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PETITIONER: SHRI KANHAIYALAL LOHIA

       Vs.

RESPONDENT: THE COMMISSIONER OF INCOME-TAX,WEST BENGAL

DATE OF JUDGMENT: 17/07/1961

BENCH: HIDAYATULLAH, M. BENCH: HIDAYATULLAH, M. DAS, S.K. SHAH, J.C.

CITATION:  1962 AIR 1323            1962 SCR  (2) 839  CITATOR INFO :  F          1962 SC1326  (5)  F          1962 SC1621  (115)  RF         1963 SC 835  (2)

ACT: Income-Tax--Appeal from High Court’s order--Procedure-Appeal from  order of the Tribunal by-passing High  Court’s  order- Appeal  if competent--Income-tax Act, 1922(11 of 1922),  ss. 66(1), 66(2) and 66(a).

HEADNOTE: The  appellant  supported his brother and his nephew  for  a number  of  years as they were doing no work.  In  the  year 1943  he made a gift of Rs. 7,60,000 odd to them  though  he had  to  overdraw  his  account with the  Bank  and  to  pay interest or the amount borrowed to raise the money.  He also made  a  transfer of some of his businesses  to  them.   His explanation was that these gifts were made to set these  two persons  up in business.  The Income-tax Officer  held  that the gifts were riot bonafide and he assessed, the income  of all  the  businesses  in the hands of  the  appellant.   The appellant  had  produced letters from  some  businessmen  in support  of  his case.  One such person was one M.  who  was examined  by  the Income-tax Officer without notice  to  the appellant.   Later, however, a copy of the statement  of  M. was  taken by the appellant’s counsel and at his request  M. was  summoned  for cross-examination but on the  date  fixed none appeared for the appellant who was also absent. The appellant made a petition under s. 66(1) of the  Income- tax Act to the Tribunal asking that a number of questions of law  be referred to the High Court.  Only one  question  was referred  by the Tribunal which declined to refer the  other questions.   In the High Court the question referred by  the Tribunal was answered against the appellant on the admission of  his  counsel.  The High Court was moved  also  under  s. 66(2)  to order a reference of the remaining  questions  but the High Court rejected the application.  The appellant  did not  appeal against these two orders of the High  Court  and instead  filed appeals against the orders of  the  Tribunal. The  appellant  relied  upon two cases of  this  Court  viz. Dhakeshwari  Colton Hills’ Case and Baldev Singh’s case  and

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contended that tile appeal to this court was competent. Held,  that  the  appeals were incompetent in  view  of  the decisions  of this Court in Chandi Prasad Chokhani v.  State of Bihar and The Indian Aluminium Co., Ltd. 840 Held.  further, that an appeal against an order of the  High Court  deciding a question referred or against a refusal  to call for a statement can only be brought before the  Supreme Court  under  s. 66(A) of the Income-tax Act,  if  the  High Court  decides the question referred, and under Art. 136  of the  Constitution  if the High Court refuses to call  for  a statement.   There  can be no direct appeal to  the  Supreme Court by passing the decisions of the High Court. Held,.  also,  that  there was neither  any  breach  of  the principles of natural justice in this case nor the existence of  circumstances  as  existed in  Baldev  Singh’s  case  to justify the appeal. Held, that where a witness has been examined by the  Income- tax  Officer behind the back of the assessee but a  copy  of the  statement  of  the witness is made  available,  to  the assessee and an opportunity is given to him to cross-examine the witness, thereis no breach of the principle of natural justice. ChandiPrasad Chokhani v. State of Bihar. (1962) 2 S.C.R. 276and  Indian  Aluminium Co., Ltd.,  v.  Commissioner  of Income-tax. (Civil Appeal No. 176 of 1959, decided on  April 24, 1961) followed. Dhakeshwari Cotton Mills Ltd. v. Commissioner of Income. tax (1955) 1 S.C.R. 941 and Sardar Baldev Singh v.  Commissioner of  Income-tax,  Delhi  and  Ajmer.  (1961)  1  S.C.R.  482, explained. ,

