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PETITIONER: COMMISSIONER OF INCOME-TAX, PUNJAB

       Vs.

RESPONDENT: INDIAN WOOLLEN TEXTILE MILLS

DATE OF JUDGMENT: 18/11/1963

BENCH: SHAH, J.C. BENCH: SHAH, J.C. SARKAR, A.K. HIDAYATULLAH, M.

CITATION:  1964 AIR  735            1964 SCR  (5) 427  CITATOR INFO :  D          1973 SC2330  (15)  R          1975 SC 893  (9)

ACT: Income  Tax-Tribunal ignores essential  evidence-Refusal  to state  case--Power of High Court-Income-tax Act, 1922(11  of 1922), ss. 15C & 66(1) (2).

HEADNOTE: ’ Eldee’, one of the branches of the respondent had advanced a loan to another concern, ’Castle’.  The respondent claimed under  s. 15C of the Income Tax Act, exemption from  tax  in respect of 6 % of the capital employed in ’Eldee’ as a newly established  undertaking  and  sought  to  include  in   the computation  of the capital so employed the amount  advanced to  Castle’.   The Income-tax  Appellate  Tribunal  directed inclusion  of  the  amount  advanced  to  ’Castle’  in   the computation  of capital invested for the purpose of s.  15C. The Commissioner’s application under s. 66(1) of the Act  to the  Tribunal  to refer a question which arose  out  of  the order of the Tribunal was rejected and his petition under s- 66(2) for an order directing the Tribunal to state the  case and refer it to the High Court was also dismissed. The  question in dispute before the Revenue Authorities  was whether  ’Castle’  was  a  branch  of  the  assessee.    The Appellate Assistant Commissioner thought that the same eight persons were partners in these two undertakings and that the constitution  of  both  the  undertakings  being  the  same, ’Castle’  could not be regarded as a separate  entity.   The Tribunal  disagreed  with that view relying  upon  only  one circumstance that in the assessment for the year 1951-52 the income  from ’Castle’ had not been computed and included  in the assessment of the respondent. Held  : Under the Income-tax Act it is for the  Tribunal  to decide  all questions of fact: the High Court has the  power merely  to advise the Tribunal on questions of  law  arising out  of the order of the Tribunal. In so advising  the  High Court must accept the findings of the Tribunal on matters of appreciation  of evidence.  But the refusal of the  Tribunal to  state a case for the opinion of the High Court,  on  the view that a question of law does not arise out of the  order

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is  not  conclusive.  The High Court has the power  to  call upon  the  Tribunal  to  state the case if  in  its  view  a question of law arises out of the order of the Tribunal, and also  if  the  Tribunal has misdirected  itself  in  law  in arriving  at its findings.  It is not open to the  court  to discard  the  Tribunal’s finding of fact, if there  is  some evidence  to  support  the  finding of  the  Tribunal  on  a question  of fact, -even if on a review of the evidence  the court might have arrived at a difficult conclusion.  It must however  appear  that the Tribunal had  considered  evidence covering  all the essential matters before arriving  at  its con- 428 clusion.   If the conclusion of the Tribunal is  based  upon some evidence ignoring other essential matters it cannot  be regarded  as a finding not giving rise to a question  liable to be referred to the Court. (ii) The conclusion of the Tribunal suffers from a double infirmity: it assumed the only fact on which its  conclusion was founded and ignored other relevant matters on which  the Appellate  Assistant Commissioner relied.  The Tribunal  had therefore  misdirected  itself  in law in  arriving  at  its finding,  and in refusing to require the Tribunal  to  state the case and to refer it, the High Court was in error.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 96 of 1963. Appeal by special leave from the judgment dated October  13, 1960, of the Punjab High Court in Income-tax Case No. 21  of 1958. K.N. Rajagopala Sastri and R.N. Sachthey, for the appellant. A.V.   Viswanatha   Sastri  and  N.N.  Keshwani,   for   the respondent. November 18, 1963.  The Judgment of the Court was  delivered by SHAH   J.-M/S  Indian  Woollen  Textiles   Mills   Amritsar- hereinafter  called ’the assessee’ -had at different  places in   India,  branches  one  of  which  was   an   industrial undertaking  conducted in the name of Eldee Velvet and  Silk Mills--called for the sake of brevity ’Eldee’.  "Eldee"  had advanced  Rs. 3,21,460 to another concern, the  Bombay  Fine Worsted   Manufacturers’  Castle  Mills-hereinafter   called ’Castle’.   In  the assessment year  1951-52,  the  assessee claimed  under  s. 15C of the  Indian  Income-tax  Act,1922, exemption from tax in respect of 6% of the capital  employed in ’Eldee’ as a newly established undertaking and sought  to include  in the computation of the capital so  employed  Rs. 3,21,460  advanced  to ’Castle’.   The  Income-tax  Officer, Special   Circle  Amritsar,  and  the  Appellate   Assistant Commissioner   rejected  the  claim.   But  the   Income-tax Appellate Tribunal modified the assessment and directed  in- clusion   of  the  amount  advanced  to  ’Castle’   in   the computation of capital invested for the purpose of 429 s.   15C.   An application submitted under s. 66(1)  of  the Indian  Income-tax Act to the Tribunal to refer  a  question which it was contended by the Commissioner arose out of  the order  of the Tribunal was rejected and the petition of  the Commissioner  under  s.  66(2) for an  order  directing  the Tribunal  to state the case and refer it to the  High  Court was also dismissed.  With special leave the Commissioner has appealed to this Court.    The  question in dispute before the  revenue  authorities

