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PETITIONER: MEENAKSHI MILLS, MADURAI

       Vs.

RESPONDENT: THE COMMISSIONER OF INCOME-TAX,MADRAS.

DATE OF JUDGMENT: 26/09/1956

BENCH: AIYYAR, T.L. VENKATARAMA BENCH: AIYYAR, T.L. VENKATARAMA DAS, SUDHI RANJAN (CJ) IMAM, SYED JAFFER

CITATION:  1957 AIR   49            1956 SCR  691

ACT: Income-tax-Reference to High Court-Question of law-Inference from  findings of fact, when a question of  law-Test-Profits earned  by the assessee Company by sale of goods entered  in the  names of dummy firms and Companies-Benami, Meaning  of- Finding  of the status of such firms and Companies,  if  and when  material-Accrual of liability-Manner of  dealing  with the  profits  by  a  registered  Company,  if  affects   its liability-Apportionment   of   profits  between   place   of manufacture  and place of sale, if a question of  law-Indian Income-tax Act, (XI of 1922), ss. 66(1), 42(1), 42(3).

HEADNOTE: A  finding of fact, even when it is an inference from  other facts found on evidence, is not a question of law within the meaning of s. 66(1) of the Indian Income Tax Act that can be referred  to  the  High Court for  its  decision.   Such  an inference  can be a question of law only when the point  for determination  is a mixed question of law and fact.  On  the principles  established by authorities, only such  questions as  relate to one or other of the following matters  can  be questions of law under the section:- (1)  the construction of a statute or a document of title; (2)  the legal effect of the facts found where the point for determination is a mixed question of law and fact; (3)  a   finding   of  fact  unsupported  by   evidence   or unreasonable and perverse in nature. Although  a  finding of fact which is not supported  by  any evidence  or is unreasonable and perverse may be  challenged as an error of law, where there is evidence to consider  the finding  of the Tribunal does not cease to be  final  simply because  the Court may be inclined to take a view  different from that of the Tribunal. Great  Western Railway Co. v. Bater, ([1922] 8 T.  C.  231), followed. The  soundness  of a conclusion based on a number  of  facts found on evidence must be judged by the cumulative effect of all  the  facts  and it is altogether a  wrong  approach  to consider them individually in an isolated manner in order to explain them and show that inferences other than those drawn by the Tribunal could be drawn from them.

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90 392 Edwards (Inspector of Taxes) v. Bairstow, ([1955] 28  I.T.R. 579), referred to. Misappreciation of evidence does not amount to want of  evi- dence and unless the evidence can be shown to be  irrelevant or  inadmissible, the conclusion of the Tribunal  cannot  be challenged  on  the  ground that it is  based  on  no  legal evidence. The  test as to whether a question is one of fact or one  of mixed  law  and  fact is this that while  in  determining  a question  of fact no application of any principle of law  is required  in finding either the basic facts or  arriving  at the ultimate conclusion, in a mixed question of law and fact the  ultimate  conclusion has to be drawn  by  applying  the relevant principles of law to the basic findings. Herbert v. Samuel Fox and Co. Ltd., ([1916] 1 A.C. 405)  and The  Queen v. Special Commissioners of Income-tax ([1894]  3 T. C. 289), followed. The view expressed in a number of English decisions that  an inference  from  facts is a question of  law  has  reference really to questions of mixed law and fact. Edwards (Inspector of Taxes) v. Bairstow, ([1955] 28  I.T.R. 679), Bam ford v Osborne, ([1942] A.C. 14), Thomas Fattorini (Lancashire)  Ltd.  v.  Commissioners  of  Inland   Bevenue, ([1942] A.C. 643), and Cameron v. Prendergast, ([1940]  A.C. 549), referred to and explained. The  Gramaphone  and  Typewriter  Company  Ltd.  v.  Stanley ([1908] 2 K.B. 89), held inapplicable. The American Thread Company v. Joyce, ([1911] 6 T.C. 1)  and The  American Thread Company v. Joyce, ([1913] 6 T.C.  163), relied on. Nor  do  the  observations made by the Privy  Council  in  a number  of  cases lend any support to the  broad  contention that  inferences  from  facts  are  always  and  necessarily questions of law. Ram  Gopal v. Shamskhaton, ([1892] L.R. 19 I.A. 228),  Nafar Chandra Pal v. Shukur ([1918] L.R. 45 I.A. 183), Dhanna  Mal v.  Moti Sagar, ([1927] L.R. 54 I.A. 178), Wali Mohammad  v. Mohammad  Baksh,  (E-1929] L.R. 57 I.A.  86),  Secretary  of State  for  India  in  Council  v.  Bameswaram  Devasthanam, ([1934] L.R. 61 I.A. 163) and Lakshmidhar Misra v. Bangalal, ([1949] L.R. 76 I.A. 271), referred to and explained. Consequently,  in  a  case where, as  in  the  present,  the Appellate  Tribunal,  on the basis of  certain  findings  of fact,   amply  supported  by  the  evidence  and   eminently reasonable,  came  to  the  conclusion  that  certain  sales entered in the books of-the assessee Company in the names of certain  intermediaries,  firms and  Companies,  which  were brought  into  existence  by the  assessee  solely  for  the purpose of concealing its own profits, and appeared to  have done  no other business except the sales in  question,  were fictitious and the profits ostensibly earned by those  firms and Companies were, in fact, 693 earned  by the assesses which had itself sold the  goods  to the real purchasers and received the prices, -and should  be added  to the amounts shown as profits in its  accounts,  no question  of law arose for reference under s. 66(1)  of  the Act. The question of benami is purely a question of fact and  not a mixed question of law and fact as it does not involve  the application of any legal principle for its determination. Gangadhara Ayyar v. Subramania Sastrigal, (A.I.R. 1949  F.C. 88)  and Misrilal v. Surji, (A.I.R. 1950 P.C. 28),  referred

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to. The  word  ’benami’  is  used  to  denote  two  classes   of transactions  which  differ from each other in  their  legal character and incidents.  In one, the usual class, the  sale is genuine and title is transferred but the real  transferee is  not  the ostensible transferee but another  and  in  the other,  where the term is inaccurately applied, the sale  to the benamidar is fictitious and the title of the  transferor is not intended to pass.  The fundamental difference between these two classes is that while in the former title vests in the   transferee,  in  the  latter  it  remains   with   the transferor, and when a dispute arises the question as to who paid the consideration becomes relevant only with respect to the  former class while in the latter the only  question  is whether any consideration was paid at all. The point actually in issue in the instant case,  therefore, was  a benami in the second sense and what the Tribunal  had to decide was whether any price had at all been paid by  the intermediaries for the goods ostensibly sold to them by  the assessee.   It  was not necessary for it to  decide  whether apart  from the sales the intermediaries had an  independent existence of their own, for such a decision could not in any way affect the liability of the assessee to pay the tax. Smith, Stone and Knight v. Birmingham corporation, ([1939] 4 All E.R. 116), distinguished and held inapplicable. Under  the  Indian Income-tax Act liability to pay  the  tax arises  as soon as the income accrues, whether the  assessee be an individual or a registered Company, and the manner  in which such a Company chooses to deal with the profits-cannot in  any  way affect its liability.  The  provisions  of  the Indian  Companies Act, designed to protect the interests  of the share-holders, cannot in any way affect the right of the state  to levy the tax.  Although the point involved was  -a question  of law appropriate for reference under  S.  66(1), since the assesses had failed to raise it in his application under  that  section, this Court would not  direct  a  fresh reference  in exercise of its powers under Art. 136  of  the Constitution as the point was no longer in doubt in view  of the decision of this Court. Commissioner of Income-tax, Madras v. K.B.M.T.T.  Thiagaraja Chetty, ([1954] S.C.R. 258), referred to and followed. The  Tribunal  was entirely right in refusing to  refer  the question  as to- whether ss. 42(1) and 42(3) of  the  Indian Income-tax Act 694 applied only to non-residents as was urged on behalf of  the assessee.   These sections apply both to residents and  non- residents. Commissioner  of Income-tax v. Ahmedbhai Umarbhai  and  Co., ([1950] S.C.R. 335), referred to and followed. The  question  of apportionment of the profits  between  the place  of manufacture and the place of sale and  correctness of  the  ratio fixed by the Tribunal is a pure  question  of fact and cannot be referred to Court. under s. 66(1) of  the Act.

JUDGMENT: CIVIL APPELLATE, JURISDICTION: Civil Appeals Nos. 124 to 126 of 1954. Appeals  by special leave from the judgment and order  dated the  10th  day  of March 1952 of the Madras  High  Court  in C.M.P.  Nos. 10427, 10425 and 10426 of 1951 arising  gut  of the order dated the 23rd day of February 1951 of the  Income

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Tax   Appellate   Tribunal,  Madras   Bench   in   Reference Applications Nos. 312, 310 and 311 of 1950-51. P.   R.  Das, B. Sen, V. Sethuraman and S.  Subramaniam  for the appellant. C.   K. Daphtary, Solicitor-Generalfor India, Porus A. Mehta and R. H. Dhebar for P. G. Gokhale for the respondent. 1956.   September  26.   The  judgment  of  the  Court   was delivered by VENKATARAMA  AYYAR J.-These appeals arise out of  orders  of assessment made on the appellant by the Appellate  Tribunal, Madras Bench, for the years of account 1941-42, 1942-43  and 1943-44.   The appellant applied under section 66(1) of  the Indian  Income-tax Act (hereinafter referred to as the  Act) to refer to the High Court certain questions which according to it arose out of the orders; but the Tribunal rejected the applications.  The appellant then moved the High Court under section 66(2) of the Act for an order requiring the Tribunal to  refer  those  questions to the court,  but  the  learned Judges held that the questions on which reference was sought by the appellant were pure questions of fact, and  dismissed the applications.  The matter now comes before us by way  of special appeal. 695 The  facts  material for the purpose of  these  appeals  may shortly  be  stated.   The  assessee  is  a  public  company registered under the Indian Companies Act, and its  Managing Agents are the firm of Messrs K. R. Thyagaraja Chettiar  and Co., whose partners are Mr. Thyagaraja Chettiar and his  two sons.   The company is resident and ordinarily  resident  in British  India,  its  head office being at  Madurai  in  the Madras State.  It carries on business in the manufacture and sale  of  yarn,  and for the purpose  of  that  business  it purchases  cotton  and occasionally sells it.   Its  profits arise  for the most part from the sale of yarn and  to  some extent from the re-sale of cotton.  According to the account books  of  the company, its profits from  business  for  the account  year  1941-42 were Rs. 9,25,364,  for  1942-43  Rs. 24,09,832  and for 1943-44 Rs. 29,13,88 1. In  its  returns, the appellant showed these amounts as its income  chargeable to  tax  for the respective years.  The Department  did  not accept  the  correctness  of the figures  as  shown  in  the accounts.   It  contended that the Company had  earned  more profits than were disclosed in its accounts, and that it had contrived  to  suppress them by resort to  certain  devices. According  to  the  Department, the scheme  evolved  by  the appellant  for  this purpose was this: Suppose  the  Company sold  25  bales of yarn to X for.  Rs. 50,000  at  the  then market rate and received the full amount of the price.   The books  of the Company would show neither the sale to  X  nor its receipt of Rs. 50,000.  Instead, there will be an  entry in  its books showing the sale of these very bales to A  for Rs.  20,000  which will be about the cost price and  in  the books of A these goods will be shown as sold by it to X  for Rs.  50,000.   If  the  sale by the Company  to  A  and  the connected  sale  by A to X were genuine, the  Company  would have made no profit on the sale, whereas A would have made a profit  of  Rs. 30,000 on it. But in fact,both  these  sales were  sham transactions; the only sale that took  place  was that by the Company to X and the price actually received  by it was not Rs. 20,000 but Rs. 50,000.  As a result of  these paper transactions and manipulations, the 696 profit  of  Rs. 30,000 made by the Company  was  suppressed. This process was reversed when the Company purchased cotton. The  appellant  purchased, let us say, 100 bales  of  cotton