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 347 to  350 of 1960. Appeals  by special leave from the judgment and order  dated January  18,  1953,  of the  Incometax  Appellate  Tribunal, Calcutta  Bench, in Incometax , Appeals Nos.  7062-7064  and C.P.T.A. No. 548 of 1951-52. N.C.  Chatterjee,  A.  V.  Viswanatha  Sastri  and   D.N. Mukherjee, for the appellants. K.N. Rajagopal Sastri, and D. Gupta, for respondent. 1961.    July 17.  The Judgment of the Court. was  delivered by HIDAYATULLAH,  J.-These  appeals with  special  leave,  were filed by one Kanhaiyalal Lohia, who died during the pendency of the appeals, and who 841 is  now  represented by the executors  appointed  under  his will.   By  these  appeals,  which  are  consolidated,   the appellants  question an order dated January 8, 1953, of  the Income-tax  Appellate Tribunal (Calcutta Bench)  in  appeals filed  by the Department against the order of the  Appellate Assistant Commissioner.  The Tribunal reversed the order  of the  Appellate Assistant Commissioner and restored  that  of the  Income-tax Officer.  Kanbaiyalal Lohia  made  petitions under  s.  66 (1) to the Tribunal, setting out a  number  of questions of which the following was I referred to the  High Court :       "Whether  in  the cirumstances  of  this  case       where  the  Income-tax Officer,  District  III       (2),  separately assessed the business run  in       the  name of Brijlal Nandkishore as  belonging

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     to  a partnership firm consisting  of  Brijlal       and Nandkishore, the Income-tax Officer,  Non-       Companies  E. P. T., District can  assess  the       income from the same business in the hands  of       the assessee ?" This  question was answered against him.  Kanhaiyalal  Lohia also  applied under s. 66 (2) to the High Court of  Calcutta for reference of the other questions, but failed.  No appeal has  been filed by him against the order of the  High  Court refusing  to direct the tribunal to state a case or  against the  decision  on  the question referred,  and  the  present appeals  have  been  filed  against  the  decision  of   the Tribunal. At  the hearing of these appeals, we asked counsel  for  the appellants  how,  in view of the recent  decisions  of  this Court  in Chandi Prasad Chokhani v. State of Bihar  (1)  and Indian  Aluminium  Co.  Ltd. v. Commissioner  of  Income-tax (2),  these appeals were maintainable, if the two  decisions of  the High Court had become final.  Mr. A.  V.  Viswanatha Sastri relied upon the decisions in (1)  (1962) 2 S.C.R. 276. (2)  Civil Appeal No. 176 of 1959 decided on April 24, 1961. 842 Dhakeswari  Cotton Mills Ltd. v. Commissioner of  Income-tax West  Bengal (1) and Sardar Baldev Singh v. Commissioner  of Income-tax  Delhi  and Ajmer (2), and pointed  out  that  in those  cases, appeals were entertained from  the  Tribunal’s order,  though  he conceded with his  usual  frankness  that special  circumstances must exist.  He contended  that  this was  a case in which such circumstances existed.   We  shall deal  with  the  appeals from that point  of  view,  because unless  special  circumstances exist, the  appeals  must  be regarded  as  not competent, in view of our  recent  rulings above mentioned. Kanhaiyalal Lohia, who was a prosperous dealer in jute,  had his  head  office  in Calcutta.  He had no  issue,  and  his family  consisted of his wife,, his brother,  Brijlal  Lohia and  Brijlal’s  son, Nandkishore Lohia.  The  properties  of Kanhaiyalal  Lohia  were self-acquired, and  he  was  always assessed as an individual.  He maintained accounts according to the Ramaswami year.  In his return for the account  year, April  14,  1943  to  April 1,  1944  corresponding  to  the assessment  year, 1944-45), he indicated that he had  closed down  in the middle of 1943 his purchasing centres  in  East Bengal, which stood in the name of Nandkishore, and that, he had  gifted  to his brother Rs. 5,1 1, 1. 01  on  July.  12, 1943, and to his nephew, Rs. 2,50,000 on September 30, 1943. He showed income of his East Bengal business only up to  the closure of that business. Brijlal  and  Nandkishore entered into  partnership  between themselves, and started a business under the name and  style of  "Brijlal  Nandkishore." They took  over  the  purchasing centres in East Bengal. They  opened accounts in  banks  in the name of    "Brijlal Nandkishore", and became members  of the Baled Jute Association, and the Jute ,Baler,sAssociation, and traded in their own names. A deed of partnership between them  was also executed on August 5, 1953.  The business  of Kanhaiyalal Lohia and of "Brijlal Nandkishore (1)  (1955) 1 S.C.R. 941. (2) (1961) 1 S.C.R. 482. 843 was  within the jurisdiction of the same Incometax  Officer. In  the  assessment of the partnership  firm,  notices  were issued to the partnership both under s. 22(2) and s. 34, and the partner ship also applied for registration under s.  26A

