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PETITIONER: COMMISSIONER OF INCOME-TAX, CALCUTTA

       Vs.

RESPONDENT: BIJU PATNAIK

DATE OF JUDGMENT09/05/1986

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

CITATION:  1986 AIR 1428            1986 SCR  (3)  26  1986 SCC  (3) 310        1986 SCALE  (1)885

ACT:      Income Tax  Act 9161  s.  256(2)-Decision  of  Tribunal perverse and  ignoring of  all material  and relevant facts- Scope  of  the  jurisdiction  of  High  Court  in  directing reference on  question of  law -  High Court in error in not directing reference.

HEADNOTE:      The  respondent-assessee   claimed  deductions  in  his assessments relating  to the  assessment  years  1962-63  to 1964-65 in  respect of  payments of  interest on loans taken from  Kalinga   Foundation  Trust  and  others  and  certain dividend transactions  relating to  the  shares  of  Kalinga Tubes, Ltd.  The Income-Tax  officer issued  a letter to the assessee requesting him, inter alia, to produce evidence and prove (i)  that the cash credits appearing in his account in the name  of Kalinga Foundation Trust were genuine; and (ii) that 39,000  shares of  Kalinga Tubes  Ltd. standing  in the names of  shareholders were  not really  his own investment. After examining  the assessee’s evidence and on the basis of documentary evidence and government records and on the basis of local  enquiries made, the Income-Tax officer came to the conclusion that  no trust  in the name of Kalinga Foundation Trust really existed and even if it existed, it had no funds of its  own and that the name "Kalinga Foundation Trust" was used by  the assessee  as a  camouflage to  put through  his unaccounted money.  Accordingly, all  cash credits appearing in the  books of  accounts of the assessee himself or in the books of  other concerns or persons or remittances of actual payments in the name of Trust were treated by the Income-Tax officer as  moneys coming  out of the undisclosed sources of the assessee and accordingly assessed the same as his income from undisclosed sources. All interest and dividend received in the  name of  the Trust  were included  by the Income-Tax officer in the assessment of the assessee as his own income. The Income-Tax  officer was  also of  the opinion  that  the moneys advanced  in the name of the Trust to several persons in connection  with the  acquisition  of  39,000  shares  of Kalinga Tubes Ltd. which were 27 issued  in   1358  actually   belonged  to   the   assessee. Accordingly, the  dividend of the said shares was treated as

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the income of the assessee and the expenses incurred in that connection were  allowed as  deduction. The  persons m whose names the  39,000 shares  of Kalinga  Tubes Ltd. stood, were treated by  the Income-tax  officer  as  benamidars  of  the assessee.      Against the orders of assessment, appeals were filed by the assessee before the Appellate Assistant Commissioner who set aside  the assessments for the years under consideration and remanded  the matters  back, to  Income-tax  officer  to frame issues  and give  due opportunity  to the  assessee to cross-examine the witnesses in the light of the observations made m  the order. Again, against the order of the Appellate Assistant Commissioner,  the  appeals  were  filed.  It  was argued before  the Tribunal  on  behalf  of  the  appellant- assessee; (i)  that on the basis of the facts emerging on an examination of  assessee’s evidence  and facts  found on the basis  of  documentary  evidence,  the  Appellate  Assistant Commissioner should  have confirmed  the  assessments;  (ii) that local inquiries and oral testimony had been used by the Income-tax  officer   to  support  the  conclusions  already arrived at  on an examination of assessee’s own evidence and corroborated  by  documentary  evidence  and  therefore  the Appellate Assistant  Commissioner should  not have set aside the assessment  on the  ground that  the  persons  who  were examined by  the Income-tax officer should have been allowed to be  cross- examined  by the assessee; (iii) that the gist of the  enquiries had  been communicated  to the assessee to enable him  to meet  the case against him and it was for the assessee  to  produce  before  the  Income-tax  officer  the persons  who   had  collected  the  funds  for  the  Kalinga Foundation Trust  as the Income-tax officer was not bound by the technical  rules of evidence; (iv) that it had collected evidence to  prove that  these shares  were purchased by the assessee benami  in the names of the shareholders named; (v) that the  assessee had created a private registered Trust in 1949 out  of his  own properties  having the  same  name  as Kalinga Foundation  Trust and  that a  reference to  Kalinga Foundation Trust  m some  of the  documents produced  by the assessee was  to this  private trust  and not  to any public trust of  the same  name alleged  to have  been created at a public  function.   After  considering   the  material,  the Tribunal held  (a) that  the Kalinga  Foundation Trust  came into existence  in 1947 and continued after its registration in 1353  under the  same name  and style and the fund of the Trust was built up by collection of donation from the public at large;  (b) that  seven persons  who were designed by the Income-tax officer  as benamidars  of the  assessee for  the purchase of the 28 shares of M/s Kalinga Tubes Ltd, were not benamidars and the money required  for the  purchase of  these shares  had been raised by  themselves; (c)  that the investments made by the Trust in  the assessee’s  group of  industries or  with  the assessee were  from its  own resources  and funds  and  such investments were guided by business expediency and prudence; (d) that the Trust was comprised of persons of public repute and the  control and  management  of  the  trust  styled  as "Kalinga Foundation  Trust" were under the effective control of the  Board of  Trustees comprised  of persons  of  public reputation and  (e) that the income from interest, dividend, or any other usufruct arising out of the investments made by the Trust in the various concerns and the investments of the Trust which were included in the assessments of the assessee in  the   years  under   reference  should  be  excluded  as appertaining to a separate and distinct entity and therefore

