[2016] 1 S.C.R. 187

MIS GANAPATHY & CO., BANGALORE

THE COMMISSIONER, INCOME TAX BANGALORE

(Civil Appeal No. 1964 of 2008)

JANUARY 18, 2016

[RANJAN GOGOi AND PRAFULLA C. PANT, JJ.]

Income Tax Act, 1961:

Disallowance of service charges - Assessee claiming benefit

of disallowance of service charges paid to the Company - Assessing C officer as also CIT disallowed the said claim relying on the explanation submitted for the previous assessment year and the failure of assessee to furnish proof of service rendered by the company in the relevant assessment year - However, the tribunal deleting the disallowance of service charges paid - High Court set 0 aside the order of the tribunal - On appeal, held: If service had been rendered to the assessee by the Company during the period under assessment and service charges had been paid for such service rendered, it was incumbent on the part of the assessee to adduce proof of such service having been rendered during the period under assessment which the assessee failed to do so - Thus, the High E Court was justified in setting aside the conclusion of the tribunal.

Loss shown by the assessee in the film business - Deduction

- Claim of - Rejected by Assessing Officer and CIT, however, the tribunal allowed the deduction taking into account the view recorded in the another proceeding by tribunal in case of a sister concern - F High Court held that the view taken by the tribunal in the matter of sister concern untenable and set aside the order of the tribunal - On appeal, held: Having regard to the facts and circumstances in which the "investment" was made and "loss" claimed, the view taken by the High Court that the entire transaction was a sham transaction and was a calculated device to avoid tax liability cannot be faulted G with.

Donation made to Ashram by assessee - Claim of deduction

- Refused by Primary and First Appellate Authority on the ground that the necessary certificate showing that the donee had complied

187 H

with the conditions subject to which registration was granted to it u/s. 35(2A) not produced by assessee - Tribunal allowing the asses see" s claim for deduction holding that the said conditions were not material - High Court allowed revenue's appeal holding that the said conditions were necessary preconditions to grant of statutory registration and had to be satisfied - On appeal, held: No such certificate had been furnished by assessee and also that all Authorities have consistently held that if and when such certificate is produced the consequential benefit can be afforded to the assessee

- Thus, the view taken by High Court that assessee was not entitled to the benefit of donation made to donee was correct.

s. 256(2) - Statement of case to the High Court - Reference power - Exercise of. by High Court - Held: It is the tribunal which is the final fact finding authority and it is beyond the power of the High Court in the exercise of its reference jurisdiction to reconsider such findings on a reappraisal of the evidence and materials on record unless a specific question with regard to an issue of fact being opposed to the weight of the materials on record is raised in the reference before the High Court - On facts, each relevant fact considered by the High Court to answer the questions referred to it on the claims of deduction raised by the assessee are acknowledged, admitted and undisputed facts - No fresh determination of facts E found by the tribunal have been made by the High Court - However, the High Court took into account certain additional facts, already on record, which were however not taken note of by the tribunal to arrive at its findings - There was no departure from the basic facts

F found by the tribunal - Difference in the approach between the tribunal and the High Court, therefore, is not one relating to determination of new or additional facts but was merely one of emphasis on facts - This was an exercise within the jurisdiction of the High Court in the exercise of its reference power under the provisions of the Act.

G Karnani Properties Ltd. vs. Commissioner of Income- Tax, West Bengal 82 ITR 547; Rameshwar Prasad Bag/a vs. Commissioner of Income-Tax, U.P. 87 ITR 421; Commissioner of Income-Tax, Bombay City vs.

Greaves Cotton and Co.Ltd. 68 ITR 200; K.

Ravindranathan Nair vs. Commissioner of Income-Tax H 247 ITR 178 - referred to.

MIS GANAPATHY & CO., BANGALORE v. COMMISSIONER,

INCOME TAX BANGALORE

Cae Law Reference

82 ITR 547 referred to.

Para7

87 ITR 421 referred to.

Para7

68 ITR 200 referred to ..

Para7

247 ITR 178 referred to.

Para 7

CIVIL APPELLATE WRISDICTION: Civil Appeal No. 1964 of2008

From the Judgment and Order dated 03.07 .2007 of the High Court of Karnataka, Bangalore in ITRC No. 24 of 2001.

Dhruv Mehta, Yashraj Singh Deora, A. A. Kulkarni, Abhishek Puri (for Mitter & Mitter Co.) for the Appellant.

K. Radhakrishnan, Shirin Khajuria, Rupesh Kumar, Swarupama Chaturvedi, Jilin Singhal, Anil Katiyar (for B. V. Balaram Das) for the

Respondent.

