1964 PLP 290 (PTD)

Reference‑Question of law‑Appellate Tribunal basing its decision on only one fact, ignoring other relevant circumstances noted by the Appellate Assistant Commissioner‑Whether misdirec tion in law‑Indian Income‑tax Act, 1922, Ss. 15‑C & 66(1), (2). Under the Income‑tax Act it is for the Appellate Tribunal to decide all questions of fact and the High Court, in advising the Tribunal on questions of law arising out of its order, must accept the findings of the Tribunal on matters of appreciation of evidence. If there is some evidence to support the Tribunal's finding of fact it ins not open to the Court to discard it, even if, on a review of the evidence, the Court might arrive at a different conclusion. It must, however, appear that the Tribunal had considered the evidence covering all the essential matters and not misdirected itself in basing its conclusion upon some evidence ignoring other essential matters. The refusal of the Appellate Tribunal to state a case, on the view that a question of law does not arise out of its order, is not conclusive and the High Court has power under section 66(2) of the Income‑tax Act, 1922, to call upon the Tribunal to state a case if a question of law arises out of the findings of the Tribunal or if the Tribunal has misdirected itself in arriving at its finding. If the Appellate Tribunal does not consider the evidence covering all the essential matters and bases its finding upon some evidence only, ignoring other essential matters, that would amount to a misdirection in law and the finding would give rise to a question liable to be referred to the Court. The Eldee Mills, which was a branch of the assessee, had advanced Rs. 3,21,460 to the Castle Mills. For the assessment year 1951‑52, the assessee, in claiming exemption from tax under section 15‑C of the Income‑tax Act, 1922, in respect of six per cent. of the capital employed in the Eldee Mills, sought to include the sum of Rs. 3,21,460 advanced to Castle Mills in computing the capital. This claim was rejected by the Appellate Assistant Commissioner on the ground that the constitution of the Eldee Mills and the Castle Mills being the same, the latter could not be regarded as a separate entity. The Appellate Tribunal, however, directed the inclusion of the amount advanced to the Castle Mills in computing the capital invested for the purpose of section 15‑C, basing its decision on the only circumstance that in the assessment for the year 1951‑52 the income from the Castle Mills had not been computed and included in the assessment of the assessee, and proceeding on the assumption that the Castle Mills had carried on business and had earned income. The Commissioner's application for a reference under section 66(1) was rejected by the Tribunal and the High Court declined to direct the Tribunal to state a case, holding that the finding of the Tribunal was one of fact. On appeal by special leave to the Supreme Court: Held, that as the Tribunal had assumed the only fact on which its conclusion was founded, and had ignored other relevant matters on which the Appellate Assistant Commissioner had relied in support of his conclusion, the Tribunal had misdirected itself in law in arriving at its finding and the High Court was in error in refusing to direct the Tribunal to state a case. Decision of the Punjab High Court reversed. JUDGMENT SHAH, J.‑