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directed the  Income-tax officer  to exclude  these  amounts from the  assessments of  the assessee  in all  these  three years. The  revenue did  not  accept  the  findings  of  the Tribunal as  correct. Several  questions of  law were sought for from  the Tribunal to be referred out of the decision of the Tribunal  under s.  256(1) of  the Income Tax Act, 1961. The  Tribunal   refused  to   refer  these   questions.   An application was  made under  s. 256(2) of the Act asking for reference on  those questions  from the High Court. The High Court also  rejected the application and refused to call for a statement  of case on those questions. Hence these appeals by sepcial leave.      Allowing the appeals, ^      HELD: 1. The High Court, in the facts and circumstances of the case, was in error in not directing a reference under s. 256(2)  of the  Act. Therefore, the judgment and order of the High  Court, are  set aside and the Tribunal is directed to send  a statement  of case  for the  three years involved within six  months of  the date  of receipt of this order on the questions mentioned in this judgment. [44 C-D]      2. The Supreme Court in several decisions has laid down the following  principles with  regard to  the scope  of the jurisdiction of  the High  Court in  directing reference  on question of  law  where  the  decision  rests  primarily  on appreciation of facts:      (i)  When  the  point  for  determination  was  a  pure question of  law, such  as  construction  of  a  statute  or document of  title, the decision of the Tribunal was open to reference to the Court.      (ii) When  the point  for  determination  was  a  mixed question of law 29 and fact,  while the  finding of  the Tribunal  on the facts found was  final, its  decision as  to the  legal effect  of those findings was a question of law which could be reviewed by the Court.      (iii) A  finding on  a question  of fact  was  open  to attack under  reference under  the relevant Act as erroneous in law when there was no evidence to support it or if it was perverse.      (iv) When  the findings was one of facts, the fact that it is  itself an  inference from  other basic facts will not alter its character as one of fact. [36 F-H; 37A]      Sree Meenakshi Mills Limited v. Commissioner of Income- Tax, Madras,  31 ITR  28, Gouri Prasad Bagaria and others v. Commissioner of  Income-Tax, West Bengal, 42 ITR 112, I.C.I. (India) Private  Ltd. v.  Commissioner of  Income-tax,  West Bengal  111,   83  ITR   710,  Commissioner   of  Income-tax (Central), Calcutta  v. Daulat  Ram Rawatmull,  87 ITR  349, Commissioner of  Income-tax, Bihar  and Orissa v. S.R. Jain, 87 I.T.R. 370, relied upon.      2. The  question 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  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, there was non-consideration of a  relevant factor  on a  factual aspect  and on this the question is  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. There  was also evidence on record

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as to  who had  collected it  to a  certain extent,  but  no evidence on  the other  aspect. Ignoring  of that  fact is a 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, and the  High Court  should have directed the statement of a reference. [41C-G]      4. Regarding  the ownership of 39,000 shares in Kalinga Tubes Ltd.  issued in  1958, this  involved determination of two issues:  (a) whether  the ostensible  holders  of  these 39,000 shares  were real  owners or  benamidars and  if they were benamidars,  who were  the real holders. The Income-tax officer was of the view, on facts suggested, that the 30 seven persons  were benamidars of the assessee, whether they are so  or not  and what  is the  effect of the said fact 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. belonged to the assessee and not to the shareholders named. [42 D-E; 43 E-F]

