Patnaik & Co. Ltd. v. the Commissioner of Income Tax, Orissa

PATHAK, J. This appeal by special leave is directed against the judgment of. the High Court of Orissa and raises the familiar question whether a loss suffered by the assessee is a capital loss or a revenue loss. The assessee deals in automooiles and also sells spare. motor G parts. For the assessment year 1963-64, the relevant accounting period being the year ended March 31, 1963, the assessee claimed ·a loss of Rs.53,650 sustained by it on disposing of its subscription to the Orissa Government Floated Loan 1972. It claimed that the loss suffered by it was revenue loss and, therefore deductible against its profits for the year. The Income-tax Officer disallowed the loss in the view that it was H 210 SUPREME COURT REPORTS [1986) 3 S.C.R. a capital loss. The assessee's appeal was dismissed by the Appellate Assistant Commissioner of Income-tax. But on second appeal the Income-tax Appellate Tribunal accepted the contention of the asses­ see that the subscription to the Government Loan was conducive to its business and that the toss arose m the course of the business, and that therefore, the assessee was entitled to a deduction of the loss claimed by it. The Accountant Member and the Judicial Member wrote sepa­ rate but concurrent orders. At the instance of the Revenue the Appel­ late Tribunal referred the case to the High Court of. Orissa for its opinion on the following question of law· "Whether, in the facts and circumstances of the case, the C loss of Rs.53,650 sustained by the assessee on the sale of the Government Loan is a capital loss or a revenue loss." Disagreeing with the findings of the Appellate Tribunal the High Court held that the loss was a capital loss and accordingly answered D the reference in favour of the revenue and against the assessee. At the outset, we find it necessary to note that the High Court has taken the view that the factual substratum of the case has been misconceived by !he Appellate Tribunal and that it is, therefore, en­ titled to re-examine the evidence and arrive at its own findings of fact. We think the High Court fell into serious error in doing so. It is now well settled that the Appellate Tribunal is the final fact-finding author­ ity under the Income-tax Act and that the Court has·no jurisdiction to go behind the statements of fact made. by the Tribunal in its appellate order. The Court may do so only if there is no evidence to support them or the Appellate Tribunal has misdirected itself in law in arriving at the findings of fact. But even there the Court cannot disturb the findings of fact given by the Appellate Tribunal unless a challenge is directed specifically by a question framed in a reference against the validity of the impugned findings of fact on the ground that there is no evidence to support them or they are the result of a misdirection in law. There is a long line of cases decided by this Court laying down this proposition. See India Cements Ltd. v. C.I. T, 60 ITR 52, 64; Hazarat Pirmahomed Shah Saheb Roza Committee v. C.I. T, 63 ITR 490, 495-6; C.I. T. v. Greaves Cotton & Co. Ltd., 68 ITR200; C.I.T. v. Meenakshi Mills Ltd., 63 ITR 609, 6I3; C.I. T. v. Madan Gopal Radhey Lal, 73 ITR 652, 656; Hooghly Trnst ?...td. v. C.I. T., 73 ITR 685, 690; C.I. T. v. Imperial Chemical Industries (India) Ltd., 74 ITR 17 and Aluminium Corpon. of India Ltd. v. C.l. T., 86 ITR 11. The High Court has relied on Com- \ ) .... . PATNAIK& CO. v. C.l.T. [PATIIAK, J.[ 211 missioner of Income-tax, J:J1har and Orissa v. S. P. Jain. 87 !TR 370 to A justify its re-examination of the evidence and to supersede the findings of fact rendered by the Appellate Tribunal by findings of fact reached by itself. In that case, however, the questions raised in the Reference before the High Court included questions specifically challenging the findings of fact reached by the Appellate Tribunal as being invalid in B law. In the present case the question referred to the High Court was framed on the assumption that it had to be decided in the factual , matrix delineated by the Appellate Tribunal: In the circumstances, the findings of fact set forth in the judgment of the High Court must be vacated. We would have sent the case back to the High Court requir- ing it to answer the question of law referred to it on the basis of the facts found by the Appellate Tribunal but we refrain from doing so and C propose to dispose of the Reference ourselves on the statements of fact contained in the appellate order of the