COMMISSIONER OF INCOME-TAX, CALCUTTAversusBIJU PATNAIK

A

           COMMISSIONER OF INCOME-TAX, CALCUTTA
                                       v.
                               BIJU PATNAIK
B
                                 MAY 9, 1986

        [R.S. PATHAK AND SABYASACHI MUKHARJI, JJ.)


          Income Tax Act !961, s. 256(2)-Decision of Tribunal perverse
c   and ignoring of all material and relevant facts-Scope of the jurisdiction
    of High Court in directing reference on question of law-High Court in
    error in not directing reference.

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

issued in 1958 actually belonged to the assessee. Accordingly, the           A
dividend of the said shares was treated as the income of the assessee and
the expenses incurred in that connection were allowed as deduction.
The persons in whose names the 39,000 shares of Kalinga Tubes Ltd.
stood, were treated by the Income-tax Officer as benamidars of the
assessee.                                                                    B
      Against the orders of assessment, appeals were filed by the asses-
see before the Appellate Assistant Commissioner who set aside the as-
sessments for the years under consideration and remanded the matters
back, to Income-tax Officer to frame issues and give due opportunity to
the assessee to cross-examine the witnesses in the light of the observa-
tions made in the order. Again, against the order of the Appellate           c
Assistant Commissioner, the appeals were filed. It was argued before
the Tribunal on behalf of the appellant-assessee; (i) that on the basis of
the facts emerging on an examination of assessee's evidence and facts
found on the basis of documentary evidence, the Appellate Assistant
Commissioner should have confirmed the assessments; (ii) that local          D
inquiries and oral testimony had been used by the Income-tax Officer to
support the conclusions already arrived at on an examination of asses-
see's own evidence and corroborated by documentary evidence and
therefore the Appellate Assistant Commissioner should not have set
aside the assessment on the ground that the persons who were examined
by the Income-tax Officer should have been allowed to be cross-              E
examined by the assessee; (iii) that the gist of the enquiries had been
communicated to the assessee to enable him to meet the case against him
and it was for the assessee to produce before the Income-tax Officer the
persons who had collected the funds for the Kalinga Foundation Trust
as the Income-tax Officer was not bound by the technical rules of evi-
dence; (iv) that it had collected evidence to prove that these shares were   F
purchased by the assessee benami in the names of the shareholders
named; (v) that the assessee had created a private registered Trust in
1949 out of his own properties having the same name as Kalinga Foun-
dation Trust and that a reference to Kalinga Foundation Trust in some
of the documents produced by the assessee was to this private trust and
not to any public trust of the same name alleged to have been created at a   G
public function. After considering the material, the Tribunal held (a)
that the Kalinga Foundation Trust came into existence in 1947 and
continued after its registration in 1959 under the same name and style
and the fund of the Trust was built up by collection of donation from the
public at large; (b) that seven persons who were designed by the
Income-tax Officer as benamidars of the assessee for the purrhase of the     H
    28                    SUPREME COURT REPORTS              [19861 3 S,C.R.

A   shares of M/s Kalinga Tubes Ltd, were not benamidars and the money                '11
    required for the purchase of these shares had been raised by them-
    selves; (c) that the investments made by the Trust in the assessee's
    group of industries or with the assessee were from its mm resourcc'S and
    funds and such investments were guided by business expediency and
B
    prudence; (d) that the Trust was comprised of persons of public repute
    and the control and management of the trust styled as "Kalinga Found-
    ation Trust" were under the effective control of the Board of Trustees
    comprised of persons of public reputation and (e) that the income from
    interest, dividend, or any other usufruct arising out of the investments
    made by the Trust in the various concerns and the investments of the
    Trust which were included in the assessments of the assessee in the
                                                                                  '
c   years under reference should be excluded as appertaining to a separate
    and distinct entity and therefore directed the Income-tax Officer to
    exclude these amounts from the assessments of the assessee in all these
    three years. The revenue did not accept the findings of the Tribunal as
    correct. Several questions of law· were sought for from the Tribunal to
D   be referred out of the decision of the Tribunal under s. 256(1) of the
    Income Tax Act, 1961. The Tribunal refused to refer these questions.
    An application was made under s. 256(2) of the Act asking for reference
    on those questions from the High Court. The High Court also rejected
    the application and refused to call for a statement of case on those
    questions. Hence these appeals by sepeial leave.
E
          Allowing the appeals,

          HELD: I. The High Court, in the facts and circumstances of the
    case, was in error in not directing a reference under s. 256(2) of the Act.
    Therefore, the judgment and order of the High Court, are set aside and
F   the Tribunal is directed to send a statement of case for the three years
    involved within six months of the date of receipt of this order on the        (
    questions mentioned in this judgment. [44 C-D I
          2. The Supreme Court in several decisions has laid down the
    following principles with regard to the scope of the jurisdiction of the
    High Court In directing reference on question of law where the decision
G   rests primarily on appreciation of facts:
          (i) When the point for determination was a pure question of law,
    such as construction of a statute or document of title, the decision of the   ,-
    Tribunal was open to reference to the Court.