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil  Appeal Nos. 1793- 1798 (NT) of 1974.      From the Judgment and order dated 5th April 1974 of the Orissa High Court in S.J.C. Nos. 211 to 216 of 1971.      S.C. Manchanda,  Ms. A.  Subhashini, K.C.  Dua and K.P. Bhatnagar for the Appellant.      Devi Pal, J.B. Dadachanji, K.K. Patnaik, Sukummaran, M. Seal,  A.K.   Verma,  J.  Peres  and  D.N.  Mishra  for  the Respondent.      P.N. Gupta and P.N. Mishra for official Liquidator.      The Judgment of the Court was delivered by      SABYASACHI  MUKHARJI,   J.  Whether,  question  of  law referable to  the High Court, arises out of the order of the Appellate Income-tax Tribunal in this case, is, the question that arises  in these  appeals by  special  leave  from  the decision of the Orissa High Court. Several questions  of law were sought  for from the Tribunal to be referred out of the decision of  the Tribunal under section 256(1) of Income-tax Act, 1961  (hereinafter called  the ’Act’). The Tribunal re- fused to  refer these  questions. An  application  was  made under section  256(2) of  the Act  asking for  reference  on those questions from the High Court. The High Court rejected the applications and refused to call for a statement of case on those questions. This appeal by special leave is from the said decision of the High Court.      It is  not necessary to refer to all the questions that were  pressed  before  the  High  Court  because  all  these questions were not pressed before this Court.      The following questions were, however, canvassed before this Court:           "1.  Whether,   the  findings   of  the  Appellate           Tribunal, are 31                vitiated  in  law  by  reason  of  it  having                ignored relevant  and admissible evidence and                having relied  on incorrect  facts  and  mis-                statement of facts?           2.   Whether,   on    the   facts   and   in   the                circumstances of  the case, the conclusion of                the  Tribunal  that  the  Kalinga  Foundation                Trust came into existence in 1947 and that it

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              was distinct  from the  Trust created  by the                assessee in  1949 logically followed from the                materials on record or it was perverse in the                sense that no reasonable man could come to it                on the said materials?           3.   Whether,   on    the   facts   and   in   the                circumstances of the case, in arriving at the                finding that the Kalinga Foundation Trust had                acquired property  from  donations  from  the                public, the  Tribunal erred  in  law  in  not                giving  due   consideration  to  the  several                matters relevant  for  determination  of  the                points  which  had  been  considered  by  the                Income-tax officer in the assessment order?           4.   Whether,   on    the   facts   and   in   the                circumstances of  the case,  the Tribunal was                right  in   holding  that   the  income  from                dividend shown  in the  name of  the  Kalinga                Foundation Trust,  the interest  on the loans                advanced  in   the  name   of   the   Kalinga                Foundation   Trust   and   all   investments,                remittance, receipts  and actual  payments in                the name  of Kalinga Foundation Trust did not                belong to  the assessee  and should therefore                be  deleted   from  the   assessment  of  the                assessee?           5.   Whether,   on    the   facts   and   in   the                circumstances of  the  case,  there  was  any                evidence  in   support  of   the   Tribunal’s                findings  that  the  assessee  had  collected                donation from  the  public  for  the  Kalinga                Foundation Trust?           6.   If the  answer to  question 5  (rearranged by                us) be  in the  negative,  then  whether  the                Tribunal  was   right  in  holding  that  the                amounts donated  by the  assessee to the said                Trust  were   satisfactorily  explained   and                accordingly they  were not  to be included in                the assessment of the assessee?           7.   Whether,   on    the   facts   and   in   the                circumstances of  the case,  the Tribunal was                right in holding that the revenue authorities                were bound to accept the decision of the 32                Supreme Court  in S.P.  Jain v. Kalinga Tubes                Ltd. as  to the ownership of 39,000 shares of                Kalinga Tubes, Ltd. in spite of the materials                collected   by    the   Income-tax    Officer                subsequent to the delivery of the judgment in                the said case?           8.   If the  answer to  question 7  (rearranged by                us) be  in  the  negative  then  whether  the                finding of  the Tribunal  that the persons in                whose names  the said  shares stood  were not                the benamidar  of the  assessee was  perverse                and was  arrived at without due consideration                of the  material considered by the Income-tax                Officer in detail on the point?"      The controversy in these appeals related to the various additions made  by the  revenue to  the total  income of the assessee relating  to the  assessment years 1962-63, 1963-64 and  1964-65.   The  assessee  claimed  in  his  assessment, deduction in  respect of payments of interest on loans taken from  Kalinga   Foundation  Trust  and  others  and  certain dividend transactions  relating to  the  shares  of  Kalinga