The Judgment of the Court was delivered by

RANJAN GOGOi, J. 1. The High Court of Karnataka by the impugned order dated 3"' July, 2007 had answered the questions referred to it for its opinion under Section 256(2) of the Income Tax Act, 1961 (as it then existed) against the assessee and in favour of the revenue.

Aggrieved, the assessee has filed this appeal upon grant of leave under Article 136 of the Constitution of India.

2. At the outset, the questions of law on which the High court had rendered its opinion may be set out as below.

"i.

Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in deleting the disallowance of service charges paid to Mis Universal Trading Company made under Section 40A(2)?

11.

Whether on the facts and in the circumstances of the case, G the Tribunal was justified in holding that the loss shown by the assessee in the film business amounting to Rs.31,48,670/

- was allowable?

iii Whether on the facts and in the circumstances of the case, the Tribunal was justified in allowing the assessee's claim H

for deduction under Section 35(2A) in respect of donation to Aparna Ashram?"

3. The necessary discussions can best be unfolded by taking up each of the claims of deduction made by the assessee which were decided against the assessee by the High Court by the order under challenge.

4. Disallowance of Service charges

For the Assessment Year in question i.e. 1984-1985, the assessee claimed the benefit of disallowance of the service charges paid to one Mis Universal Trading Company ("UTC" for short). The Assessing Officer disallowed the said claim on the ground that in the proceedings arising out of the Assessment Order for the previous year i.e. 1983- 1984 the said claim had been negatived by the C.J.T. in appeal. The Assessing Officer, in addition, also took note of the fact that the membership in the asseessee-firm and UTC is common and one K.L.

Srihari had a sizeable holding in each of the two firms. The Assessing Officer also had regard to the fact, while disallowing the said claim, that the assessee had failed to provide proof of service rendered by UTC in the period covered by the Assessment Year in question. He also took note of the advice of a Chartered Accountant contained in a Note which was found in the course of a search proceeding. The said Note contained an advise to the assessee to include service charges to UTC as one of the methods to reduce the incidence of Income Tax.

The aforesaid conclusions of the Assessing Officer were upheld in Appeal by the CIT.

Aggrieved, the Revenue filed an appeal before the Income Tax Appellate Tribunal ("ITAT" for short) which reversed the findings and conclusions of the Primary and First Appellate Authority primarily on the ground that the order of the CIT (Appeals) in the earlier assessment proceeding, relied upon by the Assessing Officer, was reversed in appeal by the ITAT and also that in the course of said earlier assessment proceeding the legal effect of the advice tendered by the Chartered Accountant to reduce the incidence of Income Tax was found to be permissible in law.

The High Court reversed the said conclusion of the ITAT which has been challenged by the assessee in the present appeal.

A reading of the order of the ITAT in favour of the assessee which has been reversed by the High Court would indicate that the learned ITAT did not address itself to a very fundamental issue that had arisen before it, namely, effect of the failure of the assessee to produce evidence in support of the services claimed to have been rendered by

UTC during the Assessment Year in question i.e. 1984-1985. The answer A given by the assessee in response to a specific query made by the Assessing Officer in this regard was that explanations in this regard had already been submitted for the previous Assessment Year i.e. 1983-

1984. If service had been rendered to the assessee by UTC during the Assessment Year in question and service charges had been paid for B such service rendered, naturally, it was incumbent on the part of the assessee to adduce proof of such service having been rendered during the period under assessment. There is no dispute on the issue that the assessee did not, in fact, offer any proof of the service rendered during the Assessment Year in question. In such circumstances, the High Court was perfectly justified in reversing the eventual conclusion of the learned ITAT on the basis that the findings and conclusions recorded in the course of the assessment proceedings of the previous year cannot foreclose the findings that are required to be arrived at for the Assessment Year in question i.e. 1984-1985. We, therefore, can find no fault with the order of the High Court on the aforesaid score.

5. Disallowance ofloss shown by the assessee in Film business:

The aforesaid claim had been negatived both by the Assessing Officer and the learned CIT (Appeals) but relief had been afforded by the learned ITAT. The learned !TAT while allowing the deduction appears to have taken into account the view recorded in another proceeding by the ITAT itself in the case of a sister concern [ITANo.3717/Mds/l 987].

The relief granted in the case of the sister concern in ITA No.3717/ Mds/1987 was on identical facts and, therefore, perhaps, ITAT did not think it proper to depart from the view already taken in the said case of the sister concern. However, the High Court found the aforesaid view taken by the Tribunal in ITANo.3717/Mds/1987 to be wholly untenable and, therefore, interfered with the reliance placed by the ITAT on the aforesaid decision in the present case. There was no legal bar for the High Court in taking the aforesaid view.