H         (ii) When the point for determination was a mixed question of law
                               C.I.T. v. B. PATNAIK                           29

     and fact, while the finding of the Tribunal on the facts found was final,       A
     its decision as to the legal effect of those findings was a question of law
     which could be reviewed by the Court.

           (iii) A futding on a question of fact was open to attack under
     reference under the relevant Act as erroneous in law when there was no          B
     evidence to support it or if it was perverse.
;
\
            (iv) When the findings was one of facts, the fact that it is itself an
     inference from other basic facts will not alter its character as one of
,.   fact. [36 F-H; 37A)

           Sree Meenakshi Mills Limited v. Commissioner of Income-Tax,               C
     Madras, 31ITR28, Gouri Prasad Bagaria and Othersv. Commissioner
     of Income-Tax, West Bengal, 42 ITR 112, l.C.I. (India) Private Ltd. v.
     Commissioner of Income-tax, West Bengal III, 83 ITR 710, Commis-
     sioner of Income-tax (Central), Calcutta v. Dau/at Ram Rawatmull, 87
     ITR 349, Commissioner of Income-tax, Bihar and Orissa v. S.R. Jain,             D
     87 I.T.R. 370, relied upon.

            2. The question as to whether the donations alleged were given by
     the assessee were the moneys raised by the Trust as donations from
     various people or not should be considered in its proper perspective but
     does not seem to have been done. This is the most material portion and          E
     in not appreciating the material portion and discussing the evidence in
     respect of the same, there was non-consideration of a relevant factor on
     a factual aspect and on this the question is whether the Tribunal's
     decision was perverse in the sense that no man instructed properly at
     law could have acted as the Tribunal did, and secondly whether there
     was ignoring of all the materials and relevant facts in considering this        F
     aspect. There was also evidence on record as to who had collected it to a
     certain extent, but no evidence on the other aspect. Ignoring of that fact
     is a vital fact which influences the decision and a conclusion and must be
     judged in its proper perspective. Therefore, the questions which arise
     on this aspect are questions of law, and the High Court should have
     directed the statement of a reference. [41C-G]                                  G
          4. Regarding the ownership of 39,000 shares in Kalinga Tubes
'    Ltd. issued in 1958, this involved determination of two issues: (a)
     whether the ostensible holders of these 39,000 shares were real owners
     or benamidars and if they were benamidars, who were the real holders.
     The Income-tax Officer was of the view, on facts suggested, that the            H
     30                    SUPREME COURT REPORTS             [1986] 3 S.C.R.

A    seven persons were benamidars of the assessee, whether they are so or
     not and what is the effect of the said fact is another question. But these
     facts were not properly considered by the Tribunal to come to the
     conclusion as to whether, 39,000 shares of Kalinga Tubes Ltd. belonged
     to the assessee and not to the shareholders named. [42 D-E; 43 E-F]
B         CIVIL APPELLATE JURISDICTION: Civil Appeal                      Nos.
     1793-1798 (NT) of 1974.                                                      'I
          From the Judgment and Order dated 5th April 1974 of the Orissa
     High Court in S.J.C. Nos. 211to216of 1971.

C         S.C. Manchanda, Ms. A. Subhashini, K.C. Dua and K.P.
     Bhatnagar for the Appellant.

           Devi Pal, J.B. Dadachanji, K.K. Patnaik, Sukummaran, M.
     Seal, A.K. Verma, J. Peres and D.N. Mishra for the Respondent.
D          P.N. Gupta andP.N. Mishra for Official Liquidator.

           The Judgment of the Court was delivered by

          SABYASACHI MUKHARJI, J. Whether, question of law refer-                 )
    able to the High Court, arises out of the order of the Appellate
E   Income-taJ< Tribunal in this case, is, the question that arises in these
    appeals by special leave from the decision of the Orissa High Court.
    Several questions of law were sought for from the Tribunal to be
    referred out of the decision of the Tribunal under section 256(1) of
    Income-taJ< Act, 1961 (hereinafter called the 'Act'). The Tribunal re-        '·
    fused to refer these questions. An application was made under section          (
F   256(2) of the Act asking for reference on those questions from the
    High Court. The High Court rejected the applications and refused to           ~
  · call for a statement of case on those questions. This appeal by special
    leave is from the said decision of the High Court.

          It is not necessary to refer to all the questions that were pressed
G    before the High Court because all these questions were not pressed
     before this Court.

