RAMANUJAM J. - 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 aunts son of one Ramaswami Naidu, the assessee in T.C. No. 66 of 1965. The substantial question that has been raised in both the 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. Ramswami 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'. 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 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.'
However, no lease agreement was executed between U. G. Krishnaswami and the mills. But U. G. Krishnaswami is said to have run the ginning factory from 1952 till March 31, 1955, as a lessee. The advances made to cotton growers were transferred to the account of U. G. Krishnaswami in the books of the mills. The lessee is said to have carried on his business within the mill premises but no rent was charged by the mills. According to the assessee in both the cases the business run by U. G. Krishnswami was his exclusive business and Ramaswami Naidu had no hand or interest in the same. But the revenue took the view that the business alleged to have been run by U. G. Krishnaswami was really that of Ramaswami Naidu and that the income earned by running the ginning factory should be taken to be the latters income.
As per the books said to have been maintained by U. G. Krishanswami the profit for the previous year ended on March 31, 1952, was Rs. 63,854 and the profit for the subsequent year ended March 31, 1953, was Rs. 17,718. Out of the profits for the above two years, Ramaswami Naidu has drawn a sum of Rs. 39,264 for the account year 1951-52 and for the next year Rs. 17,718. From the said account books it has been found that Ramaswami Naidu had signed the original day book on several dates and he has also signed certain cash receipts and contracts for the supply cotton by the growers. He had also issued instructions to Krishnaswami not to sell cotton if the price of cotton seeds fell below certain amount without informing him. He had also given instructions to the insurance company as to what is the extent to which the stock of cotton in the ginning factory had to be insured against fire. As already stated, the advances made to cotton growers by the mills had been transferred to the account of Krishnaswami. The accounts also showed that Ramaswami Naidu has given a car to U. G. Krishnaswami at a cost of Rs. 22,300, but it was taken back by him subsequently for Rs. 10,000. The accounts said to have been maintained by Krishnaswami showed his liability to the mills at Rs. 95,796 as on March 31, 1952, and Rs. 1,07,083 as on March 31, 1953. This liability had been wiped off and a corresponding debit entry was raised in the name of one Kavetti Naidu, a cotton merchant. It was also found that the tax liability of U. G. Krishnaswami amounting to Rs. 97,176 was paid by Kadiri Mills Ltd. by adjustment in another account. U. G. Krishnaswami had obtained overdraft from the bank and Ramaswami stood as a surety for the same. It was also found that though Ramaswami Naidu had an eight annas share in the managing agency firm, he had full control of the managing agency firm as also the mills he having purchased another six annas share owned by one G. Krishnan and others. U. G. Krishnaswami, though he purported to carry on the business, was not in a position to explain as to how he found the capital for starting his alleged business and how he spent or invested the profits which he had earned from the business for the years for which he was carrying on business. He was not also able to produce cash voucher given to the cotton growers nor to give details and addresses of the parties with whom he is said to have carried on business. The premises of the mills were raided by the Enforcement Branch of the textile department and certain books were seized by them. Those included certain books maintained by Krishnaswami in relation to his alleged business. A comparison of the entries in the cash book produced by Krishnaswami in connection with his assessment with the book seized by the Enforcement Branch shown the inflationary prices paid to him to the extent of Rs. 7,972 for the purchase of kappas. U. G. Krishnaswami had filed a criminal compliant against G. Krishnan and Company, one of the partners in the managing agency firm. In that case it was observed by the criminal court that the complainant, U. G. Krishnaswami, is nothing but a tool in the hands of Ramaswami Naidu.
In the light of the above facts, the Income-tax Officer concluded in the assessment proceedings of Krishnaswami that the business alleged to have been carried on by him really belonged to Ramaswami Naidu and the substantial reasons given by him for coming to that conclusion were these :
(1) U. G. Krishnaswami Naidus name had been brought in only to circumvent the technical difficulty created by the refusal of the textile authorities to grant license to Kadiri Mills Ltd. to run a ginning factory.
(2) Ramaswami Naidu has taken a prominent part in the conduct of the alleged business of Krishnaswami buys signing the day books, contracts and cash receipts for the supply of cotton.
(3) In some of the letters seized by the Enforcement department, Ramaswami Naidu had referred to Krishnaswami as his representative to run the ginning factor business and some other letters disclosed that he had a proprietary interest in the said business.
