(Appeal by special leave from the judgment and order, dated August 4, 1980, of the Karnataka High Court in Income-tax Reference Case No. 180 of 1975).

(a) Income-tax---

----Income---Business income---Amount received as loan---High Court examining facts on record and concluding that there was no finding that amount was received as commission or was a business receipt---Amount was not assessable.

(b) Income-tax---

----Reference---Powers of High Court---Mixed question of law and fact-- High Court can consider facts---Indian Income Tax Act, 1961, S.256.

The High Court will not address itself to recording findings of facts unless the subject-matter of the question referred to it by the Tribunal, either under subsection (1) or subsection (2) of section 256 of the Income Tax Act, 1961, relates to the perversity of the findings arrived at by the Tribunal. That sort of question has to be distinguished from a mixed question of fact and law, which also requires consideration and discussion of facts but does not warrant returning findings of facts inconsistent with the findings recorded by the Tribunal while giving its opinion on the question referred to the High Court.

In December, 1961, an order of regular assessment of the assessee was passed for the assessment year 1960-61 for which the relevant accounting year ended on May 31, 1959. Subsequently, it came to the notice of the Income-tax Officer that a sum of Rs.32,58,500 had been received by the assessee purporting to be a loan advanced under agreement, dated November 15, 1958, entered into between the assessee and a foreign collaborator. The assessee promoted paper mills. The capital requirement of the paper mills was proposed to be met by issue of equity and redeemable preference shares of rupees two crores and by arranging supply of machinery for Rs. 1.82 crores from two of the associates of the foreign collaborator. In that connection, three agreements including the loan agreement in question were entered into among different parties on the same date. On the said information, the Income-tax Officer, reopened the assessment of the assessee and issued notice under section 147(a) of the Act. Finding that the reply given to the said notice was not satisfactory, and disbelieving the plea that the amount was advanced as a loan, the Income-tax Officer treated it as income received from business and accordingly passed the order of assessment, under section 144 of the Income Tax Act, bringing to tax the said amount of Rs.32,58,500 on December 2, 1970. This order was upheld by the Tribunal. On a reference, the High Court observed that the agreement dated November 15, 1958, provided that the amount would be utilised for purposes of purchasing shares in the paper mills and the shares were accordingly purchased and they were treated as belonging to the assessee- company. The High Court referred to a letter of the foreign creditor addressed to the Income-tax Officer in November, 1970, in response to his letter and opined that the foreign collaborator maintained that the transaction was a loan as late as in November, 1970. It also noticed the reasoning of the revenue as reflected in the orders of the Income-tax Officer and the Appellate Assistant Commissioner. The High Court held that without recording any finding that the amount was commission or business receipt, the Tribunal was not justified in coming to the conclusion that the amount of Rs.32,58,500 could be assessed as income. On appeal to the Supreme Court:

Held, dismissing the appeal, that the High Court had rightly held that the circumstances taken singly or cumulatively did not justify the conclusion that the amount was not received as a loan as it was purported to be but was anything in the nature of commission or any receipt of business. In arriving at the conclusion at which it did arrive, it was necessary for the High Court to refer to the facts and discuss them to answer the mixed question of facts and law and that was what the High Court had done. The amount of Rs.32,58,500 was not assessable as the income of the assessee for the assessment year 1960-61.

Bedi & Co. (Pvt.) Ltd. v. CIT (1983) 144 ITR 352 affirmed.

K.N. Shukla, Senior Advocate (Hemant Sharma, Advocate for B.K. Prasad with him) for Appellant.

JUDGMENT

SYED SHAH MOHAMMED QUADRI, J. ---The Revenue is in appeal, by special leave, against the order of the Karnataka High Court (see (1983) 144 ITR 352), dated August 4, 1980, in Income-tax Reference Case No. 180 of 1975, answering the following question, referred to it under section 256(1) of the Income Tax Act, 1961, in the negative, that is, in favour of the assessee and against the Revenue (page 353):

"Whether, on the facts and circumstances of the case, the Tribunal was justified in law in upholding the assessment of the sum of Rs.32,58,500 -as the income of the assessee for the assessment year 1960-61 ?"

A brief narration of the facts leading to the reference of the said question to the High Court may be necessary to appreciate the contention urged before us. On December 5, 1961, an order of regular assessment of the respondent-assessee was passed for the assessment year 1960-61 for which relevant accounting year ended on May 31, 1959. Subsequently, it came to the notice of the Income-tax Officer that a sum of Rs.32,58,500 had been received by the assessee purporting to be a loan advanced under agreement, dated November 15, 1958, entered into between the assessee and Parsons and Whittemore. The assessee promoted Mandya National Paper Mills (for short "the paper mills"). The capital requirement of the paper mills was proposed to be met by issue of equity and redeemable preference shares of rupees two crores and by arranging supply of machinery of Rs.1.82 crores from two of the associates of Parsons and Whittemore. In that connection, three agreements including the loan agreement in question, were entered into among different parties on the same date.