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Tubes Ltd.      While  examining  the  evidence  in  support  of  these claims, the  Income-tax Officer  issued  a  detailed  letter dated 17th  October 1965 to the assessee informing him about the evidence  available with  the revenue  against  him  and requesting him,  inter alia,  to produce  evidence and prove (i) that  the cash  credits appearing  in his account in the name of  Kalinga Foundation Trust were genuine and (ii) that 39,000 shares of Kalinga Tubes Ltd. standing in the names of B.K. Mall,  Sm. Swaran  Oberoi, Shri  K.C. Dalai,  Shri G.C. Patnaik, etc.  were not  really his  own  investment.  After examining the  assessee’s  evidence  and  on  the  basis  of documentary evidence and government records and on the basis of local  enquiries made, the Income-tax Officer had come to the  conclusion  that  no  trust  in  the  name  of  Kalinga Foundation Trust  really existed  and even if it existed, it had  no  funds  of  its  own  and  that  the  name  ’Kalinga Foundations Trust’  was used by the assessee as a camouflage to put  through his unaccounted money. Accordingly, all cash credits appearing  in the  books of accounts of the assessee himself or  in the  books of  other concerns  or persons  or remittances of  actual payments  in the  name of  trust were treated by  the Income-tax  Officer as  moneys coming out of the undisclosed  sources of  the  assessee  and  accordingly assessed the  same as  his income  from undiscolsed sources. All interest  and dividend received in the name of the trust were included by the Income-tax Officer in the assessment of the assessee as 33 his own  income. The  Income-tax Officer  was  also  of  the opinion that the moneys advanced in the name of the trust to several persons in connection with the acquisition of 39,000 shares of  Kalinga Tubes  Ltd. which  were issued  in  1958, actually belonged to the assessee. Accordingly, the dividend of the said shares was treated as the income of the assessee and the expenses incurred in that connection were allowed as deduction. The  persons in  whose names the 39,000 shares of Kalinga Tubes  Ltd. stood,  were treated  by the  Income-tax Officer as  benamindars of the assessee. Thus, in respect of the assessment  years under consideration several items were included as  income in  the hands  of the  assessee on  this score. It is not necessary to set out the items.      Against the orders of assessment, appeals were filed by the assessee before the Appellate Assistant Commissioner. As grievance  was   made   before   the   Appellate   Assistant Commisioner that  there was  violation  of  due  opportunity being  given   to  the  assessee,  the  Appellate  Assistant Commissioner disposed  of the  appeals by  setting aside the assessments for  the years  under consideration and remanded the matters  back, to Income-tax Officer to frame issues and give due  opportunity to  the assessee  to cross-examine the witnesses in  the light  of the  observations  made  in  the order.  Against   the  order   of  the  Appellate  Assistant Commissioner, the appeals were filed. A prayer was made that the  appeals  should  be  remanded  back  to  the  Appellate Assistant Commissioner.  The Tribunal,  however, disposed of the appeals on the  relevant materials on record.      It was  contended on  behalf of  the revenue before the Tribunal that  the Kalinga  Foundation Trust  had come  into existence as  alleged in  1947 at  a public  meeting held at Killa Maidan,  Cuttack and it was registered long thereafter on 28  November 1959.  It was  stated  that  the  trust  was genuine and  it had  sufficient funds  obtained by donations and consequently was in a position to lend the amounts found credited in  the assessee’s  books and in the books of other

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concerns. The accounting year followed by the said trust was the calendar  year whereas  the accounting  year followed by the assessee  was the  financial year  ending on  31st March 1962, 31st  March 1963 and 31st March 1964, respectively for the three  years in  question. One  of the  points urged  on behalf of  the assessee  was that  if it was intended to use the trust  as a camouflage, the accounting year of the Trust would have  been the  same as  that of  the assessee. It was further contended that the Minute Book and books of accounts were maintained  by the Trust and that the Trust had its own written constitution by way of Memorandum and 34 Articles of  Association and  Rules. The  funds of the Trust were lying  in trust  with the Maharaja of Sonepur as he was the honorary  Treasurer of the Trust. It was further pointed out on  behalf of the assessee that the eminent persons were members of the Trust.      On behalf  of the  revenue, it  was, however, contended before the  Tribunal that on the basis of the facts emerging on an  examination of assessee’s evidence and facts found on the basis  of documentary  evidence, the Appellate Assistant Commissioner should  have confirmed  the assessments. It was further stated  by the revenue that local inquiries and oral testimony had been used by the Income-tax Officer to support the conclusions  already arrived  at on  an  examination  of assessee’s own  evidence  and  corroborated  by  documentary evidence and  therefore the Appellate Assistant Commissioner should not  have set aside the assessment on the ground that the persons  who were  examined by  the  Income-tax  Officer should  have  been  allowed  to  be  cross-examined  by  the assessee. It  was submitted  that the  gist of the enquiries had been  communicated to the assessee to enable him to meet the case  against him and it was for the assessee to produce before the  Income-tax Officer the persons who had collected the funds for the Kalinga Foundation Trust as the Income-tax Officer was not bound by the technical rules of evidence.      So far  as the  acquisition of 39,000 shares of Kalinga Tubes Ltd.  was concerned,  it was  submitted by the revenue that it  had collected  evidence to  prove that these shares were purchased  by the  assessee benami in the names of Shri B.K. Mall, Shri G.C. Patnaik, etc. It was pointed out by the revenue that  the assessee  had created a private registered Trust in 1949 out of his own properties having the same name as Kalinga  Foundation Trust and that a reference to Kalinga Foundation Trust  in some  of the  documents produced by the assessee was  to this  private trust  and not  to any public trust of  the same  name alleged  to have  been created at a public function.      After considering the materials, the Tribunal held that the Kalinga Foundation Trust came into existence in 1947 and continued after its registration in 1959 under the same name and style  and the  fund  of  the  Trust  was  built  up  by collection of donation from the public at large.      It may  be pointed  out and  we are of the opinion that this is  the core  of the  controversy in  this case,  i.e., whether there was no evi- 35 dence 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 credit- worthiness of the doners to the said trust.      It was  contended on  behalf of  the assessee  that the said trust  which came  into existence  was a  separate  and distinct  entity  and  the  assessee  was  only  holding  an executive post  in that  trust. It  was held by the Tribunal