          The following questions were, however, canvassed before this
     Court:
H                "l. Whether, the findings of the Appellate Tribunal, are
               C.l.T. v. B. PATNAIK [MUKHARJl,J.J                 31

            vitiated in law by reason of it having ignored relevant    A
            and admissible evidence and having relied on incorrect
            facts and mis-statement of facts?
        2. Whether, on the facts and in the circumstances of the
           case, the conclusion of the Tribunal that the Kalinga
           Foundation Trust came into existence in 1947 and that it    B
)          was distinct from the Trust created by the assessee in
\          1949 logically followed from the materials on record or
           it was perverse in the sense that no reasonable man
    /      could come to it on the said materials?
        3. Whether, on the facts and in the circumstances of the
           case, in arriving at the finding that the Kalinga Founda-   c
           tion Trust had acquired property from donations from
           the public, the Tribunal erred in law in not giving due
           consideration to the several matters relevant for deter-
           mination of the points which had been considered by the
           Income-tax Officer in the assessment order?
                                                                       D
        4. Whether, on the facts and in the circumstances of the
           case, the Tribunal was right in holding that the income
           from dividend shown in the name of the Kalinga Found-
I          ation Trust, the interest on the loans advanced in the
~
           name of the Kalinga Foundation Trust and all invest-
           ments, remittance, receipts and actual payments in the      E
           name of Kalinga Foundation Trust did not belong to the
           assessee and should therefore be deleted from the as-
           sessment of the assessee?
        5. Whether, on the facts and in the circumstances of the
           case, there was any evidence in support of the Tribun-
                                                                       F
~
           al's findings that the assessee had collected donation
           from the public for the Kalinga Foundation Trust?
        6. If the answer to question 5 (rearranged by us) be in the
           negative, then whether the Tribunal was right in holding
           that the amounts donated by the assessee to the said
           Trust were satisfactorily explained and accordingly they    G
           were not to be included in the assessment of the asses-
           see?
'
        7. Whether, on the facts and in the circumstances of the
           case, the Tribunal was right in holding that the revenue
           authorities were bound to accept the decision of the        H
    32                    SUPREME COURT REPORTS             [1986] 3 S.C.R.

A                  Supreme Court in S.P. Jain v. Kalinga Tubes Ltd. as to
                   the ownership of 39 ,000 shares of Kalinga Tubes, Ltd. in
                   spite of the materials collected by the Income-tax Of-
                   ficer subsequent to the delivery of the judgment in the
                   said case?
B               8. If the answer to question 7 (rearranged by us) be in the
                   negative then whether the finding of the Tribunal that
                   the persons in whose names the said shares stood were
                   not the benamidar of the assessee was perverse and was
                   arrived at without due consideration of the material
                   considered by the Income-tax Officer in detail on the
                   point?"
c
           The controversy in these appeals related to the various additions
    made by the revenue to the total income of the assessee relating to the
    assessment years 1962-63, 1963-64 and 1964-65. The assessee claimed
    in his assessment, deduction in respect of payments of interest on loans
    taken from Kalinga Foundation Trust and others and certain dividend
D
    transactions relating to the shares of Kalinga Tubes Ltd.

          While examining the evidence in support of these claims, the
    Income-tax Officer issued a detailed letter dated 17th October 1965 to
    the assessee informing him about the evidence available with the re-
    venue against him and requesting him, inter alia, to produce evidence
E
    and prove (i) that the cash credits appearing in his account in the name
    of Kalinga Foundation Trust were genuine and (ii) that 39,000 shares
    of Kalinga Tubes Ltd. standing in the names of B.K. Mall, Sm. Swaran
    Oberoi, Shri K.C. Dalai, Shri G.C. Patnaik, etc. were not really his
    own investment. After examining the assessee's evidence and on the
    basis of documentary evidence and government records and on the
F
    basis of local enquiries made, the Income-tax Officer had come to the
    conclusion that no trust in the name of Kalinga Foundation Trust             (
    really existed and even if it existed, it had no funds of its own and that
    the name 'Kalinga Foundations Trust' was used by the assessee as a
    camouflage to put through his unaccounted money. Accordingly, all
    cash credits appearing in the books of accounts of the assessee himself
G
    or in the books of other concerns or persons or remittances of actual
    payments in the name of trust were treated by the Income-tax Officer
    as moneys coming out of the undisclosed sources of the assessee and
    accordingly assessed the same as his income from undiscolsed sources.
    All interest and dividend received in the name of the trust were in-
H   cluded by the Income-tax Officer in the assessment of the assessee as
                       C.I.T. v. B. PATNAIK [MUKHARJI, J.]               33

    his own income. The Income-tax Officer was also of the opinion that        A
    the moneys advanced in the name of the trust to several persons in
    connection with the acquisition of 39,000 shares of Kalinga Tubes Ltd.
    which were issued in 1958, actually belonged to the assessee. Accord-
    ingly, the dividend of the said shares was treated as the income of the
    assessee and the expenses incurred in that connection wete allowed as      B
    deduction. The persons in whose names the 39,000 shares of Kalinga
)   Tubes Ltd. stood, were treated by the Income-tax Officer as bena-
'   mindars of the assessee. Thus, in respect of the assessment years under
    consideration several items were included as income in the hands of
    the assessee on this score. It is not necessary to set out the items.

          Against the orders of assessment, appeals were filed by the asses-   c
    see before the Appellate Assistant Commissioner. As grievance was
    made before the Appellate Assistant Commisioner that there was vio-
    lation of due opportunity being given to the assessee, the Appellate
    Assistant Commissioner disposed of the appeals by setting aside the
    assessments for the years under consideration and remanded the             D
    matters back, to Income-tax Officer to frame issues and give due op-
    portunity to the assessee to cross-examine the witnesses in the light of
    the observations made in the order. Against the order of the Appellate
    Assistant Commissioner, the appeals were filed. A prayer was made
    that the appeals should be remanded back to the Appellate Assistant
    Commissioner. The Tribunal, however, disposed of the appeals on the        E
    relevant materials on record.