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from X for a price of Rs. 5,000, and paid that amount to  X. Neither this purchase from X nor the payment of Rs. 5,000 to him would appear in the books of the Company.  Instead,  the books  of A will show these goods as purchased by it from  X for  Rs. 5,000, and the books of the appellant will  show  a purchase  from  A of those very goods for Rs.  8,000.   Both these  sales were fictitious, the only real transaction  was the  sale  by X to the Company and the price  actually  paid therefor  by the Company was only Rs. 5,000.  By the  device of  sale by X to A and by A to the Company, the  cost  price had been inflated by Rs. 3,000, and the real profit had been concealed  to  that extent.  The accounts  of  the  Company, therefore,  did  not  reflect the true position  as  to  the profits  actually made by the appellant.  The names  of  the intermediaries  who according to the Department  played  the role of A in the above illustration-and they will  hereafter be referred to simply as intermediaries-are given below with the  amount  of profits made on the sale of  yarn  in  their names  and  concealed,  or  the extent  of  the  cost  price inflated  on the purchase of cotton from them, as  found  by the Tribunal:      1941-42      1.   Meenakshi & Co.     Sale of yarnRs. 35,830      2.   Sivagami & Co. do.  Rs. 35,443      3.   Mangayarkarasi & Co.     do.  Rs. 34,579      4.   Alagu & Co.    Purchase of           cotton    Rs. 34,003      1942-43 1.   Meenakshi & Co.     Sale of yarnRs. 53,635 2.   Sivagami and Co.    do.  Rs. 58,103 3.   Rukmani & Co. Ltd. & Sale of yarn Rs. 3,97,467 4.   Sivagami & Co. Ltd. 5.   Rukmani & Co., Ltd.  Purchase of            cotton        Rs. 33,533 697                           1943-44 1. Pudukottah&Co.,Ltd. Sale of yarn     Rs. 18,99,488      Do.  Purchase of           cotton                  Rs. 12,703 2. Rukmani & Co., Ltd.   do.       Rs. 22,504 3. Rajendra Ltd.    Sale of yarn   Rs. 1,06,436 The contention of the Department was that the amounts  shown as  profits made by the intermediaries and  mentioned  above represented  in  fact  the profits actually  earned  by  the appellant,  and  that they should be added  to  the  figures shown  in  its  accounts  as  its  profits.   The  appellant contested  this position, and maintained that the  state  of affairs  disclosed by its accounts was true, that its  sales in  favour of the intermediaries were genuine, and that,  in fact,  little  or  no  profits were  made  by  it  in  those transactions,  that  it  purchased  cotton  only  from   the intermediaries and, did pay them the amounts as shown in the accounts.   These  contention were closely examined  by  the Income-tax Officer in the first instance, then again by  the Appellate  Assistant Commissioner on appeal, and finally  by the Appellate Tribunal, and on an elaborate consideration of the  materials  placed  before  them,  they  held  that  the following facts were established: 1.   The sale of yarn by the appellant to the intermediaries mentioned  above was for a price very much below the  market rate, often for the cost price and some times for even less. No  acceptable explanation had been given for  this  unusual feature.   The yarn -was in that period a scarce  commodity, and  it  was  a seller’s market.  The amounts  lost  by  the Company  on  these transactions during the three  years,  if

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they were genuine, would far exceed Rs. 25 lakhs.  The sales therefore were not bonafide. 2.   The  firms  of  Meenakshi and  Co.,  Sivagami  and  Co. Mangayarkarasi  and  Co., and Alagu and Co.,  who  were  the intermediaries  for the year 1941-42 were all newly  started for  the first time in 1941.  The partners of the firm  were men  of no means, and were all relations of  Mr.  Thyagaraja Chettiar, the chief 698 partner of the Managing Agents firm and a dominant figure in charge of the Company’s affairs.  None of them had done  any business  in yarn before.  The personnel of these firms  was drawn in different combinations from a group of half a dozen persons  who  were  all  the  creatures  of  Mr.  Thyagaraja Chettiar. 3.   During   the   year  1942-43,  two   of   the’   firms, Mangayarkarasi and Co., and Alagu and Co., were closed,  and their  place  was  taken by two  private  limited  companies called Rukmani and Co., Ltd. and Sivagami and Co., Ltd.  The shareholders  of these companies were again drawn  from  the small  group of persons who were partners of the firms,  and they   were  all  Mr.  Thyagaraja  Chettiar’s  men.    These companies declared no dividends, even though they made  con- siderable profits and the shareholders received no dividends nor  even  statements of accounts.  In truth,  they  had  no beneficial interest in the concerns. 4.   The business of the intermediaries, both firms and  the companies, consisted solely in the purchase of yarn from the appellant and not from any other person, and the entirety of the yarn purchased was sold by them en bloc to  constituents of the appellant.  Thus, the business of the  intermediaries was, in fact, only a part of the business carried on by  the appellant. 5.   The   sales  by  the  appellant  in  favour  of   these intermediaries   were  of  large  quantities  of  yarn   and sometimes   on  a  scale  far  higher  than  other   genuine commercial  transactions, as for example, the sale  of  1850 bales  on  17-4-1942 to Rukmani and Co. No  securities  were taken from the intermediaries for this transaction.   Having regard to the magnitude of the business, the capital of  the intermediaries even on paper was negligible. 6.   The intermediaries bad most of them no offices of their own.  Even when they had offices, these were arranged by the officers of the appellant.  The concerns had no godowns, and their staff was meagre and recruited from the employees  and servants   of  the  appellant.   Apart  from   signing   the contracts, the intermediaries did nothing. 699 7.   The  profits  earned by the firms were shown  in  their books as cash in their possession, but on a surprise   raid the authorities were unable to discover any cash with  them. The amount shown as profits in their accounts was, in  fact, in the possession of the appellant Company. 8.   The  intermediaries had, in fact, never to pay  to  the appellant for any of the purchases made by them, the  course of  the  business being that they sold the  goods  purchased from the appellant to its old customers, who paid therefor. 9.   The intermediaries did not issue any delivery orders on the  appellant  in  favour of the  customers  to  whom  they ostensibly  sold  the goods, but the goods  were  despatched directly by the appellant to the customers and delivered  to them. 10.  The customers to whom the goods were delivered    by the appellant as aforesaid paid the full price    for  which they purchased them from the intermediary firms not to those

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firms  with whom alone they had privity of contract  but  to the appellant direct, and these payments appear as  receipts in the books of the appellant. 11.  After the Limited Companies were started in 1942-43 and 1943-44,  the  course of business adopted by  the  appellant showed a further mystification.  There was firstly a sale of certain  quantity  of yarn by the appellant  to  company  A, which sold it in turn to company B which in turn sold it  to C,  which ultimately sold it to the usual customers  of  the appellant.   In  spite of the number of  links  between  the appellant  and  the  customers,  the  goods  were   directly despatched by the former to the latter, who paid by  cheques the  full  amount  due  by  them  to  their  seller  C,  who straightaway endorsed them, in favour of the appellant.  The intermediaries  A and B did no act, and took no part in  the ultimate payment of the price by the purchasers. 12.  Some  of  the intermediaries, firms and  companies  had been’  formed in Pudukottah State.  At that time,  that  Sta was foreign territory, and the profit 700 earned there would become taxable only if it was remitted to British  India.   Pudukottah is neither a  cotton  producing area,  nor was a market for cotton there.  The  object  with which  the intermediaries had been set up in Pudukottah  was obviously  to  screen portions of the profit earned  by  the appellant. On these facts, the Tribunal came to the conclusion that the contentions  of the Department had been  fully  established, namely-,  that the intermediaries were dummies brought  into existence by the appellant for concealing its profits,  that the sales standing in their names were sham and  fictitious, and  that  the, profits ostensibly earned by them  on  those transactions  were,  in fact, earned by the  appellant,  and should  be  added ,to the amounts shown as  profits  in  its accounts.   The point for decision is whether  there  arises out  of the order of the Tribunal any question which can  be the  subject  of reference under section 66(1) of  the  Act. Under that section, it is only a question of law that can be referred for decision of the court, ’and it is impossible to argue  that the conclusion of the Tribunal is  anything  but one  of  fact.   It  has  been  held  on  the  corresponding provisions in the English Income-tax statutes that a finding on a question of fact is open to attack as erroneous in  law only  if  it is not supported by any evidence, or if  it  is unreasonable and perverse, but that where there is  evidence to  consider, I the decision of the Tribunal is  final  even though  the court might not, on the materials, have come  to the  same conclusion if it had the power to  substitute  its own  judgment.   In Great Western Railway Co.  v.  Bater(1), Lord Atkinson observed: "Their  (Commissioners’) determination of questions of  pure fact are not to be disturbed, any more than are the findings of  a  jury,  unless  it should appear  that  there  was  no evidence  before  them upon which they, as  reasonable  men, could  come to the conclusion to which they have  come:  and this  even though the Court of Review would on the  evidence have come to a conclusion entirely different from theirs". (1)  [1922] 8 T.C. 231, 244. S.C.R.    SUPREME COURT REPORTS                      701 There is no need to further elaborate this position, because the  law as laid down in these observations is well  settled and  has been adopted in the construction of section  66  of the  Act.  Now,  the determination of the  Tribunal  in  the present proceedings being, one of fact, it is open to review by the court only on the ground that it is not supported  by