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that seven  persons who  were  designed  by  the  Income-tax Officer as  benamidars of  the assessee  for the purchase of the shares of M/s Kalinga Tubes Ltd. were not benamidars and the money required for the purchase of these shares had been raised by themselves. The Tribunal held that the investments made by  the Trust  in the assessee’s group of industries or with the  assessee were from its own resources and funds and such investments  were guided  by  business  expediency  and prudence. The  finding of the Tribunal is that the Trust was comprised of  persons of  public repute  and the control and management of the trust styled as ’Kalinga Foundation Trust’ were under  the effective  control of  the Board of Trustees comprised of  persons of  public  reputation.  The  Tribunal accordingly held that the income from interest, dividend, or any other  usufruct arising  out of  the investments made by the trust in the various concerns and the investments of the Trust which were included in the assessments of the assessee in  the   years  under   reference  should  be  excluded  as appertaining to a separate and distinct entity and therefore directed the  Income-tax Officer  to exclude  these  amounts from the  assessments of  the assessee  in all  these  three years. The  revenue did  not  accept  the  findings  of  the Tribunal as  correct as  mentioned hereinbefore  and  sought reference to the High Court on several questions.      Before the  questions involved  in  these  appeals  are considered, it is necessary to bear in mind the scope of the jurisdiction of  the High  Court in  directing reference  on question of  law  where  the  decision  rests  primarily  on appreciation of  facts. This  question has from time to time troubled the  courts-both the High Courts and this Court and several decisions have laid down the principles guiding such a situation. Though not exhaustive, these may be referred to as illustrations.      In Sree  Meenakshi Mills  Limited  v.  Commissioner  of Income-Tax Madras,  31  I.T.R.  28,  Venkatarama  Ayyar,  J. speaking for  this Court  said that  findings on question of pure facts  arrived at  by  the  tribunal  were  not  to  be disturbed by the High Court on a reference unless it 36 appeared that there was no evidence before the Tribunal upon which they,  as reasonable men, could come to the conclusion to which  they had  come; and  this was  so, even though the High Court  would on  the evidence have come to a conclusion entirely different from that of the Tribunal. The Court laid down the  following propositions:  (a) such a finding can be reviewed only  on the  ground that  there was no evidence to support it  or that  it was  perverse. (b) When a conclusion had been  reached on  an appreciation  of a  number of facts established by  the evidence,  whether that was sound or not must be  determined, not  by considering  the weight  to  be attached to  each single fact in isolation, but by assessing the cumulative effect of all the facts in their setting as a whole. (c)  Where an  ultimate finding  on an  issue was  an inference to  be drawn from the facts, on the application of any principles of law, that would be a mixed question of law and fact,  and the  inference from  the facts found would in such a  case, be  a question  of law.  But where  the  final determination of  the issue  equally  with  the  finding  or ascertainment of  the  basic  facts  does  not  involve  the application of  any principle  of law, an inference from the facts cannot be regarded as one of law. The proposition that an inference from facts was one of law was therefore correct in its  application to  mixed questions of law and fact, but no to  pure question  of fact. In the case of pure questions of fact an inference from the facts is as much a question of