          It was contended on behalf of the revenue before the Tribunal
    that the Kalinga Foundation Trust had come into existence as alleged
    in 1947 at a public meeting held at Killa Maidan, Cuttack and it was
    registered long thereafter on 28 November 1959. It was stated that the     F
    trust was genuine and it had sufficient funds obtained by donations and
    consequently was in a position to lend the amounts found credited in
    the assessee's books and in the books of other concerns. The account-
    ing year followed by the said trust was the calendar year whereas the
    accounting year followed by the assessee was the financial year ending
    on 31st March 1962, 31st March 1963 and 31st March 1964, respec-           G
    tively for the three years ill question. One of the points urged on
    behalf of the assessee was that if it was intended to use the trust as a
    camouflage, the accounting year of the Trust would have been the
    same as that of the assessee. It was further contended that the Minute
    Book and books of accounts were maintained by the Trust and that the
    Trust had its own written constitution by way of Memorandum and            H
    34                   SUPREME COURT REPORTS            [1986] 3 S.C.R.

A   Articles of Association and Rules. The funds of the Trust were lying in
    trust with the Maharaja of Sonepur as he was the honorary Treasurer
    of the Trust. It was further pointed out on behalf of the assessee that
    the eminent persons were members of the Trust.

B         On behalf of the revenue, it was, however, contended before the
    Tribunal that on the basis of the facts emerging on an examination of
    assessee's evidence and facts found on the basis of documentary evi-
    dence, the Appellate Assistant Commissioner should have confirmed
    the assessments. It was further stated by the revenue that local in-
    quiries and oral testimony had been used by the Income-tax Officer to
    support the conclusions already arrived at on an examination of asses-
c   see's own evidence and corroborated by documentary evidence and
    therefore the Appellate Assistant Commissioner should not have set
    aside the assessment on the ground that the persons who were ex-
    amined by the Income-tax Officer should have been allowed to be
    cross-examined by the assessee. It was submitted that the gist of the
D   enquiries had been communicated to the assessee to enable him to
    meet the case against him and it was for the assessee to produce before
    the Income-tax Officer the persons who had collected the funds for the
    Kalinga Foundation Trust as the Income-tax Officer was not bound by
    the technical rules of evidence.

E         So far as the acquisition of 39,000 shares of Kalinga Tubes Ltd.
    was concerned, it was submitted by the revenue that it had collected
    evidence to prove that these shares were purchased by the assessee
    benami in the names of Shri B.K. Mall, Shri G.C. Patnaik, etc. It was
    pointed out by the revenue that the assessee had created a private
    registered Trust in 1949 out of his own properties having the same
F   name as Kalinga Foundation Trust and that a reference to Kalinga
    Foundation Trust in some of the documents produced by the assessee
    was to this private trust and not to any public trust of the same name
    alleged to have been created at a public function.

          After considering the materials, the Tribunal held that the
G   Kalinga Foundation Trust came into existence in 1947 and continued
    after its registration in 1959 under the same name and style and the
    fund of the Trust was built up by collection of donation from the public
    at large.                                                                  ,
         It may be pointed out and we are of the opinion that this is the
H   core of the controversy in this case, i.e., whether there was no evi-
                   C.I.T. v. B. PATNA!K [MUKHARJ!, J.J                35

dence substantial or reliable produced to indicate who were the             A
persons who had contributed to the Trust, how much they had con-
tributed to the Trust, the identity and the credit-worthiness of the
doners to the said trust.

      It was contended on behalf of the assessee that the said trust        B
which ca1ne into existence was a separate and distinct entity and the
assessee was only holding an executive post in that trust. It was held by
the Tribunal that seven persons who were designed by the Income-tax
Officer as bena1nidars of the assessee for the purchase of the shares of
M/s Kalinga Tubes Ltd. were not benamidars and the money required
for the purchase of these shares had been raised by themselves. The
Tribunal held that the investments made by the Trust in the assessee's      c
group of industries or with the assessee were from its own resources
and funds and such investments were guided by business expediency
and prudence. The finding of the Tribunal is that the Trust was com-
prised of persons of public repute and the control and management of
the trust styled as 'Kalinga Foundation Trust' were under the effective     D
control of the Board of Trustees comprised of persons of public repu-
tation. The Tribunal accordingly held that the income from interest,
dividend, or any other usufruct arising out of the investments made by
the trust in the various concerns and the investments of the Trust
which were included in the assessments of the assessee in the years
under reference should be excluded as appertaining to a separate and        E
distinct entity and therefore directed the Income-tax Officer to ex-
clude these amounts from the assessments of the assessee in all these
three years. The revenue did not accept the findings of the Tribunal as
correct as mentioned hereinbefore and sought reference to the High
Court on several questions.
                                                                            F
      Before the questions involved in these appeals are considered, it
is necessary to bear in mind the scope of the jurisdiction of the High
Court in directing reference on question of law where the decision
rests primarily on appreciation of facts. This question has from time to
time troubled the courts-both the High Courts and this Court and
several decisions have laid down the principles guiding such a situa-       G
tion. Though not exhaustive, these may be referred to as illustrations.

