COMMISSIONER OF INCOME TAX, BIHAR AND ORISSA, PATNA vs. S. P. JAIN

CIVIL APPEAL No. 320/1969Supreme Court[1973] 2 S.C.R. 33419 September 1972Bench: 3 JudgesAuthor: K.S. HEGDE, P. JAGANMOHAN REDDY, HANS RAJ KHANNA COMMISSIONER OF26 pages
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What were the facts?

The Income Tax Officer (ITO) included a sum of Rs. 10,80,000/- invested in shares in the name of 'Rana' as the assessee's income from undisclosed sources. The ITO believed Rana was the assessee's benamidar. The assessee did not produce Rana for examination. The Appellate Assistant Commissioner (AAC) confirmed the ITO's order. The Tribunal, however, declined to consider certain documents, found the share purchase was not a benami transaction, and deemed it legally valid. The High Court upheld the Tribunal's decision. The Revenue appealed, arguing the Tribunal relied on inadmissible evidence, wrong facts, gave no cogent reasons for rejecting the ITO's findings, and based its conclusions on conjecture.

What did the Supreme Court hold?

The Supreme Court allowed the appeals, holding that the Tribunal failed to consider relevant material on record and acted on inadmissible evidence, conjectures, surmises, and wrong facts. The Court found that the circumstances enumerated by the ITO and AAC, including the close association of the assessee with Rana, the suspicious manner of share sales and loan transactions, and the possession of shares by an assessee-controlled concern, fully justified the inference that Rana was a name lender for the assessee. Neither the Tribunal nor the High Court provided good reasons for displacing the conclusions of the lower authorities, who had a duty to examine those reasons before rejecting them. The Court answered questions referred to the High Court in the negative, in favour of the Revenue. The appeal was allowed with costs.

What were the issues?

1. Whether the Tribunal's finding that the share purchase was not a benami transaction and was legally valid is sustainable in law, considering the circumstances and evidence on record, particularly in light of the Income Tax Officer's and Appellate Assistant Commissioner's findings that 'Rana' was a name lender for the assessee. Contentions: Assessee: The Tribunal correctly found the transaction to be legally valid and not a benami transaction, having considered the available evidence and documents. The Tribunal's decision was based on a proper appreciation of facts. Revenue: The Tribunal erred by declining to consider certain documents, basing its conclusions on inadmissible evidence and wrong facts, failing to provide cogent reasons for rejecting the findings of the Income Tax Officer and Appellate Assistant Commissioner, and relying on mere conjectures and surmises, thereby vitiating its finding.

Which sections of the Income-tax Act were involved?

Section 66(2)

AI-generated summary — verify with the full judgment below

334 COMMISSIONER OF INCOME TAX, BIHAR AND ORISSA, PATNA v. S. P. JAIN A September 19, 1972 B [K. S. HEGDE, P. JAGANMOHAN REDDY AND H. R. K1JANNA, JJ.] Income rax--Tribunal-Findings >f fact-Circwnsrances justifying imerference.

The Income Tax Officer included 'II sum of Rs. 10,80,000/- found in- vested in shares in the name of R as rtie assessee's income from updis- closed sources.. The income tax offic.er had· informed the asse see tba~ on the basis of information available with him he had reason to believe thnt R ms the assessee's benamidar.

The assessce took no r-teps to produce R for examination by the Income Tax Officer.

The source not having beetn explained the income tax officer assessed the sum as tho assessee's income from unoisc1osed sources.

The Appellate Assistant Commissioner confirmed this order.

In the appeal the Tribwial declined to consider cenain dociunents on record. After rejecting these documents, the Tribunal fowid that the purchase of shares was :not a benami trans- action and was legally valid.

The High Court confirmed the Tribunal's conclusions.. In this Court it wac contended on behalf of the Revenue that Tribunal based its concl

The order continues below.

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