COMMISSIONER OF INCOME TAX Vs. U J MATAIN

JUDGEMENT

(1.) AS these two tax cases are interconnected, they are dealt with together The assessee in T. C. No. 17 of 1965 is one U. G. Krishnaswami naidu who is the aunt's son of one Ramaswami Naidu, the assessee in T. C. No. 66 of 1965. The substantial question that has been raised in cases is as to whether the business carried on by U. G. Krishnaswami Naidu was his own or whether it was the business of Ramaswami Naidu. Ramaswami Naidu was a partner in a firm called "g. Krishna and Company" which was acting as the managing agent of a textile mill called "kadiri Mills Ltd. ", hereinafter referred to as the mills, which went into production in or about February, 1950. Ramaswami Naidu had an eight annas share in the managing agency firm, "g. Krishna and Company".

(2.) THE mills applied to the Textile commissioner for permission to start a ginning factory. In anticipation of getting the requisite permission, the mills had advanced Rs. 1. 54 lakhs to cotton growers for the supply of cotton to the mills. It had also constructed , the ginning factory and purchased and installed the machinery at a cost of Rs. 1 lakh. But, the permission sought for was refused by the authorities and, therefore, the mills could not start the ginning factory. Faced with the refusal, the mills had to make some other arrangement. THE alternative arrangement which was thought of by the mills has been explained in the letter dated March 9, 1957, written by Ramaswami Naidu to the Income-tax Officer thus "the mill itself could not run the factory since permission was refused by the textile authorities. As partner in the managing agency of the mill, I too could not run the same. So I had to look to others to run this factory. Instead of leasing it out to outsiders, Sri U. G. Krishnaswami was asked to take the same on lease."

(3.) APART from this, his conduct in signing the day book, cash receipts and contracts in connection with that business also showed that that business was his. This conclusion is also fortified by the following circumstances. The advances made by the mills in favour of the cotton growers amounting to Rs. 1, 54 lakhs had been transferred to Krishnaswami's account without any security and Ramaswami Naidu has stood as a surety for the overdraft facilities to the bank. He has also issued instructions to the insurance company for effecting insurance on the cotton purchased in connection with that business. It is also seen that he had issued instructions to krishaswami not to sell cotton if the price goes less than a particular amount without his permission. If Ramaswami Naidu had no interest in the said business, he could not have acted in the way he has done. The contention that these factors will only establish, if at all, that Krishnaswami Naidu was only a benamidar for the mills is not possible of acceptance because of the circumstances that some of the purchases made by the mills from Krishnaswami naidu have been inflated and a much higher price has been paid to Krishnaswami by the mills than the actual price of cotton purchased from him. One of the instances found is that Karunganni Kappas have been passed on by Krishnaswami naidu to the mills as Cambodia and the prices fixed for Cambodia have been paid. If really U. G. Krishnaswami is a benamidar for the mills, the mills would not have been a party to a transaction which was against its own interest. Therefore, in these circumstances, we hold that the Tribunal is right in its conclusion that, on the facts and in the circumstances of the case, the business said to have been carried on by U. G. Krishnaswami did really belong to ramaswami Naidueven apart from the question whether on the facts and in the circumstances there was justification for treating the business as that of ramaswami Naidu, we are inclined to treat the question of benami urged before us as one of fact, and it is not possible for the assessee to canvass such a finding of fact arrived at by the Tribunal before this court In Sree Meenakshi Mills Ltd. v. Commissioner of income-tax , their lordships of the Supreme Court have expressed the view that findings on questions of pure fact arrived at by the Tribunal are not to be disturbed by the High Court on a reference unless it appears that there was no evidence before the Tribunal upon which they, as reasonable men, could come to the conclusion to which they have come, even though the High Court could, on the evidence, have come to a conclusion entirely different from that of the tribunal, that such findings of fact can be reviewed by the High Court only on the ground that there is no evidence to support it or that it is perverse, and that when a conclusion has been reached by the Tribunal on an appreciation 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. In that case it was contended that the legal inference to be drawn from proved facts should be treated as one of law. In rejecting the said contention the Supreme Court held that it is only 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 will be a mixed question of law and fact that the inference from the facts found in such a case is a question of law, but where the final determination of the issue entirely rests on the finding or ascertainment of the basic facts it would not involve the application of any principle of law and, as such, cannot be regarded as one of the law. The learned judges had expressed the view that the proposition that an inference from facts is one of law is correct in its application to mixed questions of law and fact, but not to pure questions of fact. Ultimately, the following principle was set out by the Supreme Court in that case " (i) When the point for determination is a pure question of law such as construction of a statute or document of title, the decision of the Tribunal is open to reference to the court under section 66 (1) (ii) When the point for determination is a mixed question of law and fact, while the finding of the Tribunal on the facts found is final, its decision as to the legal effect of those findings is a question of law which can be reviewed by the court (iii) A finding on a question of fact is open to attack under section 66 (1) as erroneous in law when there is no evidence to support it or if it is perverse (iv) When the finding is one of fact, the fact that it is itself an inference from other basic facts will not alter its character as one of fact."