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fact as  the appreciation of the facts. Ayyar, J. noted that the observations  contained in some judgments of the English Courts that  what inference  was to be drawn from the proved facts was  question of law referred to this distinction. The position that emerges from the decided cases was that:      (i)  When  the  point  for  determination  was  a  pure question of  law, such  as  construction  of  a  statute  or document of  title, the decision of the Tribunal was open to reference to the Court.      (ii) When  the point  for  determination  was  a  mixed question of  law and fact, while the finding of the Tribunal on the  facts found  was final, its decision as to the legal effect of  those findings  was a question of law which could be reviewed by the Court.      (iii) A  finding on  a question  of fact  was  open  to attack under  reference under  the relevant Act as erroneous in law when there was no evidence to support it or if it was perverse.      (iv) When the finding was one of fact, the fact that it is itself an 37 inference  from   other  basic  facts  will  not  alter  its character as one of fect.      In Gouri  Prasad Bagaria  and Others v. Commissioner of Income-Tax, West Bengal, 42 I.T.R. 112, this Court held that when the  assessee’s statement  was believed in a particular case and the finding of the Tribunal was based on that, then there was  obviously material  on which  the finding  of the Tribunal could  be based; and to seek for other material was tantamount to  saying that  a statement  made by an assessee was not  material on  which a  finding could  be given.  The Tribunal having  believed the assessee’s statement, that was an end  of the  matter in so far as that fact was concerned, and if the finding was based upon a statement which was good material on  which it  could be  based, no  question of  law really arose.      In I.C.I.  (India)  Private  Ltd.  v.  Commissioner  of Income-tax, West  Bengal III,  83  I.T.R.  710,  this  Court observed that  the jurisdiction  in the  matter of reference could be exercised: (i) when the point for determination was a pure  question of law such as construction of a statute of document of title; (ii) when the point for determination was a mixed  question of  law  and  fact.  While,  however,  the finding on  facts was  final, its  decision as  to the legal effect of those findings was a question of law. A finding on a question  of fact  was open  to attack as erroneous in law when there  was no  evidence to  support it  or  if  it  was perverse. When,  however, the  finding was  one of fact, the fact that  it was  an inference from other basic facts would not alter its character as one of fact.      In Commissioner  of Income-tax  (Central), Calcutta  v. Daulat Ram  Rawatmull, 87  I.T.R. 349,  this Court held that the onus  of proving  that the apparent was not the real was on the party who claimed it to be so. It is not necessary to discuss other details of the facts involved in that case. It is sufficient  to note,  however, as  was observed  by  this Court that  there should  be some  direct nexus  between the conclusion of  facts arrived  at by  the authority concerned and the  primary facts upon which that conclusion was based. The use  of extraneous and irelevant material in arriving at that conclusion would vitiate the conclusion of fact because it  is   difficult  to  predicate  as  to  what  extent  the extraneous  and   irrelevant  material  had  influenced  the authority in arriving at the conclusion of fact. Findings on questions of  pure fact  arrived at by the Tribunal were not

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to be  disturbed by  the High Court on a reference unless it appears that there was no evidence before the 38 Tribunal upon  which they,  as reasonable men, could come to the conclusion to which they have come; and this was so even though the  High Court  would on the evidence have come to a conclusion entirely  different from that of the Tribunal. In other words,  such a  finding could  be reviewed only on the ground that  there was  no evidence to support it or that it was perverse. Further, when a conclusion had been reached on an appreciation of a number of facts, whether that was sound or not  must be determined, not by considering the weight to be attached  to  each  single  fact  in  isolation,  but  by assessing the  cumulative effect  of all  the facts in their setting as a whole. When a court of fact acted on a material partly relevant  and partly  irrelevant, it  was impossible, this Court  observed, to  say to what extent the mind of the court was  affected by the irrelevant material used by it in arriving at  its finding. Such a finding is vitiated because of the  use of inadmissible material and thereby an issue of law arose. Likewise, if the court of fact based its decision partly on  conjecture, surmises and suspicions and partly on evidence, in such a situation an issue of law arose.      In Commissioner of Income-tax, Bihar and Orissa v. S.P. Jain, 87  I.T.R. 370,  this Court  noted that  the questions referred to the High Court did not challenge the validity of the findings  in that  case given  by the  Tribunal, as  the Tribunal had  failed  to  take  into  account  the  relevant material on  record in  arriving  at  its  finding  and  had further acted  on  inadmissible  evidence  and  misread  the evidence  and   based  its  conclusion  on  conjectures  and surmises,  the  court  could  ignore  the  findings  of  the Tribunal and  re-examine the  issues arising for decision on the basis  of the  material on  record. This  Court  further reiterated that the High Court and this Court had always the jurisdiction to interfere with the findings of the Appellate Tribunal if  it appeared  that either  the Tribunal had mis- understood  the   statutory  language,  because  the  proper construction of  the statutory language was a matter of law, or it  had arrived  at a  finding based  on no  evidence, or where the  finding was  inconsistent with  the  evidence  or contradictory of  it, or  it had  acted on  material  partly relevant and  partly irrelevant  or where  the Tribunal drew upon  its   own   imagination   and   imported   facts   and circumstances not  apparent from  the record  or  based  its conclusions on  mere conjectures  or surmises  or  where  no person judicially  acting and  properly instructed as to the relevant law  could have  come to the determination reached. In all  such cases  the findings  arrived at  were vitiated. This Court further observed that "Any crystallization of the view of  this Court and its reluctance to interfere with the findings of  the fact  should not  make the Tribunals or the Income-tax authorities smug in the 39 belief that as the courts do not interfere with the findings which form  the bed-rock  upon which  the law  will be based they can  act on  that assumption  in findings  facts or  by their mere ipse dixit that they are findings of fact wish it to  be   so  assumed   irrespective  of   whether  they  are sustainable in law or on the materials on record".      Now in the instant case, as mentioned hereinbefore, the first three  questions  challenge  the  genuineness  of  the donations alleged  to have  been contributed  by the Kalinga Foundation Trust  alleged to  have come  into  existence  as separate organisation  at a  public meeting  in 1947 and the

