vil Appeal No 1660 NT of 1974
From the Judgment and Order dated 23121971 of the Allahabad High Court in Income tax Reference No 53 of 1968
HK Puri for the Appellants
Miss A Subhashini and HB Rao for the Respondent
The Judgment of the Court was delivered by SABYASACHI MUKHARJI J
This appeal by special leave is from the judgment and order of the Allahabad High Court dated 23rd December 1971 in the Income Tax Reference
The assessee is a limited company under the Indian Companies Act and derived its income from the manufacture and sale of sugar and confectionery
The assessment for the assessment year 1958 59 was completed under the Indian Income Tax Act 1922
The Income Tax Officer in the said assessment inter alia made the following additions besides others in respect of the following items i For cane cost Rs48500 ii For shortage in cane Rs67500 iii For salary of outstation staff Rs21700 The assessee did not challenge the said assessment order passed by the Income Tax Officer in so far as the additions of the above amounts in appeal or otherwise
It was the case of the assessee that it did not appeal because it wanted to keep good relations with the revenue although according to the assessee the above additions made by the Income Tax Officer were totally unjustified and illegal
On 14th March 1963 the Income Tax Officer issued notice under section 274 read with section 271 of the Income Tax Act 1961 hereinafter called the Act  in respect of the assessment year 1958 59 for imposing penalty
The assessee company demurred
After considering the reply the 696 Inspecting Assistant Commissioner on 1st October 1964 imposed a penalty of Rs70000 under section 274 read with section 271 of the Act holding inter alia that there was concealment of income to the tune of Rs137700 and the maximum penalty of Rs106317 was imposable in law but a sum of Rs70000 was imposed as penalty considering the facts and circumstances of the case
The assessee preferred an appeal against the said order
The Tribunal after considering the entire matter reduced the penalty to Rs5000
The Tribunal referred the three following questions two at the instance of the assessee and one at the instance of the revenue to the High Court for determination 1
Whether on the facts and in the circum stances of the case the Tribunal was correct in holding that the provisions of section 271 of the Income Tax
Act 1961 are applicable to the present case 2 Whether there is any material to warrant the finding that the assessee company had concealed the particulars of its income or deliberately furnished inaccurate particulars thereof within the meaning of section 2712 of the Income Tax Act 1961 and 3
Whether on the facts and in the circum stances of the case the Tribunal is correct in reducing the penalty under section 2711c from Rs70000 to Rs5000 The High Court was of the opinion that the third question did not clearly bring out the matter in dispute between the parties and as such it was reframed as follows Whether on the facts and in the circum stances the finding of the Tribunal that the assessee had not concealed income to the extent of Rs67500 and Rs21700 within the meaning of section 2711c of the Indian Income Tax Act 1961 is correct in law The High Court noted that the Income Tax Officer had made certain additions and disallowed certain expenses and of the various amounts disallowed only three amounts were required to be considered by the High Court namely i inflation in price of sugar cane of an amount of Rs48500 ii excess shortage claimed for cane 697 Rs67500 and iii salary of out station staff of loading contractors of Rs21700
So far as the first question is concerned the High Court held in favour of revenue and answered the question in the negative
The answer to this question is no longer in dispute here
So far as the second question is concerned the High Court answered the question in the nagative and in favour of the assessee
There is no dispute about that question too in so far as there is no appeal by the revenue
As regards the third question re framed as mentioned hereinbefore it was answered by the High Court in the affirmative and in favour of the revenue
The assessee has come up in appeal to this Court challenging the correctness of that answer
In this appeal we are con cerned with the correctness or otherwise of the answer given to this question and the appeal must be confined to the correctness of the answer given to the third question as reframed
The Income Tax Officer in his assessment order out of which this penalty proceedings arose noted that there were several disallowances in various accounts and he mentioned altogether 19 items totalling Rs301787
All these were on account of disallowances
Main item was shortage in cane and the amount was Rs67500
Another items was salary of out station staff and the amount was Rs21700
There was also addition of Rs48500 on account of inflation in the price of sugar cane
The Inspecting Assistant Commissioner in his order noted inter alia three items namely i inflation in price of sugar cane Rs48500 ii excess shortage claimed for cane Rs67500 and iii salary of outstation staff of loading contractors Rs21700
It was found so far as the last item was concerned that the amount was disal lowed being a false debit
It was found that the assessee attempted to understate the income by debiting a false expenditure of Rs48500
The Inspecting Assistant Commis sioner noted that actual shortage was 21143 Mds
valuing Rs26429 while the assessee had claimed Rs134661 for shortage at 2
The excess claim was also indicative of the real position that the shortage was fictitiously claimed at a high figure
Faced with these facts the assessee eventual ly surrendered Rs67500
