C.I.T. (CENTRAL) CALCUTTA vs. DAULAT RAM RAWATMULL

CIVIL APPEAL No. 1133/1969Supreme Court[1973] 2 S.C.R. 18412 September 1972Bench: 2 JudgesAuthor: P. JAGANMOHAN REDDY, HANS RAJ KHANNA13 pages
AI SummaryDismissed

What were the facts?

The Income Tax Appellate Tribunal (Tribunal) held that an amount of Rs. 5,00,000, held in fixed deposit in the name of Biswanath (B), represented concealed income of the respondent firm. This conclusion was based on B's incorrect explanation for the source of funds, the transfer of Rs. 5,00,000 from Calcutta to Jamnagar, the fixed deposit receipt being issued in the name of B (son of a partner), and the subsequent use of this receipt as collateral for an overdraft facility of Rs. 10,00,000 granted to the respondent firm. The High Court disagreed, finding that the material considered by the Tribunal was not relevant and not safe to conclude that the Rs. 5,00,000 belonged to the respondent firm. The appeals before the Supreme Court were filed by the Commissioner of Income Tax against the High Court's judgment.

What did the Supreme Court hold?

The Supreme Court dismissed the appeal, upholding the High Court's judgment. The Court held that while findings of fact by the Tribunal can be reviewed if there is no evidence or if they are perverse, a finding is vitiated if the court of fact acts on material partly relevant and partly irrelevant, making it impossible to ascertain the extent to which the irrelevant material influenced the decision. In this case, the Tribunal's approach was erroneous. The fact that B could not provide a satisfactory explanation for the source of Rs. 5,00,000 was not decisive of the ownership. The transfer of funds and the use of the fixed deposit receipt as collateral did not justify the inference that the amount belonged to the respondent firm. The Court emphasized that securities are often offered by third parties for the debts of others, and this does not mean the security belongs to the principal debtor. Furthermore, the burden of proof lay on the department to show that the respondent firm owned the amount, which it failed to discharge by tracing the source or destination of the funds. The Court also noted factual inaccuracies in the lower appellate authority's order, rendering it unreliable.

What were the issues?

1. Whether the Tribunal was justified in holding that the fixed deposit of Rs. 5,00,000 in the name of Biswanath represented the concealed income of the respondent firm, based on the material on record, and if the use of partly irrelevant material vitiates the finding of fact. Assessee's Contentions (implied from High Court's reasoning and Supreme Court's dismissal of appeal): The material relied upon by the Tribunal, including B's personal assessment explanation, the transfer of funds, and the use of the deposit as collateral, was not sufficient or relevant to establish that the Rs. 5,00,000 belonged to the respondent firm. The Tribunal erred in its appreciation of facts and drawing conclusions. Revenue's Contentions (implied from Tribunal's initial finding and arguments before Supreme Court): The close proximity in time between the transfer of funds, the issuance of the fixed deposit receipt in B's name, and its use as collateral for the firm's overdraft facility indicated that the amount belonged to the respondent firm. The Tribunal's finding was based on a cumulative appreciation of facts, and the High Court should not have interfered.

Which sections of the Income-tax Act were involved?

Section 66,Section 34

AI-generated summary — verify with the full judgment below

184 C.l.T. (CENTRAL) CALCUTTA v. DAULAT RAM RAWATMULL September 12, 1972 [P. JAGANMOHAN REDDY AND H. R. KHANNA, JJ.J Jncome Tax-Trihunal-Findings of fac1-By use of inad111issihlc, irrr~ lev(lnt 1naterial an issue of la\v arises.

The Tribunal based its decision that an amount of Rs. 5 Lacs in fixed depoSit in the name of B represented the concealed income of rcsponde~t firm on following circumstances : (a) Explanation furnished by B with regar<l to the source of Rs. 5,00,000 in proceedings relating to his personal assessment "·as foun,j to be incorrect; (b) transfer of two amounts of Rs. 5 lacs each from Cal- cutta to Bombay and thereafter to J amnagar and the issue of fixed deposit receipt by the bank in the name of the ~ons of partencrs of the respon- dent firm; "'~d ( c) the use of the two receipts as collateral sec :rity for the overdraft facility of Rs. J0,00,000 afforded to the respondent firm.

The High Court held that the above material was not safe for holding that the sum of Rs. 5,00,000 belonged to the respondent lirm and that the Tribunal had taken into consideration the material which was not relevant to the issue.

Dismissing the appeal, HELD : No c

The order continues below.

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