Punjab & Haryana H.C : Whether there was no evidence before the Income-tax Appellate Tribunal to hold that Shri O. S. Gill and Shri B. P. Bhardwaj had made gifts abroad each of $ 2,00,000 to Monica Oswal and Ruchika Oswal through their father, the respondent-assessee ?

High Court Of Punjab & Haryana

CIT vs. Jawahar Lal Oswal

Sections 68, 69A, 260A

Jawahar Lal Gupta, Ashutosh Mohunta & G.S. Singhvi, JJ.

IT Appeal No. 49 of 1999

15th September, 2003

Counsel Appeared

R.P. Sawhney with V.P. Malik, & Rajesh Bindal, for the Appellants : G.C. Sharma with Atul Gandhi, Suvneet Sharma, Dinesh Gogna & Navdeep Sharma, for the Respondents

JUDGMENT

Jawahar Lal Gupta, J. :

1. There are two gifts of $ 200,000 each by two donors who are not related to the assessee in favour of the assessee’s two daughters, through two banks drafts bearing consecutive numbers, issued by the Midland Bank, London, on March 22, 1994. Mr. O. S. Gill who is a British citizen and a resident of the U. K. made a gift of $ 200,000 to Ms. Ruchika Oswal. Similarly, Mr. B. P. Bhardwaj, another resident of the U. K. is alleged to have made a gift of $ 200,000 in favour of the assessee’s daughter, Ms. Monica Oswal. The assessee had received the two drafts on behalf of his daughters in England, to save gift-tax, the amounts were credited to the accounts of the two donees.

2. The Revenue alleges that the gifts are bogus. The amount of the gifts represents the concealed income of the assessee. The Tribunal has erred in accepting the claim of the respondent-assessee and deleting the addition. The assessee claims that these are valid gifts made by two friends. The Tribunal has recorded a finding of fact. The amount is not his concealed income. Thus, the appeals filed by the Revenue deserve to be dismissed. These are the contending claims of the parties in the three income-tax appeals filed under Section 260A of the Income-tax Act, 1961.

3. Counsel for the parties have referred to the facts in I. T. A. No. 49 of 1999. These may be briefly noticed.

4. The respondent-Mr. Jawahar Lal Oswal is the managing director of Oswal Woollen Mills Limited, Ludhiana. He filed his income-tax return for the assessment year 1994-95. He declared a total income of Rs. 7,74,210. This included income from salary, dividend, interest and capital gain. Vide order dated February 28, 1997, the Assessing Officer made various additions to the income declared by the assessee. He found that the assessee had “simply introduced his own concealed income under the garb of the alleged gifts in the name of the daughters so that the funds of the family may remain within the family itself without paying any tax thereon.” Thus, an addition of Rs. 1,24,24,864 was made in the income of the respondent on account of the two gifts of $ 200,000 each made by M/s. O. S. Gill and B. P. Bhardwaj in favour of his two daughters, Ms. Ruchika and Ms. Monica, respectively. His taxable income was fixed at Rs. 1,32,15,070. The assessment for the amount of gift was also made “on protective basis in the hands of his daughters . . .”

5. The assessee filed an appeal. Vide order dated December 19, 1997, the Commissioner of Income-tax (Appeals) (Central), accepted the assessee’s claim in respect of the gift made by Mr. O. S. Gill in favour of Ms. Ruchika Oswal. However, the addition on account of the gift made by Mr. B. P. Bhardwaj to Ms. Monica was confirmed.

6. The Revenue as well as the respondent-assessee challenged the order of the appellate authority before the Income-tax Appellate Tribunal. Vide order dated January 29, 1999, the Tribunal accepted the appeal filed by the assessee and rejected the claim of the Revenue. Aggrieved by the order, the Revenue has filed the three appeals. It prays that the following substantial question of law arises in these appeals and may be answered in the affirmative :

“Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in deciding the deletion of the two foreign gifts of two lakhs US dollars each received by the assessee on behalf of his daughters as on substantive basis and simultaneously deleting the addition made on protective basis in the hands of his daughters, Monica Oswal and Ruchika Oswal, because the financial capability of the donors has not been proved at any stage, either at the assessment stage or at the appellate stage ?”

7. Mr. R. P. Sawhney, learned counsel for the Revenue contended that the gifts as claimed by the assessee are bogus. The donors did not have the financial capability to make the gifts. The amount of the gifts is in fact the concealed income of Mr. Oswal himself. He placed reliance on various decisions.

8. Mr. G. C. Sharma, who appeared for the assessees in all the three cases, controverted the claim made on behalf of the Revenue. He contended that the Tribunal has recorded findings of fact. These are based on the appreciation of evidence on the record. The gifts have been held to be valid. There is no evidence that the funds for the gifts were provided by Mr. Oswal. Thus, no question of law much less than a substantial question of law arises for the consideration of this court. Consequently, the appeals filed by the Revenue deserve to be dismissed.

9. Mr. Sharma had himself proposed the following three questions :

“(i) Whether there was no evidence before the Income-tax Appellate Tribunal to hold that Shri O. S. Gill and Shri B. P. Bhardwaj had made gifts abroad each of $ 2,00,000 to Monica Oswal and Ruchika Oswal through their father, the respondent-assessee ?

(ii) Whether the assessee-respondent had discharged the onus, if any placed on him for establishing that valid gifts as aforesaid were received from abroad by his daughters through him ?

