B.D. PANDA VS COMMISSIONER OF INCOME-TAX, 1992 PTD-ORISSA-HIGH-COURT-INDIA 792 (1991)

(a) Income-tax---

----Income or capital---Project started by engineer for manufacture of article---Subsequent setting up of company---Purchase of project report and technical know-how by company---Tribunal justified in holding that part of amount received was a capital receipt and part was professional fees out of which deduction of expenditure was allowable.

(b) Income-tax---

----Reference---Question of fact---Reasonable decision by Tribunal---High Court will not interfere.

If the view taken by the Tribunal is reasonably possible on the evidence adduced, it is not admissible to the High Court in its advisory jurisdiction to upset the same merely because the High Court might have, on the materials available on record, come to a different conclusion.

The assessee, an engineer, conceived of a project to start an industry to manufacture ferro-alloys including ferro-silicon. For this purpose, he got in touch with some firms in Sweden and also with the Governments of India and Orissa. This was for the purpose of getting technical aid and for obtaining licence, land, power, finance, etc. The assessee got good response from all quarters. As the preparation for setting up of the project progressed; the assessee realised that it would be better to set up the plant under a company and applied for registering a company in the name of Indian Metal and Ferro Alloys Ltd. The company was incorporated. The board of directors passed a resolution agreeing to pay the assessee a sum of Rs.8,07,448 to reimburse him for the expenses incurred by him and for transferring to the company the agreements, arrangements and benefits of the negotiations entered into by him. The Tribunal relied on this resolution and the entries made by the company in its cash book. It also referred to the assessment and appellate orders passed in the case of Indian Metals and Ferro Alloys Ltd., wherein the assets acquired as a result of the aforesaid expenditure of Rs.8,07,448 had been treated as capital assets and depreciation and development rebate thereon had been granted to the company. The Tribunal held that a sum of Rs. 3,50,000 out of the amount received by the assessee had to be treated as a capital receipt. On a reference:

Held, that the view taken by the Tribunal was based on a contemporary resolution taken by the board of directors and other materials which were relevant to decide the controversy. It was reasonable and the High Court would not interfere with it. The Tribunal was justified in treating the income of Rs. 3,50,000 as a capital receipt in the hands of the assessee. The Tribunal was also justified in treating the other part, namely, Rs. 4,57,448 as professional fees and allowing deduction.. of Rs. 1,75,000 from it being expenditure for earning that amount.

CIT v. Ganapathi Mudaliar (M.) (1X4) 53 ITR 623 (SC); CHIT v. Ram Parshad (1978) 113 ITR 462 (Delhi); Rameshwar Prasad Bagla v. C:IT (1973) 87 ITR 421 (SC:); Sovachand Baid v. CIT (1958) 34 ITR 6511 (SC:); Sree Meenakshi Mills Ltd. v. CIT (1957) 31 ITR 28 (SC) and Ukhara Estate Zamindaries Pvt. Ltd. v. CIT (1979) 120 ITR 549 (SC) ref.

A.K. Ray for the Commissioner

B.K. Mohnty for the Assessee.

JUDGMENT

B.L. HANSARIA, C.J.---These are two reference applications under section 256(1) of the Income Tax Act, 1961. The assessment year to which the reference applications relate ended on March 31, 1962. The assessee is an engineer by profession. He obtained his degree in engineering from M.I.T. U.S.A. Thereafter, he engaged himself in professional activities in the United States of America and, while rendering such services, he conceived of a project to start an industry to manufacture ferro-alloys including ferro-silicon. For this purpose, he got in - touch with some firms in Sweden and also with the Governments of India and Orissa. This was for the purpose of getting technical aid and for obtaining licence, land, power, finance, etc. The assessee got good response from all quarters. As the preparation for setting up of the project advanced, the assessee realised that it would be better to set up the plant under a company and applied for registering a company in the name of Messrs Indian Metal and Ferro Alloys Limited. The company was incorporated on November 20, 1961. On January 22, 1902, the board of directors of the company met and passed a resolution stating, inter alia, as follows:

"Shri Banshidhar Panda (i.e., the assessee) has rendered most valuable services to the company. He has formulated, negotiated and brought to fruition the present scheme for the manufacture of ferro-silicon which has been approved by the Central and State Governments. He has made arrangements whereby the foreign collaborators, foreign commercial banks and financial institutions and Indian banks have agreed to make available to the company very large sums in foreign currencies and in rupees. He has arranged with the Government of Orissa for acquiring lands for the purpose of the company. He has negotiated arrangements with the Government of Orissa for obtaining power for on going works. Shri Banshidhar Panda has incurred considerable expenses in drawing up the designs, lay-outs, blue prints, flow-sheets and, technical procurements. Shri Banshidhar Panda has also incurred heavy expenses in travelling to U.S.A., U.K., Norway, Germany, Austria and Switzerland, in consulting technical and legal advisers, in negotiating various agreements, in viewing and inspecting various plants and processes and carrying out negotiations over a long period. Shri Banshidhar Panda hereby agrees to transfer to the company the benefits of all agreements and negotiations made by him. The company hereby agrees to pay Shri Banshidhar Panda a sum of Rs.8,07,448 (rupees eight lakhs seven thousand four hundred forty-eight only) to reimburse him for the expenses incurred by him and for transfer to the company the agreements, arrangements and benefits of the negotiations entered into by him.

In this arrangement, Shri Banshidhar Panda has neither charged nor will be paid any sum for rendering his services.

Resolved that we, the directors of the Indian Metals and Ferro Alloys Limited, hereby approve and ratify this promotional expenditure."

The aforesaid payment of Rs.8,07,448 was credited by the company in its cash book on November 22, 1961, as follows:

While the assessment was pending, the Voluntary Disclosure of Income and Wealth Ordinance, 1975, was promulgated. Under legal advice, the assessee made a declaration of his income at Rs. 6,22,300. This included a sum of Rs.80,000 which could be treated as his professional receipt embedded in the aforesaid sum of Rs.8,07,448.

The Income-tax Officer treated the entire amount of Rs.8,07,448 as a revenue receipt and deducted from it Rs.2,00,000 by way of expenses which the assessee had incurred to earn the said income and held the remaining Rs.6,07,448 as assessable income. In taking this view, the Income-tax Officer relied on a decision of the Delhi High Court in CIT v. Ram Parshad (1978) 113 ITR 462.

The assessee preferred an appeal and relied on Ukhara Estate Zamindaries Pvt. Ltd. v. CIT (1979) 120 ITR 549 (SC). The Commissioner of Income-tax (Appeals), however, upheld the assessment order giving no relief to assessee.

On further appeal being preferred before the Tribunal, it came to the conclusion that Rs.3,50,000 was a capital receipt in the hands of the assessee by relying on Ukhara Zamindaries' case (1979) 120 ITR 549 (SC), which is a rendering of the Supreme Court. The other part, namely, Rs.4,57,448, was taken to be the professional fees against which deduction of Rs.1,75,000 was allowed.

Both the assessee and the Revenue felt aggrieved with certain parts of the order and prayed for reference. At the behest of the Revenue, the following question of law has been referred:

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in treating the income of Rs.3,50,000 as capital receipt in the hands of the assessce individual?"

At the instance of the assessee, the following questions are before us:

"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the sum of Rs.4,57,448 was assessable under section 28 of the Income Tax Act as professional receipt?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in allowing Rs.1,75,000 only being the expenditure for earning the said amount?"

A reference to the order of the learned Tribunal shows that it relied on the aforequoted resolution of the board of directors and the entries made by the company in its cash book. It also referred to the assessment and the appellate order passed in the case of Messrs Indian Metals and Ferro Alloys Ltd. wherein the assets acquired as a result of the aforesaid expenditure of Rs.8,07,448 had been treated as capital assets and depreciation and development rebate thereon had been granted to the said company. The Tribunal concluded this matter in the following language:

"The said resolution clearly brings out the fact that Shri Panda had formulated, negotiated and brought to fruition the scheme for the manufacture of ferro-silicon and had obtained the approval of the Central and the State Governments therefore and had made arrangements with banks and financial institutions and Indian banks to set up the said project and it was this project that was being sold by him to the company. What was being sold by him was thus clearly a project which he had himself conceived for his own industry and, when he was selling it, he was, according to us, doing it as the owner of the said project and not as a trader in such project. There is at the same time no doubt that in preparing the said project he used his professional skill and expertise. He also drew upon his entrepreneurial skills. For these professional services also he was remunerated. The entire transaction was thus a mix of two elements; and for that reason the company had decided to pay to him the aforesaid sum of Rs.8,07,448 in two parts. The first part for which Rs.3,50,000 was paid represented the cost payable towards `Project reports and designs'. The other part for which Rs.4,57,448 was paid by the company consisted of `Promotional expenditure including fees for technical know-how'. The first payment was clearly towards the acquisition of a capital asset. What Dr. Panda sold to the company was a capital asset in his own hands, he being the owner of the project reports and designs, etc., and what the company acquired as a result of the said expenditure was also a capital asset in the hands of the said company. The second payment, however, admittedly included `fees for technical know-how', apart from other `promotional expenditure', which he might have incurred, while promoting the aforementioned company. The `fees' received for providing technical know-how would be his professional receipt assessable under section 28 of the Income Tax Act, 1961."