Taking into account the above and the facts of the case which have been set out by the High Court in paragraphs 29 and 30 of its order, we do not see how the same can be faulted. Having regard to the facts and circumstances in which the "investment" was made and "loss" claimed, we can find no fault in the view taken by the High Court that the entire transaction was a sham transaction and was a calculated devic~ to avoid tax liability.

6. Disallowance of donation to Aparna Ashram:

Disallowance of donation made to Aparna Ashram by the assessee was refused by the Primary and First Appellate Authority on the ground that the necessary certificate showing that the donee (Aparna Ashram) had complied with the conditions subject to which registration was granted B to it under Section 35(2A) of the Act was not produced by the assessee so as to entitle it to the claim of deduction of the donation made. The learned !TAT took the view that the aforesaid conditions were not material. The High Court on due consideration found that the said conditions were necessary preconditions to the grant of statutory c

registration and had to be satisfied. There is no dispute on the fact that no such certificate had been furnished by the assessee and also that all Authorities have consistently held that if and when such certificate is produced the consequential benefit can be afforded to the assessee. In the aforesaid circumstances, we do not see how the view taken by the High Court that the assessee was not entitled to the benefit of donation made to Aparna Ashram can be faulted.

7. An issue on which there could be little dispute on law, nevertheless, needs to be dealt with in view of the elaborate arguments advanced on behalf of the appellant - assessee, namely, that the High Court had relied on findings of fact independent of those considered by the learned ITATwhich is the final fact finding authority. Reliance in this regard has been placed on several judgments of this Court to contend that issm:s of fact determined by the Tribunal are final and the High Court in exercise of its reference jurisdiction should not act as an appellate Court to review such findings of fact arrived at by the Tribunal by a process of reappreciation and reappraisal of the evidence on record.

The aforesaid position in law has been consistently laid down by this Court in several of its pronouncements out of which, illustratively, reference may be made to Kamani Properties Ltd. Vs. Commissioner oflncome-Tax. West Bengal [82 ITR 547], Rameshwar Prasad Bag/a vs. Commissioner oflncome-Tax, U.P. [87 ITR 421], Commissioner G of Income-Tax. Bombay City vs. Greaves Cotton and Co. Ltd. [68 ITR 200] and K. Ravindranathan Nair vs. Commissioner of Income- Tax [24 7 ITR 178].

8. The legal position in this regard .may be summed up by reiterating that it is the Tribunal which is the final fact finding authority H and it is beyond the power of the High Court in the exercise of its reference

jurisdiction to reconsider such findings on a reappraisal of the evidence A and materials on record unless a specific question with regard to an issue of fact being opposed to the weight of the materials on record is raised in the reference before the High Court.

9. Having reiterated the above position in law we do not see how the same can be said to have been transgressed by the impugned order of the High Court. Each relevant fact considered by the High Court to answer the questions referred to it on the claim(s) of deduction raised by the appellant - assesee are acknowledged, admitted and undisputed facts. No fresh determination of facts found by the Tribunal have been made by the High Court. What, however, the High Court did was to take into account certain additional facts, already on record, which were however not taken note of by the Tribunal to arrive at its findings, e.g., that the appellant - assessee had failed to furnish any proof of service rendered by UTC in the course of the relevant Assessment Year i.e. 1984-1985. Alternatively, the High Court construed certain facts as, for example, compliance of the conditions subject to which registration was granted to the Aparna Ashram under Section 35(2A) of the Act to be of significance as against the contrary/different view of the learned Tribunal on this score. There was no departure from the basic facts found by the learned Tribunal in the two illustrative situations cited above, namely, that (i) the assessee had not adduced any proof of service rendered by UTC in the Assessment Year 1984-1985; (ii) that Aparna Ashram had not complied with the conditions subject to which registration had been granted to it under Section 35(2A) of the Act.

10. The difference in the approach between the learned Tribunal

and the High Court, therefore, is not one relating to determination of new or additional facts but was merely one of emphasis on facts on F which there is no dispute. This is surely an exercise that was within the jurisdiction of the High Court in the exercise of its reference power under the provisions of the Act as it then existed.

11. For the aforesaid reasons, we find no fault in the view taken by. the High Court while answering the questions referred to it.

G Accordingly, the appeal is dismissed however without any order as to costs.

Nidhi Jain Appeal dismissed.