On the said information, the Income-tax Officer reopened the assessment of the assessee and issued notice under section 147(a) of the Income Tax Act on November 25, 1968. Finding that the reply given to the said notice was not satisfactory, and disbelieving the plea that the amount was advanced as a loan, the Income-tax Officer treated it as income received from business and accordingly passed the order of assessment, under section 144 of the Income Tax Act, bringing to tax the said amount of Rs.32,58,500 on December,2, 1970. The respondent-assessee pursued the appeal before the Appellate Assistant Commissioner who dismissed the same on December 16, 1972. The assessee's appeal before the Income-tax Appellate Tribunal was also dismissed on May 21, 1974. From that order of the Tribunal, the above said question arose.

In the Tribunal, the Accountant Member and Judicial Member wrote separate orders but concurred on the dismissal of the appeal filed by the assessee. The Accountant Member agreed with the reasoning and conclusion of the Income-tax Officer and the Appellate Assistant Commissioner that the loan was not a bona fide transaction; the Judicial Member took the view that many of the circumstances relied upon by the Revenue were neutral and the others raised suspicion against the assessee but concurred in the conclusion reached by the Accountant Member on the ground that the assessee had suffered the assessment under section 144 and there was paucity of material.

The High Court took note of all the factors mentioned in the order of the Tribunal but opined that the apparent set of things disclosed that the said amount was a loan and that the burden of showing that the apparent was not real, lay heavily on the Revenue but apart from relying on certain circumstances no material was brought on record by the Revenue to hold that the said amount was income from business.

Mr. K.N. Shukla, learned counsel for the appellant-Revenue, argued that the High Court erred in arriving at its own finding of fact and that unless the findings recorded by the Tribunal were perverse the High Court ought not to have interfered with the findings of fact. In our view, the submission is too broad to merit acceptance. There cannot be any doubt that the High Court will not address itself to recording findings of facts unless the subject-matter of the question referred to it by the Tribunal, either under subsection (1) or subsection (2) of section 256 of the Income Tax Act, relates to the perversity of the findings arrived at by the Tribunal. That sort of question has to be distinguished from a mixed question of fact and law, which also requires consideration and discussion of facts but does not warrant returning findings of fact inconsistent with the findings recorded by the Tribunal while giving its opinion on the question referred to the High Court. In answering the question, in this case, the High Court had to deal with various facts on record to determine whether the amount in question was loan or income. If such discussion of facts has led to arriving at the conclusion that the amount was a loan but not income, it cannot be urged that the High Court has disturbed the finding of fact recorded by the Tribunal.

Here the Tribunal did not find any material to record a specific finding that the amount in question is in the nature of commission paid by Parsons and Whittemore to the assessee; it took note of the fact that the loan was advanced by the agreement, dated November 15, 1958, and that the Reserve Bank of India had accorded permission for obtaining the loan; it has also taken into consideration an earlier memorandum of understanding between the assessee and the representative of tile foreign creditor, of July, 19, 1957, recording that the proposal to grant loan would materialise along with implementation of other agreements to be entered into with the paper mills limited. The High Court in regard to the loan agreement dated November 15, 1958, observed that the agreement provided that the amount would be utilised for purposes of purchasing shares in the said paper mills and that the-shares were accordingly purchased and they were treated as belonging to the assessee-company. The High Court also referred to a letter of the foreign creditor addressed to the Income-tax Officer in November 1970, in response to his query letter and opined that the foreign collaborator maintained that the transaction was a loan as late as in November, 1970. It also noticed the reasoning of the Revenue as reflected in the orders of the Income-talc Officer and the Appellate Assistant Commissioner. The High Court is also justified in its comment that without recording any finding that the amount was commission or business receipt, the Tribunal was not justified in coming to be conclusion that it could be assessed as income. In our view, the High-Court has rightly held that the circumstances taken singly or cumulatively did not justify the conclusion that the amount was not received as a loan as it purported to be but was anything in the nature of commission or a receipt of business. In arriving at the conclusion at which it did, it was necessary for the High Court to refer to the facts and discuss them to answer the mixed question of fact and law and that was what the High Court had done.

The facts on record apparently indicate that the transaction was one of loan. The circumstances relied upon by the Revenue, namely, that the loan had been advanced without security, that the loan had not been repaid and no interest on the loan was paid by the assessee and that the agreement of loan was executed contemporaneously with two other agreements with regard to supply of machinery and construction of building for the paper mill cannot, without any further material, lead to the inference that the amount was not a loan but business income. It appears to us that the last mentioned circumstance support the plea of the assessee that the said amount was received as loan. For the aforementioned reasons, we do not find any illegality in the judgment of the High Court under appeal. The appeal is, therefore, dismissed, but in the circumstances of the case, without costs.

M.B.A./1825/FC Appeal dismissed.