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any  evidence  or  that  it  is  perverse.   The   appellant understood  this  position  quite  correctly,  and  in   its application under section 66(1) it stated the only  question which  it  wanted the Tribunal to refer to  the  court  with reference to the present controversy in the following terms: "Whether  on the facts and in the circumstances of the  case there is any legal evidence to support the finding that  the four   firms,   Meenakshi  and  Co.,   Sivagami   and   Co., Mangayarkarasi  and Co., and Alagu and Co., were  benamidars for  the appellant and that the profits made by these  firms were profits made by the appellant". This was for the accounting year 1941-42.  The question  was similarly  worded for the subsequent years also except  that the  names  of  the intermediaries were  different  for  the different years.  The question as framed assumes, it will be noted,  that the Tribunal had held that  the  intermediaries were  benamidars for the appellant, and on  this  assumption were  grounded  several contentions which  were  pressed  on behalf of the appellant.      Whether  this  assumption  and the contentions based    thereon   are  well-founded  is   a different matter, and    will  be considered in due  course. But apart from that, it will be seen that the only ground of attack  which  was  directed  against  the  finding  of  the Tribunal  was that there was no legal evidence.  This is  of course a contention open to the appellant; but has that been substantiated?   Mr.  P.  R. Das, learned  counsel  for  the appellant, did, at the start, put his contention as high  as that.   But  it became abundantly clear  when  his  argument began to unfold itself that it amounted to no more than this that  the  conclusion drawn by the Tribunal from  the  facts found by it was unsound and erroneous.  He did not, it  must be stated, dispute the facts them- 702 selves,  but he took them one after another,  and  contended that  they were susceptible of inferences other  than  those drawn  by  the Tribunal.  He next offered  explanations  for them  which would ’Make them consistent with the  contention of  the appellant.  And he finally wound up by  saying  that the  conclusion reached by the Tribunal was  not  justified. This clearly is an erroneous approach to the whole question. When  a conclusion has been reached on an appreciation of  a number of facts established by the evidence, whether that is 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 in the picture as a whole.  In Edwards (Inspector of Taxes) v. Bairstow(1).  Lord Radcliffe stated: I think that it is rather misleading to speak of there being no  evidence to support a conclusion when in cases  such  as these  many  of  the  facts are  likely  to  be  neutral  in themselves,   and  only  to  take  their  colour  from   the combination  of  circumstances in which they  are  found  to occur". This  furnishes  the  corrective to the  course  adopted  by counsel for the appellant in his argument. And a more serious objection to it, and one of substance  is that  it  relates  merely  to  matters  of  appreciation  of evidence, and does not support the position that there is no legal  evidence in support of the finding of  the  Tribunal. For  example, one of the facts on which the Tribunal  relied for its conclusion was that the partners of the intermediary firms  were new to yarn business and came on the  scene  for the  first  time in 1941.  The appellant  contends  that  no significance  could  be attached to this,  as  the  partners belonged  to  the  Nattukkottai Chetti caste,  which  was  a

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trading community.  But surely this does not render the evi- dence  irrelevant  or  inadmissible.  It  only  affects  the weight  to be attached to it.’ Then again, the Tribunal  has made a point of it that the goods were sold by the appellant to  the  intermediaries  for a price far  below  the  market price, sometimes even below the (1)  [1955] 28 I.T.R. 579. 703 cost  price.  The answer of the appellant to this  was  that they  were forward contracts and that the price of  yarn  on the  dates  of those contracts was low.   But  the  Tribunal declined to accept this explanation for the reason-and that, a good one-that there were no contract registers from  which the dates on which the contracts were entered into could  be verified,  and that the contract notes themselves  were  not serially  numbered.  If this is not a matter of pure  appre- ciation  of evidence, it is difficult to see what  else  is. The  Tribunal  also  referred  to the  fact  that  the  only business  which the intermediaries did was to purchase  yarn from the appellant and sell it to its own constituents.  The answer  of the appellant to this was that there was no  need for the intermediaries to purchase from other  manufacturers when  all  their needs were met by the  appellant  and  that there was nothing unusual in their selling all their yarn to its  customers. it is unnecessary to say anything about  the worth  of this contention, for that is a matter  exclusively for  the Tribunal to assess.  What has now to be  considered is whether this circumstance on which the Tribunal relied is or is not cogent evidence in support of its conclusion.   It will  be preposterous to contend that it is not.  No  useful purpose  will be served by examining the contentions of  the appellant  with  reference to the other facts on  which  the Tribunal  relied for its conclusion.  They are of  the  same pattern as the above, and bear, at their best, on the weight to  be attached to the facts and not to their  relevancy  or admissibility,  and  there is no question of want  of  legal evidence in support of the conclusion of the Tribunal. Reference should also be made in this connection to  another contention  which  wag pressed by Mr. P. R. Das at  a  later stage  of the argument.  He contended that the  facts  found showed  that the intermediaries were benamidars not for  the appellant  but for Mr. Thyagarajan Chettiar of the  Managing Agents  firm.  The significance of this contention  lies  in this that it grants-and Mr. P. R. Das was quite frank  about it -that the facts found did point to the fact that the 704 intermediaries   were  dummies,  leaving   outstanding   for decision only the question whether on the evidence they were benamidars   for  the  appellant  or  for  Mr.   Thyagarajan Chettiar.   That  is  a question which  will  be  separately considered.   But  it  is manifest  that  this  argument  is destructive of the contention of the appellant that there is no legal evidence to support the conclusion of the  Tribunal that the intermediaries were mere dummies.  The result  then is  that the finding of the Tribunal viewed as one of  fact, which  in  truth  it is supported by evidence,  and  is  not unreasonable and is not open to attack on any of the grounds on  which  such a finding could be assailed in  a  reference under section 66(1). It was next contended for the appellant that inference  from facts  was a question of law, and that as the conclusion  of the  Tribunal that the intermediaries were dummies and  that the sales standing in their names were sham and  fictitious- was  itself an inference from several basic facts  found  by it  was  a question of law and that the  appellant  had  the

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right under section 66(1) to have the decision of the  court on its correctness, and support for this position was sought from certain observations in Edwards (Inspector of Taxes) v. Bairstow(1),   Bomford  v.  Osborne(2),   Thomas   Fattorini (Lancashire),  Ltd. v. Commissioners of  Inland  Revenue(3), Cameron  v. Prendergast(" and The Gramophone and  Typewriter Company,  Ltd. v. Stanley(5).  At the first blush,  it  does sound  somewhat of a contradiction to speak of a finding  of fact  as one of law even when that finding is  an  inference from  other facts, the accepted notion being that  questions of  law  and  of fact form antithesis  to  each  other  with spheres  distinct  and separate.  When  the  Legislature  in terms  restricts the power of the court to review  decisions of  Tribunals to questions of law, it obviously  intends  to shut  out questions of fact from its jurisdiction.   If  the contention of the appellant is (1)  [1955] 28 I.T.R. 579. (2)  [1942] A.C. 14: 1942 I.T.R. Supplt, 27. (3)  [1942] A.C. 643: 24 T.C. 328. (4)  [1940] A.C. 549: 8 I.T.R. Supplt. 75. (5)  [1908] 2 K.B. 89; 5 T.C. 358. correct.,  then  a  finding  of fact must,  when  it  is  an inference  from  other facts, be open to  consideration  not only  on the ground that it is not supported by evidence  or perverse  but  also on the ground that it is  not  a  proper conclusion  to  come to on the facts.  In other  words,  the jurisdiction  in  such cases is in the nature of  a  regular appeal  on  the  correctness  of  the  finding.   And  as  a contested  assessment-and it is only such that will home  up before  the  Tribunal  under section 33  of  the  Act,  must involve  disputed  questions of fast, the  determination  of which   must  ultimately  depend  on  findings  on   various preliminary  or  evidentiary  facts,  it  must  result  that practically  all orders of assessment of the Tribunal  could be  brought  up  for review before courts.   That  will,  in effect, be to wipe out the distinction between questions  of law  and  questions  of  fact  and  to  defeat  the   policy underlying sections 66(1) and 66(2).  One should hesitate to accept   a  contention  which  leads  to   consequences   so startling,  unless  there are compelling  reasons  therefor. Far  from that being the case, both principle and  authority are clearly adverse to it. Considering  the  question on principle, when  there  is  a, question  of  fact  to be determined  it  would  usually  be necessary first to decide disputed facts of a subsidiary  or evidentiary  character,  and the  ultimate  conclusion  will depend  on  an appreciation of these facts. Can it  be  said -Chat  a conclusion of fact, pure and simple, ceases  to  be that when it is in turn a deduction from other facts?   What can  be  the principle on which a question of  fact  becomes transformed  into  a  question of law when  it  involves  an inference from basic facts?  To take an illustration, let us suppose  that  in a suit on a promissory  note  the  defence taken  is one of denial of execution.  The court finds  that the disputed signature is unlike the admitted signatures  of the  defendant.  It also finds that the attesting  witnesses who  speak  to execution were not, in fact, present  at  the time of the alleged execution.  On a consideration of  these facts, the court comes to the conclusion that the promissory note is not genuine, 706 Here, there are certain facts which are ascertained, and  on these  facts, a certain conclusion is reached which is  also one of fact.  Can it be contended that the finding that  the promissory  note is not genuine is one of law, as it  is  an

