1986 (5) TMI 2 - SC - Income Tax

Cash Credits - Tribunal s failure to consider identity and credit worthiness of creditors - failure of the Tribunal to consider the materials gathered by the ITO - Whether a question of law referable to the High Court arises out of the order of the Income-tax Appellate Tribunal in this case - question of law arise - held that High Court was in error in not directing a reference on the impugned questions to the High Court under section 256(2)

Issues Involved
1. Whether the findings of the Appellate Tribunal are vitiated in law by ignoring relevant evidence and relying on incorrect facts.
2. Whether the Tribunal's conclusion about the existence and distinct nature of the Kalinga Foundation Trust is logically supported by the materials on record.
3. Whether the Tribunal erred in law by not considering relevant matters in determining the Kalinga Foundation Trust's acquisition of property from public donations.
4. Whether the Tribunal was correct in holding that income from the Kalinga Foundation Trust should not be included in the assessee's income.
5. Whether there was any evidence supporting the Tribunal's finding that the assessee collected donations from the public for the Kalinga Foundation Trust.
6. Whether the Tribunal was right in excluding amounts donated by the assessee from his assessment if the answer to the previous question is negative.
7. Whether the Tribunal was correct in holding that the Revenue authorities must accept the Supreme Court's decision regarding the ownership of 39,000 shares of Kalinga Tubes Ltd.
8. Whether the Tribunal's finding that the persons in whose names the shares stood were not benamidars of the assessee was perverse.

Detailed Analysis

1. Ignoring Relevant Evidence and Relying on Incorrect Facts
The Tribunal's findings were challenged on the grounds that it ignored relevant and admissible evidence and relied on incorrect facts. The Supreme Court emphasized that when a conclusion is reached based on an appreciation of several facts, the cumulative effect of all facts must be assessed rather than considering each fact in isolation. The Tribunal's decision must be supported by evidence and should not be perverse or based on conjectures and surmises.

2. Existence and Distinct Nature of the Kalinga Foundation Trust
The Tribunal concluded that the Kalinga Foundation Trust came into existence in 1947 and was distinct from the trust created by the assessee in 1949. This finding was based on the materials on record, including the trust's registration in 1959 and its collection of public donations. However, the Supreme Court noted that the identity and creditworthiness of the donors were not established, raising questions about the genuineness of the trust.

3. Acquisition of Property from Public Donations
The Tribunal was criticized for not giving due consideration to relevant matters in determining whether the Kalinga Foundation Trust acquired property from public donations. The Supreme Court highlighted that there was no evidence of who contributed to the trust, how much was contributed, and the donors' capacity to make such contributions. This lack of evidence was deemed a significant omission.

4. Income from Kalinga Foundation Trust
The Tribunal held that the income from dividends, interest on loans, and other investments in the name of the Kalinga Foundation Trust did not belong to the assessee and should be excluded from his assessment. The Supreme Court questioned whether there was sufficient evidence to support this finding, particularly given the lack of clarity about the trust's funds and their sources.

5. Evidence Supporting Collection of Donations
The Tribunal found that the assessee collected donations from the public for the Kalinga Foundation Trust. The Supreme Court noted that while some names of collectors were provided, there was no evidence about the donors or their capacity to donate. This lack of evidence raised doubts about the Tribunal's finding.

6. Exclusion of Donated Amounts from Assessment
If the finding that the assessee collected public donations is negative, the Tribunal's decision to exclude the amounts donated by the assessee from his assessment must be reconsidered. The Supreme Court emphasized the need for proper evidence to support the exclusion of these amounts.

7. Acceptance of Supreme Court's Decision on Share Ownership
The Tribunal held that the Revenue authorities were bound to accept the Supreme Court's decision in a previous case regarding the ownership of 39,000 shares of Kalinga Tubes Ltd. The Supreme Court noted that new evidence collected by the Income-tax Officer after the previous decision should have been considered by the Tribunal.

8. Benami Ownership of Shares
The Tribunal found that the persons in whose names the 39,000 shares stood were not benamidars of the assessee. The Supreme Court questioned whether the Tribunal properly considered the evidence, including the financial capacity of the persons named and the circumstances under which the shares were acquired. The Tribunal's failure to consider these factors was seen as a significant oversight.

Conclusion
The Supreme Court concluded that the High Court erred in not directing a reference on the questions of law raised. The Tribunal was directed to send a statement of the case to the High Court within six months, and the High Court was urged to dispose of the reference quickly due to the age of the matter. The appeals were allowed, and costs were to abide by the ultimate order in the reference.

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