PETITIONER:
COMMISSIONER OF INCOME TAX, CULCUTTA
Vs.
RESPONDENT:
KARAM CHAND THAPAR & BROS. (P) LTD.
DATE OF JUDGMENT14/02/1989
BENCH:
KANIA, M.H.
BENCH:
KANIA, M.H.
SHARMA, L.M. (J)
CITATION:
1989 AIR 1045 1989 SCR (1) 638
1989 SCC (2) 31 JT 1989 (1) 304
1989 SCALE (1)421
ACT:
Constitution of India, 1950--Article 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.
Income-tax Act, 1961: Section 256--Reference to 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 question of fact--Tribunal's decision
final--Tribunal need not specifically state its taking into
account the cumulative effect of the circumstances-Court not
to interfere unless Tribunal's decision is based on irrele-
vant consideration or perverse.
HEADNOTE:
For the assessment year 1959-60, the Income Tax Officer
disallowed the loss claimed by the Respondent-assessee, on
the sale of certain shares, to its allied concern, on the
grounds that the sale price was much below the market quota-
tion and that the motive behind the transactions was to set
off the loss against the profits and hence the transactions
were not genuine.
On appeal by the assessee the Appellate Assistant Com-
missioner held that the losses on both the transactions
cannot be held to be business losses.
ion a further appeal by the assessee, the Tribunal
observed that there was nothing to show that the transac-
tions in question had anything to do with the control of the
companies concerned. It also relied 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.
639
The Commissioner of Income Tax made an application to
the Tribunal for referring certain questions for the deter-
mination 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 determi-
nation. This order of the Tribunal was confirmed by the High
Court.
This appeal, by special leave, is against the said order
of the High Court.
Dismissing the appeal,
HELD: 1. Where the Tribunal has come to the conclusion
that 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 Tribunal is the final fact finding body. The ques-
tions 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 any irrelevant materi-
al or has failed to take into consideration 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 which the Tribunal has come. [645B-D]
C.I.T., Bihar & Orissa v. Dalmia Jain & Co. Ltd., [1972]
83 ITR 438, relied on.
2. It is equally well settled that the decision of the
Tribunal 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 judg-
ment of the Tribunal, finds that it has taken into account
all relevant material and has not taken into account any
irrelevant or impermissible material in basing its conclu-
sions, the decision of the Tribunal is not liable to be
interfered with, unless, of
640
course, the conclusions arrived at by the Tribunal are
perverse -[645DF]
3. In the instant case, the Tribunal has taken note of
all the relevant circumstances which appear on record and
which were referred to by the Departmental Representatives
before the Tribunal. It has not taken into account any
material which could he said to be irrelevant 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 Department as a dealer in shares,
that circumstances cannot he regarded as irrelevant. The
decision arrived at by the Tribunal cannot be said to he
perverse. [645F-H]
Karam Chand Thapar & Bros. (P) Ltd. v. Commissioner of
Income-tax (Central), Calcutta, [1971] 82 I.T.R. 899; re-
ferred to.
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 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. [646B-C]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1119(NT) of
1975.
From the Judgment and Order dated 16.12.1974 of the
Calcutta High Court in I.T. Reference No. 256 of 1974.
S.C. Manchanda, Ms. A. Subhashini and K.C. Dua, for the
Appellant.
Dr. D.-Pal, Ms. M. Seal, Ms. Mridula Ray and H.K. Dutt,
for the Respondents.
The Judgment of the Court was delivered by
KANIA, J. This is an appeal filed by the Commissioner of
641
Income-tax, Calcutta, by Special Leave against an order of a
Division Bench of the Calcutta High Court declining to
direct the Income-tax Appellate Tribunal (hereinafter re-
ferred to as “the Tribunal”) to refer to the Court for
determination of certain questions raised by the Commission-
er of Income-tax.
It is necessary to set out a few facts for the apprecia-
tion of the controversy in this appeal. In its agreement for
the Assessment Year 1959-60 the respondent-assessee claimed
deductions inter alia in respect of the loss of the sale of
certain shares of Bharat Starch & Chemicals Ltd. and Greaves
Cotton & Co. Ltd. for the relevant previous year. The re-
spondent-assessee had sold in the relevant previous year
2500 shares of Bharat Starch & Chemicals Ltd. to M/s K.C.
