SHRI KANHAIYALAL LOHIA vs. THE COMMISSIONER OF INCOME-TAX, WEST BENGAL

CIVIL APPEAL No. 347/1960Supreme Court[1962] 2 S.C.R. 83917 July 1961Bench: 3 JudgesAuthor: S.K. DAS, M. HIDAYATULLAH, J.C. SHAH9 pages
AI SummaryDismissed

What were the facts?

The assessee, Shri Kanhaiyalal Lohia, made substantial gifts and transferred businesses to his brother and nephew in 1943, claiming it was to set them up in business. The Income-tax Officer found the gifts not bonafide and assessed the income from all businesses in the hands of the assessee. A witness, M., was examined by the Income-tax Officer without notice to the assessee. Later, the assessee's counsel obtained a copy of M.'s statement and requested cross-examination, but the assessee was absent on the scheduled date. The assessee petitioned the Tribunal under Section 66(1) for reference of questions of law to the High Court. The Tribunal referred only one question, and the High Court answered it against the assessee. The High Court also rejected the assessee's application under Section 66(2) for reference of other questions. The assessee filed appeals directly to the Supreme Court against the Tribunal's orders, bypassing the High Court's decisions.

What did the Supreme Court hold?

The Supreme Court held that the appeals were incompetent. The Court reasoned that appeals against High Court orders on referred questions or refusals to call for statements can only be brought before the Supreme Court under Section 66A (for decided questions) or Article 136 of the Constitution (for refusals to call for statements), not by directly appealing the Tribunal's orders, bypassing the High Court. The Court found no breach of natural justice, as a copy of the witness's statement was provided, and an opportunity for cross-examination was given, which the assessee failed to utilize. The Court also held that the Tribunal's finding of sham transactions was not perverse, considering the circumstances like the large gift amount, the assessee's prior statements about his brother and nephew being idlers, and the need for the assessee to overdraw his bank account. Therefore, no special circumstances existed to justify bypassing the High Court's decisions. The appeals were dismissed.

What were the issues?

1. Whether the appeals to the Supreme Court are competent, bypassing the High Court's orders on referred questions and refusals to refer other questions, relying on the Supreme Court's decisions in Dhakeshwari Cotton Mills' Case and Baldev Singh's Case. - Assessee's contention: The appeals are competent due to special circumstances, citing Dhakeshwari Cotton Mills' Case and Baldev Singh's Case where appeals were entertained from the Tribunal's orders. - Revenue's contention: Not recorded. 2. Whether there was a breach of the principles of natural justice in the examination of witness M. without notice to the assessee and the subsequent denial of effective cross-examination. - Assessee's contention: The examination of Sri A. L. Mazumdar (M.) in the absence of Kanhaiyalal Lohia violated principles of natural justice, justifying direct appeal to the Supreme Court. - Revenue's contention: Not recorded. 3. Whether the Tribunal's finding that the gifts were sham transactions was perverse. - Assessee's contention: The finding of the Tribunal was perverse, and the gifts were real and acted upon. - Revenue's contention: Not recorded.

Which sections of the Income-tax Act were involved?

Section 66(1),Section 66(2),Section 66A

AI-generated summary — verify with the full judgment below

' 2 S.C.R. SUPREME COURT REPORTS 839 SHRI KANHAIYALAL LOHIA v. THE COMMISSIONER OF INCOME-TAX, WEST BENGAL (S. K. Das, M. HIDAYATULLAH and J.C. SHAH, JJ.)

Income-Tax-Appeal from High Court's order-Procedure- Appeal from order of the Tribunal by,passing High Court's order- Appeal if competent-Income-tax Act, 1922(11 ~f 1922), 88. 66(1), 66(2) and 66(a).

The appellant supported his brother and his nephew for a number of years as they were doing no work.

In the year 1943 he made a gift of Rs. 7,60,000 odd to them though he had to overdraw his account with the Bank and to pay interest or the amount borrowed to raise the money.

He also made a transfer of some of his businesses to them. His explanation was that these gifts were made to set these two persons up in business. The Income-tax Officer held that the gifts were not bonafide and he assessed the income of all the businesses in the hands. of the appellant.

The appellant had produced letters from some businessmen in support of his case.

One such person was one M. who was examined by the Income-tax Officer without notice to the appellant. Later, however, a copy of the statement of M. was taken by the appe

The order continues below.

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