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inference  from the primary facts found?  Clearly not.   But it is argued against this conclusion that it conflicts  with the  view  expressed in several English decisions,  some  of them of the highest authority, that it is a question of  law what  inference  is  to be drawn from  facts.   The  fallacy underlying  this  contention is that it fails to  take  into account the distinction which exists between a pure question of  fact and a mixed question of law and fact, and that  the observations relied on have reference to the latter and  not to  the former, which is what we are concerned with in  this case. In between the domains occupied respectively by questions of fact  and of law, there is a large area in which both  these questions  run into each other, forming so to say,  enclaves within   each   other.   The  questions   that   arise   for determination  in that area are known as mixed questions  of law   and   fact.   These  questions   involve   first   the ascertainment  of facts on the evidence adduced and  then  a determination of the rights of the parties on an application of   the  appropriate  principles  of  law  to   the   facts ascertained.   To take an example, the question  is  whether the  defendant  has acquired title to the suit  property  by adverse possession.  It is found on the facts that the  land is  a  vacant site that the defendant is the  owner  of  the adjacent.  residential  house and that he  has  been  drying grains  and  cloth and throwing rubbish on  the  plot.   The further  question that has to be determined is  whether  the above facts are sufficient to constitute adverse  possession in  law.  Is the user continuous or fugitive?  Is it  as  of right  or  permissive  in  character?   Thus,  for  deciding whether   the  defendant  has  acquired  title  by   adverse possession the court has firstly to find on an  appreciation of  the  evidence  what  the facts are.  So  far,  it  is  a question  of fact.  It has then to apply the  principles  of law  regarding acquisition of title by  adverse  possession, and decide whether on the facts 707 established  by  the evidence, the requirements of  law  are satisfied.  That is a question of law.  The ultimate finding on  the issue must, therefore, be an inference to  be  drawn from  the  facts  found, on the application  of  the  proper principles  of  law, and it will be correct to say  in  such cases that an inference from facts is a question of law.  In this  respect, mixed questions of law and fact  differ  from pure  questions  of fact in which  the  final  determination equally  with  the finding or ascertainment of  basic  facts does  not involve the application of any principle  of  law. The  proposition that an inference from facts is one of  law will be correct in its application to mixed questions of law and  fact but not to pure questions of fact.  The  following observations of Lord Atkinson’ in Herbert v. Samuel Fox  and Co., Ltd.(1) clearly bring out the principle above stated: "....  Your Lordships were pressed with the usual  argument, that  as  the County Court judge though a judge of  law  and facts,  is  the sole judge of fact, his findings  cannot  be disturbed  if there was any evidence before him  upon  which he,  as a reasonable man, could find as he has found.   That argument is quite sound if it be applied to pure findings of fact.   It  is utterly unsound if it be  applied  either  to findings on, pure questions of law or on mixed questions  of law and fact .... It is wholly illegitimate, in my view,  in cases  such as the present, by finding in the words  of  the statute  to  endeavor  to secure for ’a finding  on  a  pure question  of  law, or on a mixed question of law  and  fact, that  unassailability  which  properly  belongs  only  to  a

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finding on a question of pure fact". These  observations were made in a case under the  Workmen’s Compensation  Act, 1904.  But the same principles have  been applied to revenue cases, and it has consistently been  held that  inferences from facts may themselves be inferences  of fact  and not of law, and that such inferences are not  open to- review by the court. In the Queen v. Special Commissioners of Income-tax(2) Esher M. R. observed: (1) [1916] 1 A.C. 405, 413.  (2) [1894] 3 T.C. 289, 290-291. 92 708 ".....  it seems to me that is a question of fact.  It is  a question  of the true inference which  they  (Commissioners) had  to  draw as a matter of evidence upon the  facts  which they had in evidence before them.  But to draw an  inference of fact from evidence before you is not a question of law at all.   The inference is a question of fact just as  much  as the  direct  evidence  of fact, and it would  be  an  appeal against  facts, which we are not entitled to  entertain  and consequently there can be no Mandamus". A clearer and- more, emphatic refutation of the  appellant’s contention  cannot be found.  The law is thus summed  up  in Simon’s Income Tax, 1952 Edition, Volume I, page 281: "There can be no doubt that it is for the Commissioners, and for the Commissioners alone, to discover and state the basic or  ’primary’ facts of the case .... From the primary  facts the  Commissioners  will  almost always need  to  draw  some inference or inferences by the exercise of reasoning, and it is  this  process of inference which may, according  to  its nature, be a finding of law or of fact, or mixed finding  of law and fact". The  result of the authorities then is that  inference  from facts would be a question of fact or of law according as the point  for  determination  is  one of  pure  fact  or  mixed question of law and fact. Is there anything in the authorities cited by the  appellant which   militates  against  this  conclusion?   In   Edwards (Inspector   of  Taxes)  v.  Bairstow(1),  the   point   for determination  was whether the transaction entered  into  by the  assessee was an adventure in the nature of trade.   The finding  of the Commissioner was that it was not.  But  that was  reversed  by the House of Lords who held  that  on  the facts found it was an adventure in the nature of trade.  The very  expression "in the nature of trade" requires that  the adventure should possess certain elements which in law would invest it with the characteristics of a trade.  The question is,  therefore,  one  of  a mixed law  and  fact.   That  is precisely how the matter is dealt with by (1)  [1965] 28 I.T.R. 579. 709 Lord Radcliffe.  He observes at page 589: "My Lords, I think that it is a question of law what meaning is  to be given to the words of the Income Tax  Act  ’trade, manufacture,  adventure or concern in the nature  of  trade’ and  for  that matter what constitutes  ’profits  or  gains’ arising from it.  Here we have a statutory phrase  involving a  charge of tax and it is for the courts to  interpret  its meaning having regard to the context in which it occurs  and to the principles which they bring to bear upon the  meaning of ’income’ ". Lord  Somervell  agreed with the opinion expressed  by  Lord Radcliffe.  The Lord Chancellor, dealing with this aspect of the  case, referred to the decisions in Cooper v.  Stubbs(1) and Jones v. Leeming(2), where it had been held that whether

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trading  activities amounted to carrying on business  was  a pure question of fact, and observed at page 587: "Yet it must be clear that to say that such an inference  is one of fact postulates that the character of that act  which is inferred is a matter of fact.  To say that a  transaction is  or is not an adventure in the nature of trade is to  say that it has or has not the characteristics which distinguish such  an  adventure.  But it; is a question of law,  not  of fact,  what  are those characteristics, or in  other  words, what the statutory language means-". In the view of Viscount Simonds, therefore, the question was one  of  mixed law and fact.  But be was  also  prepared  to decide  the  case on the footing that it was a  question  of fact and observed at pp. 585-586: "This  appeal  must be allowed and the assessments  must  be confirmed,  - For it is universally conceded that though  it is  a pure finding of fact, it may be set aside  on  grounds which  have  been stated in various ways but are,  I  think, fairly summarised by saying that the court should take  that course  if  it  appears that the  Commissioners  have  acted without any evidence or upon a view of the facts which could not reasonably be entertained". That is to say, even if the question was one of pure (1) [1925] 2 K.B. 753.            (2) [1930] A.C. 415. 710 fact, the finding of the Commissioners was liable to be  set aside on the ground that there was no evidence in support of it  or  that on the evidence it was perverse.   What  is  of significance  in  this is that the Lord  Chancellor  dealing with the question whether the adventure was in the nature of trade as one of fact does not hold that the ultimate finding was one of law by reason of its being one of inference  from facts  but treats it only as a finding of fact and  open  to attack  as such.  This decision, therefore, is no  authority for the position that where a findig is given on a  question of fact based upon an inference from facts, that is always a question  of  law,  and the following  observation  of  Lord Radcliffe at page 592 is directly against it: "I  do  not  think  that inferences  from  other  facts  are incapable  of  being themselves findings  of  fact  although there is value in the distinction between primary facts  and inferences drawn from them". In  Bomford v. Osborne(1), the Commissioners had  held  that 230  acres  out  of a plot of 550  acres  belonging  to  the assessee  should be separately assessed as "gardens for  the sale of produce", while the remaining lands should be  taxed on  the basis of their annual value.  The assessee  disputed the correctness of this finding, and contended that the  230 acres in question were not gardens as contemplated by Rule 8 of  Schedule  B of the Income-tax Act, 1918.  The  House  of Lords  agreed  with  this  contention,  and  discharged  the assessment.  One of the points raised on behalf of the Crown was that the finding of the Commissioner was one of fact and was  therefor& final.  This contention was repelled  on  the ground that whether the lands were gardens within rule 8 was not a pure question of fact.  The following observations  in the speech of Lord Wright at page 38 may be quoted: "It  has  been strenuously contended as a main  argument  on behalf of the Crown that the questions here to be  discussed are questions of ’fact and degree’.  But, in my opinion, the true  effect of the facts found cannot be ascertained  until the true construction of r.   8 has been examined and its true application to (1) [1942] A.C. 14: [1942] I.T.R. Supplt. 27. 711

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the facts ascertained.  There are, in addition to incidental questions,  two main questions of law, namely, what  is  the meaning of "gardens for the sale of produce" and how is that meaning to be applied to acreage which is worked as a single mixed farm in one unit". Thus,  the  basis  of the judgment  was  that  the  question decided by the Commissioners was one of mixed law and  fact, and  that  their  determination was open to  review  by  the courts.   There  is  nothing in this  decision  again  which supports  the contention of the appellant that  findings  on questions of fact based on inference from other facts should be  regarded  as questions of law.  On the other  hand,  the following  observations  of Viscount Simon at  page  22  are really against this contention: "No  doubt,  there are many cases  in  which  Commissioners, having bad proved or admitted before them a series of facts, may   deduce   therefrom  further  conclusions   which   are themselves  conclusions of pure fact, but in such cases  the determination  in point of law is that the facts  proved  or admitted  provide  evidence to  support  the  Commissioner’s conclusions".   These  observations clearly  establish  that inferences   from  facts  found  need  not  necessarily   be inferences  of law but may be conclusions of fact, and  such conclusions  of fact could be attacked on grounds  on  which findings  of  fact could be attacked, namely,  there  is  no evidence  to support them as for example, if the  conclusion does  not follow even if all the facts found  are  accepted. That  does  not  certainly support  the  contention  of  the appellant. In  Thomas  Fattorini (Lancashire), Ltd. v.  Inland  Revenue Commissioners(1),  the  point for decision was  whether  the appellant company bad failed to declare within a  reasonable time dividend out of the profits earned by it, in which case under  section  21 of the Finance Act, 1922  the  income  is deemed to be income of the members and chargeable to  super- tax.   The  finding  of  the  Board  of  Referees  was  that distribution   of  profits  had  not  been  made  within   a reasonable time, (1)  [1942] A.C. 643; 24 T.C. 328. 712 but their decision was reversed by the House of Lord& on the ground  that there was no evidence in support of it.   Thus, there  is  nothing  in the decision  itself  which  has  any bearing on the present controversy.  The appellant, however, relies  on the following observations in the speech of  Lord Porter at page 667: "I.... think that the final conclusion is not a fact but  an inference   from  facts  previously  set  out,   and   that, therefore, that conclusion is not binding upon the  tribunal to  which  the case is referred unless it appears  from  the previous findings that there are facts which support it.  In the present case I cannot find such support." In  the  context, what these remarks mean is that  when  the final  conclusion is one of fact and is itself an  inference from  other facts, it is open to attack on the  ground  that the  basic  facts themselves do not constitute  evidence  in support  of the final conclusion -a position which does  not arise here. Then there is the observation of Lord Maugham in Cameron  v. Prenderga8t(1)  that  "inferences from facts stated  by  the Commissioners  are matters of law and can be  questioned  on appeal".   Does this remark mean that inferences from  facts found  are  questions  of law in all  cases,  whether  these inferences are inferences of facts or of law?  There.  being nothing  in  the  observation to throw  any  light  on  this