As to the expenditure incurred by the assessee, the Tribunal first of all noted that the assessee had admitted before the board of directors of the company that at best he could produce receipts for about Rs. 2,00,000 in support of his expenditure. Of this amount, the Tribunal thought that the assessee had incurred an expenditure of Rs. 1,75,000 towards earning the income of Rs. 4,57,448 and the remaining sum of Rs. 25,000 was allocated towards the receipt of Rs. 3,50,000 which was taken as a capital receipt.

The above shows that the Tribunal had treated the sum of Rs. 3,50,000 as a capital receipt being of the view that what was being sold by the assessee was a project of which he was the owner--the project having been conceived by him for his own industry. He was not transferring the same to the company as a trader. It cannot be disputed that, if this conclusion of the Tribunal be correct, the receipt of Rs. 3,50,000 has to be regarded as a capital receipt in view of what has been stated in Ukhara Estate Zamindaries' case [1979] 120 ITR 549 (SC), wherein the transfer of the leasehold interest in the Zamindari property as a land-owner and not as a trader was regarded as transfer of a capital asset and the receipt arising out of that as a capital receipt. Then, if the receipt of Rs. 4,57,448 was taken to be a professional receipt, no fault can be found with the same as, admittedly, this included "fees for technical now how" and other promotional expenditure. As to the allowing of a expenditure amounting to Rs. 1,75,000 only, no exception can be taken as the assessee himself had admitted before the board of directors that he could produce receipts for about Rs. 2,00,000 only. Of this, Rs. 25,000 was allocated as expenditure incurred in connection with the receipt of capital asset mounting to Rs. 3,50,000.

It is settled law that, if the view of a Tribunal on a question of fact be reasonable, it is not admissible to this Court in advisory jurisdiction to upset the same merely because this Court might have, on the material available on record, come to a different conclusion. To put it differently, if the view taken by the Tribunal be reasonably possible on the evidence adduced, it is not open to this Court in a reference proceeding to go behind the Tribunal's finding of fact inasmuch as, while hearing a reference under the Act, this Court is not constituted as a Court of appeal against the order of the Tribunal and to consider whether the finding is justified or not. Of course, if it be the it there is no evidence to support the finding of fact arrived at by the Tri anal, that circumstance would give rise to a question of law and could be agitated in a reference. So also, if the Tribunal were to act on material which was irrelevant to the inquiry or it considered material which was partly relevant and partly irrelevant or based its decision partly on conjectures, surmises and suspicions and partly on evidence, then, in such a situation an issue of law wound arise and the finding of the Tribunal could be interfered with. [See Sree Meenakshi Mills Ltd. v. CIT [1957] 31 ITR 28, 36 (SC); Sovachand Baid v. CIT [1958] 34 ITR 650, 654 (SC); CIT v. M. Ganapathi Mudaliar [1964] 53 ITR 623, 629-630 (SC) and Rameshwar Prasad Bagla v. CIT [1973] 87 ITR 421, 426-427 (SC)].

From what has been pointed out above relating to the view taken by the Tribunal in the matters at hand, it cannot be said that it has taken into consideration irrelevant materials or that it based its decision on conjectures surmises or suspicions. We have said so because the view taken by the Tribunal is based on a contemporary resolution taken by the board of directors and other materials which are absolutely relevant to decide the controversy at hand. The view taken by the Tribunal is definitely reasonably possible on the evidence adduced. It is not admissible to this Court in advisory jurisdiction to upset the same merely because this Court might have, on the materials I available on record, come to a different conclusion.

In view of the above, we would answer all the questions referred to us in the- affirmative.

D.M. PATNAIK, J.---I agree.

M.B.A./1526/T ?????????????????????????????????????????????????????????????????????? References answered