Holding

The Tribunal's factual findings are final and not subject to judicial interference unless based on irrelevant material or perverse, and therefore the appeal is dismissed.

Summary

The assessee, K.C. Thapar & Bros. (P) Ltd., claimed deductions for losses incurred on the sale of shares of Bharat Starch & Chemicals Ltd. and Greaves Cotton & Co. Ltd. for AY 1959-60, which the Income‑Tax Officer disallowed on the ground that the transactions were at undervalued prices and were made to a group affiliate to create a bogus loss. The Appellate Assistant Commissioner and the Income‑Tax Appellate Tribunal examined the facts and ultimately held that the losses were genuine trading losses and allowed them as business losses. The Commissioner of Income‑Tax sought a reference of two factual questions to the High Court, but the Tribunal declined, stating the matters were purely factual. The Calcutta High Court upheld the Tribunal’s refusal to refer, and the Commissioner appealed to the Supreme Court. The Supreme Court reiterated that the Tribunal is the final fact‑finding body and its findings can be disturbed only if based on irrelevant material or are perverse; it found no such infirmity and dismissed the appeal.

Issues considered

Whether the Tribunal, in holding that the share transactions were genuine commercial transactions and the losses were trading losses, relied on irrelevant or perverse material.
Whether the Tribunal should have referred the factual questions raised by the Commissioner to the High Court for determination.

Legislation cited

Constitution of Indias. Article 136
Income Tax Act, 1961s. Section 256

Subjects

Income TaxTribunalFact findingTrading loss vs capital lossPerverse decisionSection 256Article 136Share transactionsAllied concernBusiness loss

Judgment

COMMISSIONER OF INCOME TAX, CALCUTTA
·'r
A
v.
KARAM CHAND THAPAR & BROS. (P) LTD.

FEBRUARY 14, 1989

B [M.H. KANIA AND L.M. SHARMA, JJ.]

Constitution of India, 1950---Artic/e 136-Tribunal's decision on
question of fact-Such a finding not to be interfered with unless it is
based on irrelevant material or perverse.
·--+··.
\

C Income-tax Act, 1961: Section 256-Reference io High Court-
Question of fact or law-Assessee claiming loss on sale of shares-
Whether capital loss, or business loss or genuine or bogus-Only ques-
tion of fact-Tribunal's decision final-Tribunal need.not specifically
state its taking into account the cumulative effect of the circum.i;tances-
D Court not to interfere unless Tribunal's decision is based on irrelevant
consideration or perverse.

For the assessment year 1959-60, the Income Tax Officer dis- ~ '
allowed the loss claimed by the Respondent-assessee, on the sale of
E certain shares, to its allied concern, on the grounds that the sale price
was much below the market quotation and that the motive behind the
transactions was to set off the loss against the profits and hence the
transactions w.ere not genuine.

F
On appeal by the assessee the Appellate Assistant Commissioner
held that the losses on both the transactions cannot be held to be busi-
f "T--

ness losses.

On a 'further appeal by the assessee, the Tribunal observed that
the~e was nothing to show that the transactions in questioll had any-
thing to do with the control of the companies concerned. It also relied
G
upon the circumstance that the sales were at the market rates or going ~-
rates and held that there was no question. of making a bogus loss.
Based on these facts and circumstances, the Tribunal held that the
losses in respect of the .sales of the shares in question, were liable to be
allowed as business losses.
H
638
C.l.T. v. K.C. TIIAPAR 639

The Commissioner of Income Tax made an application lo the
A
Tribunal for referring certain questions for the determination of the
High Court. The Tribunal declined to refer the questions on the ground
that they were not questions of law, which deserved to be referred to the
Court for determination. This order of the Tribunal was confirmed by
the High Court.
B
This appeal, by special leave, is against the said order of the High
Court.