(iii) Assuming that the answer to any of the aforesaid two questions was against the assessee, could it be held that the amounts gifted were provided by the assessee liable to be deemed as his income, under the provisions of Section 69A of the Income-tax Act ?”

10. In the circumstances of these cases, the above questions represent the core of the controversy. The first two questions can be considered together.

11. Reg : (i and ii)

12. Mr. Sawhney contended that the financial status of the two donors has not been established. The evidence on record shows that the gifts are bogus. Mr. Sharma disputes this.

13. It is undoubtedly correct, as pointed out by Mr. Sharma that the two gifts have been made through two bank drafts. These had been handed over to Mr. Oswal in London. The amounts had been credited to the respective bank accounts of the two donees. It also appears that the marriage ceremonies of the two donees were performed in April and December, 1994. The gifts were ostensibly made at the wedding.

14. Yet, what stares us in the face is that the gifts are of $ 200,000 each. Both the drafts bear consecutive numbers. These have been issued on one-day, viz., March 22, 1994, by the Midland Bank. The gifts are for equal amounts of money. These have been given by persons who are not even remotely related to the donees.

15. Mr. Sharma contended that the donors are the friends of Mr. Oswal. Thus, they had made gifts on the occasion of the marriage of his daughters.

16. How close is the friendship ?

17. Mr. O. S. Gill had appeared before the Income-tax Officer. He was questioned. He stated that he has no property in India. He maintains no bank account in India. He has no relationship with Mr. Oswal. The gift was made “out of love, affection and regard …” Is there any evidence of love, affection and regard ? Nothing was pointed out. I find none whatsoever.

18. Mr. Sharma contended that Mr. Gill is a close friend of Mr. Oswal. Thus, he had made the gift. Is it so ?

19. A photocopy of the passport issued to Mr. Gill is on record at page 134 of the file. He is a British citizen. It appears that he had lived in Nairobi also. He had visited India for one day prior to May 24, 1996, when his statement was recorded. He had not attended the wedding of the donee. Still further, he was specifically asked if he had made a gift to “any member” of his own family. His answer was a plain “No”. It is true that he claims to have known Mr. Oswal for about 15 years while the latter claims to have known him for 10-12 years. Yet, the two have no business dealings. Mr. Gill was not even able to give the names of the ladies of the house. The two are not shown to have even exchanged a letter. Still, it is claimed that he made a gift of $ 200,000 in favour of Ms. Ruchika. It may be a tonic for the assessee. To me, it is a bitter pill. I find it difficult to swallow.

20.It is true that sometimes a friend can do more than a blood relation. But on examination of the statement of Mr. Gill in its entirety, there appears to be nothing that may give an indication of any kind of friendship much less than a close one. Not even of a casual kind.

21. Still further, Mr. Bhardwaj–the other donor was not even produced before the Income-tax Officer. Yet, it was claimed that the evidence on record establishes a close friendship. This evidence consists of the self-serving statement of Mr. Oswal himself.

22. He was questioned by the Income-tax Officer on February 20, 1997. He stated that he was dealing in wool, textile, cotton, steel, oil and sugar. However, he had no branch in any foreign country except an “accreditation office in Moscow.” This too “is not functioning for the last seven years.” He claimed to have known both the donors “for 10-12 years.” He has no business dealings “with either of the donors for the last ten years.” Mr. Gill had visited India in 1996 and stayed with him. Mr. Bharadwaj had visited India in the beginning of 1995 and stayed with him for one night. He categorically admitted that he had “not gifted any amount to the donors since there was no occasion so far for a gift”. He had never stayed with either of them during his visits to their country. He had discussed the issue regarding gifts with his daughters in the year 1993 after visiting London. However, he did not know as to why they had decided to give gifts for equal amounts and got the drafts from one bank. The fact that the two drafts have consecutive numbers was stated to be a coincidence. He did not even know the listed telephone numbers of the donors. He refused to disclose the numbers, which were “ex-directory.”

23. On a perusal of the entire statement, there does not appear to be even a whisper that Mr. Oswal had ever exchanged a letter with either of the two donors. Nor a suggestion that they had been in touch with each other on the phone. The statement does not disclose anything which may even indicate a friendship. Admittedly, the two donors were said to have stayed with Mr. Oswal on two different occasions. Nothing more. There is no evidence to prove anything beyond a casual visit to the assessee’s house.

24. Still further, it is the admitted position that Mr. Oswal had never made any gift to the two donors. Not even a token gift. Why this one-way traffic ? Why this generosity towards Mr. Oswal or his daughters ? That too by a person like Mr. Gill who has never made a gift to any of his own family members. Or even Mr. Bhardwaj who had got the draft after getting money from Mr. Varinder Sharma. There are too many questions for which the assessee has given no answer. The onus has not been discharged.

25. Mr. Sharma claimed that the gifts were made out of love, affection and regard. But there is no evidence to support the assertion. Actually, neither of the two donors had even attended any of the weddings. That is not the conduct of a person who makes a substantial gift. In the absence of evidence, it is difficult to uphold the claim and the finding.

26. Mr. Sawhney was vehement in contending that even the financial capability of the two donors has not been established. Mr. Sharma pointed out that Mr. O. S. Gill was very well off. He was drawing an annual salary of 1,20,000 sterling. Thus, he had the means to make the gift. Is it so ?