Therefore the Inspecting Assist ant Commisioner held that the assessee was certainly reduc ing the income by debiting false claims for excess shortage and the action amounted to intentional concealment
Salary amounting to Rs21700 paid by the contractors to their staff working at out centres was debited in the books and while it was claimed that the staff working at these centres were actually employed by the company on investigation the claim was found to be false
In this connec 698 tion a reference was made to the statement of one Shri Kedar Nath Kanodia
He had stated that he had employed five per sons at the out centres and there was no employee of the mill working at the centres
The mill had kept there neither any clerk not any chowkidar
He confirmed that he had paid the employees out of his own funds and had categorically denied that they were the employees of the mill or that they were paid by it
In his statement he further stated that although the staff was actually paid by him yet the compa ny s accountant had obtained their signatures on salary sheets and thus inflated the expenses by raising false debit in the salary account
This procedure was followed in re spect of other contractors also
The salary bill was thereby inflated by Rs21700
The Inspecting Assistant Commissioner therefore held that the assessee had concealed income to the extent of Rs21700
He had also come to the conclusion that the cane purchases noted against these last entries were false and fictitious and the quantity covered by these entries was 31 561 Mds
valuing at Rs48500
This was a false debit
The assessee debited the three items of Rs48500 Rs67500 and Rs21700
The assessee admitted that these items represented income
It was also borne out by records that the amounts were not included in the return by the company
The offence of deliberate under statement of income was thus clearly established according to the In specting Assistant Commissioner
He therefore found that the tax sought to be evaded came to Rs70914 and the maxi mum penalty worked out to Rs 10637 1
Having regard to the facts and circumstances of the case he imposed a penal ty of Rs70000
In appeal the Income Tax Tribunal was of the view that not much turned upon the fact that the assessee agreed to the additions of the amounts in the assessment
So far as the reliance placed upon Kanodia s statement by the Inspect ing Assistant Commissioner was concerned it had no rele vance or bearing to the facts of the assessment year in question
He was not the contractor employed by the assessee in the year of account
He came in only for a later year
One Avinash Chand was the contractor in the year in ques tion
He had specifically stated that he was responsible for shortages
He had also admitted that there was staff main tained by the mill at the centre at which he was the loading contractor
In fact he had gone to the extent of and stated as to what staff was maintained in that centre there was a man in charge of the centre a weighment clerk a cane clerk and three to four chowkidars
He had also stated that they were not his employees
According to the Tribunal in these circumstances the assessee could very well have argued against the addition of the two sums 699 namely Rs67500 and Rs21700
But the assessee as we have noted had agreed to the amounts being included
The Tribunal was of the view that the mere fact that the amounts were agreed to be taken into account by the assessee did not ipso facto indicate any criminality in its action to conceal any portion of the income
The Tribunal found that so far as Rs48500 was concerned in the inflation in the price of sugar cane the previous history was against the assessee
It had agreed to the similar additions in the earlier years 1955 56 and 1956 57 the Tribunal noted
From the above facts it was seen that the penalty was warranted in similar amount for this year also the Tribunal noted
Taking into consideration that the sum involved against this year was Rs48500 the tribunal considered that a smaller penalty was imposable
The Tribunal accordingly imposed a total penalty of Rs 5000
The High Court reiterated that the onus of proving concealment was on the revenue because the proceedings for penalty were penal in character
In that view of the matter the High Court was of the opinion that so far as Rs48500 was concerned it was not proved that there was any deliber ate concealment
So far as the other two amounts of Rs67500 and Rs21700 were concerned it was contended that the High Court noted the history of the order of the Inspecting Assistant Commissioner and the circumstances of the case and the High Court was of the view that the Tribu nal had not at all considered the fact that the value of the shortage was only Rs26429
According to the High Court the Tribunal had brushed aside the fact that the assessee had agreed to the addition of this amount
According to the High Court the Tribunal had not set aside the finding of the Inspecting Assistant Commissioner that the assessee surrendered the amount of Rs67500 when it was faced with facts which clearly established concealment
The assessee according to the Inspecting Assistant Commissioner had surrendered the amount only after the Income Tax Officer had conclusive evidence in his possession that the amount repre sented its income
In other words what the High Court sought to state was that acceptance by the assessee was material to give proper weight to judge the criminality of the action which according to the High Court was not given
The High Court highlighted that so far as Rs67500 was concerned only on being faced with facts from which there could possibly be no escape from the inference that the amount represented his income that the assessee agreed to its inclusion
The High Court was of the view that the Tribunal was in error in brushing aside consideration of these aspects while considering the question of concealment