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donations collected  therefrom and  the next question, i.e., question No.  4 challenges  the finding  that  the  dividend shown in  the name  of  Kalinga  Foundation  Trust  and  the interest and  loans in  the name of Kalinga Foundation Trust did not belong to the assessee. The basic question is a next question-whether the  assessee had  collected donations from the public.  If the  answer to  that question is that it was from the public, the second aspect is whether the revenue is bound to  accept the  decision of this Court in S.P. Jain as to ownership  of 39,000  shares, in  view of  the  materials collected  by  the  Income-tax  Officer  subsequent  to  the delivery of the judgment in this case.      Apparently the  identity of the doners to the Trust has not been  established and  a large  amount of materials have been collected  subsequent to  the decisions of this case in S.P. Jain’s  case which  had been adverted to be the Income- Tax Officer  and to which our attention was drawn. These did not appear to have received consideration by the Tribunal.      We  were   taken  through   the  evidence   on   record exhaustively about  the foundation  of the  Trust.  We  were taken through  the evidence  as to  who were  present at the time of  the inauguration  of the  Trust and  whose evidence were there,  there was  a public  meeting and  whether  this Trust was  separate from  the other  Trust or  not,  whether particular persons were present or not; they are all set out in the  orders of  the Tribunal  as well  as the  Income-tax Officer. It  is not  necessary at this stage for the purpose of disposing of these appeals to exhaustively discuss this.      The revenue  has pointed out to the Tribunal as appears in para  22 at  page 159  of the Tribunal’s order that there was omission of adjustment of entries. The Tribunal has held that the  Income-tax Officer and completely ignored the fact that the assessee has not 40 made this  contribution plus Rs.1,29,331 which was one point at issue,  out of  his own  funds but had deposited only the amount which he had collected from various persons and hence the question  of showing  this amount  in the  books of  the assessee did not arise.      This is  however begging  the question;  was there  any material that  the collectors  had collected  these  amounts from various  persons, if  so, who were those persons and if so, whether they were capable of making these contributions? This, in  our opinion, is the core question. The significant fact has  to be  borne in mind that the Trust kept the money with the  Maharaja of  Sonepur without earning any interest. Apart from  any question  whether there was any scope of any application of  section 20  of the  Trust Act or not, such a conduct was  highly improbable according to the revenue. The explanation of  the assessee  about the nature and source of various cash  credits was that these were loans from Kalinga Foundation Trust. It was claimed that there was a society of the name  of Kalinga  Foundation Trust. This society, it was maintained, had  received large amounts as donations but for over a  decade, these  donations were lying in cash and were not invested  anywhere. These were not even deposited in any bank. It  was explained  that it was only from 1958 that the society had  started investing  its funds  with Shri Patnaik and the  concerns with which he was associated. This, it was urged by the revenue, was prima facie unacceptable for inter alia, the following reasons:           (1) Funds exceeding a crore of rupees were claimed           invariably to have been received in cash.           (2) These  were  also  claimed  to  have  remained           uninvested and  the cash  was said  to  have  been

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         lying idle all these years.           (3)  There   was  no   tangible  evidence  of  the           existence of  any part  of these  funds  prior  to           1958.           (4) Although  the Society  is claimed to have been           in existence  from 1947,  it  did  not  apply  for           exemption under the Income-tax Act.           (5) Although  the funds  were said  to  have  been           collected  all   over  Orissa  yet  there  was  no           evidence of the money being brought from different           places from Orissa to Cuttack.           (6) There was no evidence of any receipt issued to           the  alleged  donors.  No  lists  of  donors  were           maintained or supplied. 41 These important factors were pointed out to the assessee and no explanation was offered by the assessee. The assessee had sought to  give an  appearance of  truth to  the explanation offered and  relied on certain letters. But there appears to be no  evidence as  to who  were the  persons from  whom the money was  collected, how was the money received and how was the money  invested? This is conjunction with other factors, in our  opinion, raises  a question whether the Tribunal had acted without material evidence.      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 question  is 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.      So  far   as  the  first  aspect  of  the  question  is concerned, it is true that names of some collectors of money were given  and some  particulars were given but the persons from whom  donations were  collected, their particulars were not supplied  nor examined  nor were  they produced to prove the genuineness  of their  donations, their capacity to make the donations.  So the  question  remains  whose  money  was donated by  whom? There was evidence on record as to who has collected it  to a  certain extent,  but no  evidence on the other aspect.  In our  opinion, ignoring  of that  fact is a 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 second  aspect is  about 39,000  shares of  Kalinga Tubes  Ltd.-whether   these  belong  to  the  assessee.  The Revenue’s  contention   was  that  Kalinga  Tubes  Ltd.  was controlled by Shri B. Patnaik and 42 Shri Loganathan  and in  1954, the  company was  in need  of capital and  those two persons came to be introduced to Shri S.P. Jain.