      In Sree Meenakshi Mills Limited v. Commissioner of Income-Tax
Madras, 31 I.T.R. 28, Venkatarama Ayyar, J. speaking for this Court
said that findings on question of pure facts arrived at by the tribunal
were not to be disturbed by the High Court on a reference unless it         H
    36                     SUPREME COURT REPORTS             [1986] 3 S.C.R.

A   appeared that there was no evidence before the Tribunal upon which
    they, as reasonable men, could come to the conclusion to which they
                                                                                  r
    had come; and this was so, even though the High Court would on the
    evidence have come to a conclusion entirely different from that of the
    Tribunal. The Court laid down the following propositions: (a) such a
    finding can be reviewed only on the ground that there was no evidence
B
    to support it or that it was perverse. (b) When a conclusion had been
    reached on an appreciation of a number of facts established by the
                                                                                  (
    evidence, whether that was sound or not must be determined, not by
    considering the weight to be attached to each single fact in isolation,
    but by assessing the cumulative effect of all the facts in their setting as
    a whole. (c) Where an ultimate finding on an issue was an inference to
c   be drawn from the facts, on the application of any principles of law,
    that would be a mixed question of law and fact, and the inference from
    the facts found would in such a case, be a question of law. But where
    the final determination of the issue equally with the finding or ascer-
    tainment of the basic facts does not involve the application of any
    principle of law, an inference from the facts cannot be regarded as one
D
    of law. The proposition that an inference from facts was one of law
    was therefore correct in its application to mixed questions of law and
    fact, but no to pure question of fact. In the case of pure questions of
    fact an inference from the facts is as much a question of fact as the
    appreciation of the facts. Ayyar, J. noted that the observations con-
     tained in some judgments of the English Courts that what inference
E
    was to be drawn from the proved facts was question of law referred to
    this distinction. The position that emerges from the decided cases was
    that:

          (i) When the point for determination was a pure question of law,
    such as construction of a statute or document of title, the decision of
F
    the Tribunal was open to reference to the Court.

           (ii) When the point for determination was a mixed question of
    law and fact, while the finding of the Tribunal on the facts found was
    final, its decision as to the legal effect of those findings was a question
    of law which could be reviewed by the Court.
G
          (iii) A finding on a question of fact was open to attack under
    reference under the relevant Act as erroneous in law when there was
    no evidence to support it or if it was perverse.

H         (iv) When the finding was one of fact, the fact that it is itself an
                         C.l.T. v. B. PATNAIK [MUKHARJI, J.]                  37

     inference from other basic facts will not alter its character as one of        A
     feet.

           In Gouri Prasad Bagaria and Others v. Commissioner of Income-
     Tax, West Bengal, 42 l.T.R. 112, this Court held that when the.asses-
     see's statement was believed in a particular case and the finding of the
                                                                                    B
     Tribunal was based on that, then there was obviously material on which
     the finding of the Tribunal could be based; and to seek for other
     material was tantamount to saying that a statement made by an asses-·
     see was not material on which a finding could be given. The Tribunal
(
     having believed the assessee's statement, that was an end of the matter
     in so far as that fact was concerned, and if the finding was based upon a
     statement which was good material on which it could be based, no               c
     question of law really arose.

           In l.C.l. (India) Private Ltd. v. Commissioner of Income-tax,
     West Bengal III, 83 l.T.R. 710, this Court observed that the jurisdic-
     tion in the matter of reference could be exercised: (i) when the point
                                                                                    D
     for determination was a pure question of law such as construction of a
     statute of document of title; (ii) when the point for determination was
     a mixed question of law and fact. While, however, the finding on facts
     was final, its decision as to the legal effect of those findings was a
     question of law. A finding on a question of fact was open to attack as
     erroneous in law when there was no evidence to support it or if it was
                                                                                    E
     perverse. When, however, the finding was one of fact, the fact that it
     was an inference from other basic facts would not alter its character as
     one of fact.

           In Commissioner of Income-tax (Central), Calcutta v. Dau/at
     Ram Rawatmull, 87 l.T.R. 349, this Court held that the onus of prov-
                                                                                    F
     ing that the apparent was not the real was on the party who claimed it
     to be so. It is not necessary to discuss other details of the facts involved
     in that case. It is sufficient to note, however, as was observed by this
     Court that there should be some direct nexus between the conclusion
     of facts arrived at by the authority concerned and the primary facts
     upon which that conclusion was based. The use of extraneous and
                                                                                    G
     irelevant material in arriving at that conclusion would vitiate the conc-
     lusion of fact because it is difficult to predicate as to what extent the
(    extraneous and irrelevant material had influenced the authority in
~-   arriving at the conclusion of fact. Findings on questions of pure fact
     arrived at by the Tribunal were not to be disturbed by the High Court
     on a reference unless it appears that there was no evidence before the         H
    38                    SUPREME COURT REPORTS              [19861 3 S.C.R.