(4) Ramaswami Naidu had arranged for the insurance for the cotton said to have been purchased and sold by Krishnaswami and has stood surety for the overdrafts said to have been made by Krishnaswami with reference to the said business.
(5) The initial advances made to the cotton growers amounting to Rs. 1,54,000 had been transferred to Krishnaswami Naidu without any safeguards.
(6) The drawings said to have been made by Krishnaswami from his business have not been property explained and it has not been shown to have made any improvement in his wealth leading to the inference that the entire drawing in his name should have gone to Ramaswami Naidu.
For the above reasons the Income-tax Officer treated the business said to have been run by Krishnaswami as belonging to Ramaswami and passed an order to that effect in Krishnswami Naidus assessment proceedings and appended the same to the assessment order of Ramaswami Naidu. Similarly, the business said to have been run by Krishnaswami Naidu came to be considered as that of Ramaswami Naidu for the assessment years 1953-54 and 1954-55 as well.
There were appeals both by Krishnaswami Naidu as well as Ramaswami Naidu questioning the orders of the Income-tax Officer in relation to their assessments for the years 1952-53, 1953-54 and 1954-55. The Appellate Assistant Commissioner also found that Ramaswami Naidu was in full control of the managing agency firm of the mills and that he had discharge the tax liability of Krishnaswami Naidu by making some adjustments in the mills accounts and transferring the ultimate liability of Krishnaswami Naidu to the mills to the accounts of one Kavetti Naidu. According to the Appellate Assistant Commissioner it is Ramaswami Naidu who actually carried on the business in the name of Krishnaswami Naidu, his aunts son and reaped the profits therefore and the financial position of U. G. Krishnaswami remained the same all through even though he is said to have earned profits in the business in question. But at the same time, there had been substantial accretion of wealth to Ramaswami Naidu during the relevant years.
There were further appeals to the Appellate Tribunal and it was contended before the Tribunal by both the assesses that the circumstances pointed out by the Income-tax Officer and the Appellate Assistant Commissioner are not sufficient to connect Ramaswami Naidu with the business of Krishnaswami Naidu, and that, if at all, those circumstances can lead only to the inference that U. G. Krishnaswami was a benamidar for the mills and not for Ramaswami. It was also contended that Ramaswami Naidu, though he had an eight annas shares in the managing agency firm, was not in actual management of the mills during the relevant years and that, therefore, the conclusion that Ramaswami Naidu has used the name of U. G. Krishnaswami Naidu for running the ginning factory business himself cannot be sustained. The Tribunal, however, did not agree with the above contentions put forward by both the assessees. According to the Tribunal, Ramaswami Naidus letter dated March 7, 1957, extracted earlier clearly indicated that it is he who brought in Krishnaswami Naidu because he himself could not take up and run the ginning factory, and his own letters seized by the Enforcement department showed that he claimed a proprietary interest in the business in question and that Krishnaswami Naidu was only his representative. The Tribunal also took note of the fact that Ramaswami Naidu had signed day books, cash receipt and contracts relating to the business in question and he had also withdrawn moneys from that business. The Tribunal, therefore, upheld the finding of the Income-tax Officer as well as the Appellate Assistant Commissioner that the business in question was that of Ramaswami Naidu and not of Krishnaswami Naidu, and the inclusion of the income from the business in question in the income of Ramaswami Naidu, and in consequence cancelled the protective assessments made against U. G. Krishnaswami Naidu. At the instance of Ramaswami Naidu the following question came to be referred to this court in T.C. No. 66 of 1965 :
'Whether, on the facts and in the circumstances of the case, there was justification for treating the business alleged to have been carried on by U. G. Krishnaswami as belonging to the assessee in the assessment years 1952-53, 1953-54 and 1954-55 ?'
and the following question was referred in T.C. No. 17 of 1965 at the instance of Krishnaswami Naidu :
'Whether, on the facts and in the circumstances of the case, the cancellation of the assessment on U. G. Krishnaswami Naidu was justified in law ?'
Mr. Swaminathan, learned counsel for the assessees, practically reiterates the same contentions as were raised before the Tribunal and contends that the finding that U. G. Krishnaswami Naidu is only a name-lander and that in fact Ramaswami Naidu is the owner of the business in question cannot at all be sustained on the materials on record and that if at all the business could be treated as that of the mills.
