COMMISSIONER OF Income Tax vs SOUTH INDIA CORPORATION (P.) LTD.

K. S. PARIPOORNAN J. - At the instance of the Revenue, the �income tax Appellate Tribunal (in short,"the Tribunal") has referred the following questions of law for the decision of this court:

"(1) Whether, on the facts and in the circumstances of the case, the capital gains realised by the assessee should be treated as commercial profits for the purpose of application of section 104?"

(2) Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that consolidating its business in other fields are the necessities of the business and are not the above findings (also views) wrong and without being considered/without any evidence of being considered by the directors?"

The respondent (assessee) is a private limited company. We are concerned with the assessment year 1974-75. The previous year ended on March 31, 1974. The sole dispute between the assessee and the Revenue was with regard to the determination of the quantum of distributable income u/s 104 of the Income Tax Act. The assessee disclosed a sum of Rs. 9,56,078 under capital gains. It arose on the acquisition of the assets of the company. The assets required were land and factory buildings in Perumanur, Ernakulam. In determining the distributable profits, the sum of Rs. 9,56,078 aforesaid, was included. In the appeal filed by the assessee, the Commissioner of Income Tax (Appeals), relying on the decision of the Calcutta High Court in Commissioner of Income Tax Vs. N. Guin and Co. (P.) Ltd., , held that capital gains cannot be considered to be commercial profit for the purpose of section 104 of the Income Tax Act. The Tribunal adverted to the conflicting decisions on the subject, namely, those of the Madras High Court in Factors (P.) Ltd. Vs. Commissioner of Income Tax, and Commissioner of Income Tax Vs. Amalgamations (P.) Ltd., on the one hand and that of the Calcutta High Court in Commissioner of Income Tax Vs. N. Guin and Co. (P.) Ltd., on the other, and opined that even of the decisions of the Madras High Court, pressed into service by the Revenue, are accepted, it is clear that the directors should have been prohibited from declaring any dividends out of the sale proceeds on view of the "necessities of the business". The Tribunal also held that the amounts have to be conserved for the purpose of consolidating the business of the company in other fields. It finally concluded that the Commissioners of Income Tax (Appeals) was justified in accepting the claim of the assessee that it was prevented by the smallness of the profits from declaring dividends for the assessment year. Aggrieved by the order of the Tribunal, dated October 27, 1982, rendered in the appeal the Revenue filed an application u/s 256(1) of the Income Tax Act praying that certain questions of law formulated by it which, according to it, arose out of the appellate order of the Tribunal, may be referred to this court. It was declined. Thereafter, the Revenue moved this court in O. P. No. 7606 of 1983 u/s 256(2) of the Income Tax Act. It is in compliance with the directions of this court that the questions of law, formulated hereinabove, have been referred by the Appellate Tribunal �for the decision of this court.

We heard counsel. Counsel for the Revenue brought to our notice a Division Bench decision in Cardamom Marketing Co. (Trav.) Ltd. Vs. Commissioner of Income Tax, and contented that capital gains form part of the gross total income and should be reckoned in arriving at the distributable income for the purpose of levy of additional tax u/s 104 of the Income Tax Act. It was further contented that the findings or the view expressed by the Tribunal, that the directors could not declare dividend out of the sale proceeds in view of the necessities of the business, that resources have to be conserved for the purpose of consolidating the business of the company in other fields, and that the Assessee has not received the full amount of compenstation during the privious year, and there were certain substantial advances in the books which were of doubtful recovery and there is a gratuity liability which has to be taken into account and that on these premises, the Commissioner (Appeals) was justified in accepting the plea of the assessee that it was prevented by the smallness of the profit from declaring dividends, etc., are all based on no evidence or material. It was argued that the Income Tax Appellate Tribunal has failed to indicate in its order any basis or material for stating the above, to conclude that the assessee was prevented by the smallness of the profit from the declaring dividends for the assessment year. On the other hand, counsel for the assessee brought to our noticed the various submission made on its behalf before the Tribunal, and more particularly contained in paragraph 5 and 6 of the order, whereunder the submissions with reference to the above aspects have been made. The assessees counsel submitted that the Appellate Tribunal was inclined to accept the above submissions to uphold the claim of the assessee that it was prevented by the smallness of the profits from declaring dividend for the year.

We are in agreement with the submissions made by the Revenue. On the first aspect, we should state that capital gains realised by the assessee should be reckoned for arriving at commercial profits for the purpose of section 104 of the Income Tax Act. We are fortified in this view by the Bench decision of this court in Cardamom Marketing Co. (Trav.) Ltd. Vs. Commissioner of Income Tax, . In this view of the matter, question No. 1 should be answered in favour of the Revenue and against the assessee. We do so.

The larger and more important question is question No. 2 Briefly stated, the poser is whether the order of the Tribunal has indicated or referred to any material on the basis of which it could conclude that the assessee was prevented by the smallness of the profit from declaring dividends for this assessment year. We scanned the order of the Appellate Tribunal dated October 27, 1982. We could not find the mention of any particular material for arriving at the said conclusion. We questioned counsel for the assessee to indicate whether he is in a position to state the material that was placed before the Tribunal to enable it to reach such a conclusion. Counsel for the assessee was not able to the point out in the affirmative �any positive material. As a final fact-finding authority, it is for the Tribunal to find facts and enter appropriate findings on each aspect. A finding of fact, entered by the Tribunal, is not open to review by this court in reference jurisdiction, unless the said findings is based on no material or is based on the conjectures and surmises, or otherwise perverse or irrational. It should also be noticed that, as a final fact-finding authority, it is not enough, if the Tribunal simply enteres findings without indicating the material which enabled them to enter the said findings. In the absence of indication of the material on the basis of which the findings are entered, the order of the Tribunal is in firm. It is not in accordance with law.

In this view of the matter, we are of the view, that, as the order of the Tribunal stands at present, the findings and the conclusion reached by it do not indicate the material on the basis of which the findings of fact were arrived at. To this extent, the findings entered by the Tribunal are without any material. We hold so. We answer question No. 2 in this perspective in the affirmative, against the assessee and in favour of the Revenue. But since we are answering the question in favour of the Revenue dune to a technical infirmity found in the order of the Tribunal, we direct the Tribunal to restore to appeal to file and consider the appeal on is aspect alone. The parties are at liberty to place all relevant material before the Tribunal when the appeal is reheard. The reference is disposed of as above.

A copy of this judgment under the seal of this court and the signature of the Registrar will be forwarded to the Income Tax Appellate Tribunal, Cochin Bench.