Appellate Tribunal. The case has remained pending through its successive stages for the last over 20 years, and it is appropriate that it should be disposed of now without further delay. D According to the statement of the case drawn up on the basis of the appellate order of the Appellate Tribunal the assessee was told that if it subscribed for the Government Loan preferential treatment would be granted to it in the placing of orders for motor vehicles required by the various Government Departments and to the further E benefit of an advance from the Government up to 50 per cent of the value of the orders placed. Pursuant to that understanding, an advance to the extent of Rs.18,37,062 was received by the assessee and a Circu- lar was also issued by the State Government to various Departments to make purchases of the vehicles required by them from the assessee. Because of the advance received from the Government, the assessee F was able to save Rs.45,000 as bank interest during the year. It was also noticed that the sales shot up substantially. On September 4, 1961 the assessee made a deposit of Rs.5 Lakhs consequent upon a Resolution of the Board of Directors passed about 6 weeks before after a state­ ment made by the Chairman during the Board meeting that the Gov- ernment had approached him to subscribe to the Government Loan G and that the Company should do so as good orders could be expected. The purchase of the loan was approved by the Board of Directors and was ratified in the Annual General Meeting of the shareholders held on December 31, 1961. The Appellate Tribunal found that having regard to the sequence of events and the close proximity of the invest- l)lent with the receipt of Government orders the conclusion was ines- H capable that the investment was made in order to further the sales of the assessee and boost its business. In the circumstances, the Appel­ late Tribunal held that the investment was made by way of commercial expediency for the purpose of carrying on the assessee's business and that therefore, the loss suffered by the assessee on the sale of the investment must be regarded as a revenue loss. We are .of opinion that the Appellate Tribunal is right. The.High Court, as has been mentioned, re-examined the facts on the record and found that the investment was not connected with the orders placed by. the Govermnent with the assessee and the advance payment made by the Government Departments to the asses­ see, and it was in that context that the High Court held that the investment in the Loan was a capital asses! and the loss was a capital loss. The High Court took the view that the investment was of endur­ ing benefit to the assessee and therefore it could not be allowed. We find it difficult to hold that an enduring benefit was brought about by the assessee investing in the Loan. So far as orders from the Govern·­ ment Departments were concerned the material on record shows that .on August 30, 1961 it was decided to purchase 16 jeeps, 8 trucks and 4 one-tonne pick-up vans. There is nothing to show that there was any reason for the asscssee to hold on to the investment in the loan indefi­ nitely. There was no enduring advantage. Accordingly we hold that the investment did not bring in an asset of a capital nature, and that in the circumstances of the case the loss suffered by the assessee was a revenue loss and not a capital loss. It was held by the Orissa High Court in Commissioner of Income-tax v. Industry and Commerce En­ terprises (P) Ltd., [1979] 118 ITR 606 and by the Madras High Court in Additional Commissioner of Income-tax, Madras-II v. B.M.S. (P) Ltd., [1979] 119 ITR 321 and again in Commissioner of Income-tax, Tamil Nadu-V v. Dhandayuthapani Foundry (P) Ltd, [1980] 123 ITR 709, that where Government bonds or securities were purchased by the assessee with a view to increasing his business with the Govern­ ment or with the object of retaining the goodwill of the authorities for the purpose of his business, the loss incurred on the sale of such bonds or securities was allowable as a business loss. We hold that the High Court has erred in the view taken by it and that the Tribunal was right in allowing the appeal. \ j PATNAIK & CO. v. C.l.T. [PATHAK, J.J 213 In the result the appeal is allowed, the judgment of the High Court is set aside and inasmuch as the loss is a revenue loss the question referred to the High Court is answered in favour of the asses­ see and against the Revenue. The assessee is entitled to its costs of this appeal. S.R. Appeal allowed.