Dismissing the appeal,

HELD: 1. Where the Tribunal bas come to the conclusion that C
the loss incurred by the assessee in the sale of shares held by it was a
trading loss and it is not the case of the Department' that in arriving at
its decision the Tribunal had taken into consideration any irrelevant
material or failed to take into consideration any relevant material, there
is no room for interference by the court. It is well settled that the D
·Tribunal is the final fact finding body. The questions whether a particu·
lar loss is a trading loss or a capital loss and whether the loss is genuine
or bogus are primarily questions which have lo be determined on the
appreciation of facts. The findings of the Tribunal on these questions
are not liable to be interfered with. unless the Tribunal has taken into E
consideration any irrelevant material or has failed to take into con-
sideration any relevant material or the conclusion arrived at by the
Tribunal is perverse in the sense that no reasonable person on the basis
, of the facts before the Tribunal could have come to the conclusion to
-rl.f which the Tribunal has come. l645B-D]
F
C.I. T., Bihar & Orissa v. Dalmia Jain & Co. Ltd., 11972] 83 ITR
438, relied on.

2. It is equally well settled that the decision of the Tribunal bas not lo
be serntinised sentence by sentence merely lo find out whether all facts G
have been set out in detail by the Tribunal or whether some incidental fact
which appears on record bas not been noticed by the Tribunal in its judg-
ment. H the court, on a fair reading of the judgment of the Tribunal, finds
that it bas taken into account all relevant material and bas not taken into
account any irrelevant or impermissible material in basing its conclusious,
the decision of the Tribunal is not liable lo be interfered with, onless, of H
640 SUPREME COURT REPORTS [1989] 1 S.C.R.

A course, the conclusions arrived at by the Tribunal are perverse. [645D- 'r
F]

3 •. In the instant case, the Tribunal has taken note of, all the
relevant circumstances which appear on record and which were refer-
red to by the Departmental Representatives before the Tribunal. It has
B not taken into account any material which could be said to' be irrelevant '1'
in arriving at its conclusions. In considering whether the shares of
Bharat Starch & Chemicals Ltd. and Greaves Cotton & Co. Ltd. were
held by the assessee as stock-in-trade or as capital, the Tribunal has
taken into account the fact that the assessee was earlier treated by the
i,. ;_
Department as a dealer in shares, that circumstances cannot be
C regarded as irrelevant. The decision arrived at by the Tribunal cannot
besaidtobeperverse. [645F-HJ >(-

Karam Chand Thapar & Bros. (P) Ltd. v. Commissioner of
Income-tax (Central), Calcutta, [1971 I 82 I. T.R. 899; referred to.
D
4. It is not necessary for the Tribunal to state in its judgment
specifically or in express words that it has taken into account the
cumulative effect of the circumstances or has considered the totality of X.
facts, as if that were a magic formula; if the judgment of the Tribunal
E shows that it has, in fact, done so, there is no reason to interfere with
the decision of the Tribunal. [6468-CJ

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1119
(NT) of 1975. .
-
F From the Judgment and Order dated 16.12.1974 of the
High Court in LT. Reference No. 256of 1974.
Calcutta~~
S.C. Manchanda, Ms. A. Subhashini and K.C. Dua, for the
Appellant.
G
Dr. D .. Pal, Ms. M. Seal, Ms. Mridula Ray and H.K. Dutt, for
the Respondents.

The Judgment of the Court was delivered by

H KANIA, J. This is an appeal filed by the Commissioner of
C.l.T. v. K.C. THAPAR [KANIA, J.] 641

·--1 Income-tax, Calcutta, by Special Leave against an order of a Division
A
Bench of the Calcutta High Court declining to direct the Income-tax
Appellate Tribunal (h~reinafter referred to as "the Tribunal") to refer
to the Court for determination of certain questions raised by the Com-
missioner of Income-tax.

