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PETITIONER: COMMISSIONER OF INCOME TAX, KARNATAKA

       Vs.

RESPONDENT: M/S BEDI & COMPANY PRIVATE LIMITED

DATE OF JUDGMENT:       18/02/1998

BENCH: SUJATA V. MANOHAR, SYED SHAH MOHAMMED QUADRI

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T QUADRI, J.      The Revenue is in appeal, by special leave, against the order of  the karnataka  High Court dated August 4, 1980, in I.T.R.C. No.  180 of  1975, answering the following question referred to  it under  Section 256(1) of the Income Tax Act. 1961, in  the negative,  that is,  in favour of the assessee and against the Revenue.      "Whether   on    the   facts    and      circumstances  of   the  case   the      Tribunal was  justified in  law  in      upholding the assessment of the sum      of Rs. 32,58,500/- as the income of      the  assessee  for  the  assessment      year 1960-61."      A brief  narration of the facts leading to reference of the said  question to  the High  Court, may  be necessary to appreciate the  contention urged  before us.  On December 5, 1961   an    order   of    regular   assessment    of    the respondent/assessee  was  passed  for  the  assessment  year 1960-61 for  which the relevant accounting year ended on May 31, 1959.  Subsequently it  came to the notice of the Income Tax Officer  that a  sum of Rs 32.58,500/- had been received by  the  assessee  purporting  to  be  loan  advanced  under agreement dated  November 15,  1958 entered into between the assessee and  Parsons &  Whittemore. The  assessee  promoted M/s. Mandva  National Paper  Mills  (for  short  "the  Paper Mills"). The  capital requirement  of the  Paper  Mills  was proposed to  be  met  by  issue  of  equity  and  redeemable preference shares  of rupees  two crores  and  by  arranging supply on  machinery of  Rs. 1.82  crores from  two  of  the associates of Parsons & Whittemore. In that connection three agreements including  the loan  agreement in  question, were entered into among different parties on the same date.      On  the  said  information,  the  Income  Tax  Officer, reopened the  assessment of  the assessee  and issued notice under Section  147(a) of  the Income Tax Act on November 25, 1968. Finding  that the  reply given  to the said notice was not satisfactory,  and disbelieving the plea that the amount was advanced  as loan,  the Income Tax Officer treated it as

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income received  from business  and accordingly  passed  the order of  assessment, under  Section 144  of the  Income Tax Act, bringing  to tax  the said amount of Rs. 32,58,500/- on December 2, 1970. The respondent-assessee pursued the appeal before the  Appellate Assistant  Commissioner who  dismissed the same  on December 16, 1972. The assessee’s appeal before the Income  Tax Appellate Tribunal was also dismissed on May 21, 1974.  From that  order of  the Tribunal  the above said question arose.      In the  Tribunal the  Accountant  Member  and  Judicial Member wrote  separate orders but concurred on the dismissal of the  appeal filed  by the assessee. The Accountant Member agreed with  the reasoning  and conclusion of the Income Tax Officer and  the Appellate  Assistant Commissioner  that the loan was  not bonafide transaction; the Judicial Member took the view  that many  of the circumstances relied upon by the Revenue were neutral and the others raised suspicion against the assessee  but concurred in the conclusion reached by the Accountant Member  on  the  ground  that  the  assessee  had suffered the  assessment under  Section 144  and  there  was paucity of material.      The High  Court took  note of all the factors mentioned in the  order of  the Tribunal  but opined that the apparant set of  things disclosed  that the  said amount was loan and that the  burden of  showing that the apparant was not real, lay heavily on the Revenue but apart from relying on certain circumstances no  material was  brought  on  record  by  the Revenue to  hold  that  the  said  amount  was  income  from business.      Mr. K.N.  Shukla, learned  counsel for  the  appellant- Revenue, argued that the High Court erred in arriving at its own finding of fact and that unless the findings recorded by the Tribunal  were perverse the High Court ought not to have interfered with  the findings  of facts.  In  our  view  the submission is too broad to merit acceptance. There cannot be any doubt  that  High  Court  will  not  address  itself  to recording findings  of facts,  unless the  subject matter of the question  referred to  it by  the Tribunal, either under sub-section (1)  or sub-section  (2) of  Section 256  of the Income Tax  Act, relates  to the  perversity of  the finding arrived at  by the Tribunal. That sort of question has to be distinguished from  a mixed question of facts and law, which also requires consideration and discussion of facts but does not warrant  returning findings  of facts  inconsistent with the findings  recorded by  the  Tribunal  while  giving  its opinion on  the question  referred to  the  High  Court.  In answering the  question, in this case, the High Court had to deal with  various facts  on record to determine whether the amount in  question was  loan on income. if such  discussion of facts  has led  to arriving  at the  conclusion that  the amount was  loan but not income. It cannot be urged that the High Court  disturbed the  finding of  fact recorded  by the Tribunal.      Here the  Tribunal did  not find any material to record specific finding  that the  amount in  question  is  in  the nature of  commission paid  by Parsons  & Whittemore  to the assessee: it  took note  of  the  fact  that  the  loan  was advanced by  agreement dated  November 15, 1958 and that the Reserve Bank  of India had accorded permission for obtaining the loan;  it has  also taken  into consideration an earlier memorandum of  understanding between  the assessee  and  the representative  of  foreign  Creditor,  of  July  19,  1957, recording that  the proposal to grant loan would materialise alongwith implementation  of other  agreements to be entered into with  the paper Mills Limited. The High Court in regard

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to the loan agreement dated November 15, 1958, observed that the agreement provided that the amount would be utilised for purposes of  purchasing shares  in the  said Paper Mills and that the  shares were  accordingly purchased  and they  were treated as belonging to the assessee-company. The High Court also referred  to a letter of the foreign Creditor addressed to the  income Tax  Officer in  November 1970 in response to his querry  letter and  opined that the Foreign Collaborator maintained that  the transaction  was loan  as  late  as  in November 1970.  It also noticed the reasoning of the Revenue as reflected in the orders of the Income Tax Officer and the Appellate Assistant  Commissioner. The  High Court  is  also justified in  its comment that without recording any finding that the  amount was  commission or  business  receipt,  the Tribunal was  not justified in coming to the conclusion that it could  be assessed  as income. In our view the High Court has rightly  held that  the circumstance  taken singally  or cumulative did  not justify  conclusion that  the amount was not received  as loan as it purported to be but was anything in the  nature of  commission or any receipt or business. In arriving at the conclusion to which it did, it was necessary for the High Court to refer to the facts and discuss them to answer the  mixed question of facts and law and that is what the High court had done.      The  facts  on  record  apparantly  indicate  that  the transaction was  one of  loan. The circumstances relied upon by the  Revenue, namely  that the  loan  had  been  advanced without security,  that the  loan had not been repaid and no interest on  the loan  was paid by the assessee and that the agreement of  loan was executed contemporaneously with other two  agreements   with  regard  to  supply  of  machine  and construction of building for the Paper Mill can not, without any further  material, lead to the inference that the amount was not  loan but business income. It appears to us that the last  mentioned   circumstance  supports  the  plea  of  the assessee that  the said amount was received as loan. For the aforementioned reasons  we do  not find  any  illegality  in judgment of  the High  Court under  appeal. The  appeal  is, therefore, dismissed,  but in  the circumstances of the case without costs.