27. It is true that Mr. Gill claims to be drawing an annual salary of 1,20,000 pounds. He had come all the way from England to appear before the Income-tax Officer. However, he was specifically asked by the Assessing Officer to disclose the particulars of his bank account. He did not remember the number. He had not got a copy of the bank account nor any evidence with regard to his creditworthiness. He was asked if he could produce it. He was clearly reluctant. He had to discuss it with his accountant. Why ? The reason is not difficult to imagine.

28. Even Mr. Oswal was questioned with regard to the financial position of the donors. He knew about the business of both. However, with regard to the financial capability, his answer was–“nobody tells his capability but they are of good financial capability”. He was unable to produce any evidence.

29. As for Mr. Bhardwaj, he did not even appear. However, it appears from the record that the Department of Revenue, Ministry of Finance, Government of India, had taken up the matter with the Inland Revenue in London. There was detailed correspondence. One of the various letters received from the “Inland Revenue” is on record at page 105. Its contents, on which great reliance had been placed on behalf of the assessees by Mr. Sharma, can be usefully noticed. It reads as under :

Dated : 15 October, 1996.

“Inland Revenue Our ref. : SCO4/F38233/R11 Your ref. : DOF No. 501/27/95-FTD Dear Mr. Srinivasan, UK/India Double Taxation Convention–Exchange of Information UK-B. P. Bharadwaj India–Miss Monica Oswal.

I refer to your letter of 26 June, 1996, in which you requested information concerning the abovenamed, I am now able to provide you with an interim report.

Our investigator contacted Mr. B. P. Bhardwaj concerning gifts made to Miss Monica Oswal. He has replied that a gift of US dollars 200,000 was made to Miss Oswal “on the occasion of her forthcoming marriage” on or around 22 March, 1994.

The funds were provided by Mr. Varinder Sharma of Flat No. 184, Building 9A, Raminki, Moscow. Mr. Sharma arranged the draft and gave it to Mr. Bhardwaj. Mr. Bhardwaj handed it over to Miss Oswal’s father who was at the time passing through London.

Our enquiries are continuing in respect of Dr. Gill and a further report will be made as soon as possible. This information is provided in accordance with Article 28 of our Double Taxation Convention and its use and disclosure must be governed accordingly.

Yours sincerely, (Sd.) …………

Jean Courtney”.

30. This letter discloses that the funds were provided to B. P. Bhardwaj by Mr. Varinder Sharma. He had got the draft prepared and given it to Mr. Bhardwaj who had in turn handed it over to Mr. Oswal. Beyond this, there is no evidence, which may even remotedly suggest that Mr. Bhardwaj even had the means to make a gift of a substantial amount of $ 200,000. Even Mr. Oswal has given out nothing.

31. Mr. Sharma was vehement in contending that the gifts had been made by the two donors. They are engaged in business. They had the means to make the gifts.

32. Admittedly, Mr. Oswal had known about the intention of the two donors to make the gifts in the year 1993. He had even discussed the matter with his daughters. In this situation, the easiest course for him was to produce the copies of the bank accounts of the two donors to show that they had the means and the money. Or that the money had been actually drawn by at least one of the two donees, viz., Mr. Gill, from his account. Mr. Bhardwaj had admittedly taken the money from Mr. Sharma. A person making a gift of two hundred thousand dollars by taking money from another person ? Why ? Who is Mr. Sharma ? Why did he give the money and get the draft prepared ? There is no answer or evidence. Obviously there is more than meets the eye.

33. There is another aspect. Mr. Oswal could have easily requested his friends to disclose their income-tax returns or bank accounts so that the financial status and the actual withdrawal of the amount for the making of gifts could have moved from the realm of conjecture to that of a semblance of certainty. He chose not to. Why ? Again, there is no answer. Surely, a straightforward gift would not have required a cover of so much of secrecy. Good and generous friends would not have hesitated to give the supporting evidence. Yet, they have withheld it.

34. Truth is violated not only by falsehood but also by silence. These cases are an instance.

35. After consideration of the evidence on record, it is difficult to uphold the claim of the assessee that the two gifts had been made bona fide by the two donors as alleged by him.

36. Mr. Sharma contended that the question of gift given by one party to another is a pure finding of fact. It is based on documentary, investigative and oral evidence. Thus, no question of law much less a substantial question of law as envisaged under Section 260A of the Act arises. Consequently, the appeal is not maintainable. He referred to various decisions.

37. It is undoubtedly true that the High Court cannot “substitute its own opinion for that of the first appellate court unless it finds that the conclusions drawn by the lower court were erroneous being … based upon inadmissible evidence or no evidence.” There is no quarrel with the proposition. The scope of a second appeal has been considered by their Lordships of the Supreme Court in various cases. However, the issue is–What is the evidence to show that the donors had the means and also a reason to make the gifts to the donees ? There appears to be none.

38. It is true that the memorandums of gift dated March 22, 1994, are on record. The donors had also confirmed in writing that they had made the gifts. The bank drafts had been deposited in the accounts of the two daughters of the assessee. Vide letters dated October 7, 1995, and October 15, 1996, the Inland Revenue had sent its reports. Yet, on an examination of the entire material on the file, it is not possible to hold that the gifts had been duly made by the two donors. Their financial capability has not been established. There is no evidence to support the claim that the gifts were made on account of love, affection and regard. On the basis of the evidence, the conclusion recorded by the Tribunal that the gifts had been validly made was impossible.

39. Mr. Sharma was at pains to contend that on an examination of the evidence, the Commissioner of Income-tax (Appeals) in one case and the Tribunal have recorded a finding of fact that the gifts had been given by the donors. No ground for interference in an appeal under Section 260A of the Income-tax Act is made out.