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    Early  in   1956,  the   three  groups  considered  the desirability of  extending the  business. This was converted into a  public limited company. In 1956 when the company was still a  private limited  company, a request was made to the Controller of  Capital Issues for raising the capital of the company and at a meeting held on 29th March 1958, resolution was moved  and the  move of  Jain  group  was  defeated.  To appreciate  this  contention,  the  assessee  asserted  that Messrs.  Kalinga   Tubes  Ltd.   needed  funds  for  capital expansion. The  company was  converted into a public limited company and  Articles of  Association were suitably amended. The company  also made  an application  to the Controller of Capital Issues  for the  sanction of issue of further shares to the  extent of Rs.39,00,000 at the General Meeting of the shareholders. The company decided to issue the new shares to the members of the public.      Regarding the  ownership of  39,000 shares  in  Kalinga Tubes Ltd.issued in 1958, this involved determination of two issues: (a)  whether the  ostensible holders of these 39,000 shares were  real owners  or benamidars  and  if  they  were benamidars, who  were the  real  holders?  The  company  was incorporated as a private limited company in 1950. From 1950 to 1954,  it was  controlled by  Shri Biju  Patnaik and Shri Loganathan. In  1954, the company was in need of capital and these two  persons came  to be introduced to Shri S.P. Jain. There was  some agreement between Shri Jain and the existing shareholders. The  Memorandum of  Agreement was  drawn up in July, 1954. According to this agreement, Patnaik, Loganathan and Jain group were to be equal shareholders of the company. Early in  1956, the three groups considered the desirability of extending the business and obtaining loan from Industrial Finance Corporation.  The Industrial Finance Corporation did not give  loan to  private limited companies and, therefore, the company  was converted  into a public limited company in January 1957.  In September 1956, when the company was still a private  company, a  request was made to the Controller of Capital Issues for raising the capital of the company. It is further stated  that at  a meeting  held on 29th March 1958, Shrimati Gyan  Patnaik, wife  of Shri  B.  Patnaik  moved  a resolution  providing  that  39,000  shares  should  not  be offered or  allotted to  the existing shareholders or to the public. Shri S.L. Aggarwal of the Jain group, however, moved a resolution  which  provided  that  the  39,000  shares  be offered to the existing shareholders of 43 the  company  in  proportion  to  their  shareholdings.  The resolution further  provided  that  if  the  offer  was  not accepted by  the existing  shareholders within  15 days, the offer would be deemed to have been declined.      It appears  that on  18th April  1958, Shri  S.P.  Jain filed a  suit. The  suit was decided against the Jain group. But Shri  S.P. Jain  filed a  complaint under  sections 397, 398, 402  and 403 of the Indian Companies Act. An appeal was preferred from  single  judge’s  judgment  to  the  division bench.  There   was  appeal  to  this  Court.  There  is  an observation in the judgment of Burman, J. of the Orissa High Court to the following effect:           "In  the  present  case,  it  is  clear  that  the           allotments, of the said 39,000 shares to the seven           persons were  not  in  interest  of  the  Company,           because records,  including  the  balance  sheets,           show that  even by  1960 share  moneys Rs.39 lakhs           were  not   realised  from   the  said  allottees.           Although, it  was  given  out,  by  those  in  the           management of the Company, that the Company was in

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         urgent need  of  funds,  the  said  allotments  of           39,000 new  shares did not however bring immediate           funds to the company."      The Income-tax  Officer was  of the view that the facts suggested that  the seven  persons were  benamidars of  Shri Patnaik, 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  details  of  this  are  in Annexure ’B’ to the Income - tax Officer’s order.      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 the 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.21/2 lakhs to Rs.71/2 lakhs. Shri Mall never filed  his wealth-tax return which clearly showed that nowhere shares were treated as his own. These and 44 other  factors  taken  in  conjunction  led  the  Income-tax Officer to  the conclusion  that 39,000  shares belonged  to Shri B.  Patnaik. In  that view  of the matter the materials gathered by  revenue subsequent  to  the  decision  in  S.P. Jain’s  case   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 abovenamed  questions to  the  High  Court under section 256(2) of the Act.      The  judgment   and  order   of  the  High  Court  are, therefore, set  aside. We  direct the  Tribunal  to  send  a statement of  case for  the three  years involved within six months of the date of receipt of this order on the questions mentioned hereinbefore to the High Court at Cuttack. Let the records be sent to the Tribunal immediately through the High Court. As  the matter  is very  old, the reference when made should be disposed of as quickly as possible.      The costs  of these  appeals will abide by the ultimate order made in the reference. M.L.A.                                      Appeals allowed. 45