MEENAKSHI MILLS, MADURAI vs. THE COMMISSIONER OF INCOME-TAX, MADRAS.

CIVIL APPEAL No. 124/1954Supreme Court[1956] 1 S.C.R. 69126 September 1956Bench: 3 JudgesAuthor: SUDHI RANJAN DAS, T.L. VENKATARAMA AIYYAR, SYED JAFFER IMAM SUPREME COURT REPORTS MEEN AKSHI MILLS, MADURAI44 pages
AI SummaryDismissed

What were the facts?

The assessee, Meenakshi Mills, Madurai, is challenging an order of the Income Tax Appellate Tribunal. The dispute pertains to assessment years not explicitly stated but implied to be prior to 1956. The core issue revolves around profits earned by the assessee from sales entered in the names of intermediary firms and companies, which the assessee allegedly created to conceal its own profits. The Tribunal found these sales to be fictitious and the profits to be earned by the assessee. The assessee sought a reference of certain questions of law to the High Court under Section 66(1) of the Indian Income Tax Act, which the Tribunal refused. The matter has now reached the Supreme Court. Additionally, there's a dispute regarding profits from sales made through branches in Travancore, Cochin, Pudukkottah, and Mysore, where the Tribunal apportioned profits based on sections 42(1) and 42(3).

What did the Supreme Court hold?

The Supreme Court held that a finding of fact, even when it is an inference from other facts found on evidence, is not a question of law within the meaning of Section 66(1) of the Indian Income Tax Act, unless it is a mixed question of law and fact, or a finding of fact unsupported by evidence or unreasonable and perverse. The Court found that the Tribunal's conclusion that the sales were fictitious and the profits belonged to the assessee was based on findings of fact amply supported by evidence and eminently reasonable, thus not giving rise to a question of law for reference. The question of benami was held to be a pure question of fact. Regarding the sales in other states, the Court affirmed that Sections 42(1) and 42(3) apply to both residents and non-residents, as per the decision in Commissioner of Income-tax v. Ahmedbhai Umarbhai and Co. The Court noted that while the issue of applicability of Sections 42(1) and 42(3) was a question of law, the assessee had failed to raise it specifically in its application for reference, and given the established legal position, directing a fresh reference would be an idle formality. The Court also held that the apportionment of profits between the place of manufacture and place of sale is a pure question of fact and not referable under Section 66(1). The appeals were dismissed.

What were the issues?

1. Whether the finding by the Appellate Tribunal that certain sales, entered in the names of intermediary firms and companies brought into existence by the assessee solely to conceal its profits, were fictitious and that the profits were actually earned by the assessee, constitutes a question of law that can be referred to the High Court under Section 66(1) of the Indian Income Tax Act, 1922. Assessee's contention: The assessee argued that inferences drawn from facts by the Tribunal can be questions of law. The assessee also contended that Sections 42(1) and 42(3) of the Act apply only to non-residents, and profits from sales in other states should be taxed only if remitted to British India under Section 14(2)(c). Revenue's contention: The revenue contended that the Tribunal's findings were based on facts supported by evidence and were reasonable. They argued that the question of benami is a question of fact. Regarding the sales in other states, the revenue argued that Sections 42(1) and 42(3) apply to residents as well, and the apportionment of profits was correct. The revenue relied on the Supreme Court decision in Commissioner of Income-tax, Bombay v. Ahmedbhai Umarbhai and Co. The revenue also argued that the question of apportionment of profits between the place of manufacture and place of sale is a pure question of fact.

Which sections of the Income-tax Act were involved?

Section 66(1),Section 42(1),Section 42(3),Section 14(2)(c)

AI-generated summary — verify with the full judgment below

S.C.R. SUPREME COURT REPORTS MEEN AKSHI MILLS, MADURAI v. THE COMMISSIONER OF INCOME-TAX, MADRAS. [S. R. DAS C. J., VENKATARAMA AYYAR and JAFER IMAM JJ.] 691 Income·ttix-Referet1ce to High Court-Question of law-In· ference from findinqs of fact, when a qitcstion of law-Test-Profits earned by the assessee Company by sale of aood s entered in the names of d1immy fi1·ms aml Conipanies-Benami, Meaning of-Finding of the stcitm of wch firms and Companies, if and when material-Ac· crnal of liability-Manner of dealing with the profits by a registered Company, if affects its liability--Apportionment of pmfits between place of mannjc:,ct1tre and pince of sale, if a question of law-Indian Incomg-tax Act, (XI of 1922), ss. 66(1). 42(1), 42(8). A finding of fa.ct, even when it is an inference from other facts found on evidence, is not a question of law within the meaning of s. 66(1) of the Indian Income Tax Act that can be refei;.red to the High Court for its deoision. Such an inference can be a question of law only when the point for determination is a mixed question of law and fact. On the principles established by authorities, only such questions as relate to one or o

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