40. Section 260A provides for appeal to the High Court. The appeal lies when “the High Court is satisfied that the case involves a substantial question of law”. The aggrieved party has to precisely state the question. When the court is satisfied about the question posed, it can proceed to formulate the precise issue and hear the parties. Mr. Sharma pointed out that the scope of the appeal is limited. He referred to the decisions of the apex court in Kondiba Dagadu Kadam v. Savitribai Sopan Gujar [1999] 3 SCC 722 and Hari Singh v. Kanhaiya Lal [1999] 7 SCC 288. He also relied upon the decision of the Rajasthan High Court in the case of Deputy CIT v. Marudhar Hotels Pvt. Ltd. [2000] 245 ITR 138 to contend that the principles governing a second appeal under Section 100 of the Code of Civil Procedure shall also apply to an appeal under Section 260A of the Income-tax Act, 1961. In these cases, it has been held that in view of the provisions of Section 100, the High Court cannot substitute its own opinion for that of the court. The jurisdiction of the court is limited to “the extent conferred by the Legislature”. Thus, the High Court can interfere in an appeal under Section 260A only when there is a substantial question of law.

41. Indisputably, the court can interfere when the finding is perverse. Or in a case where there is no evidence to support a finding. What is the position in the present case ? On an examination of the case, it appears that there is no evidence on the file to show that–

(i) The two donors had actually got $ 200,000 each on March 22, 1994, in their bank accounts or that they had the financial capability to make the alleged gifts.

(ii) There is no evidence to show that any money, much less $ 200,000 each was withdrawn from the accounts of the two donors for the preparation of the bank drafts. In fact, the report of the Inland Revenue clearly shows that Mr. Bharadwaj had got the money from Mr. Varinder Sharma. He had “arranged”. Who was this person ? What was the arrangement ? Why would he give the money ? Did he have any reason to do so ? Did he give a loan or a gift ? Did he know Mr. Oswal ? Is there a Moscow connection ? There is no answer. The truth is being intentionally withheld from the court.

(iii) The evidence on record is not such from which any reasonable person may be able to conclude that the donors and Mr. Oswal were friends. The pretence of love, affection and regard is not supported by any evidence on the file.

(iv) The Tribunal had not appreciated the cumulative effect of the evidence in its entirety.

42. Thus, the findings recorded by the Tribunal are clearly untenable.

43. Mr. Sharma referred to the decision of a Bench of this court in Lal Chand Kalra v. CIT (22 STR 135 (P & H)) to contend that the findings of the Tribunal cannot be interfered with by this court.

44. This was a case where the genuineness of the two gifts of Rs. 10,000 each was in issue. The High Court held that the alleged donees could not furnish any proof regarding their annual income. The donors were total strangers to the assessee. There was “no reason why he should make a gift of Rs. 10,000 to him.” Thus, the finding of the Tribunal was upheld. This decision does not support the case of the assessee in any manner whatsoever. In fact, it supports the Revenue. In the present case, as already noticed, the source of money has not been established. The donors were strangers. They had no reason to part with even a penny.

45. In view of the above, it is clear that the gifts are not genuine. The assessee and the two donors are not shown to have exchanged even one letter in ten to twelve years. There is not even a suggestion that the two friends had spoken to each other ten times in ten years. The assessee only knows them well enough to take but not to give.

46. Self-interest talks in all sorts of tongues and plays all sorts of roles. The indifference is indicative of the truth. Friendship is only a facade. Not a reality. The gifts are only a device. The assessee has not discharged the onus. Thus, questions Nos. (i) and (ii) as noticed above are answered in favour of the Revenue and against the assessee.

47. Reg : (iii)

48. Mr. Sharma contended that even if the gifts are disbelieved, there is no evidence to show that the money had been provided by Mr. Oswal. Thus, it is not the assessee’s concealed income. Consequently, it could not have added to his taxable income. Is it so ?

49. Admittedly, the amount involved is $ 400,000. There is no evidence to show that the alleged donors had so much money. In this situation, the question that arises is–Who could have provided the funds ? A stranger would have no reason to part with this money. It was Mr. Sharma’s claim that Mr. Oswal was running business worth Rs. 2,000 crores. In this situation, the inference is obvious.

50. Mr. Sharma is right in contending that the onus is on the Revenue. It is also correct that the court cannot proceed on surmises and suspicions. However, one cannot lose sight of the fact that dark deeds are performed under the cover of darkness. Direct evidence can never be available for everything. Sometimes, the facts speak loud and clear. Very often the courts have to draw inferences from attendant circumstances. The case in hand is an instance. Two gifts of $ 400,000 from two persons who are not in any way related to the donees and have not made a gift to any one else are too difficult to believe. This is all the more so in view of the fact that Mr. Gill has not made a gift even to a member of his family ever. Why would he part with a substantial amount to Mr. Oswal’s daughter ? In the absence of any evidence to show that the donors had the money or even the reason to do so, the inevitable inference is that the funds were provided by the assessee.

51. Mr. Sharma submitted that the Tribunal had taken a possible view. The High Court should not interfere.

52. In principle, counsel is correct. Whenever an authority takes a view on the basis of the evidence on the file, the court does not substitute its own opinion for that of the Tribunal. However, when there is no evidence to support a finding, as in the present case, the court cannot remain silent.

53. Thus, even the third question is answered in favour of the Revenue and against the assessee.

54. Mr. Sharma also submitted that there was no reason for the Revenue to assess the amount of gifts as income in the hands of the three appellants.