It is necessary to set out a few facts for the appreciation of the B
controversy in this appeal. In its agreement for the Assessment Year
1959-60 the respondent-assessee claimed deductions inter alia in re-
spect of the loss of the sale of certain shares of Bharat Starch &
Chemicals Ltd. and Greaves Cotton & Co. Ltd. for the relevant previ-
ous year. The respondent-assessee had sold in the relevant previous
year 2500 shares of Bharat Starch & Chemicals Ltd. to Mis K.C. c
- 1 Thapar & Sons Ltd., a company belonging to the same group. These
shares were purchased on 22nd February, 1958 and were sold on 31st
March, 1959. The loss claimed was of Rs.26,465. The Income-tax
Officer concerned disallowed this case on the ground that the sale
price was shown at Rs.2.50 per share whereas the market quotation on D
31st March, 1959 was Rs.8.06 per share. The Income-tax Officer also
relied upon the circumstances that the shares had been sold to a com-
"'). pany which was an allied concern of the assessee, that is, belonging to
the Thapar group. The Income-tax Officer took the view that the sale
had been affected only to enable the assessee to claim the loss and E
\ could not be allowed as genuine. The respondent-assessee had arso
sold 3000 shares of Greaves Cotton & Co. Ltd. on 4th February, 1959
to M/s K.C. Thapar & Sons Ltd., and claimed a loss of Rs.47,878.55p
1
on this transaction. The Income-tax Officer held that these shares had
...... also been sold to a compauy belonging to the Thapar group and under
the control of that gr!>llp. The Income-tax Officer took the view that F
the motive for selling the aforesaid shares and some other shares was
to make losses and set them off against the profits and these. transac-
tions could not be considered to be in the normal course of business.
He held that this type of transaction could not be regarded as genuine
and disallowed the claim.
G
The assessee preferred an appeal to the Appellate Assistant
Commissioner against the order of the Income-tax Officer. In respect
of the ·sale of the shares of Bharat Starch & Chemicals Ltd. the Appel-
late Assistant Commissioner accepted .that the market quotation of
these shares at Rs.8.06 on 31st March, 1959, was a nominal quotation H
642 SUPREME COURT REPORTS [1989] 1 S.C.R.

and there was no transaction in these shares at that rate because there }--
A
was no buyer at that price and that the Income-tax Officer was wrong
in relying upon this circumstance to come to the conclusion that the
transaction of sale of these shares was not genuine. He also took the
view that the Income-tax Officer was in error when he took the view
because thes.e shares had changed hands between companies control- --¥'

i
B
led by the same group that fact vitiated the sale. He, however, took the
view that the disallowance was correct as the shares were, in fact,
purchased at Rs.2.50 per share and sold at the same rate, that is, he
disagreed with the average cost worked out by the assessee and
pointed out that the basis on which such average cost was worked out
had not been shown to him. He further took the view that the 25 ,000
c shares of this company sold by the assessee constituted a large block
and was connected with the acquiring of control over the Bharat Starch ..\' ·
& Chemicals Limited and hence the loss should be regarded as an
investment loss and not a business loss. As far as the loss on the sale of
shares of Greaves Cotton & Co. Ltd. was concerned, after referring to
D the ground on which the Income-tax Officer had disallowed this loss
the Appellate Commissioner took the view that the holding of these
shares could be reasonably attributed to the investment portfolio and
hence, the said loss was a capital loss and not a business loss or a .1.~
revenue loss. He further referred to the fact that the shares of this
E company, namely, Greaves Cotton & Co. Ltd. were not quoted in the
stock exchange market. On the basis of these circumstances he dis-
allowed the loss.

Th e adssessee hwefnt inhfurthehr appe al to the Thribunaf.l. ThedTbri-l:
b una 1re 11e upon t e act t at mt e ear11er years, t e pro its ma e y .......
F the assessee on the sale of shares had been treated as business income
and this would show that the assessee in the earlier years had been
regarded as a dealer in shares. The Tribunal rightly observed that
under these circumstances, there was no reason why the assessee
should not be treated as a dealer in shares in the relevant previous year
either. The Tribunal also pointed out that nothing was shown on the
G
record which would suggest that the acquisition and purchase of these
shares was for anything other than normal commercial purposes or
that the sales were not made in the ordinary course of business. The
Tribunal held that the mere fact that the shares have been sold to a
company belonging to the same group and under the same control
H would not be conclusive to. show that tl\e transactions were bogus or
C.I.T. v. K.C. THAPAR [KANIA, J.] 643