In respect of the addition of Rs21700 the Inspecting Assistant 700 Commissioner had relied upon the statement of Kedar Nath Kanodia as also the fact that the assessee admitted that this item represented its income
The Tribunal did not place reliance upon the statement of Kedar Nath Kanodia
It however omitted to take into account the fact that the assessee had admitted that these items represented its income
The High Court was of the view that such admissions were made by the assessee but the Tribunal had not properly appreciated that aspect
Therefore in respect of these two items the High Court was of the view that the Tribunal was not right in holding that the assessee was not guilty of any concealment
So far as question No 2 was concerned which dealt with Rs48500 the High Court confined itself to the disallowance in respect of purchase of cane
So far as this question was answered in favour of the assessee and there is no challenge by the revenue it is not material any more
The High Court came to the conclusion that the finding of the Tribunal in respect of the concealment of Rs48500 was not justified in law
It was urged before us that as the second question which was in general form has been answered in favour of the assessee the third question as reframed could not have been answered otherwise
We are unable to accept this contention
As evident from the discussion by the High Court the High Court confined to second question with regard to disallowance in respect of purchase of cane that amounted to Rs48500
So therefore it cannot be said that in view of the answer given to the second question the third question was no longer open
The second question was confined to only Rs48500
So far as whether there was justification for the answer given to the reframed third question or was proper or not has to be judged on the basis as to how far the High Court in a reference could interfere with a finding of fact and transform the same into a question of law on the ground that there has been non consideration of all relevant facts
The law on this point is quite settled
The question was considered by this Court exhaustively in Sree Meenakshi Mills Limited vs Commissioner of Income tax Madras where this Court reiterated that findings on questions of pure fact arrived at by the Tribu nal were not to be disturbed by the High Court on a refer ence unless it appeared that there was no evidence before the Tribunal upon which they as reasonable men could come to the conclusion to which they have come and this was so even though the High Court would on the evidence have come to a conclusion entirely different from that of the Tribu nal
In other words such a finding could be reviewed only on the ground that there was no evi 701 dence to support it or that it was perverse
When a conclusion had been reached on an appreciation of a number of facts established by the evidence whether that was sound or not must be determined not by considering the weight to be attached to each single fact in isolation but by assessing the cumulative effect of all the facts in their setting as a whole
Where an ultimate finding on an issue was an inference to be drawn from the facts found on the application of any principles of law there would be a mixed question of law and fact and the inference from the facts found was in such a case a question of law
But where the final determination of the issue equally with the finding or ascertainment of the basic facts did not involve the appli cation of any principle of law an inference from the facts could not be regarded as one of law
The proposition that an inference from facts was one of law was therefore correct in its application to mixed questions of law and fact but not to pure questions of fact
In the case of pure questions of fact an inference from the facts was as much a question of fact as the evidence of the facts
In the instant case there is a finding of fact and unless it could be said that all the relevant facts had not been considered in a proper light no question of law arises
In our opinion the Tribu nal took into account all the relevant facts
The Tribunal had been accused by the High Court of not taking into con sideration the fact that the assessee had admitted these amounts in the assessment
To admit that there has been excess claim or disallowance is not the same thing as delib erate concealment or furnishing inaccurate particulars
At least in the background of the law as it stood at the rele vant time that was the position
There have been some changes subsequentiy which we have not noticed for the present purpose
In Omar Salay Mohamed Sait vs Commissioner of Income tax Madras 1 this Court held that the In come tax Appellate Tribunal was a fact finding tribunal and if it arrived at its own conclusions of fact after due consideration of the evidence before it the court could not interfere
It was necessary however that every fact for and against the assessee must have been considered with due care and the Tribunal must have given its finding in a manner which would clearly indicate what were the questions which arose for determination what was the evidence pro and contra in regard to each one of them and what were the findings reached on the evidence on record before it
The conclusions reached by the Tribunal should not be coloured by any irrelevant considerations or matters of prejudice and if there were any circumstances which required to be ex plained by the assessee the 702 assessee should be given an opportunity of doing so
In this case the Tribunal had taken into consideration the fact that the assessee had admitted the additions as its income when faced with non disclosure in assessment proceedings
