court in reference under the Income Tax  Act-Interference with  finding of facts, whether permissible.      Supreme Court  Rules, 1966  Order XLVII  Rule 6-Supreme Court can  itself decide  the questions referred to the High Court to avoid further delay instead of remanding the case.

HEADNOTE:      The assessee  deals in automobiles and also sells spare motor parts.  For the  assessment year  1963-64 the assessee claimed a  loss of Rs.53,650 sustained by it on disposing of its subscriptions  to the  Orissa  Government  floated  Loan 1972. It  claimed that  the loss  suffered by it was revenue loss and,  therefore, deductible  against  the  profits  for future years.  The Income  Tax  Officer  and  the  Appellate Commissioner of  Income  Tax  negatived  the  claim  of  the assessee. But  on  second  appeal,  the  Appellate  Tribunal accepted  the   contention  that  the  subscription  to  the Government loan  was conducive  to its business and that the loss  arose   in  the  course  of  the  business,  and  that therefore, the  assessee was  entitled to a deduction of the loss claimed  by it. But the High Court on a reference to it at the  instance of  the revenue,  held that  the loss was a capital loss.  The High  Court was  of  the  view  that  the factual substratum  of the case had been misconceived by the Appellate Tribunal  and that  it was, therefore, entitled to re-examine the  evidence and  arrive at  its own findings of fact. Hence this appeal by special leave.      Allowing the appeal, the Court, 208 ^      HELD: 1.1  Whether Government  bonds or securities were purchased by  the assessee  with a  view to  increasing  his business with the Government or with the object of retaining the goodwill  of the  authorities for  the  purpose  of  his

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business, the  loss incurred  on the  sale of  such bonds or securities was allowable as a business loss. [212F-G]      1.2. Having  regard to  the sequence  of events and the close proximity  of  the  investment  with  the  receipt  of Government orders  it is  clear that  the investment, in the instant case,  was made in order to further the sales of the assessee and  boost its  business. In the circumstances, the investment was  made by way of commercial expediency for the purpose of carrying on the assessee’s business and therefore the loss  suffered by  the  assessee  on  the  sale  of  the investment must be regarded as a revenue loss. [211H;212A-B]      1.3 No  enduring  benefit  was  brought  about  by  the assessee investing in the loan so far as the orders from the Government  Departments  were  concerned.  The  material  on record shows  that on  August 30,  1961 it  was  decided  to purchase 16  jeeps, 8  trucks and  4 one-tonne pick up vans. There was  nothing to show that there was any reason for the assessee  to   hold  on   to  the  investment  in  the  loan indefinitely. The  investment did not bring in an asset of a capital nature,  and that  in the  circumstances of the case the loss suffered by the assessee was a revenue loss and not a capital loss. [212D-F]      Commissioner of  Income-Tax v.  Industry  and  Commerce Enterprises  (P)   Ltd.,  [1979]   118  ITR   606  (Orissa); Additional  Commissioner   of   Income-tax,   Madras-II   v. B.M.S.(P) Ltd.,  [1979] 119  ITR 321  (Mad); Commissioner of Income-tax, Tamil  Nadu-V  v.  Dhandayuthapani  Foundry  (P) Ltd., [1980] 123 ITR 709 (Mad) approved.      2. It  is now  well settled that the Appellate Tribunal is the final fact-finding authority under the Income-tax Act and that  the Court  has no  jurisdiction to  go behind  the statements of  fact made  by the  Tribunal in  its appellate order. The  Court may  do so only if there is no evidence to support them  or  the  Appellate  Tribunal  has  misdirected itself in  law in arriving at the findings of fact. But even there the Court cannot disturb the findings of fact given by the  Appellate  Tribunal  unless  a  challenge  is  directed specifically by a question framed in a reference against the validity of the impugned findings of fact on the ground that there is  no evidence to support them or they are the result of a misdirection in law. [210E-G] 209      India Cements  Ltd. v.  C.I.T., 60  ITR 52, 64; Hazarat Pirahomed Shah Saheb Roza Committee v. CIT, 63 ITR 490, 495- 6; C.I.T.  v. Greaves  Cotton & Co. Ltd., 68 ITR 200; C.I.T. v. Meenakshi  Mills Ltd.,  63 ITR  609, 613; C.I.T. v. Madan Gopal Radhey  Lal, 73  ITR 652,  656; Hooghly  Trust Ltd. v. C.I.T.,  73  ITR  685,  690;  C.I.T.  v.  Imperial  Chemical Industries (India) Ltd., 74 ITR 17; Aluminium Corporation of India Ltd.  v. C.I.T., 86 ITR 11 and Commissioner of Income- tax, Bihar and Orissa v. S.P. Jain, 87 ITR 370 referred to.      3. In  the case of a reference under the Income Tax Act which has remained pending through its successive stages for the last  several years and as a result of the Supreme Court setting aside  the judgment  of the High Court, the case has to go  back to  the  concerned  High  Court  to  answer  the question of  law referred  to it, the Supreme Court to avoid further delay  can itself  decide the  said question of law. [211C-D]