not in the normal course of business or were for an extra commercial
A
consideration. It was pointed out to the Tribunal by the Dep_artmental
Representative concerned that these shares were shown by the asses-
see as investments in the balance sheet. The Tribunal pointed out that
this circumstance would not necessarily lead to a conclusion that the
shares were held in the investment portfolio and not as stock-in-trade
B
and in this connection, the Tribunal placed relianace on the decision of
this Court in Karam Chand Thapar and Bros. P. Ltd. v. Commissioner
of Income-tax (Central), Calcutta, [1971] 82 l.T.R. 899 wherein it was
held that the circumstances that the assessee had shown certain shares
as investment shares in its books of account as well as its balance sheet
was by itself not a conclusive circumstance indicating that the shares
were held on investment account or capital account but it was a rel- c
evant circumstance on which the Tribunal could rely for drawing an
inference that the loss on the sale of the said shares was a capital loss.
It may be n_oted that this decision shows that although the manner in
which shares are shown in the balance sheet or books of account of the
assessee is relevant, it is not a conclusive factor in determining whether D
the shares were held as a11 investment or as stock-in-t~ade. However,
the view taken by this Court in that case was that the loss was a capital
~ los~ as the sale of the shares was made after a long period of over ten
years. In the case before us, however, the shares have been sold within
a much shorter period which .,would suggest,. although by no means E
conclusively, that the sales were in the nature of a business transac-
tion. The Tribunal also pointed out that the circumstances that the
transactions were between companies in which Thapar group had a
, controlling interest and also in respect of shares of companies belong-
~ ing to the same group by themselves would not support the conclusion
, that the transactions were stage-managed, although it might arouse F
suspicion and call for a closer scrutiny. In respect of both the said lots
of shares, the Tribun~l pointed out that there was nothing to show that
the purchase of these shares had anything to do with the control of the
companies concerned. The Tribunal relied upon the circumstances
that the sales were at the market rates or going rates and hence, there
G
was no question of making a bogus loss. On the basis of these con-
-_). clusions, the Tribunal held that the losses in respect of the sales of
shares of Bharat Starch & Chemicals Ltd. as well as of Greaves Cotton
& Co. Ltd. were liable to be allowed as business losses.
'
From this decision of the Tribunal, the Commissioner of Income- H
644 SUPREME COURT REPORTS [1989) 1 S.C.R.

A tax applied to the Tribunal for referring certain questions for the de-
termination of the High Court. The Tribunal passed an order referring
one question to the Court for determination but declined to refer the
other questions on the ground that the decision of the Tribunal was
arrived at purely on the appreciation of the facts brought out in
evidence and that these questions, in respect of which the Commis-
B sioner wanted a reference, were not questions of law which deserved
to be referred to the court for determination. From this decision of the
Tribunal, the Commissioner applied to the High Court for directing
the Tribunal to refer the said questions also to the Court for determi-
nation. The High Court by its impugned judgment rejected the said
application. The present appeal is directed against the said decision of
c the High Court.

When the appeal reached hearing before us, Mr. Manchanda,
learned counsel for the Commissioner stated that he pressed the
appeal only in respect of two questions which are as follows:
D
1. Whether, on the facts and in the circumstances of the
case, the Tribunal had any evidence and had not relied
on irrelevant or partly irrelevant materials in holding
that the transactions entered into by the assessee in the
E purchase and sale of shares of Bharat Starch & Chemi-
cals Ltd. and Greaves Cotton & Co. Ltd. were genuine
commercial transactions and whether such finding was
not otherwise unreasonable or perverse?