We are not in a position to say that the facts and circumstances as found by the Tribunal are not sufficient to reach the inference that Ramaswami Naidu should have had a proprietary interest in the business in question. In our view, the materials are sufficient to establish a close and intimate nexus between Ramaswami Naidu and the business in question. From the facts found it is seen that U. G. Krishnaswami had no experience in any business and that his name was, for the first time, brought in by Ramaswami Naidu in the circumstance stated by him in his letter dated March 9, 1957. The letter seized by the Enforcement department also clearly showed that he had a proprietary interest in the business and that U. G. Krishnaswami was only his representative. 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 Krishnaswamis account without any security and Ramaswami Naidu has stood at 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 instruction to Krishaswami not to sell cotton if the price goes less than a particular amount without his permission. If Ramaswami Nadiu 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 mill 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 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 Naidu.
Even apart from the question whether on the facts and in these 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 fats 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 statue 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.'
On the face of the above decision the inference drawn by the Tribunal from the proved facts that the business in question in benami for Ramaswami Naidu, does not involve the application of any principle of law and, therefore, such a finding which is purely one of fact cannot be attacked in the reference under section 66 of the Income-tax Act.
The learned counsel for the assessee, however, contends that though the question as to whether a particular transaction in benami or not may be a finding of fact, the Tribunal has erred in law in throwing the onus on Ramaswami Naidu to prove that the business was not his, and he takes support from the decision in Madura Knitting Company v. Commissioner of Income-tax. In that case Rajagopalan and Rajagopala Ayyangar JJ. had expressed the view that whether the plea was one of benami or of sham, the burden was not on the assessee but on the department to prove that what was appear to be real. We are of the view that the above decision may be of any help to the assessees. In this case there is sufficient material on record to lead to the inference that it is only Ramaswami Naidu who carried on the business in question in the name of Krishnaswami Naidu and the Tribunal has not shifted the onus on the assessee requiring him to prove that he was not the owner of the business. The question of onus does not come into play at all in this case as the Tribunal had decided the case purely on the materials on record and not on the basis that the assessee has not discharged the onus of proving that the business was not his.
The learned counsel for the revenue contents that having regard to the nature of the question referred to this court in T.C. No. 66 of 1965, it is not possible for us to embark upon a reappraisal of the evidence and to arrive at a conclusion contrary to that of the Tribunal and that we have to confine ourselves to the facts as founds by the Tribunal and answer the question of law in the setting and context of these facts, and refers to the decision in Commissioner of Income-tax v. Kamal Singh Rampuria. In that case their Lordships of the Supreme Court, after referring to their earlier judgment in India Cements Ltd. v. Commissioner of Income-tax and Commissioner of Income-tax v. Sri Meenakshi Mills Ltd., expressed the view that in the hearing of a reference under section 66(1) of the Income-tax Act, 1922, it is not open to the assessee to challenge a finding of fact unless he has applied for a reference of the specific question under section 66(1). He also referred to the decision in Karnani Properties Ltd. v. Commissioner of Income-tax to substantiate the same contention. In that case the Supreme Court again reiterated the principle that when an assessee seeks to question a finding of fact arrived at by the Tribunal, he must seek a specific reference questioning the finding of fact. The principal set out by the Supreme Court is this :
'When the question referred to the High Court speaks of on the facts and in the circumstance of the case, it means on the facts and circumstances found by the Tribunal and not facts and circumstances that may be founds, by the High Court on a reappraisal of the evidence. In the absence of a question whether the findings were vitiated for any reason being before the High Court, the High Court has no jurisdiction to go behind or question the statements of fact made by the Tribunal.'
As we have earlier referred to the facts and circumstances of this case, and held that the Tribunals finding on the benami nature of the business is based on sufficient materials on record, it is not necessary in this case to go into the question posed by the learned counsel for the revenue that the assessee should have sought a specific reference attacking the findings arrived at by the Tribunal if he had desire to challenge the same.
We, therefore, answer the reference in T.C. No. 66 of 1965 in favour of the revenue and against the assesses. In view of our above answer, the cancellation of the protective assessments have to be sustained and the question in T.C. No. 17 of 1965 is to be answered in the affirmative and against the revenue. The revenue will be entitled to its costs in T.C. No. 66 of 1965. Counsels fees Rs. 250. T.C.P No. 54 of 1965 is dismissed.