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of  the Income-tax Act,which was granted.   The  partnership was  also assessed for the years, 1945-46 and 1946-47.   The assessment of Kanhaiyalal Lohia was completed by the Income- tax Officer, Non Companies Income-Tax cum Excess Profits Tax District, and during the assessment for the year, 1945-46  a notice  was issued under s. 22(4) of the Income-Tax  Act  on August 24, 1949, calling for accounts of the head office  at Calcutta and also the branches including the business  being carried  on  as  "Brijlal  Nandkishore",  Kanhaiylal   Lohia proved,  the  above facts, producing the books  of  account, bank   statements,  registration  certificate  of   "Brijlal Nandkhore"  and evidence showing the membership of  "Brijlal Nandkishore"  of  the two Associations.   He  also  produced letters  from four persons including one Sri  A.L.  Mazumdar who was questioned by the Income-tax Officer without  notice to’ Kanhaiyalal Lohia and whose statement was also recorded. Kanhaiyalal  Lohia  objected  to  this  procedure,  but  the Income-tax  Officer,  it  is alleged, paid no  heed  to  his protests,  and  on.   March  31,  1950  the  assessment  was completed,  and the income of the branches under the  direct control of "Brijlal Nandkishore" was pooled with the  income of Kanhaiyalal Lohia.  The Income-tax Officer held that  the gifts  were not bonafide, and were colourable  transactions. He  relied upon the statement of Sri A. L.  Mazumdar,  which was recorded when Kanhaiyalal Lohia was not present. Against  the assessment, Kanhaiyalal Lohia, appealed to  the Appellate  Assistant  Commissioner  before  whom  two   more letters from leading businessmen were filed.  The  Appellate Assistant  Commissioner  accepted  the  letters  which  were filed,  and  held that the gifts were proved and  were  bona fide and directed the exclusion 844 of the income of "Brijlal Nand kishore" from the  assessment of Kanhaiyalal Lohia.  The order of the Appellate  Assistant Commissioner  was  pronounced  on December  27,  1951.   The Department  appealed to the Appellate  Income-tax  Tribunal, Calcutta  Bench.  The Tribunal disagreed with the  Appellate Assistant  Commissioner, all held on January 8,  1953,  that the  gifts were not proved by the assessee by  unimpeachable evidence, and that the income of "Brijilal Nandkishore"  was rightly  included  in the assessment.  As  stated  already,. applications under s. 66 (1) and s. 66 (2) were made to  the Tribunal  and  the High Court  respectively.   The  Tribunal referred one question, but declinedto refer the.  other quest-ions.  The High Court   then moved under s. 66 (2) but without success. The High Court agreed with the Tribunal and  answered  the  question  which  was  referred,  against Kanhaiyalal  Lohia.   Before the High  Court,  Kanhaiyalal’s counsel,  Dr. Pal, admitted that he. could not persuade  the Court   to  answer  the  referred  question   against   the, Department,  and  it  appears that it was  conceded  by  the Department  before  the High Court that  the  assessment  of "Brijlal Nandkishore" would be cancelled.  Kanhaiyalal Lohia then  filed  the present appeals against the  order  of  the Tribunal dated January 8, 1953. This  Court  has pointed out in Chandi Prasad,  Chokhani  v. State  of  Bihar(1)  and  Indian  Aluminium  Co.,  Ltd.   v. Commissioner  of Income-tax (2) that the two cases in  which this  Court interfered with appellate orders of  a  Tribunal and  relied  upon  before us, were of a  special  kind.   In Dhakheshwari Cotton Mills case(3) there was a breach of  the principle, of natural justice, and that was held  sufficient to entitle an aggrieved party to come to this Court  against the appellate order of the Tribunal under Art. 136.  In (1)  (1962) 2 S.C.R. 276.