A   Tribunal upon which they, as reasonable men, could come to the con-
    clusion to which they have come; and this was so even though the High
    Court would on the evidence have come to a conclusion entirely diffe-
    rent from that of the Tribunal. In other words, such a finding could be
    reviewed only on the ground that there was no evidence to support it
B   or that it was perverse. Further, when a conclusion had been reached
    on an appreciation of a number of facts, whether that was sound or not
    must be determined, not by considering the weight to be attached to          \
    each single fact in isolation, but by assessing the cumulative effect of     (
    all the facts in their setting as a whole. When a court of fact acted on a
    material partly relevant and partly irrelevant, it was impossible, this
    Court observed, to say to what extent the mind of the court was
c   affected by the irrelevant material used by it in arriving at its finding.
    Such a finding is vitiated because of the use of inadmissible material
    and thereby an issue of law arose. Likewise, if the court of fact based
    its decision partly on conjecture, surmises and suspicions and partly on
    evidence, in such a situation an issue of law arose.
D
          In Commissioner of Income-tax, Bihar and Orissa v. S.P. Jain,
    871.T.R. 370, this Court noted that the questions referred to the High
    Court did not challenge the validity of the findings in that case given by
    the Tribunal, as the Tribunal had failed to take into account the relev-
    ant material on record in arriving at its finding and had further acted
E   on inadmissible evidence and misread the evidence and based its conc-
    lusion on conjectures and surmises, the court could ignore the findings
    of the Tribunal and re-examine the issues arising for decision on the
    basis of the material on record. This Court further reiterated that the
    High Court and this Court had always the jurisdiction to interfere with
    the findings of the Appellate Tribunal if it appeared that either the        \

F   Tribunal had mis-understood the statutory language, because the
    proper construction of the statutory language was a matter of law, or it
    had arrived at a finding based on no evidence, or where the finding was
    inconsistent with the evidence or contradictory of it, or it had acted on
    material partly relevant and partly irrelevant or where the Tribunal
    drew upon its own imagination and imported facts and circumstances not
G   apparent from the record or based its conclusions on mere conjectures
    or surmises or where no person judicially acting and properly ins-
    tructed as to the relevant law could have come to the determination
    reached. In all such cases the findings arrived at were vitiated. This
    Court further observed that "Any crystallization of the view of this         \•
    Court and its reluctance to interfere with the findings of the fact should
H   not make the Tribunals or the Income-tax authorities smug in the
                       C.l.T. v. B. PATNA!K [MUKHARJI, J.J                  39

    belief that as the courts do not interfere with the findings which form      A
    the bed-rock upon which the law will be based they can act on that
    assumption in findings facts or by their mere ipse dixit that they are
    findings of fact wish it to be so assumed irrespective of whether they
    are sustainable in law or on the materials on record".
                                                                                 B
          Now in the instant case, as mentioned hereinbefore, the first
    three questions challenge the genuineness of the donations alleged to
    have been contributed by the Kalinga Foundation Trust alleged to
    have come into existence as separate organisation at a public meeting
(   in 1947 and the donations collected therefrom and the next question,
    i.e., question No. 4 challenges the finding that the dividend shown in
    the name of Kalinga Foundation Trust and the interest and loans in the       c
    name of Kalinga Foundation Trust did not belong to the assessee. The
    basic question is a next question-whether the assessee had collected
    donations from the public. If the answer to that question is that it was
    from the public, the second aspect is. whether the revenue is bound to
    accept the decision of this Court in S. P. Jain as to ownership of 39,000    D
    shares, in view of the materials collected by the Income-tax Officer
    subsequent to the delivery of the judgment in this case.

          Apparently the identity of the <loners to the Trust has not been
    established and a large amount of materials have been collected subse-
    quent to the decisions of this case in S. P. Jain's case which had been      E
    adverted to be the Income-Tax Officer and to which our attention was
    drawn. These did not appear to have reoeived consideration by the
    Tribunal.

          We were taken through the evidence on record exhaustively
    about the foundation of the Trust. We were taken through the evi-            F
    dence as to who were present at the time of the inauguration of the
    Trust and whose evidence were there, there was a public meeting and
    whether this Trust was separate from the other Trust or not, whether
    particular persons were present or not; they are all set out in the orders
    of the Tribunal as well as the Income-tax Officer. It is not necessary at
    this stage for the purpose of disposing of these appeals to exhaustively     G
    discuss this.

         The revenue has point~d out to the Tribunal as appears in para
    22 at page 159 of the Tribunal's order that there was omission of
    adjustment of entries. The Tribunal has held that the Income-tax
    Officer and completely ignored the fact that the assessee has not            1-1
    40                    SUPREME COURT REPORTS             [1986] 3 S.C.R.