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question, we must examine the facts of the case to ascertain its  true  import.   There,  the assessee  who  had  been  a Director in a building company for 44 years wanted to resign his office, but be was persuaded to continue as an  advisory Director on a reduced remuneration and a payment of C45,000, and  this arrangement was embodied in a deed.  The  question was  whether these amounts were taxable as  profits  arising from  an  office.   The  Commissioners  had  held  that  the consideration  for  the  payments was  the  promise  of  the assessee  not to resign his office, and that therefore  they were  not  profits arising from any office.   The  House  of lords  held, affirming the judgment of the majority  of  the Court of Appeal that the amounts were paid to (1)  [1940] A.C. 549: 8 I.T.R. Supplt. 75, 81. 713 the  assessee  in  consideration  of  his  continuing  as  a Director, and were therefore taxable.  Thus, the only  point for determination in the case was as to the character of the payments  made  to the appellant, and that depended  on  the true  interpretation  to be put on the agreement,  and  that really was a question of law.  There was no question of  the Commissioners  recording findings on primary facts and  then of drawing further inferences therefrom.  The dictum  relied on by the appellant therefore could have no reference to the question  now  under  consideration.  It  is  possible  that having regard to the observations follow’ing the one  quoted above  that "the same remark is true as to the  construction of  documents", what was meant to be conveyed was  that  the legal effect of facts stated in the deed of agreement was  a question  of  law.   In the context,  it  is  impossible  to construe  the observation as an authority in support of  the present  contention  of  the appellant,  and  it  should  be mentioned that there is nothing about this in take judgments of the other members of the court. One other argument advanced on behalf of the appellant  must now   be  considered.   This  is  based  on  the   following observations  of  Cozens-Hardy M.R. in  The  Gramophone  and Typewriter Ltd. v. Stanley(1): "It  is  undoubtedly true that if the Commissioners  find  a fact, it is not open to this court to question that  finding unless there is no evidence to support it.  If, however, the Commissioners state the evidence which was before them,  and add  that upon such evidence they hold that certain  results follow,  I  think  it  is open,  and  was  intended  by  the Commissioners  that it should be open, to the court  to  say whether the evidence justified what the Commissioners  held. I  am satisfied that the case stated by-  the  Commissioners falls under the latter head". On.  these observations, the argument of the  appellant  was that  whenever  the Tribunal found certain basic  facts  and stated its conclusions thereon,, its determination was  open to review by court, and that it was immaterial whether these conclusions were of fact or (1)  (1908) 2 K.B. 89: 5 T.C. 358. 714 of law.  The answer to this contention is furnished -by  the decision in The American Thread Company v. Joyce(1), wherein the  true  scope  of  these  observations  has  been   fully considered and authoritatively settled.  There, Hamilton  J. pointed out that what the observations meant was Chat if the Commissioners  merely  stated certain findings of  fact  and while  expressing what according to them was  their  effect, did not intend that the expression should be taken as  their finding  thereon,  then  it  must be  taken  that  they  had referred  to  the decision of the court the question  as  to

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what inference should be drawn from the basic findings,  but that  if they had not merely stated the basic  findings  but had  also  stated their conclusions thereon  intending  that they  should be their determinations on the  question,  then those  determinations,  if  conclusions of  fact,  would  be binding  on the court and that the assessee would then  have been stated out of court.  Dealing with the statement of the Commissioners  which  was under reference  before  him,  the learned Judge observed at page 22: "It  appears to me, therefore, that it is quite  clear  that the  Commissioners  have done this: they have  stated  their determination,  with which the appellants are  dissatisfied; they  have  stated  the facts as found upon  which  they  so determined.   The  facts as found they have  stated  in  the first part of paragraph 17, and then they have stated in the previous  paragraphs the materials on which they  so  found, and in so doing they have invited, and only invited, the de- termination  in point of law of the question  whether  there was evidence upon which they could reasonably arrive at  the conclusion at which they did arrive". The decision in.  The Gramophone and Typewriter Company Ltd. v. Stanley(2) is thus really not a pronouncement on what  is a question of law but on what construction was to be put  on the  statement  of the Commissioners which  was  before  the court.   It should be added that the situation envisaged  by Cozens-Hardy M.   R. in The Gramophone and Typewriter Company (1) [1911] 6 T.C. 1. (2) [1908] 2 K.B. 89: 5 T.C, 358. 715 Ltd. v. Stanley(1) cannot arise under section 66 of the Act, as  the Tribunal is itself charged with the duty  to  decide whether  a question of law arises out of its order,  and  it cannot therefore merely pass it on for the determination  of the court. The decision in The American Thread Company v. Joyce (2) was taken  on  appeal and confirmed by the Court of  Appeal,  of which  it may be noted two of the members, Fletcher  Moulton L.J.  and Buckley L.J. were. parties to the decision in  The Gramophone  and Typewriter Company Ltd. v.  Stanley(1),  and they  expressed themselves in agreement with the view  taken by  Hamilton J. There was a further appeal to the  House  of Lords, which in confirming the decision of the courts  below expressly  approved of the observations of Hamilton  J.  The Earl of Halsbury observed: "It  is  enough to say that they  (the  Commissioners)  have found  it and that there was evidence upon which they  might find  it, and if they did find it and if there was  evidence upon  which  they  might find it, there is  no  question  of appeal  here  at  all  .... I  should  have  been  contented absolutely  to say that I entirely agree with every word  of Mr.  Justice  Hamilton’s  iudgment".  (The  American  Thread Company v. Joyce). This  decision is particularly important as the  finding  in that  case  was  itself, as appears  from  the  judgment  of Hamilton   J.,   an   inference  from   facts   found   and, nevertheless, it was decided that it was a question of  fact on which the finding of the Commissioners was final. I must now refer to another catena of cases relied on by the appellant in support of its contention that inferences  from facts are questions of law.  They are decisions of the Privy Council as to when a court of second appeal having authority to  review  decisions  of the lower  appellate  court  on  a question  of law could interfere with its findings of  fact. In Ramgopal v. Shamskhaton(4), one Daud Rao was sought to be

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made liable on a mortgage to which he was not a (1)  [1908] 2 K. B. 89; 5 T. C. 358. (3)  [1913] 6 T. C. 163, 165. 93 (2)  [1911] 6 T. C. 1. (4)  [1891]-921 19 I. A. 228, 716 party  on  the ground that be had knowledge of  it  and  had accepted  it.   In  holding  that the  acts  found  did  not establish  any  ground  of  liability,  Sir  Richard   Couch observed: "A  finding that the bond shewed that the mortgage deed  was accepted  by the defendant, as binding obligation upon  him, would  be an inference of law, an inference which, in  their Lordships’  opinion is not a just one from the  facts  which the  Commissioner held to be proved.  The knowledge  of  the mortgage  and  saying  that  the  money  due  upon  it   was repayable, do not amount to an agreement by him to be  bound byit. As the mortgage did not purport to be made in any  way on behalf of Daud Rao it was not a case for ratification.  A new agreement was necessary to bind him". Then, after referring to the observations of Lord Watson  in Ramratan  Sukal v. Mussumat Nandu(1) that "it has  now  been conclusively settled that the third Court, which was in this case   the  court  of  the  Judicial  Commissioner,   cannot entertain an appeal upon any question as to the soundness of findings of’ fact by the second court; if there is  evidence to be considered, the decision of the second Court,  however unsatisfactory  it might be if examined, must stand  final", Sir Richard Couch continued: "........  the present case does not come within that  rule. The facts found need not be questioned.  It is the soundness of the conclusion from them that is in question, and this is a matter of law". It  is  this last observation that is relied  upon  for  the appellant.  But  when  read along with  the  other  passages quoted above, it clearly recognises the distinction  between findings of pure questions of fact and of mixed question  of law and fact. In,   Nafar  Chandra  Pal  v.  Shukur(2),  Lord   Buckmaster observed: "Questions  of  law and of fact are sometimes  difficult  to disentangle.   The proper legal effect of a proved  fact  is essentially  a question of law, so also is the  question  of admissibility of evidence and the (1) [1891-92] 19 I.A. 1. (2) [1917-18] 45 I.A. 183, 187. 717 question  of  whether any evidence has been offered  by  one side  or  the other; but the question whether the  fact  has been proved, when evidence for and against has been properly admitted, is necessarily a pure question of fact". The expression "the proper legal effect of a proved fact" is itself indicative that inferences from facts are not all  of them questions of law open to consideration in second appeal but  only those which involve the application of some  legal principle.   The actual decision in that case was  that  the question  as  to the character of land was one of  fact  not open to consideration in second appeal. In  Dhanna Mal v. Motisagar(1), the point for  determination was whether the facts proved were sufficient to establish  a right of permanent occupancy.  Discussing how far a  finding on  that  question  by the lower appellate  court  could  be disturbed  in  second appeal, Lord Blanesburgh  observed  at page 185:

