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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

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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]

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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

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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

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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

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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

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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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