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was  whether  the business called ’Castle’ at Bombay  was  a branch   of   the   assessee.    The   Appellate   Assistant Commissioner  rejected the claim of the assessee to  include the  amount of Rs. 3,21,460 in the capital employed  in  the undertaking ’Eldee’, because in his view there were in these two  undertakings  the same eight partners with a  share  of -/2/(two annas) each, and that the constitution of both  the undertakings being the same, ’Castle’ could not be  regarded as a separate entity.  The Tribunal disagreed with the  view of  the Appellate Assistant Commissioner, relying upon  only one  circumstance viz., that in the assessment for the  year 1951-52  the income from ’Castle’ had not been computed  and included  in  the assessment of the assessee.   It  did  not consider  the other questions whether the  constitution  and ownership  of the two businesses "were the same".  The  High Court  declined  to require the Tribunal to state  the  case holding that the finding of the Tribunal was one of fact  as it was based on the inference arising from the non-inclusion by  the Income-tax Officer in the assessment in question  of the  income  of  ’Castle’ and that "the  factor  taken  into consideration  by  the Appellate Tribunal in coming  to  the conclusion, it did," was a relevant factor. Section  66(2) invests the High Court with  jurisdiction  to require the Appellate Tribunal to state a case and to  refer it, if the Appellate Tribunal has refused to state the  case on  the ground that no question of law arises, and the  High Court being approached 430 by  the  aggrieved  party within the  period  of  limitation prescribed,  is not satisfied about the correctness  of  the decision  of  the Appellate Tribunal refusing to  state  the case.   Under the Income-tax Act it is for the  Tribunal  to decide  all questions of fact: the High Court has the  power merely  to advise the Tribunal on questions of  law  arising out  of the order of the Tribunal.  In so advising the  High Court must accept the findings of the Tribunal on matters of appreciation  of evidence.  But the refusal of the  Tribunal to  state a case for the opinion of the High Court,  on  the view that a question of law does not arise out of the  order is  not  conclusive.  The High Court has the power  to  call upon  the  Tribunal  to  state the case if  in  its  view  a question  of  law arises out of the order of  the  Tribunal. Such  a  question  may  arise out of  the  findings  of  the Tribunal, and also if the Tribunal has misdirected itself in law in arriving at its finding.  It is not open to the Court to discard the Tribunal’s finding of fact, if there is  some evidence  to  support  the  finding of  the  Tribunal  on  a question  of fact, even if on a review of the  evidence  the Court might have arrived at a different conclusion.  It must however  appear  that the Tribunal had  considered  evidence covering  all the essential matters before arriving  at  its conclusion.  If the conclusion of the Tribunal is based upon some evidence ignoring other essential matters, it cannot be regarded  as a finding not giving rise to a question  liable to be referred to the Court. Non-inclusion of the income of ’Castle’ in the assessment of the assessee may have been a relevant circumstance, but  its effect   had  to  be  considered  in  the  light  of   other circumstances on which the Appellate Assistant  Commissioner had relied.  Moreover, reliance  placed by the Tribunal upon the  single circumstance on which its decision  was  founded had proceeded on an assumption that in the previous year  to the  year  of assessment 1951-52, ’Castle’  had  carried  on business  and had earned income.  The observations  made  by the Appellate Assistant Commissioner about

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431 ’Castle’  being separately assessed at Bombay in the  status of a registered firm apparently refer to assessment of  that business  in  subsequent  years  and  not  in  the  year  of assessment   1951-52.   The  conclusion  of   the   Tribunal therefore  suffers from a double infirmity: it  assumes  the only  fact  on which its conclusion is founded  and  ignores other  relevant  matters on which  the  Appellate  Assistant Commissioner  relied  in  support of  his  conclusion.   The Tribunal has therefore misdirected itself in law in arriving at  its finding, and in refusing to require the Tribunal  to state  the case and to refer it, the High Court was, in  our view, in error. The  appeal  is therefore allowed and  the  proceedings  are remanded  to  the  High Court with a  direction  to  proceed according to law.  Costs in this appeal will be costs in the High Court. Appeal allowed and Case remanded.