55. Admittedly, all the three have taken the position that the amount of $ 200,000 is not his or her income. The Revenue maintains that it is the income of Mr. Oswal. It has only made protective assessment in the hands of the assessee’s two daughters. The authority had merely acted cautiously, with the avowed object of protecting the financial interest of the State and the public at large. For no other consideration. In doing so it has committed no error or illegality.

56. No other point was raised.

57. In view of the above, the appeals are allowed. The three questions as posed above are answered in favour of the Revenue. No costs.

Ashutosh Mohunta, J.

58. These appeals have been filed by the Commissioner of Income-tax, Ludhiana, under Section 260A of the Income-tax Act, 1961, against the common order of the Income-tax Appellate Tribunal, Chandigarh Bench, passed in I. T. A. Nos. 62 and 74 of 1998 dated January 29, 1999, relating to the assessment year 1994-95, raising the following almost identical question in the three appeals :

“Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in deciding the deletion of the two foreign gifts of two lakhs US $ each received by the assessee on behalf of his daughters as on substantive basis and simultaneously deleting the addition made on protective basis in the hands of his daughters, Monica Oswal and Ruchika Oswal, because the financial capability of the donors have not been proved at any stage, either at the assessment stage or at the appellate stage ?”

59. The salient facts of the case in brief are :

60. That two gifts amounting to Rs. 2 lakhs dollars each were received in the United Kingdom by Mr. J. L. Oswal on behalf of his daughters through account payee drafts, one from Mr. B. P. Bhardwaj and the other from Mr. O. S. Gill, both residing in the U. K. These drafts were credited in the bank accounts of the daughters in India. The Assessing Officer asked the assessee to prove the creditworthiness and financial capacity of the donors and also carried out extensive enquiries through the Central Board of Direct Taxes, Ministry of Finance, New Delhi, who approached the Inland Revenue in the U. K. The assessee on his part having been asked by the Assessing Officer to produce the donors, produced Mr. O. S. Gill for examination and his statement was recorded by the Assessing Officer. The other donor, Mr. B. P. Bhardwaj, could not be produced before the Assessing Officer as he was a foreigner. However, he also was contacted by the Inland Revenue in the U. K. Mr. O. S. Gill in his statement to the Assessing Officer clearly stated that the account payee drafts purporting to be gifts in favour of Ruchika Oswal, one of the daughters, was obtained from his bank account in London, whose particulars were given. Mr. O. S. Gill’s statement was also recorded by the U. K. tax authorities on a specific requisition made by the Central Board of Direct Taxes regarding the genuineness of the gifts.

61. Likewise, Mr. B. P. Bhardwaj’s statement was also recorded by the U, K. tax authorities on a similar requisition having been made. He also testified to the genuineness of the gift made to Monica Oswal. Final reports from the U. K. tax authorities were received and the Central Board of Direct Taxes was apparently satisfied in relation to the queries made and the replies received.

62. Mr. Jawahar Lal Oswal was also personally examined and he confirmed about his long friendship with the said donors and the fact of receiving gifts through account payee drafts given by the said donors. Thus, the assessee had placed the undermentioned pieces of evidence before the Assessing Officer with respect to the gift of Mr. O. S. Gill and Mr. B. P. Bhardwaj.

63. Evidence filed in the case of Miss Ruchika Oswal :

1. Copy of memorandum of gift;

2. Affidavit of Mr. B. P. Bhardwaj;

3. Statement confirming gift received through Inland Revenue Services;

4. Copy of bank certificate confirming that the draft amount was credited to her account;

5. Copy of her capital account;

6. Statement of Mr. J. L. Oswal recorded by Income-tax Officer ; and

7. Copy of power of authority in favour of Mr. J. L. Oswal to receive gift on her behalf.

64. Evidence filed in the case of Miss Monica Oswal :

1. Memorandum of gift;

2. Certificate of the bank ;

3. Affidavit of Mr. O. S. Gill;

4. Statement of Mr. O. S. Gill ;

5. Letter received from the Inland Revenue U. K. ;

6. Copy of the capital account where the amount is credited ;

7. Power of attorney favouring Mr. J. L. Oswal to receive gift; and

8. Statement of Mr. J. L. Oswal confirming gift.

65. However, the Assessing Officer without finding any fault with the authenticity of such evidence or negating it by bringing any contrary evidence reached the conclusion based on no evidence that since the financial capacity of the donors had not been proved, it could be presumed that Mr. Jawahar Lal Oswal had introduced his own concealed income in the garb of the gifts in the name of his daughters. The Assessing Officer did not bring on record any evidence to show why the evidence gathered by the Central Board of Direct form the Inland Revenue in the U. K. could not be accepted as clinching the issue of genuineness of the gifts especially when the final report after exchange of correspondence between the two authorities had been received with reference to the specific queries raised by the Revenue to test the genuineness of the gifts. In this connection the relevant correspondence between the Central Board of Direct Taxes and the Inland Revenue, U. K., may be reproduced :

“I. Letter No. 504/27/95–From FTD–CBDT (Delhi) dated 7th October, 1995 to U. K. Inland Revenue Authority–with its enclosure :

The Indian income-tax authorities are enquiring into the genuineness of certain gifts received by Ms. Ruchika Oswal and Ms. Monica Oswal, daughters of Mr. J. L. Oswal of Oswal Woollen Mills Ltd., Ludhiana, Punjab, India.