2. Without prejudice to Question No. (1), whether, on the ~
F facts and in the circumstances of the case, the Tribunal's
finding that the assessee entered into the transactions of
purchase, and sale of 25000 shares of Bharat Starch &
Chemicals Ltd. and 3000 shares of Greaves Cotton &
Co. Ltd. in the course of its business as a dealer in
shares was based on no evidence or was otherwise un-
G
reasonable or perverse? J-
In deciding the question whether the Tribunal should have refer-
red the aforesaid two questions to the court for determination, there
are certain well settled principles which have to be borne in mind. In
H Commissioner of Income-tax, Bihar and Orissa v. Dalmia Jain & Co.
C.I.T. v. K.C. .IBAPAR [KANIA, J.] 645

Ltd., [1972] 83 I.T.R. 438 this Court held that whether a particular loss
A
is a trading loss or a capital loss is primarily a question of fact. Where
the Tribunal has come to the conclusion that the loss incurred by the
assessee in the sale of the shares held by it was a trading loss and it is
not the case of the Department that in arriving at its decision the
Tribunal had taken into consideration any irrelevant material or failed
to take into consideration any relevant material, there is no room for B
interference by the court. It is well settled that the Tribunal is the final
fact finding body. The questions whether a particular loss is a trading
loss or a capital loss and whether the loss is genuine or bogus are
primarily questions which have to be determined on the appreciation
of facts. The findings of the Tribunal on these questions are not liable
to be interfered with unless the Tribunal has taken into consideration c
·--.:~ any irrelevant material or has failed to take into consideration any
r relevant material or the conclusions arrived at by the Tribunal is
perverse in the sense that no reasonable person on the basis of facts
before the Tribunal could have come to the conclusion to which the
Tribunal has come. It is equally settled that the decision of the Tri- D
bunal has not to be scrutinised sentence by sentence merely to find out
whether all facts have been set out in detail by the Tribunal or whether
some incidental fact which appears on record has not been noticed by
-~ the Tribunal in its judgment. If the court, on a fair reading of the
judgment of the Tribunal, finds that it has taken into account all relev- E
ant material and has not taken into account any irrelevant material in
basing its conclusions, the decision of the Tribunal is not liable to be
interfered with, unless, of course, the conclusions arrived at by the
Tribunal are perverse. Keeping these principles in mind in the present
_, case, we find that the Tribunal has taken note of all the relevant
~ circumstances which appear on record and which were referred to by F
' the Departmental Representatives before the Tribunal. It has been
taken into account any material which 'eould be said to be irrelevant in
arriving at its conclusions. In considering whether the shares of Bharat
Starch & Chemicals Ltd. an<\.Greaves Cotton & Co. Ltd. were held by
the assessee as stock-in-trade or as capital, the Tribunal has taken into
G
4 account the fact that the assessee was earlier treated by the Depart-
-·). ment as a dealer in shares, as pointed out by Mr. Manchanda, but that
circumstance cannot be regarded as irrelevant in view of the decision
to which we have already referred. It is also not possible to say that the
decision of the Tribunal is perverse. Mr. Manchanda strongly con-
tended before us that the Tribunal has nowhere stated in terms that it H
646 SUPREME COURT REPORTS [1989] I S.C.R.

A has taken into consideration the totality of circumstances or the cum- )-_
ulative effect of the circumstances pointed out to the Tribunal and
hence the matter should be rem.anded to the Tribunal. In our view,
there is no substance in this submission. It is true that the Tribunal has
not stated in terms that it has considered the cumulative effect of the
B circumstances pointed out to the Tribunal, but, on the other hand, a

-1
plain reading of the judgment of the Tribunal makes it clear that the _,..,,
Tribunal has, in fact, taken into account the cumulative effect of the
circumstances on record before the Tribunal. It is not necessary for the
Tribunal to state in its judgment specifically or in express words that it
was taken into account the cumulative effect of the circumstances or
C has considered the totality of facts, as if that were a magic formula; if
the judgment of the Tribunal shows that it has, in fact, done so, there
is no reason to interfere with the decision of the Tribunal. In our A
opinion, there is no merit in this appeal and it must fail.

, In the result, the appeal fails and is dismissed with costs.

G.N. Appeal dismissed.

J-