SHRI KANHAIYALAL LOHIA versus THE COMMISSIONER OF INCOME-TAX, WEST BENGAL

J.--These appeals with special leave were filed by one Kanhaiyalal Lohia, who died during the pendency of the appeals, and who is now represented by the executors appointed under his will. By these appeals, whic11 consolidated, the appellants q1kHtion au order dated Jauuary 8, 1953, of the Ineome-tax Appellate Tribuual (Calcutta Beneh) in appeals filed by the Department. against the order of the Appellate Assistant Commissioner. The Tribunal reversed the order of the Appellate Assistant Oornmissioner and restored that of the Income-tax Officer. Kanhaiyalal Lohia made Jlctitions under '· 66 (1) to the TribuI?-al, setting out a numbc•r rif yl!estions of which the following was referred th" High Court :

pp. 840–841

"Whether in the cirumstances of this case where the Income- tax Offi1·pr, Distrir-t III (2), separately assessed the busiJ1ess run in the name of Brijlal Nandkishore as belonging to a partnership firm consisting of Brijlal and Nandkishore, the Income-tax Officer, Non-Companies E. P. T., District can assess the income from the Harne busiuess in the

p. 841

hands of the assPssee ?" This question was answered against him. Kanhaiyalal Lohia also applied under s. 66 (2) to the High Court of Calcutta for reference of the other questions, but failed. No appeal has been filed by him against the order of the High Court refusing to direct the Tribunal to state a case or against the decision on the question referred, and the present appeals have been filed against the decision of the Tribunal.

p. 841

At the hearing of these appeals, we asked counsel for the appellants how, in view of the recent decisions of this Court in Okandi Prasad Okokhani v. State of Bikar ( and Indian Aluminium Oo. Ltd. Oommi88ioner of Income-tax ( these appeals were maintainable, if the two decisions of the High Court had become final. Mr. A. V. Viswanatha Sastri relied upon the decisions in Dhakeswari Cotton Mills Ltd. v. Commissioner of Income-tax, West Ilengal and Sardar Baldev Singh v. Commissioner of Income-tax Delhi and Ajmer ( and pointed out that in those cases, appeals wNe entertained from the Tribunal's order, though he conceded with his usual frankness that spceial circumstances must exist. He contended that this was a case in which such circumstances existed. We shall deal with the appeals from that point of view, because unles special circumstances exist, the appeals must be regarded as not competent, in view of our recent rulings above mentioned.

pp. 841–842

Kanhaiyalal Lohia, who was a prosperous dealer in jute, had his head office in Calcutta. He had no issue, and his family consisted of his wife, his brother, Brijlal Lohia and Brijlal's son, Nandkishore Lohia. The properties of Kanhaiyalal Lohia were self-acquired, and he was always assessed as an individual. He maintained .accounts according to the Ramnavami year. In his retu,rn for the account year, April 14, 1943 to April 1, 1944 (corresponding to the asse•ment year, \944-45), he indicated that he had closed down in the middle of 1943 his purchasing centres in East Bengal, which stood in the name of Nandkishore, and that, he had gifted to his brother Rs. 5,11,101 on July 12, 1943, and to his nephew, Rs. 2,50,000 on September 30, 1943. He showed income of his East Bengal business only up to the closure of that business.

p. 842

Brijlal and Nandkishore entered into partnership between themselves, and started a business under the name and style of "Brijlal Nandkishore." They took over the purchasing centres in East Bengal. They opened accounts in banks in the name of "Brijlal Nandkishore", and became members of the Baled .Jute Association, and the Jute Balers Association, and traded in their own names. A deed of partnership between them was also executed on August 5, 1953. The business of .Kanhaiyalal Lohia and of "Brijlal Nandkishore"

p. 842

(1) (1955) 1 S.C.R. 941. (2) (1961) I S.C.R. 482. was within the jurisdiction of the same Incometax Officer. In the assessment of the partnership firm, notices were issued to the partnership both under s. 22(2) and s. 34, and the partner ship also applied for registration under s. 26A of the Income-tax Act, which was granted. The partnership was also assessed for the years, 1945-46 and 1946-47. The assessment of Kanhaiyalal Lohia was completed by the Income-tax Officer, Non- Companies Income-Tax cnm Excess Profits Tax District, and during the assessment for the year, 1945-46 a notice was issued under s. 22(4) of the Income-Tax Act on August 24, 1949, calling for accounts of the head office at Calcutta and also the branches including the business being carried on as "Brijlal Nandkishore", Kanhaiylal Lohia proved the above facts, producing the books of account, bank statements, registration certificate of "Brijlal Nandkishore" and evidence showing the membership of "Brijlal Nandkishore" of the two Associations. He also produced letters from four persons incl11ding one Sri A.L. Mazumdar who was questioned by the Income-tax Officer without notice to Kanhaiyalal Lohia and whose statement was also recorded. Kanhaiyalal Lohia objected to this procedure, but the Income-tax Officer, it is alleged, paid no heed to his protests, and on March 31, 1950 the assessment was completed, and the income of the branches under the direct control of "Brijlal Nandkishore" was pooled with the income of Kanhaiyalal Lohia. The Income-tax Officer held that the gifts were not bona fide, and were colourable transactions. He relied upon the statement of Sri A. L. l\fazumdar, which was recorded when Kanhaiyalal Lohia was not present.