Gifts of US $ two hundred thousand each have been received from the donors in the U. K. There is no relationship between the donors and donees and investigations have revealed that drafts have been purchased from the same bank and bear consecutive numbers in spite of the fact that donors are living at different places. Relevant details of the gifts are given in the annexure to this letter.”

“II. Letter from the Inland Revenue to the Central Board of Direct Taxes dated October 15, 1996, in respect of Mr. B. P. Bhardwaj :

I refer to your letter of 26 June, 1996, in which you requested information concerning the above-named. I am now able to provide you with an interim report.

Our investigator contacted Mr. B. P. Bhardwaj concerning gifts made to Miss Monica Oswal. He has replied that :

* A gift of US dollars 2,00,000 was made to Miss Oswal ‘on the occasion of her forthcoming marriage’ on or around 22 March, 1994.

* The funds were provided by Mr. Virender Sharma of Flat No. 184, Building 9A, Raminki, Moscow.

* Mr. Sharma arranged the draft and gave it to Mr. Bhardwaj. Mr. Bhardwaj handed it over to Miss Oswal’s father who was at the time passing through London.”

“III. Letter from the Inland Revenue to the Central Board of Direct Taxes dated February 10, 1997, in respect of Mr. O. S. Gill :

I refer to my letter of 15 October, 1996, and am now able to provide you with a final report.

We have managed to contact Dr. Gill and he has stated :

1. The gift was given to Miss Oswal on the occasion of her forthcoming marriage. The amount given was $ 2,00,000.

2. The amount was given as a gift and was by means of a bank draft.

3. There is no agreement between Dr. Gill and Miss Oswal on repayment of any of the amounts given.

This information is provided in accordance with Article 28 of our Double Taxation Convention and its use and disclosure must be governed accordingly.”

66. Regarding the financial capacity of the donors, the Tribunal in relation to the gift made by Mr. O. S. Gill noted that Gill had stated that he was running a company named Fresh Mark Ltd., giving its full address and was drawing an annual salary of 120 thousand sterling pounds per annum which came to about Rs. 75 lakhs in terms of rupees. Regarding the gift from Mr. B. P. Bhardwaj, the Tribunal noted from Mr. Oswal’s examination that he was doing international trading of all commodities mostly in computers and electronics and he had also obtained drafts from the bank in London where he was residing close by to O. S. Gill. The Tribunal was of the opinion that the burden placed on the assessee, if any, to prove the financial capacity of the donors was sufficiently discharged observing further that in the case of non-residents the burden was lighter because it was impracticable, rather impossible for the resident assessee to require a donor residing abroad to give out all information regarding his wealth and financial capacity. The assessee could not be asked to lead an evidence which was impossible. Further, it was a case where the identity and credibility of the donors had been fully established by the Inland Revenue, U. K., at the behest of the Central Board of Direct Taxes and nothing more was required to be done in that behalf.

67. Mr. R. P. Sawhney, counsel for the Revenue, urged that it was a fit case for the High Court to interfere with the decision of the Tribunal by admitting/allowing the appeals as the substantial question raised by the Revenue did arise. For this he relied, inter alia, on the decisions reported as CIT v. Indian Woollen Textiles Mills [1964] 51 ITR 291 (SC); B.M. Desai v. V. Ramamurthy, ITO [1958] 34 ITR 409 (Bom); CIT v. A.M. Zainalabdeen Musaliar [1995] 212 ITR 188 (Ker) and McDowell and Co. Ltd. v. CTO [1985] 154 ITR 148 (SC).

68. I have gone through all these decisions carefully. In my opinion, none of them deals with the provisions of Section 260A which is a new provision inserted in the Income-tax Act, 1961, with effect from October 1, 1998, with the clear object of reducing the multiplicity and pendency of references under Section 256 of the Act in the High Courts relating to tax disputes. However, it may be noted that in the case reported as CIT v. Indian Woollen Textiles Mills [1964] 51 ITR 291 (SC), the Tribunal had refused reference under Section 66(1) of the repealed Act, which is analogous to Section 256(1) of the Act, 1961, and the High Court also declined to direct the Tribunal to state the case. However, the hon’ble apex court found that the Tribunal did not consider the evidence covering all essential matters and based its findings upon some evidence only. Such action on the part of the Tribunal was construed to be a misdirection in law and the findings of the Tribunal gave rise to a question of law which ought to have been referred under Section 256 of the Act. The Supreme Court further held that as the Tribunal had assumed only one fact on which its conclusion was formed and had ignored all other relevant facts, the Tribunal’s decision was misdirected in law in arriving at its findings. It has not been pointed out to us as to which facts have been ignored here. On the contrary, the Tribunal has considered all the materials in detail and met with the arguments of both the sides exhaustively.

69. Moreover, none of the other cases cited by counsel has any relevance to decide whether a substantial question of law within the framework of Section 260A of the Act arises out of the Appellate Tribunal’s decision.