A   made this contribution plus Rs. l,29,33 l which was one point at issue,
    out of his own funds but had deposited only the amount which he had
    collected from various persons and hence the question of showing this
    amount in the books of the assessee did not arise.

           This is however begging the question; was there any material
B   that the collectors had collected these amounts from various persons,
    if so, who were those persons and if so, whether they were capable of        \
    making these contributions? This, in our opinion, is the core question.      I
    The significant fact has to be borne in mind that the Trust kept the
    money with the Maharaja of Sonepur without earning any interest.
    Apart from any question whether there was any scope of any applica-
c   tion of section 20 of the Trust Act or not, such a conduct was highly
    improbable according to the revenue. The explanation of the assessee
    about the nature and source of various cash credits was that these were
    loans from Kalinga Foundation Trust. It was claimed that th ere was a
    society of the name of Kalinga Foundation Trust. This society, it was
    maintained, had received large amounts as donations but for over a
D   decade, these donations were lying in cash and were not invested
    anywhere. These were not even deposited in any bank. It was ex-
    plained that it was only from 1958 that the society had started investing
    its funds with Shri Patnaik and the concerns with which he was as-
    sociated. This, it was urged by the revenue, was prima facie unaccept-
    able for inter alia, the following reasons:
E
                (1) Funds exceeding a crore of rupees were claimed invari-
                ably to have been received in cash.
                (2) These were also claimed to have remained uninvested
                                                                                     I
                and the cash was said to have been lying idle all these years.
F
                (3) There was no tangible evidence of the existence of any
                part of these funds prior to 1958.
                (4) Although the Society is claimed to have been in exist-
                ence from 1947, it did not apply for exemption under the
                Income-tax Act.
G               (5) Although the funds were said to have been collected all
                over Orissa yet there was no evidence of the money being
                brought from different places from Orissa to Cuttack.
                (6) There was no evidence of any receipt issued to the
                alleged donors. No lists of donors were maintained or
H               supplied.
                       C.I.T. v. B. PATNAIK IMUKHARJI,J.]                  41

r   These important factors were pointed out to the assessee and no expla-       A
    nation was offered by the assessee. The assessee had sought to give an
    appearance of truth to the explanation offered and relied on certain
    letters. But there appears to be no evidence as to who were the persons
    from whom the money was collected, how was the money received and
    how was the money invested? This is conjunction with other factors, in       B
    our opinion, raises a question whether the Tribunal had acted without
    material evidence.

,         It is not necessary nor it is proper at this stage for this Court to
    express any opinion whether on these facts what conclusion should
    properly be drawn but the basic question, in our opinion, on the first
    aspect of the matter as to whether the donations alleged were given by       c
    the assessee were the moneys raised by the Trust as donations from
    various people or not remains. That questio_n, in our opinion, should
    be considered in its proper perspective but does not seem to have been
    done. This is the most material portion and in not appreciating the
    material portion and discussing the evidence in respect of the same, in      D
    our opinion, there was non-consideration of a relevant factor on a
    factual aspect and on this the question is whether the Tribunal's deci-
    sion was perverse in the sense that no man instructed properly at Jaw
    could have acted as the Tribunal did, and secondly whether there was
    ignoring of all the materials and relevant facts in considering this
    aspect, do arise.                                                            E
          So far as the first aspect of the question is concerned, it is true
    that names of some collectors of money were given and some particu-
    lars were given but the persons from whom donations were collected,
    their particulars were not supplied nor examined nor were they pro-
    duced to prove the genuineness of their donations, their capacity to         F
    make the donations. So the question remains whose money was
    donated by whom? There was evidence on record as to who has col-
    lected it to a certain extent, but no evidence on the other aspect. In our
    opinion, ignoring of that fact is a vital fact which influences the deci-
    sion and a conclusion and must be judged in its proper perspective.
    Therefore, the questions which arise on this aspect are questions of         G
    law, on the principles enunciated by this Court in the decisions noted
    hereinbefore.

         The second aspect is about 39,000 shares of Kalinga Tubes
    Ltd.-whether these belong to the assessee. The Revenue's contention
    was that Kalinga Tubes Ltd. was controlled by Shri B. Patnaik and            H
    42                    SUPREME COURT REPORTS            [!986) 3 S.C:R.

A    Shri Loganathan and in 1954, the company was in need of capital and
     those two persons came to be introduced to Shri S.P. Jain.