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"It  is clear, however, that the proper effect of  a  proved fact  is  a  question of law, and  the  question  whether  a tenancy is permanent or precarious seems to them, in a  case like the present, to be a legal inference from facts and not itself a question of fact.  The High Court has described the question  here as a mixed question of law and fact-a  phrase not  unhappy if it carries with it the warning that,  in  so far  as  it depends upon fact, the finding of the  court  of first appeal must be accepted". These  observations again emphasise the distinction  between inferences  which  are  themselves  questions  of  fact  and inferences on mixed questions of law and fact. This  question was the subject of further  consideration  by the  Privy  Council in Wali Mohammad v.  Mohammad  Baksh(2), Secretary  of  State  for India  in  Council  v.  Rameswaram Devasthanam(3)  and Lakshmidhar Misra v.  Rangalal(1).   In, Wali Mohammad v. Mohammad Baksh(2), Sir Benod Mitter (1) [1927] L.R. 54 I.A. 178. (2) [1929] L.R. 57 I.A 86:59M.L.J. 53. (3) [1984] L.R. 61 I.A. 163:  66 M.L.J. 595. (4) [1949] L.R. 76 I.A. 271:  1951 M.L.J. 100. 718 exhaustively  reviewed the authorities on the questions  and stated the law in the following terms: "No  doubt questions of law and fact are often difficult  to disentangle,  but  the following  propositions  are  clearly established: (1)  There  is no jurisdiction to entertain a second  appeal on  the ground of erroneous finding of facts, however  gross the  error may seem to be. (See Musumat Durga  Choudrain  v. Jawahir Singh Choudhri(1)). (2)  The proper legal effect of a proved fact is essentially a question of law, but the question whether a fact has  been proved  when  evidence  for and against  has  been  properly admitted  is necessarily a pure question of fact. (Nafar  v. Shukur(2)). (3)  Where  the  question to be decided is one of  fact,  it does  not involve an issue of. law merely because  documents which were not instruments of title or otherwise the  direct foundation  of  rights but were really  historical  matters, have  to  be  construed  for the  purpose  of  deciding  the question.   (See  Midnapur  Zamindary  Co.  v.  Uma   Charan Mandal(3)). (4)  A  second appeal would not lie because some portion  of the  evidence might be contained in a document or  documents and  the first appellate court had made a mistake as to  its meaning. (See Nowbutt Singh v.     Chutter Dharee Singh(4)). Great  reliance  was  placed by the  appellants  counsel  on Dhanna  Mal  v.  Moti Sagar(5) but there,  the  tenancy  was admitted  and the question was whether it was  permanent  or not, and the solution of it depended upon what was the legal inference to be drawn from proved facts, or in other  words, the  question  was  what was the  legal  effect.  of  proved facts". In  Secretary  of State for India in Council  v.  Rameswaram Devasthanam(6) where a finding of fact reached by the  lower appellate  court  on  a  consideration  of  the  documentary evidence  was reversed in second appeal, Sir John Wallis  in holding  that  the High Court had, in interfering  with  the finding of (1) [1889-90] 17 I.A. 122.  (2) [1917-18) 45 I.A. 183. (3)  [1918] 45 M.L.T. 663 P.C.; 29 C.W.N. 131.  (4) 19  W.R. 222. (5) [1927] L.R. 54 I.A. 178. (6) [1934] L.R. 61 I.A. 163.

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719 fact,  acted  in  excess of its powers  under  -section  100 observed- "The question is mainly one of fact, and it is well  settled that  under section 100 of the Code of Civil  Procedure  the High  Court has no jurisdiction to reverse the  findings  of fact  arrived  at  by  the  lower  appellate  court  however erroneous,  unless they are vitiated by some error  of  law. Subsequently  to the date of the judgments under appeal  the Board  has had occasion to emphasis the fact that this  rule is,  equally applicable to cases such as this in  which  the findings   of  the  lower  appellate  court  are  based   on inferences drawn from the documents exhibited in evidence". If  an inference from documents exhibited in evidence  is  a question  of  fact,  an inference from facts  found  on  the evidence must equally be so. There  is one more decision of the Privy Council bearing  on this  question.   In Lakshmidhar Misra v.  Rangalal(1),  the question was whether the finding of the Subordinate Judge in appeal that there had been a dedication of certain lands  as cremation  ground could be reversed in second  appeal.   In’ holding  that  the finding was open to review  by  the  High Court, Lord Radcliffe observed: "Issue  No. 5, (whether the land was a cremation ground)  is essentially  a  mixed question of law and fact.   There  are findings of fact by the Subordinate Judge which must  indeed be  accepted as binding in any consideration of this  matter on further appeal: but his actual conclusion that there  had been a dedication or lost grant is more properly regarded as a  proposition  of law derived from those facts  than  as  a finding of fact itself". These  observations lend no support to the broad  contention of the appellant that inferences from facts are of necessity and always questions of law. We  have discussed the authorities at great length, as  some of  the  observations  contained therein  appear,  at  first sight, to render plausible the contention of the  appellant, and it seems desirable that the true (1)  [1949] L.R. 76 I.A. 271, 720 meaning  of  those observations Should  be  clarified,  lest error  and  misconception  should  embarrass  and  fog   the administration  of  law.  The position that emerges  on  the authorities may thus be summed up: (1)When  the point -for determination is a pure question  of law such as construction of a statute or document of  title, the  decision  of the Tribunal is open to reference  to  the court under section 66(1). (2)When  the point for determination is a mixed question  of law and fact; while the finding of the Tribunal on the facts found is final its decision as to the legal effect of  those finding  is a question of law which can be reviewed  by  the court. (3)  A finding on a question of fact is open to attack,   under section 66(1) as erroneous in law when there is no  evidence to support it or if it is perverse. (4)  When  the finding is one of fact, the fact that  it  is itself  in inference from other basic facts will  not  alter its character as one of fact. Applying  these principles, admittedly there is no  question here of construction of any statutory provision or  document of -title.  The issues which arise for determination whether the sales entered in the books of the appellant in the names of  the intermediaries were genuine and if not, to whom  the goods  were  sold and for what price are  all  questions  of

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fact.  Their determination does not involve the  application of  legal principles to facts established in  the  evidence. The findings of the Tribunal are amply supported by evidence and  are eminently reasonable. It should, therefore,  follow that  there  is no question which could be referred  to  the court under section 66(1). it  was argued for the appellant that what the Tribunal  had found was that the intermediaries, firms and companies  were benamidars for the appellant, that a question of benami  was one  of mixed law and fact, and that accordingly  a  finding thereon  was  open to review under section  66(1).   Whether that  is  a correct reading of what the Tribunal  bad  found will  presently  be considered.  Assuming that such  is  the finding,  what is the ground for holding that a  finding  of benami is one of mixed law and fact?  The only basis 721 for such a contention is that the finding that a transaction is  benami  is a matter of inference  from  various  primary basic  facts such as who paid the consideration, who  is  in enjoyment  of the properties and the like.  But that is  not sufficient  to make the question one of mixed law  and  fact unless, as already stated, there are legal principles to  be applied to the basic findings before the ultimate conclusion is  drawn.  But no such principles arise for application  to the  determination  of  the question of.  benami,  which  is purely  one of fact, and none has been suggested by the  ap- pellant. In  Gangadara Ayyar v. Subramania Sastrigal(1), the  Federal Court had to consider whether concurrent findings of  benami by the courts below could be reviewed by it, and it was held that it could not be clone as the practice of the court  was not  to  interfere with concurrent findings of  fact  unless there were exceptional grounds therefor and that there  were none such in that case.  It should be noted that the finding of  benami  in  that case was a  matter  of  inference  from primary  facts found which are set out at page 573.  But  it was nevertheless held to be a question of fact.  In Misrilal v. Surji(2), it was held by the Privy Council that a finding of  benami  was  one of fact not open to  attack  in  second appeal.   This contention of the appellant must  accordingly be rejected. It was next contended that the finding of the Tribunal  that the intermediaries, firms and companies were benamidars. for the appellant was bad for the following reasons: (1)It had been reached without due consideration of  several matters relevant for such a determination. (2)The  finding  of benami in so far as it  related  to  the companies was bad for not considering the tests laid down in Smith,  Stone  and Knight v.  Birmingham  Corporation(3)  as material for a decision on the point. (1)  [1949] 1 M.L.J. 568: A.I.R. 1949 F.C. 88 (2)  A.I.R. 1950 P.C. 28: [1950] 1 M.L.J. 294. (3)  [1939] 4 A.E.R. 116. 722 (3)  On  the facts found,, the proper conclusion to come  to was  that  the intermediaries were benamidars  not  for  the appellant  but for Mr. Thyagarajan Chettiar of the  Managing Agents firm. These  contentions will now be considered.  As  regards  the first  contention, the argument on behalf of  the  appellant was  this:-  An  important test for  determining  whether  a transaction   is  benami  is  to  discover  the  source   of consideration  for  the  transfer.   When  the  question  is whether  firms  and  companies are  benamidars  for  another person,  what has to be found is whether it was  the  latter

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who  found  the capital of those concerns.   The  firms  and companies  had according to their books their  own  capital, and  there is no finding that the appellant  subscribed  it. Another important test of benami is to find who has been  in enjoyment  of the benefits of the transaction.  It  has  not been  shown that the profits of the intermediaries had  been utilised by the appellant.  Therefore, the finding that  the intermediaries  were benamidars of the appellant  could  not stand. Now,  the  assumption underlying this argument is  that  the Tribunal had found in its order that the intermediaries were benamidars for the appellant, but there is no basis for this in  the order.  In this connection, it is necessary to  note that  the  word ’benami’ is used to denote  two  classes  of transactions  which  differ from each other in  their  legal character  and  incidents.   In one sense,  it  signifies  a transaction  which  is  real, as for example  when  A  sells properties  to  B  but  the sale  deed  mentions  X  as  the -purchaser.   Here the sale itself is genuine, but the  real purchaser is B, X being his benamidar.  This is the class of transactions  which  is usually termed as benami.   But  the word  ’benami’ is also occasionally used, perhaps not  quite accurately, to refer to a sham transaction, as for  example, when A purports to sell his property to B without  intending that  his title should cease or pass to B.  The  fundamental difference  between  these, two classes of  transactions  is that  whereas in the former there is an  operative  transfer resulting in the vesting of title in the transferee, in  the latter there is none 723 such,   the  transferor  continuing  to  retain  the   title notwithstanding  the execution of the transfer deed.  It  is only  in  the  former  class  of  cases  that  it  would  be necessary,  when a dispute arises as to whether  the  person named  in the deed is the real transferee or B,  to  enquire into  the question as to who paid the consideration for  the transfer, X or B. But in the latter class of cases, when the question  is  whether the transfer is genuine or  sham,  the point for decision would be, not who paid the  consideration but  whether any consideration was paid.   Therefore,  there will  be  force in the contention of the  appellant  that  a finding   as   to  who  furnished  the   capital   for   the intermediaries was requisite before they could be held to be benamidars,  if the Tribunal had held them to be  benamidars in  the  former  sense but not in  the  latter.   We  must., therefore, examine what it is that the Tribunal has actually found.   Now,  the  Tribunal has not held that  any  of  the transactions  with  which  the  assessment  proceedings  are concerned  are benami.  Indeed, the word ’benami’  does  not find  a  place  anywhere in its order.  It is  only  in  the question  which  the appellant framed for reference  to  the court  in  its application under section 661)  that  it  has chosen for the first time to introduce the word ’benamidar’. That  apart,  looking at the substance of the  finding,  the point  that  arose  for  determination  before  the   taxing authorities  was  what  profit the  appellant  had  made  on certain  sales  standing in its books in the  names  of  the intermediaries.   If the sales were true, the amounts  shown in  the books as price received therefor would be the  basis for  working out the profits, and that was the stand of  the appellant;  but the authorities held that those  sales  were sham  and  the  entries relating to  the  payment  of  price therefor  fictitious.  Then, they found that  the  concerned goods  were  sold  by  the appellant  directly  to  its  own constituents,  that  the  price paid by  them  was  actually