70. Mr. R. P. Sawhney, counsel for the Revenue, also laid some stress on the case of McDowell and Co. Ltd. v. CTO [1985] 154 ITR 148 where the apex court was pleased to observe whether the transaction was a device to avoid tax and was such that the judicial process may accord its approval to it. These observations of the court came to be made on an entirely different set of facts. The facts of that case were entirely different and the ultimate decision rested on the view of the court that payment of excise duty was a condition precedent to the removal of the liquor from the distillery and the purchase was on account of the purchaser. Hence, the excise duty, according to normal practice, should have been reflected in the assessee’s bill. Therefore, the court held that the excise duty paid by the purchaser was part of the consideration for sale and was includible in the turnover of the appellant. The facts of this case have hardly any bearing on the facts of the case under consideration. Apart, there is no evidence that the tax has been avoided by adopting any legal device. Here, the case is not of avoidance of any tax but centres on the question whether any tax is leviable on the amounts gifted. There is no evidence that the money gifted emanated from Mr. Jawahar Lal Oswal. If there was any evidence to hold that the gifts emanated from Mr. J. L. Oswal that will straightaway lead to the conclusion that it was his taxable income, but undisclosed. But, there is no evidence, whatsoever, in this case to support the allegations of the income-tax authorities.

71. Mr. G. C. Sharma, counsel for the respondents, has urged at the first instance that the object of introducing Section 260A in the Income-tax Act, 1961, was to limit the jurisdiction of the High Court for reducing the litigation arising out of the references under Section 256 of the Act. He pointed out that the provisions of Section 260A of the Act were pari materia to Section 100 of the Code of Civil Procedure, as accepted by the Rajasthan High Court in the case of Deputy CIT v. Marudhar Hotels (P.) Ltd. [2000] 245 ITR 138.

72. For deciding whether a substantial question of law arose from the order of the Appellate Tribunal, warranting the maintainability of appeals filed before us, counsel laid emphasis on the two Supreme Court decisions reported as CIT v. Cynamid India Ltd. [1999] 237 ITR 585 ; [1999] 3 SCC 727 and Hari Singh v. Kanhaiya Lal [1999] 7 SCC 288, where the Supreme Court had categorically held as under :

(i) The High Court in second appeal cannot substitute its own opinion for that of the first appellate court unless it finds that the conclusions drawn by the lower court were erroneous being (i) contrary to the mandatory provisions of applicable law ; or (ii) contrary to the law as pronounced by the apex court; or (iii) based upon inadmissible evidence or no evidence. A question arising between parties in the absence of factual format should not be allowed to be raised as a substantial question of law.

73. Again counsel relied on the important observations of the Supreme Court in the case of Hari Singh v. Kanhaiya Lal [1999] 7 SCC 288, particularly, on their Lordships’ observations in paragraphs 9, 12 to 14 of the judgment where the court had referred to its various previous judgments. He further placed reliance on the Delhi High Court’s judgment reported in Mahavir Woollen Mills v. CIT [2000] 245 ITR 297, wherein the High Court had followed the tests laid down in the Supreme Court judgment reported as Sir Chunnilal Lal V. Mehta and Sons Ltd. v. Century Spinning and Manufacturing Co. Ltd., AIR 1962 SC 1314, which had to be applied in deciding whether a substantial question of law arose on the facts found by the Appellate Tribunal. He went to the extent of saying that on the facts there not even a question of law arose, what to say of a “substantial question of law.” In short, his submission was that the High Court in reference under Section 256 or in appeal under Section 260A of the Act could not interfere with pure findings of fact arrived at after considering all relevant evidence, even if the High Court were to reach a different conclusion on the same facts. In support of his submission, he placed great reliance on the observations of the apex court in the case of CIT v. Daulat Ram Rawatmull [1973] 87 ITR 349. He said that this decision supported his submission on the facts also in so far as the question of taxability of the gifted amounts in the hands of Mr. J. L. Oswal was to be adjudicated upon.

74. Without prejudice to the pleadings as stated above, learned counsel for the respondents submitted that the question of law formulated by the appellant was wholly defective and could not form the basis of real issues involved.

75. In the present case, the evidence adduced by the parties has already been appraised by the Commissioner of Income-tax (Appeals). Thereafter, the evidence has been reappraised by the Income-tax Appellate Tribunal Thus, it cannot be said that the findings of the courts below were perverse or that the findings are based on inadmissible evidence. The present appeals are absolutely covered by the decisions of the hon’ble Supreme Court in CIT v. Cynamid India Ltd. [1999] 237 ITR 585 and Hari Singh v. Kanhaiya Lal [1999] 7 SCC 288 against the Revenue. I am, thus, inclined to hold that the questions of law formulated by the appellant in all the three appeals, which are identical, are wholly defective.

76. It was also argued by counsel for the appellant that the financial capacity of the donors had not been proved at any stage either at the assessment stage or at the appellate stage, and further it brings into consideration the theory of “substantial and protective” assessment. This has no application here, as none of the respondents has admitted that the income belongs to him or her. The theory is applicable only where one assessee, say “A”, admits a certain item to be his income and declares it in his return, whereas the Assessing Officer is of the opinion that the income so declared belongs to another assessee, say “B”, and proceeds to assess the declared income of “A” in the hands of the assessee “B”. In this case it was obvious that none of the assessees admitted the gifted amount as his or her income. Further, the Tribunal had accepted the financial capacity of the donors. Hence, the question formulated by the appellant was wholly erroneous.

77. It was also argued before the Tribunal and before us by the respondent’s counsel that since there was no evidence to show that the amounts gifted emanated from Mr. Jawahar Lal Oswal or he was found to be the owner of the gifted amounts or its beneficiary Section 69A of the Act did not apply to his individual case. It was further argued that the onus to prove that the amounts of gifts emanated from Mr. Jawahar Lal Oswal fell squarely on the shoulders of the Revenue which they had completely failed to discharge by leading any evidence. Counsel brought to our notice the case of Parimisetti Seetharamamma v. CIT [1965] 57 ITR 532 (SC), in this connection. Counsel submitted the following propositions for our consideration :

1. Whether “A” has given a gift to “B” or not is a pure finding of fact, in this case based on documentary evidence, oral evidence and even investigative evidence, No principle of law in appraising such evidence has been violated. Thus, no question of law far less a substantial question of law warranting maintainability of appeal arises.