           Early in 1956, the three groups considered the desirability of
     extending the business. This was converted into a public limited com-
B    pany. In 1956when the company was still a private limited company, a
     request was made to the Controller of Capital Issues for raising the
     capital of the company and at a meeting held on 29th March 1958,
     resolution was moved and the move of Jain group was defeated. To
     appreciate this contention, the assessee asserted that Messrs. Kalinga
     Tubes Ltd. needed funds for capital expansion. The company was
     converted into a public limited company and Articles of Association
c    were suitably amended. The Company also made an application to the
     Controller of Capital Issues for the sanction of issue of further shares
     to the extent of Rs.39,00,000 at the General Meeting of the share-
     holders. The company decided to issue the new shares to the. members
     of the public.
D          I
         Regarding the ownership of 39,000 shares in Kalinga Tubes Ltd.
   issued in 1958, this involved determination of two issues: (a) whether.
   the ostensible holders of these 39,000 shares were real owners or
   benamidars and if they were benamidars, who were the real holders?
   The company was incorporated as a private limited company in 1950.
E  From 1950 to 1954, it was controlled by Shri Biju Patnaik and Shri
   Loganathan. In 1954, the company was in need of capital and these
   two persons came to be introduced to Shri S.P. Jain. There was some
   agreement between Shri Jain and the existing shareholders. The
   Memorandum of Agreement was drawn up in July, 1954. According to
   this agreement, Patnaik, Loganathan and Jain group were to be equal
F· 'hareholders   of the company. Early in 1956, the three groups con-
   sidered the desirability of extending the business and obtaining loan
   trom Industrial Finance Corporation. The Industrial Finance Corpora-
   tion did not give loan to private limited companies and, therefore, the
   company was converted into a public limited company in January
   1957. In September 1956, when the company was still a private com-
G  pany,  a request was made to the Controller of Capital Issues for raising
   the capital of the company. It is further stated that at a meeting held
   on 29th March 1958, Shrimati Gyan Patnaik, wife of Shri B. Patnaik
   moved a resolution providing that 39,000 shares should not be offered
   or aliotted to the existing shareholders or to the public. Shri S.L.
   Aggarwal of the Jain group, however, moved a resolution which pro-
H  vided  that the 39,000 sh.arcs be offered to the existing shareholders of
                       C.l.T. v. B. PATNAIK [MUKHARJI, l.l                  43

    the company in proportion to their shareholdings. The resolution             A
    further provided that if the offer was not accepted by the existing
    shareholders within 15 days, the offer would be deemed to have been
    declined.

          It appears that on 18th April 1958, Shri S.P. Jain filed a suit..The   B
    suit was decided against the Jain group. But Shri S.P. Jain filed a
\   complai.nt under sections 397, 398, 402 and 403 of the Indian Com-
    panies Act. An appeal was preferred from single judge's judgment to
    the division bench. There was appeal to this Court. There is an obser-
r   vation in the judgment of Burman, J. of the Orissa High Court to the
    following effect:
                                                                                 c
                "In the present case, it is clear that the allotments, of the
                said 39,000 shares to the seven persons were not in interest
                of the Company, because records, including the balance
                sheets, show that even by 1960 share moneys Rs.39 lakhs
                were not realised from the said allottees. Although, it was      D
                given out, by those in the management of the Company,
                that the Company was in urgent need of funds, the said
                allotments of 39,000 new shares did not however bring im-
                mediate funds to the company."
I

          The Income-tax Officer was of the view that the facts suggested
                                                                                 E
    that the seven persons were benamidars of Shri Patnaik, whether they
    are so or not and what is the effect of the decision of this Court on this
    point is another question. But these facts were not properly considered
    by the Tribunal to come to the conclusion as to whether 39 ,000 shares
    of Kalinga Tubes Ltd. belong to the assessee and not to the share-
    holders named. The details of this are in An.1exure 'B' to the Income-       F
    tax Officer's order.

          The Income-tax Officer has categorically found that Shri Mall
    was not assessed to Income-tax as an individual. He was assessed as a
    member of the joint family on an income of Rs.15,000 to Rs.17,000.
    The total wealth of the family was about half a lakh. It was not possible    G
    to purchase shares of the face value of Rs.9 lakhs. on his own. The
    shares from 1959 to 1964 had gradually appreciated in value. In other
    words even after deducting the loan incurred by acquiring these
    shares, the net worth of these shares during 1959 to 1967 was Rs.2 1h
    lakhs to Rs.7 1h lakhs. Shri Mall never filed his wealth-tax return which
    clearly showed that nowhere shares were treated as his own. These and        H
    44                   SUPREME COURT REPORTS            11986] 3 S.C.R.
                                                                               ..,
A   other factors taken in conjunction led the Income-tax Officer to the        I
    conclusion that 39,000 shares belonged to Shri B. Patnaik. In that view
    of the matter the materials gathered by revenue subsequent to the
    decision in S.P. Jain's case on the aforesaid lines should have been
    appreciated and considered by the Tribunal.
B
          In our opinion therefore on the principles enunciated by this
    Court in several decisions mentioned hereinbefore, these questions as       (
    questions of law mentioned above do arise.

          In our opinion the High Court, in the facts and circumstances of
    the case, was in error in not directing a reference on the abovenamed
C   questions to the High Court under section 256(2) of the Act.

          The judgment and order of the High Court are, therefore, set
    aside. We direct the Tribunal to send a statement of case for the three
    years involved within six months of the date of receipt of this order on
    the questions mentioned hereinbefore to the High Court at Cuttack.
D   Let the records be sent to the Tribunal immediately through the High
    Court. As the matter is very old, the reference when made should be
    disposed of as quickly as possible.

          The costs of these appeals will abide by the ultimate order made
    in the reference.
E


    M.L.A.                                                Appeals allowed.