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil  Appeal  No.  1359 (NT) of 1974

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    From the  Judgment and  Order dated  11.1.1974  of  the Orissa High  Court in  Special Jurisdiction  Case No.  62 of 1972.      Govind Das, P.N. Misra, D.C. Taneja and P.K. Juneja for the Appellant.      V.S.Desai, P.K.  Bhatnagar and  Miss A.  Subhashini for the Respondent.      The Judgment of the Court was delivered by      PATHAK, J.  This appeal  by special  leave is  directed against the  judgment of the High Court of Orissa and raises the  familiar  question  whether  a  loss  suffered  by  the assessee is a capital loss or a revenue loss.      The assessee  deals in automobiles and also sells spare motor parts.  For the  assessment year 1963-64, the relevant accounting period  being the  year ended March 31, 1963, the assessee claimed  a loss  of Rs.53,650  sustained by  it  on disposing of  its  subscription  to  the  Orissa  Government Floated Loan  1972. It  claimed that the loss suffered by it was revenue  loss  and,  therefore  deductible  against  its profits for  the year. The Income-tax Officer disallowed the loss in the view that it was 210 a capital  loss. The  assessee’s appeal was dismissed by the Appellate  Assistant  Commissioner  of  Income-tax.  But  on second appeal the Income-tax Appellate Tribunal accepted the contention of  the assessee  that the  subscription  to  the Government Loan  was conducive  to its business and that the loss  arose   in  the  course  of  the  business,  and  that therefore, the  assessee was  entitled to a deduction of the loss claimed  by it.  The Accountant Member and the Judicial Member wrote separate but concurrent orders. At the instance of the  Revenue the  Appellate Tribunal referred the case to the High  Court of  Orissa for  its opinion on the following question of law.           "Whether, in  the facts  and circumstances  of the           case, the  loss  of  Rs.53,650  sustained  by  the           assessee on  the sale  of the Government Loan is a           capital loss or a revenue loss."      Disagreeing with the findings of the Appellate Tribunal the High  Court held  that the  loss was  a capital loss and accordingly answered  the reference in favour of the revenue and against the assessee.      At the  outset, we  find it  necessary to note that the High Court has taken the view that the factual substratum of the case has been misconceived by the Appellate Tribunal and that it  is, therefore,  entitled to re-examine the evidence and arrive  at its  own findings  of fact. We think the High Court fell  into serious  error in  doing so. It is now well settled that  the Appellate  Tribunal  is  the  final  fact- finding authority  under the  Income-tax Act  and  that  the Court has  no jurisdiction  to go  behind the  statements of fact made  by the Tribunal in its appellate order. The Court may do  so only  if there  is no evidence to support them or the Appellate  Tribunal has  misdirected itself  in  law  in arriving at  the findings  of fact. But even there the Court cannot disturb  the findings  of fact given by the Appellate Tribunal unless  a challenge  is directed  specifically by a question framed  in a  reference against the validity of the impugned findings  of fact  on the  ground that  there is no evidence to  support them  or  they  are  the  result  of  a misdirection in  law. There  is a long line of cases decided by this  Court  laying  down  this  proposition.  See  India Cements Ltd.  v. C.I.T.,  60 ITR  52, 64; Hazarat Pirmahomed Shah Saheb  Roza Committee  v. C.I.T,  63  ITR  490,  495-6; C.I.T. v.  Greaves Cotton  & Co.  Ltd., 68 ITR200; C.I.T. v.