pp. 842–843

Against the assessment, Kanhaiya.lal L0hia, appealed to the Appellate Assistant Commissioner before whom two more letters from leading businessmen were filed. The Appellate Assistant Commissoner accepted the letters which were filed, and held that the gifts were proved and were bona fide and directed the exclusion of the income of "Brijlal Nand kishore" from the assessment of Kanhaiyalal Lohia. The order of the Appellate Assistant Commissioner was pronounced on December 27, 1951. The Dep<irtment appealed to the Appellate Income-tax Tri- . bunal, Calcutta Bench. The Tribunal disagrlled with the Appellate Assistant Commissioner, and held on January 8, 1953, that the gifts were not proved by the assessee by unimpeachable evidence, and that the income of "Brijilal Nandkishore'' was rightly included in the assessment. As stated already, applications under s. 66 (1) ands. 66 (2) were made to the Tribunal and the High Court respectively. The Tribunal referred one question, but declined to refer the other questions. The High Court was then mov2d under s. 66 (2) but without suecess. The High Court agreed witli the Tribunal and answered the question which was referred, against Kanhaiyalal Lohia. Before the High Court, Kanhaiyalal's counsel, Dr. Pal, admitted that he could not persuade t.he Court to answer the referred question against the Department, and it appears that it was conceded by the Department before the High Court that the assessment of "Brijlal Nandkishore" would be cancelled. Kanhaiyalal Lohia then filed the present appeals against the order of the Tribunal dated January 8, 1953.

pp. 843–844

This Court has pointed out in Chandi Prasad Cho1chan·i v. State of Bihar(1) and Indian Al,uminium Co., Ltd. v. Commissioner of Income-tax(') that the two casiS in which this Court int.erfered with appellate orders of a Tribunal and relied upon before us, were of a special kind. In Dha1cheshwari Cotton ills case(') there was a breach of the princ~ple of natural justice, and that was held ~ufficient to e1,1title an aO'arieved party to come to this Court aga10st the appellate order of the Tribunal under Art. 136. In (1) (1962) 2 S.C.R. 276. (2) Appeal No. 176 of 1959 decided on April 24,

p. 844, margin A

1961. (3) 1 s.c.R. 911. Baldev Singh 's case (') this Court. entertained an appeal against the·appellate order of the Tribunal, because limitation to take other remedies was barred without any fault of the assessee eoncerned. The ratio in each of these cases is that a circnm· stance which cannot be corrected by t)w procedure of a statecl queRtion of la.won a statement. of the· case may afford a ground for invoking the jurisdiction of Court ·under Art: 136. That ratio does not apply, where a question of law can raised, and is capable of being answered by the High Court or on appeal, by this Cburt. An appeal against an order of the High Court deciding a question referred or against a refusa-1 to call for a statonrent. can ho brought before this Court under s. 66A, if the High Court decides t.he question referred and {mder Art. 136, if the High Court refuses to call for a statement.

pp. 844–845, margin A

In the present case, the order of the High Court on tbe question referred' was not brought before this Court by the ordinary mode indicl:lted in tho Indian Income-tax Acf,--pre.surnably oecause of the concession of counsel that could not elaim that the question he answered· in favour of the assessee and the attitude of the Departmen,t that tho assessment of "Brijlal Nandkislrnre" would be cancelled. The order refusing to call for a statement on questions other than the one referred is als9 not questioned before us. The attempt is to bring this case within the rati.o of Dliakesliuwi Cotton 21Iills' oase( ),and in support, it has been point. ed out mainly that the examination of Sri A. L. Maz11mdar in the absence of Kanhaiyalal Lohia was against the principles of natural iv.stice. The statement of Sri A. L. Mazumdar was taken on March 28, 1950, and it,is recorded as follows:

p. 845

"Mr. Mazumdar is questioned b.Y me as to what be knows reg~rding the alleged gift as recorded in the bopks of Kanhailyalal Lohia in

p. 845

favour of Brijlal and Nand Kiahore. He says (I) (1961) I s.c.R. 482. (2) (1955) I s.c.R. 941.

p. 845

that I don't remember things very distinctly but I can say that the gifts to Brij Lal or Nand Kishore were not made in my presence as alleged. Mr. Kanhaiyalal Lohia used to tell me that his brother and nephew are idling away their time hence I shall give them a gift and make them work by that money.

p. 846

The patnership deed was most probably drawn up by me. The gift was reported to have been made to Brij Lal and NandKishore before I should have taken up the drafting of the deed. Kanhaiyalal told me several times that he wanted to separate his brother and nephew. When the firm was started then Brijlal came to me and asked me if father and son's partnership deed could be drawn up.

p. 846

I don't know anything else than this in the matter."

p. 846

The lie given by Sri Ma:i:umdar to the statement of Kanhaiyalal Lohia has affected his credibility. The ord(fr sheet shows that Mr. B. Sen Gupta took a copy of Sri Mazumdar's statement and expressed a desire to cross-examine him; but when the opportunity was given, he failed to appear. It is impossible to think in these circumstances that there has been any breach of the principles of natural justice. The order sheets of March 29 and 30, 1950 clearly record the absence of Mr. B. Sen Gupta .. In our opinion, there is no breach of the principles of natural justice in this case to entitle the appellants to invoke the ruling in Dhakeshwari Cotwn Mills case('}.

p. 846

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

pp. 846–847

The appeals are dismissed with costs, one set.

p. 847

Appeal dismissed. (I) (1962) 2 S.C.R. 276. (2) Civil Appeal No. 176 of 1959 decided on April 24,

p. 847