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 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 company
which was an allied concern of the assessee, that is, be-
longing 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 could not be allowed as
genuine. The respondent-assessee had also 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
on this transaction. The Income-tax Officer held that these
shares had also been sold to a company belonging to the
Thapar group and under the control of that group. The In-
come-tax Officer took the view that the motive for selling
the aforesaid shares and some other shares was to make
losses and set them off against the profits and
these .transactions could not be considered to be in the
normal course of business. He held that this type of trans-
action could not be regarded as genuine and disallowed the
claim.
The assessee preferred an appeal to the Appellate As-
sistant Commissioner against the order of the Income-tax
Officer. In respect of the sale of the shares of Bharat
Starch & Chemicals Ltd. the Appellate Assistant Commissioner
accepted that the market quotation of these shares at
Rs.8.06 on 31st March, 1959, was a nominal quotation
642
and there was no transaction in these shares at that rate
because there was no buyer at that price and that the In-
come-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 be-
cause these shares had changed hands between companies
controlled 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
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 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 invest-
ment portfolio and hence, the said loss was a capital loss
and not a business loss or a revenue loss. He further re-
ferred to the fact that the shares of this company, namely,
Greaves Cotton & Co. Ltd. were not quoted in the stock
exchange market. On the basis of these circumstances he
disallowed the loss.
The assessee went in further appeal to the Tribunal.
The Tribunal relied upon the fact that in the earlier years,
the profits made by 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 previ-
ous year either. The Tribunal also pointed out that nothing
was shown on the record which would suggest that the acqui-
sition 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 would not be conclusive to show that the transac-
tions were bogus or
643
not in the normal course of business or were for an extra
commercial consideration. It was pointed out to the Tribunal
by the Departmental Representative concerned that these
shares were shown by the assessee as investments in the
balance sheet. The Tribunal pointed out that this circum-
stance would not necessarily lead to a conclusion that the
shares were held in the investment portfolio and not as
stock-in-trade and in this connection, the Tribunal placed
reliance on the decision of this Court in Karam Chand Thapar
and Bros. P. Ltd. v. Commissioner of Income-tax (Central),
Calcutta, [1971] 82 I.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 relevant 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 noted 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 the shares were
held as an investment or as stock-in-trade. However, the
view taken by this Court in that case was that the loss was
a capital loss as the sale of the shares was made after a
long period of over ten years. In the case before us, howev-
er, the shares have been sold within a much shorter period
which would suggest, although by no means conclusively, that
the sales were in the nature of a business transaction. 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 belonging to the same group by themselves would
not support the conclusion that the transactions were
stage-managed, although it might arouse suspicion and call
for a closer scrutiny. In respect of both the said lots of
shares, the Tribunal 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 was no question
of making a bogus loss. On the basis of these conclusions,
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-
644
tax applied to the Tribunal for referring certain questions
for the determination of the High Court. The Tribunal passed
an order referring one question to the Court for determina-
tion 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 Commissioner
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 determination. The High
Court by its impugned judgment rejected the said applica-
tion. The present appeal is directed against the said deci-
sion of the High Court.
When the appeal reached hearing before us, Mr. Manchan-
da, learned counsel for the Commissioner stated that he
pressed the appeal only in respect of two questions which
are as follows:
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 purchase and sale of shares of Bharat
Starch & Chemicals 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 facts and in the circum-
stances of the case, the Tribunal’s finding
that the assessee entered into the transac-
tions 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 unreasonable
or perverse?
In deciding the question whether the Tribunal should
have referred the aforesaid two questions to the court for
determination, there are certain well settled principles
which have to be borne in mind. In Commissioner of Income-
tax, Bihar and Orissa v. Dalmia Jain & Co.
645
Ltd., [1972] 83 I.T.R. 438 this Court held that whether a
particular loss 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 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 any
irrelevant material or has failed to take into consideration
any 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 Tribunal 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 relevant 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 the
Departmental Representatives before the Tribunal. It has
been taken into account any material which could be said to
be irrelevant 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 Department 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 contend-
ed before us that the Tribunal has nowhere stated in terms
that it
646
has taken into consideration the totality of circumstances
or the cumulative effect of the circumstances pointed out to
the Tribunal and hence the matter should be remanded to the
Tribunal. In our view, there is no substance in this submis-
sion. It is true that the Tribunal has not stated in terms
that it has considered the cumulative effect of the circum-
stances pointed out to the Tribunal, but, on the other hand,
a 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 circum-
stances or 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 inter-
fere with the decision of the Tribunal. In our 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.
1
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