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received by it, and that should be the basis for calculating its profits.  Thus, the point which was actually in issue in the proceedings was a question of benami in the second sense and  not in the first, and to decide that, the Tribunal  bad only to 724 find  whether any price was paid by the  intermediaries  for the  sales  and  not who paid the price  for  them.   It  is scarcely  necessary  to add that no question  arises  as  to whether  the intermediaries are benamidars for the  ultimate purchasers, because the claim of the former is that they had sold  the  goods  to the latter  under  fresh  contracts  at different  prices.  Nor could there be a question of  benami in the first sense, as that could arise only between a party to a deed and another who is economic not a party to it  but claims  to  be  beneficially  entitled  to  the   properties conveyed  by  the deed.  Therefore, on the findings  of  the Tribunal,  the  question  whether  the  intermediaries  were benamidars  for  the  appellant could  not  arise,  and  the further  question  as  to  who found  the  capital  for  the intermediaries  is altogether irrelevant.  Likewise, on  the finding  that the yarn was really sold by the appellant  not to  the intermediaries but to its own constituents and  that they paid the price therefor to the appellant, the  question who  had  the  benefit of the transaction  could  not  arise either. (2)It is next contended that some of the intermediaries were private limited companies registered in accordance with  the provisions  of  the Companies Act and were in  law  distinct legal  entities as held in Solomon v. Solomon &  Company(1), and  that  they could not be held to be benamidars  for  the appellant without deciding the matters mentioned by Atkinson J.   in  Smith, Stone and Knight v.  Birmingham  Corporation (2) . The learned Judge observed at page 121: "It  seems therefore to be a question of fact in each  case, and  those cases indicate that the question is  whether  the subsidiary  was  carrying on the business as  the  company’s business or as its own.  I have looked at a number of cases- they  are all revenue cases to see what the courts  regarded as  of importance for determining that question.   There  is San Paulo Brazilian Rly. Co.v. Carter(3), Apthorpe v.  Peter Schoenhofen Brewery Co. Ltd. (4), Frank Jones Brew- (1) [1897] A.C. 22.              (2) [1939] 4 A.E.R. 116. (3) [1896] A.G. 31: 8 T.C. 407.    (4) [1899] 4 T.C. 41. 725 ing Co. v. Apthorpe(1), St. Louis Breweries v.  Apthorpe(2), and  I  find six points which were deemed relevant  for  the determination  of the question: who was really  carrying  on the  business?  In all the cases, the question  was  whether the  company,  an English company here, could  be  taxed  in respect  of  all the profits made by some other  company,  a subsidiary  company, being carried on elsewhere.  The  first point  was: Were the profits treated as the profits  of  the Company?-wben I say ’the company’ I mean the parent company- secondly, were the persons conducting the business appointed by  the parent company?  Thirdly, was the company  the  head and  the  brain of the trading venture?  Fourthly,  did  the company govern the adventure, decide what should be done and what  capital should be embarked on the  venture?   Fifthly, did the company make the profits by its skill and direction? Sixthly, was the company in effectual and constant control?" The   contention  of  the  appellant  is  that  before   the intermediaries  could  be  held to  be  benamidars  for  the appellant,  findings ought to have been recorded on the  six points  mentioned  in  the judgment  of  Atkinson,  J.  This

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contention  proceeds  on a misapprehension as  to  the  true scope  of  the  above  observations  and  of  the  decisions referred  to  therein.   In those cases,  the  question  was whether  the profits earned by a subsidiary company X  could be  held -to be profits earned by the parent company  A  and taxed  in the hands of company A. It was held that the  fact that  X was a legal entity did not stand in the way  of  its profits  being treated as profits of A, if, as  observed  by Lord Sterndale in Inland Revenue Commissioners v. Samson(3), X  was doing the business of A and not its own, and  various tests  were laid down for ascertaining whether it was A  who was  running the business of X. But here, no  such  question arises.  The true scope of the assessment proceedings is  to discover  what  profits were really made  on  certain  sales effected by the appellant, and the intermediaries came into (1) [1898] 4 T.C. 6.           (2) [1898] 4 T.C. 111. (3) [1921] 2 K. B. 492; 8 T. C. 20. 726 the  picture  only as the persons in whose names  the  sales were made.  The question whether apart from those sales  the intermediaries   were  genuine  commercial   bodies   having existence  independent  of the appellant did not  arise  for determination, as a finding that they were such bodies would have had no effect on the chargeability of the appellant  to tax on the profits made by it on the sales in question. The question of the true status of the intermediaries  would have assumed practical importance if they had done  business other  than  the  sales in question  and  had  made  profits thereon,  and  those  profits were sought  to  be  taxed  as profits  made  by  the  appellant.   It  would  then  be   a legitimate  contention  for the appellant  to  advance  that could  not be done unless the intermediaries were  found  to have been really benamidars for it.  In that case, it  would have  been important to consider who found the  capital  for the concerns and who was running them.  But here, the tax is levied  only  on  the  profits  ostensibly  earned  by   the intermediaries on the sales which stand in the books of  the appellant in their names.  If those sales are sham, then the order  of assessment must stand even if  the  intermediaries were  real concerns, which had found their own  capital  and earned  their  own  profits in other  transactions.   If  an individual A carrying on his own business lends his name  to the business transaction of B. the latter cannot escape  the obligation  to  pay  the tax on these  transactions  on  the ground  that A had also his own genuine business.   Likewise if  companies doing their own business lend their  names  to business transactions of other persons, those other  persons cannot  be  heard to say that they are not  taxable  on  the profits  of  these  transactions for  the  reason  that  the companies   were  also  carrying  on  their  own   business. Therefore,  on  the  finding that the sales  were  sham,  no question  arises  as to the constitution or  status  of  the intermediaries.   It is true that the Tribunal has  directed that all the profits earned by the intermediaries should  be added to the profits of the appellant but that is because it has found that the intermediaries 727 did  no  business  of  her  than  the  transactions  of  the appellant.  And this finding clearly reveals how hollow  and unsubstantial the contentions of the appellant are as to the sources   of   capital  for  the  intermediaries   and   the application  of  the  tests laid down in  Smith,  Stone  and Knight  v. Birmingham Corporation(1).  It is a  most  unreal question to raise of firms and companies whose only business consists  of sham transactions as to who found  the  capital

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for them or who was running them. (3)  It is next contended that though the facts proved might justify  a finding that the intermediaries were  benamidars, they  did not necessarily lead to the conclusion  that  they were benamidars for the appellant.  It is argued that on the findings  of  the  Tribunal  that  it  was  Mr.   Thyagaraja Chettiar,  the  Managing Agent of the  appellant,  that  had setup the intermediaries, that it was his relations and  men who  had been put up as partners and shareholders  of  these concerns, and that it was he that generally had the  control of  the business, the proper inference to draw was that  the intermediaries were benamidars for Mr. Tbyagaraja  Chettiar, and  that  in consequence their profits were  liable  to  be added  to  his  and not to those  of  the  appellant.   This argument  again proceeds on the assumption that the  profits of  the intermediaries have been taxed in the hands  of  the appellant on the ground that they are its benamidars.   But, as already stated, that is not the true position.  What  are sought to be taxed in these proceedings are the profits made on   certain  sales  and  not  the  profits  made   by   the intermediaries as distinct entities chargeable to tax  under section  3  of  the Act, and the only  relevant  points  for decision  are, what profits were made on those sales and  by whom.   On  the finding that the appellant  sold  the  goods direct  to the ultimate purchasers and recovered  the  price therefor, it is only the appellant that could -be taxed  for the profits made thereon and not the Managing Agent.  It  is of no consequence that in form the order is that the profits of the intermediaries should be added to-those of the (1)  [1939] 4 A.E.R.116. 728 appellant,  because,  as  pointed  out  in  discussing   the previous contention of the appellant of which the present is but a repetition in another form, the intermediaries did  no other business than the sales concerned in this  assessment, so  that the profits of the business mean the same thing  as profits made on the concerned sales. There  is  another  aspect of the matter,  which  calls  for notice.  -  If  the contention of  the  appellant  that  the intermediaries  were benamidars for Mr. Thyagaraja  Chettiar is  accepted, it means that he had, by availing  himself  of his position as Managing Agent, unjustly enriched himself at the  expense of the shareholders to the tune of over Rs.  25 lakhs.  Now, Mr. Thyagaraja Chettiar is the dominant  member of  the firm of Managing Agents.  It is this firm  that  has been  in  management of the affairs of the  company  at  all times  and  has  been  representing  it  in  the  assessment proceedings at all stages, and it is through this firm  that the  appellant speaks in the present appeals.  The  position then  is that Mr. Thyagaraja Chettiar as Managing  Agent  of the  appellant  charges himself in his  individual  capacity with  conduct which is grossly fraudulent and  infamous,  so that  the company might escape its liability to tax.   This, to our minds, is a most surprising position to take.  But we are  not  concerned  here with the ethics  of  it  and  must consider  it on its merits so long as the law does  not  bar it.   But  what  are  its  merits  The  position  which  the appellant  took  up  with reference to this  matter  at  the several  stages of the assessment has been  neither  uniform nor  even consistent.  Thus, before the Appellate  Assistant Commissioner  its argument was that the Managing  Agent  had been  the protector of the interests of the’ company at  all times,  that  he  had "Stood by it in its  lean  years"  and should "not therefore be presumed to have acted against  the interests   of   the  company"  and   that   therefore   the