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Meenakshi Mills Ltd., 63 ITR 609, 613; C.I.T. v. Madan Gopal Radhey Lal,  73 ITR  652, 656; Hooghly Trust Ltd. v. C.I.T., 73 ITR  685, 690;  C.I.T. v.  Imperial  Chemical  Industries (India) Ltd.,  74 ITR 17 and Aluminium Corpon. of India Ltd. v. C.I.T., 86 ITR 11. The High Court has relied on Com 211 missioner of  Income-tax, Bihar  and Orissa v. S.P. Jain. 87 ITR 370 to justify its re-examination of the evidence and to supersede the  findings of  fact rendered  by the  Appellate Tribunal by  findings of  fact reached  by itself.  In  that case, however,  the questions raised in the Reference before the High  Court included  questions specifically challenging the findings  of fact  reached by  the Appellate Tribunal as being invalid  in law.  In the  present  case  the  question referred to the High Court was framed on the assumption that it had to be decided in the factual matrix delineated by the Appellate Tribunal:  In the  circumstances, the  findings of fact set  forth in  the judgment  of the  High Court must be vacated. We  would have sent the case back to the High Court requiring it to answer the question of law referred to it on the basis  of the  facts found by the Appellate Tribunal but we refrain  from doing  so and  propose to  dispose  of  the Reference ourselves  on the  statements of fact contained in the appellate  order of the Appellate Tribunal. The case has remained pending  through its successive stages for the last over 20  years, and  it is  appropriate that  it  should  be disposed of now without further delay.      According to  the statement of the case drawn up on the basis of  the appellate  order of the Appellate Tribunal the assessee was  told that  if it subscribed for the Government Loan preferential  treatment would  be granted  to it in the placing of orders for motor vehicles required by the various Government Departments  and to  the further  benefit  of  an advance from  the Government  up to 50 per cent of the value of the  orders placed.  Pursuant to  that understanding,  an advance to  the extent  of Rs. 18,37,062 was received by the assessee and  a  Circular  was  also  issued  by  the  State Government to  various Departments  to make purchases of the vehicles required  by them from the assessee. Because of the advance received  from the Government, the assessee was able to save  Rs.45,000 as  bank interest during the year. It was also noticed  that  the  sales  shot  up  substantially.  On September 4,  1961 the assessee made a deposit of Rs.5 Lakhs consequent upon  a Resolution  of  the  Board  of  Directors passed about  6 weeks  before after  a statement made by the Chairman during  the Board  meeting that  the Government had approached him  to subscribe to the Government Loan and that the Company  should do  so as good orders could be expected. The purchase  of the  loan was  approved  by  the  Board  of Directors and  was ratified in the Annual General Meeting of the shareholders  held on  December 31,  1961. The Appellate Tribunal found  that having regard to the sequence of events and the  close proximity  of the investment with the receipt of Government orders the conclusion was ines- 212 capable that the investment was made in order to further the sales of  the  assessee  and  boost  its  business.  In  the circumstances,  the   Appellate  Tribunal   held  that   the investment was  made by way of commercial expediency for the purpose of  carrying on  the assessee’s  business  and  that therefore, the  loss suffered by the assessee on the sale of the investment must be regarded as a revenue loss. We are of opinion that the Appellate Tribunal is right.      The High  Court, as has been mentioned, re-examined the facts on  the record  and found  that the investment was not

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connected with  the orders placed by the Government with the assessee and  the advance  payment made  by  the  Government Departments to the assessee, and it was in that context that the High  Court held  that the  investment in the Loan was a capital assest  and the  loss was  a capital  loss. The High Court took  the view  that the  investment was  of  enduring benefit to  the assessee  and  therefore  it  could  not  be allowed. We  find it  difficult to  hold  that  an  enduring benefit was  brought about  by the assessee investing in the Loan. So  far as orders from the Government Departments were concerned the  material on  record shows  that on August 30, 1961 it  was decided  to purchase  16 jeeps,  8 trucks and 4 one-tonne pick-up  vans. There is nothing to show that there was any reason for the assessee to hold on to the investment in the  loan indefinitely.  There was no enduring advantage. Accordingly we  hold that the investment did not bring in an asset of  a capital nature, and that in the circumstances of the case  the loss  suffered by  the assessee  was a revenue loss and  not a capital loss. It was held by the Orissa High Court in Commissioner of Income-tax v. Industry and Commerce Enterprises (P)  Ltd., [1979]  118 ITR 606 and by the Madras High Court in Additional Commissioner of Income-tax, Madras- II v.  B.M.S. (P)  Ltd., [1979]  119 ITR  321 and  again  in Commissioner of  Income-tax, Tamil Nadu-V v. Dhandayuthapani Foundry (P)  Ltd, [1980]  123 ITR 709, that where Government bonds or  securities were  purchased by  the assessee with a view to  increasing his business with the Government or with the object  of retaining the goodwill of the authorities for the purpose  of his  business, the loss incurred on the sale of such  bonds or  securities was  allowable as  a  business loss.      We hold that the High Court has erred in the view taken by it  and that  the Tribunal  was  right  in  allowing  the appeal. 213      In the  result the  appeal is  allowed, the judgment of the High  Court is  set aside  and inasmuch as the loss is a revenue loss  the question  referred to  the High  Court  is answered in  favour of the assessee and against the Revenue. The assessee is entitled to its costs of this appeal. S.R.                                         Appeal allowed. 214