Messrs Indian Woollen Textile Mills, Amritsar -hereinafter called "the assessee"‑had branches at different places in India, one of which was an industrial undertaking conducted in the name of Eldee Velvet and Silk Mills‑called for the sake of brevity "Eldee." "Eldee" had advanced Rs. 3,21,460 to another con cern, the Bombay Fine Worsted Manufacturer's Castle Mills‑here inafter called "Castle". In the assessment year 1951‑52, the assessee claimed under section 15‑C of the Indian Income‑tax Act, 1922, exemption from tax in respect of 6% of the capital employed in "Eldee" as a newly established undertaking and sought to include in the computation of the capital so employed Rs. 3,21,460 advanced to "Castle". The Income‑tax Officer, Special Circle, Amritsar, and the Appellate Assistant Commissioner rejected the claim. But the Income‑tax Appellate Tribunal modified the assessment and directed inclusion of the amount advanced to "Castle" in the computation of capital invested for the purpose of section 15‑C. An application submitted under section 66(t) of the Indian Income tax Act to the Tribunal to refer a question, which, it was contended by the Commissioner, arose out of the order of the Tribunal, was rejected and the petition of the Commis sioner under section 66(2) for an order directing the Tribunal to state the case and refer it to the High Court was also dismissed. With special leave the Commissioner has appealed to this Court. The question in dispute before the reienue authorities was whether the business called "Castle" at Bombay was a branch of the assessee. The Appellate Assistant Commissioner rejected the claim of the assessee to include the amount of Rs. 3,21,460 in the capital employed in the undertaking "Eldee", because in his view there were in these two undertakings the same eight partners with a share of two annas each, and that the constitution of both the undertakings being the same, "Castle" could not be regarded as a separate entity. The Tribunal disagreed with the view of the Appellate Assistant Commissioner, relying upon only one circum stance, viz., that in the assessment for the year 1951‑52 the income from "Castle" had not been computed and included in the assess ment of the assessee. It did not consider the other questions whether the constitution and ownership of the two businesses "were the same". The High Court declined to require the Tribunal to state the case holding that the finding of the Tribunal was one of fact as it was based on the inference arising from the non‑inclusion by the Income‑tax Officer in the assessment in question of the income of "Castle" and that "the factor taken into consideration by the Appellate Tribunal in coming to the conclusion, it did," was a relevant factor. Section 66(2) invests the High Court with jurisdiction to require the Appellate Tribunal to state a case and to refer it, if the Appellate Tribunal has refused to state the case on the ground that no question of law arises, and the High Court, being approached by the aggrieved party within the period of limitation prescribed, is not satisfied about the correctness of the decision of the Appellate Tribunal refusing to state the case. Under the Income‑tax Act it .is for the Tribunal to decide all questions of fact: the High Court has the power merely to advise the Tribunal on questions of law arising out of the order of the Tribunal. In so advising the High Court must accept the findings of the Tribunal on matters of appreciation of evidence. But the refusal of the Tribunal to state a case for the opinion of the High Court, on the view that a question of law does not arise out of the order is not conclusive. The High Court has the power to call upon the Tribunal to state the case if in its view a question of law arises out of the order of the Tribunal. Such a question may arise out of the findings of the Tribunal, and also if the Tribunal has misdirected itself in law in arriving at its finding. It is not open to the Court to discard the Tribunal's finding of fact, if there is some evidence to support the finding of the Tribunal on a question of fact, even if on a review of the evidence the Court might have arrived at a different conclusion. It must, however, appear that the tribunal had considered evidence covering all the essential matters before arriving at its conclusion. If the conclusion of the Tribunal is based upon some evidence. ignoring other essential matters, it cannot be regarded as a finding trot giving rise to a question liable to be referred to the Court. Non‑inclusion of the income of "Castle" in the assessment of the assessee may have been a relevant circumstance, but its effect had to be considered in the light of other circumstances on which the Appellate Assistant Commissioner had relied. Moreover, reliance placed by the Tribunal upon the single circumstance on which its decision was founded had proceeded on an assumption that in the previous year to the year of assessment 1951‑52, "Castle" had carried on business and had earned income. The observations made by the Appellate Assistant Commissioner about "Castle" being separately assessed at Bombay in the status of a registered firm apparently refer to assessment of that business in subsequent years and not to the year of assessment 1951‑

52. The conclusion of the Tribunal, therefore, suffers from a double infirmity: it assumes the only fact on which its conclusion is founded and ignores other relevant matters on which the Appellate Assistant Commissioner relied in support of his conclusion. The Tribunal has therefore misdirected itself in law in arriving at its finding, and in refusing to require the Tribunal to state the case and to refer it, the High Court was, in our view, in error. The appeal is therefore allowed and the proceedings are remanded to the High Court with a direction to proceed according to law. Costs in this appeal will be costs in the High Court. Appeal allowed.