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
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 ITAT 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 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.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.1964 OF 2008
M/S GANAPATHY & CO.,
BANGALORE ...APPELLANT
VERSUS
THE COMMISSIONER, INCOME TAX
BANGALORE ...RESPONDENT
Citation; AIR 2016 SC 422
1. The High Court of Karnataka by the
impugned order dated 3rd 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 M/s Universal
Trading Company made under
Section 40A(2)?
ii. Whether on the facts and in
the circumstances of the
case, 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 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 M/s 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.I.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 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 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 of loss 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
ITAT 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
[ITA No.3717/Mds/1987]. 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 ITA No.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 device 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
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 ITAT 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 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 ITAT which is the final fact
finding authority. Reliance in this regard
has been placed on several judgments of
this Court to contend that issues 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 itsPage 11
11
pronouncements out of which,
illustratively, reference may be made to
Karnani Properties Ltd. Vs. Commissioner
of Income-Tax, West Bengal [82 ITR 547],
Rameshwar Prasad Bagla 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] and K. Ravindranathan Nair vs.
Commissioner of Income-Tax [247 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 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 thePage 12
12
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 HighPage 13
13
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 factsPage 14
14
but was merely one of emphasis on facts on
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. Accordingly, the appeal is dismissed
however without any order as to costs.
....................,J.
(RANJAN GOGOI)
....................,J.
(PRAFULLA C. PANT)
NEW DELHI
JANUARY 18, 2016
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