The High Court accused the Tribunal of not considering the time when the assessee admitted the additions
We find that it was duly considered by the Tribunal
We find that the assessee admitted that these were the income of the assessee but that was not an admission that there was deliberate concealment
From agreeing to additions it does not follow that the amount agreed to be added was concealed
There may be hundred and one reasons for such admissions ie when the assessee realises the true position it does not dispute certain disallowances but that does not absolve the revenue to prove the mens rea of quasi criminal offence
In Udhavdas Kewalram vs Commissioner of Income tax Bombay City 1  the Court held that the Income tax Appellate Tribunal performed a judicial function under the Income tax Act and it was invested with authority to determine finally all questions of fact
The Tribunal must in deciding an appeal consider with due care all the material facts and record its findings on all contentions raised by the asses see and the Commissioner in the light of the evidence and the relevant law
The Tribunal was undoubtedly competent to disagree with the view of the Appellate Assistant Commis sioner but in proceeding to do so it had to act judicially ie to consider all the evidence in favour of and against the assessee
An order recorded on a review of only a part of the evidence and ignoring the remaining evidence could not be regarded as conclusively determinative of the ques tion of fact raised before the Tribunal
It is for the Income tax authority to prove that a particular receipt is taxable
If however the receipt is accepted and certain amount is accepted as taxable it could be added but it was not accepted by the assessee however that it hard deliber ately furnished inaccurate particulars or concealed any income
In our opinion the Tribunal has properly considered all the evidence in the instant case
In Rameshwar Prasad Bagla vs Commissioner of Income tax UP  this Court again reiterated that it was for the Tribunal to decide questions of fact and the High Court in a reference under section 66 of the Act as at that time could not go behind the Tribunal s findings of fact
The High Court could only lay down the law applicable to the facts found by the Tribunal
The High Court in a reference under section 66 of the Act as at that time could however go into the ques tion as to whether the conclusion of the Tribunal on a question of fact was based upon relevant evidence
If the High Court found that there was no such evidence to support the finding of fact of the Tribunal those circumstances would give rise to a question of law and 703 could be agitated in a reference
Here in the instant case that is not the position
This Court again reiterated that it was also well established that when a Tribunal acted on material which was irrelevant to the enquiry or considered material which was partly relevant and partly irrelevant or based on conjectures surmises and suspicions and partly on evidence then in such a situation an issue of law arose and the finding of the Tribunal could be interfered with
That is not the position here
In the instant case it is not said that the Tribunal had acted on material which was irrelevant to the enquiry or considered material which was partly relevant and partly irrelevant or based its decision partly on conjectures surmises and suspicions
The High Court was wrong in saying that proper weight had not been given to all the evidence and admissions made by the asses see
The High Court further observed that the time of admis sion was not noted by the Tribunal and this fact had not been properly appreciated by the Tribunal
That is also not correct
The Tribunal had made additions during the assess ment proceedings
In any event that would be appreciation of evidence in a certain way unless in such misappreciation which amounted to non appreciation no question of law would arise
Non appreciation may give rise to the question of law but not mere misappreciation even if there be any from certain angle
Change of perspective in viewing a thing does not transform a question of fact into a question of law
In the instant case we are of the opinion that in pre ferring one view to another view of factual appreciation the High Court transgressed the limits of its jurisdiction under the Income tax reference in answering the question of law
In the premises we are of the opinion that the High Court was in error in so far as it held that the Tribunal had acted incorrectly
We are further of the opinion that the reframed question must be answered in the affirmative and in favour of the assessee
The appeal is allowed and the judgment and order of the High Court in so far as answer to the question No 3 is concerned is set aside
The assessee is entitled to the costs of this appeal
PSS Appeal al lowed


Summary:
The assessee company which derived its income from the manufacture and sale of sugar and confectionery was as sessed for the years 1958 59 by the Income Tax Officer under the Income Tax Act 1922 by making additions of Rs48500 for cane cost Rs67500 for shortage in cane and Rs21700 for salary of outstation staff
The assessee did not chal lenge the said assessment order
Later in the year 1963 the Income Tax Officer issued notice under section 274 read with section 271 of the Income Tax Act 1961 in respect of the assessment year 1958 59 for imposing penalty
Before the Inspecting Assistant Commissioner the assessee admitted that these amounts which were not included in the return by the compa ny represented income
On finding that there was deliberate understatement of income he imposed a penalty of Rs70000