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transactions  in the names of the intermediaries  should  be accepted  as genuine.  Before. the Tribunal, the  contention was that even if -the intermediaries were bogus concerns "it might be that some other individual got the bene- 730 fit and not the company".  Thus, the contention now advanced was  not  thought  of in the earlier stages  and  was  still nebulous  and in the making, when the matter was before  the Tribunal,  and  it  is only in the,  argument  that  it  has assumed a definite and concrete shape. Dealing  with  the contention as advanced  before  it,.  the Tribunal referred to several facts such as that the sales in favour  of  the  intermediaries  were  for  unusually  large quantities and for prices far below the market rate and even the  cost  of production, that the appellant  was  a  public company with a Board of Directors in-charge of its business, and that they must have known all about these  transactions. Is  it likely that the Directors would have  accepted  these sales involving such huge loss to the company and carried on regularly  from month to month and year to year  during  the whole  of  this period as proper and  genuine,  unless  they considered  that it was the company and not  Mr.  Thyagaraia Chettiar who was to have the benefit of them? it was  argued by the learned Solicitor-General for the respondent that  if on  the facts two inferences were possible and the  Tribunal chose to draw one and not the other, it was not a matter  in which the court could interfere, if the inference is one  of fact.   That is a proposition of law well settled,  and  has not  been disputed.  Now, on the facts, two  inferences  are possible.  One is that the object of the Managing Agent  was to defraud the shareholders by purchasing goods himself at a low   valuation   for   his  own  benefit   and   that   the intermediaries  were  set up by him for that  purpose.   The other is that they were set up for the purpose of concealing portions  of  the  profits earned by the company  so  as  to reduce  the tax to which it was liable to be assessed.   The former involves cheating the shareholders; the latter, evad- ing  the  tax  due  to the State.   Is  it  an  unreasonable inference for the Tribunal to draw that the motive by  which the  Managing Agent was actuated was the latter and not  the former?   Is  it  not more legitimate to  presume  that  the Managing  Agent  wanted  to  benefit  the  shareholders   by reducing the 730 tax  rather  than  he  wanted to  defraud  them  by  himself purchasing  the  goods for a low price in the names  of  the intermediaries?    If  the  Tribunal  came  to  the   former conclusion  and it is one which could reasonably be come  to on the materials, it is not one which the court can  review, being  one  of fact.  This ground. of attack  also  must  be rejected.   In  the  result,  all  the  contentions  of  the appellant  based on the assumption that  the  intermediaries had  been  held to be benamidars for the appellant  must  be overruled on the ground that on the findings of the Tribunal they do not really arise. Lastly,  it  was contended that the profits  earned  by  the intermediaries  bad not been brought into the books  of  the company_  as  its  income,  had not  been  included  in  its balance-sheet  and had not been distributed as dividends  or added  to its reserves, and, not having been treated as  its income or profits, could not be taxed.  The decisions in St. Lucia  Usines  and  Estates  Co.  v.  St.  Lucia   (Colonial Treasurer) (1), Commissioner of Taxes v. Melbourne  Trust(2) and  Commissioner of Income-tax, Bihar and Orissa  v.  Maha- rajadhiraja  of Darbhanga(3) were quoted in support of  this

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contention.   This  question  is,  however,  no  longer  res integral  and  is covered by the decision of this  Court  in Commissioner  of  Income-tax v. K. B. M.  T.  T.  Thyagaraja Chetty(1).  There, the assessee which was no other than  the firm  of Messrs K.R.M.T.T. Thyagaraja Chettiar and Co.,  the Managing  Agents of the present appellant, failed  to  bring into  its profit and loss account a certain amount which  it had  earned  as commission, and the point for  decision  was whether  that amount was liable to tax.  The  contention  of the assessees was that it was not liable as it had not  been treated as profits by the assessee and the decisions in  St. Lucia  Usines  and  Estates  Co.  v.  St.  Lucia   (Colonial Treasurer)(1),  Commissioner of Taxes v. Melbourne  Trust(2) and   Commissioner  of  Income-tax,  Bihar  and  Orissa   v. Maharajadhiraja of Darbhanga(3) were relied on in support of this   position.   But  this  Court  disagreed   with   this contention, and (1) [1924] A.G. 508.           (2) [1914] A.C. 1001. (3) 60 I.A. 146.               (4) 24 I.T.R. 525. 731 held that the liability to pay tax on the income arose  when it  had  arisen or accrued and that how the  assessee  dealt with  it  subsequently did not affect  that  liability,  and distinguished the decisions in St. Lucia Usines and  Estates Co.  v. St. Lucia (Colonial Treasurer) (1) and  Commissioner of Taxes v. Melbourne Trust(2) on the ground that they  were pronouncements  on the particular statutes there under  con- sideration  and  were  not authorities on  the  question  of assessment of profits and gains under the Indian  Income-tax Act.   Applying  this decision, the  appellant  having  been found to have sold its goods to the ultimate purchasers  and received  the prices, there can be no question but that  the profits  had- accrued to it both in the business and in  the legal  sense  and that liability to tax had arisen.   If  an individual  were  to  sell  goods  and  receive  the   price therefor,  that would be income accrued or arisen liable  to tax in his hands even though he should have failed to  enter it  in his accounts.  A party cannot avoid tax  by  adopting the  simple expedient of not disclosing its receipt  in  his books.  That will be a case of income accrued or arisen  but concealed and not of income not accrued or arisen.  This  is conceded by the appellant.  But it is argued that  different considerations  arise  in the case of  companies  registered under the Indian Companies Act, because there are provisions in the Act as to how the profits are to be disposed of, such as  distribution of dividends or adding to the  reserve  and until  that was done, there was no accrual of income  or  of profits  under the statute.  This is to confuse  accrual  of income with the disposal of it.  Income which has accrued to an  assessee  might  remain undisposed of by  him,  but  the liability to tax attaches to it under the provisions of  the Indian  Income-tax  Act  as soon as it accrues.   It  is  no concern of the revenue how and when profits are disposed  of by  the  assessees,  and  for  this  purpose  it  makes   no difference  whether  the  assessee is  an  individual  or  a company, both of them being equally liable to tax ’on income and profits when they have arisen or accrued.  The (1)  (1924] A.C. 508. 95 (2) [1914] A.C. 1001. 732 provisions  of  the  Companies Act as  to  the  disposal  of profits  are  designed  to  protect  the  interests  of  the shareholders and have no effect on the right which the State has  under  the  provisions of the Act to impose  a  tax  on

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income  when  it  arises  or accrues.   It  should  also  be mentioned  that  though  the  decision  in  Commissioner  of Income-tax,  Madras v. K. R. M. T. T.  Thyagaraja  Chetty(1) relates  to a firm and not a company, the decisions  in  St. Lucia  Usines  and  Estates  Co.  v.  St.  Lucia   (Colonial Treasurer)  (2)  an(?  Commissioner of  Taxes  v.  Melbourne Trust(3)   which  were  held  to  be  inapplicable  to   the imposition  of  a  charge under the  Indian  Income-tax  Act related to companies, and the argument and the decision pro- ceeded  on the footing that principles applicable  were  the same   both  to  firms  and  companies.   The  decision   in Commissioner  of  Income-tax,  Madras  v. K.  R.  M.  T.  T. Thyagaraja  Chetty(1) must accordingly be  held-to  conclude this question against the appellant. It must be said of this contention that it was raised before the  Tribunal and negatived.  Being a question of  law,  the appellant bad a right to have it referred to the court under section 66(1).  But the question as framed by the  appellant in its application under section 66(1) did not  specifically raise this point; nor does it appear to have been argued  in the  High  Court.   As  the  matter  is  now  concluded   by authority,  it  will  be an idle  formality  to  direct  the Tribunal  to  refer  the question for the  decision  of  the court.  The powers of this Court in appeal under article 136 are  not intended to be exercised for such a purpose.   That disposes  of  the main and substantial questions  that  have been agitated in these proceedings. There is one other matter in respect of which the  appellant sought  reference  to  the court in  its  application  under section  66(1).  The facts relating to this matter are  that during the periods of assessment with which the appeals  are concerned,  the appellant opened branches in the  States  of Travancore, Cochin, Pudukkottah and Mysore, and sold yarn to its consti- (1)  [1964] S.C.R. 258: [1953] 24 I.T.R. 525. (2) [1924] A.C. 508, (3) [1914] A.C. 1001. 733 tuents in those States through these branches.  The point in dispute  is  whether the profits made by  the  appellant  on those  sales are chargeable to tax.  The contention  of  the appellant  before  the  Tribunal was  that  the  matter  was governed by section 14(2) (c), and that the profits could be taxed only if they were remitted to British India.  That was not  disputed by the Department, but they contended that  as the appellant sold in the States goods manufactured by it in British India, the governing provisions were sections  42(1) and  42(3), and that under these provisions,  the  appellant was  liable to be taxed on such portions of the  profits  as were  apportionable  to  the manufacture  of  the  goods  in British  India.  That was accepted by the Tribunal, and  the profits  were  apportioned in the ratio of  85:15.   In  its application  under section 66(1), the appellant  raised  the contention that sections 42 (1) and 42 (3) applied ’only  to nonresidents,  and that it was only section 14(2)  (c)  that would  apply to residents and applied to have that  question referred  to  the decision of the court.  But  the  Tribunal held  that  the decision of this Court  in  Commissioner  of Income-tax,  Bombay  v. Ahmedbhai Umarbhai  and  Co.(1)  had settled  that  sections  42(1) and  42(3)  applied  both  to residents as well as nonresidents and consequently  declined to refer the question’ The  correctness  of this decision does not appear  to  have been  contested before the High Court, the only point  dealt with  in the judgment of the learned Judges being as to  the

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correctness  of  the ratio in which  the  apportionment  was made.   Even in this Court, it was only this  question  that was pressed on the strength of the decision in  Commissioner of  Income-tax and Excess Profits Pax v. S. Sen(2),  Section 14  was  mentioned  in the course of the  argument,  but  no contention  was advanced that sections 42(1) and  42(3)  ap- plied  only  to  non-residents, and  the  decision  in  Com- Missione; of Income-tax v. Ahmedbhai Umarbhai and Co.(1) was not even so much as referred to in the (1)  [1950] S.C.R. 335: [1950] I.T.R. 472. (2)  [1949] I.T.R. 355. 734 course  of the argument, and the appellant did not even  ask for this question being referred.  That apart,in  view    of the decision in Commissioner of Income-tax v.     Ahmedbhai Umarbhai and Co.(1), no purpose would be     served       by directing a reference of this question,and the Tribunal  was right in observing that "it is not even of academic interest to  refer  the  said question to the High  Court".   On  the question  whether the fixation of ratio was correct, we  are of  opinion that it is a pure question of fact, and  is  not open to reference under section 66(1). In  the  result, the appeals fail, and  are  dismissed  with costs.