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(2)Civil Appeal No. 176 of 1959 decided on April 24, 1961. (3) (1955) 1 S.C.R. 941. 845 Baldev  Singh’s  case (1) this Court entertained  an  appeal against  the  appellate  order  of  the  Tribunal,   because limitation  to take other remedies was IS barred without  an fault of the assessee concerned.  The ratio in each of these cases  is that a circumstance which cannot be  corrected  by the procedure of a stated question of law on a statement  of the  case may afford a ground for invoking the  jurisdiction of Court under Art. 136.  That ratio does not apply, where a question  of  law  can be raised, and is  capable  of  being answered  by the High Court or on appeal by this Court.   An appeal  against  an  order  of the  High  Court  deciding  a question  referred  or  against  a refusal  to  call  for  a statement can be brought before this Court under s. 66A,  if the High Court decides the question referred and under  Art. 136, if the High Court refuses to call for a statement. In  the  present case, the order of the High  Court  on  the question  referred was not brought before this Court by  the ordinary,  mode  indicated  in the  Indian  Income-tax  Act, presumably  because  of the concession of  counsel  that  he could  not claim that the question be answered in favour  of the  assessee  and the attitude of the Department  that  the assessment of "Brijlal Nandkishore" would be cancelled.  The order  refusing to call for a statement on  questions  other than the one referred is also not questioned before us.  The attempt   is  to  bring  this  case  within  the  ratio   of Dhakeshwari  Cotton  Mills’ case(2),and in support,  it  has been  pointed out mainly that the examination of Sri  A.  L. Mazumdar in the absence of Kanhaiyalal Lohia was against the principles  of natural justice.  The statement of Sri A.  L. Mazumdar was taken on March 28, 1950, and it is recorded  as follows :       "Mr.  Mazumdar is questioned by me as to  what       be   knows  regarding  the  alleged  gift   as       recorded in the books of Kanhaiyalal Lohia  in       favour of Brijlal and Nand Kishore.  He says (1) (1961) 1 S.C.R, 482. (2) (1955) 1 S.C.R. 941. 846       that  I don’t remember things very  distinctly       but  1 can say that the gifts to Brij  Lal  or       Nand.Kishore  were not made in my presence  as                     alleged.  Mr. Kanhaiyalal Lohia used to tell me       that  his brother and nephew are  idling  away       their time hence I shall give them a. gift and       make them work by that money.       The  partnership deed was most probably  drawn       up by me.  The gift, was reported to have been       made  to  Brij Lal and Nand Kishore  before  I       should have taken up the drafting of the deed.       Kanhaiyalal  told  me several  times  that  he       wanted  to  separate his brother  and  nephew.       When the firm was started then Brijlal came to       me   and   asked  me  if  father   and   son’s       partnership deed could be drawn up.-       I  don’t know anything else than this  in  the       matter." The   lie  given  by  Sri  Mazumdar  to  the  statement   of Kanhaiyalal  Lohia  has affect his credibility.   The  order sheet  shows  that  Mr.  B. Sen Gupta took  a  copy  of  Sri Mazumdar’s statement and expressed a desire to cross-examine him;  but  when  the opportunity was  given,  he  failed  to appear.   It  is impossible to think in these  circumstances that there has been any breach of the principles of  natural

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justice.  The order sheets of March 29 and 30, 1950  clearly record  the  absence of Mr. B. Sen Gupta.  In  our  opinion, there  is no breach of the principles of natural justice  in this case to entitle the appellants to invoke the ruling  in Dhakeshwari Cotton Mills case It was contended before us that the finding of the  Tribunal was  perverse,  and  that on an  examination  of  the  total circumstances,  it  is quite clear that the gifts  were  not only  real, but were acted upon.  This was a  matter  within the jurisdiction of (1)  (1955) 1 S.C.R. 941. 847 the Appellate Tribunal as the final fact-finding  authority. The  Tribunal acted within its powers in refusing to  accept the  evidence tendered, and looking at the circumstances  of the.  case,  we  cannot  say  that  the  finding  has   been perversely reached.  For a number of years, the brother  and the nephew were supported by Kanhaiyalal Lohia, and it  does not appear that a gift of even a small sum was made to  them to  put  them  on their legs.  Suddenly in  the  year  1943, ’Kanhaiyalal Lohia made up’ his mind to put them in business with  a  gift of the order of Rs. 7,60,000  odd.   For  this purpose,  he had to overdraw his accounts with the Bank  and to pay interest to the Bank.  It does not appear why he felt that the establishment of his brother and nephew in business should be made on such a grand scale, which involved him  in debt.   This  circumstance,  taken with the  fact  that  Mr. Mazumdar stated that he had always complained that they were good  for  nothing and were idlers, makes  the  transactions auspicious.   It was presumably done with a view  to  reduce the  assessable profits in the hands of  Kanhaiyalal  Lohia, and  on the evidence, the Tribunal was entitled to hold,  as it  did, that this was a sham transaction.  In our  opinion, no special circumstances exist, on which the appellants  can claim  to  come to this Court against the  decision  of  the Tribunal,  by passing the decision of the of High  Court  on the  question  referred and there fusal ’the High  Court  to call  for  a  statement of the case  from  the  Tribunal  on questions  which the Tribunal refused to refer to  the  High Court.   The appeals are, therefore, within the  rulings  of this  Court in Chandi Prasad Chokhani v. State of Bihar  (1) and  Indian Aluminium Co., Ltd. v. Commissioner  of  Income- tax(2), and must be regarded as incompetent. The appeals are dismissed with costs, one set. Appeal dismissed. (1)  (1962) 2 S.C.R. 276. (2)  Civil Appeal No. 176 of 1939 decided on April 24, 1961 848