On appeal the Tribunal held that the mere fact that the amounts were agreed to be taken into account by the assessee did not ipsofacto indicate any criminality in its action to conceal any portion of the income and that the assessee could very well have argued against the additions of the two sums namely Rs67500 and Rs21700
As regards the sum of Rs48500 it found that the assessee had agreed to similar addition in the earlier years and so the penalty was war ranted in similar amount for this year and taking into consideration that the sum involved was Rs48500 it con sidered that a smaller penalty of Rs5000 was imposable
The High Court took the view that the onus of proving concealment was on the Revenue because proceedings for penalty were penal in character and held that so far as the sum of Rs48500 was concerned it was not proved that there was any deliberate concealment that the Tribunal had not set aside the finding of the Assistant Inspecting Com 693 missioner that the assessee surrendered the amount of Rs67500 when it was faced with facts which clearly estab lished concealment that the assessee in fact had surren dered the amount only after the Income Tax Officer had conclusive evidence in his possession that the amount repre sented its income that acceptance by the assessee was material to give proper weight to judge the criminality of the action which in its opinion was not given and that the Tribunal omitted to take into account the fact that the assessee had admitted that the amount of Rs21700 repre sented its income
In the appeal by special leave on the question as to how far the High Court in a reference could interfere with a finding of fact and transform the same into a question of law on the ground that there has been non consideration of all relevant facts
Allowing the appeal HELD 11 In an income tax reference a finding on a question of pure fact could be reviewed by the High Court only on the ground that there was no evidence to support it or that it was perverse
If the High Court found that there was no such evidence those circumstances would give rise to question of law and could be agitated in a reference
700G 701A 702H 703A 12 When a conclusion has been reached on an apprecia tion of a number of facts established by the evidence whether that is sound or not must be determined not by considering the weight to be attached to each single fact in isolation but by assessing the cumulative effect of all the facts in their setting as a whole
Where an ultimate finding on an issue is an inference to be drawn from the facts found on the application of any principles of law there would be a mixed question of law and fact and the inference from the facts found in such a case would be a question of law
But where the final determination of the issue equally with the finding or ascertainment of the basic facts did not involve the application of any principle of law an infer ence from the facts could not be regarded as one of law
The proposition that an inference from
facts is one of law is therefore correct in its application to mixed questions of law and fact but not to pure questions of fact
In the case of pure questions of fact an inference from the facts is as much a question of fact as the evidence of the facts
701A D In the instant case it is not said that the Tribunal had acted on material which was irrelevant to the enquiry or considered material 694 which was partly relevant and partly irrelevant or based its decision partly on conjectures surmises and suspicions
It took into account all the relevant facts in a proper light in rendering a finding of fact
Therefore no question of law arises
703BC 701DE Sree Meenakshi Mills Limited vs Commissioner of Income tax Madras  Omar Salay Mohamed Sait vs Com missioner of Income tax Madras  Udhavdas Kewalram vs Commissioner of Income tax Bombay City 1 and Remeshwar Prasad Bagla vs Commissioner of Income tax UP  referred to
21 The High Court was wrong in saying that proper weight had not been given to all the evidence and admissions made by the assessee
The Tribunal had taken into considera tion the fact that the assessee had admitted the additions as its income when faced with non disclosure in assessment proceedings
The time when the assessee admitted the addi tions was also considered
But to admit that there has been excess claim or disallowance is not the same thing as delib erate concealment or furnishing inaccurate particulars
There may he hundred and one reasons for such admissions ie when the assessee realises the true position it does not dispute certain disallowances but that does not absolve the Revenue to prove the mens rea of quasi criminal offence
703BC 702AB 701A 702BC 22 It is for the Income tax authority to prove that a particular receipt is taxable
If however the receipt is accepted and certain amount is accepted as taxable it could be added
But in the instant case it was not accepted by the assessee that it had deliberately furnished inaccurate particulars or concealed any income
702EF 3
The High Court observed that the time of admission was not noted by the Tribunal and this fact had not been properly appreciated by the Tribunal
That is not correct
The Tribunal had made additions during the assessment pro ceedings
In any event that would be appreciation of evi dence in a certain way unless in such misappreciation which amounted to non appreciation no question of law would arise
Nonappreciation may give rise to the question of law but not mere misappreciation even if there he any from certain angle
Change of perspective in viewing a thing does not transform a question of fact into a question of law
703CD The High Court in preferring one view to another view of factual 695 appreciation in the instant case has therefore trans gressed the limits of its
jurisdiction under the Income Tax Reference in answering the question of law
703F