2. Such findings of fact cannot be interfered with whether the matter comes before the High Court in a reference under Section 256 or in second appeal under Section 260A of the Income-tax Act, 1961.

3. Such finding of fact can only be asserted before the High Court if there is no evidence to support it or any vital evidence has been ignored by the Tribunal in reaching the conclusion. The question of law could be formulated only on the basis of “no evidence”. Reaching a conclusion after considering the pros and cons of evidence cannot be assailed even if the High Court could have reached a different conclusion after considering the same material.

4. In this case, all the evidence considered by the Tribunal has been placed before the court. This can again be seen as per chart submitted. The Tribunal has also considered the question of onus and held that the Revenue failed to discharge it as regards the allegation that the gifted money was provided by Mr. J. L. Oswal.

5. Whatsoever be the decision regarding the genuineness of the gifts received by the two daughters, it cannot provide any basis for holding that the gifted moneys were provided by the father. It would be as bad to say that they were provided by their mother or brother or anybody else. There is absolutely no evidence, even an iota of evidence to reach such a conclusion. The Revenue has failed to discharge the onus in asserting that the gifted moneys were provided by Mr. J. L. Oswal from his secret income abroad.

6. In the light of the submissions as above, no question of law arises from the order of the Tribunal which has recorded pure findings of fact.

78. Having considered the rival submissions on both sides. I am firmly of the opinion that the Tribunal’s decision is founded on good and relevant evidence; there being no evidence adduced by the Revenue to the contrary that the money for gifts was provided by Mr. J. L. Oswal. Even if this court may be rightly or wrongly advised to entertain such a suspicion there is no corroborative evidence to strengthen the suspicion about the source of gifts. It is well settled that an assessment made on conjectures and surmises would be void.

79. After going through the entire record, it is clear that the Tribunal has considered all the evidence on record. It has not ignored any relevant piece of evidence. After considering all the arguments and submissions made before it by the parties, it has recorded pure findings of fact. Indeed, so far as the amount of gift received from Mr. O. S. Gill goes, there are concurrent findings of the first appellate authority, i.e., the Commissioner of Income-tax (Appeals), and the second appellate authority, i.e., the Tribunal. Even in respect of the amount of gift received from Mr. Bhardwaj, the Tribunal has discussed the issue threadbare after considering all the evidence on record, including the statements of the donors, the documents in support of the gifts through bank drafts drawn from banks, in the U. K., identity, credit-worthiness and financial capacity and report of the Inland Revenue in the U. K. In any event, the view taken by the Tribunal is plausible and reasonable, based on relevant materials. There is no perversity in the view taken and I find no material to disturb the findings of fact arrived at by the Tribunal after taking into consideration all the relevant material. I would like to add that in these cases the Revenue attempted to get all evidence, if any, to support the Assessing Officer’s assessments through the U. K. Revenue authorities, yet could not find any piece of evidence for impugning the genuineness of the gifts.

80. It may be noted that the Assessing Officer deemed the amounts gifted as income of Mr. Jawahar Lal Oswal under Section 69A of the Income-tax Act, 1961, and the amount gifted to the daughters as their income under Section 68 of the Act. I have examined the provisions of Sections 69A and 68. In my view, Section 69A can only be applied after it has been found that the assessee is the owner of a certain amount of money and he cannot explain how he became the owner thereof. It has already been held that there is no evidence to support that he was the owner of the gifted amounts. Section 69A of the Act is, therefore, clearly inapplicable.

81. Turning to Section 68 of the Act, as applied in the cases of the two daughters by the Assessing Officer, the same would also be inapplicable as it is nobody’s case that the daughters obtained loans from any party and credited the amounts in their account books. Indeed the Assessing Officer, made a protective assessment in the case of the two daughters and did not go into the question of the genuineness of the amounts received by them in their own right and bring the sole beneficiary thereof. I agree that a protective assessment was not permissible in their cases as they never admitted gifts to be their income in their returns. In any event, as the allegation of the Revenue that the gifts were not genuine has been successfully rebutted by the assessee before the Tribunal, the question of applicability of Sections 69A and 68 of the Act becomes only academic.

82. In the context of what has been stated above, it is held that no substantial question of law arises in these appeals, within the meaning of Section 260A of the Income-tax Act, 1961, and the present appeals are squarely covered by the decisions of the Supreme Court in CIT v. Cynamid India Ltd. [1999] 237 ITR 585 and Hari Singh v. Kanhaiya Lal [1999] 7 SCC 288. These appeals are, consequently dismissed. No costs.

G. S. Singhvi, J.

83. These appeals have been placed before me in pursuance of order dated September 15, 2001, passed by the hon’ble Chief Justice in view of the difference of opinion among the members of the Division Bench which had heard the matter at the motion stage.

84. When the appeals were heard in the month of February, 2002, Shri R. P. Sawhney, senior counsel appearing for the Revenue-appellant had raised an objection to the maintainability of reference on the ground that the Division Bench had not framed the point of law as required by Section 260B(2) of the Income-tax Act, 1961 (for short, “the Act”). The objection of Shri Sawhney was overruled by a detailed order dated April 8, 2002, and the following points of law were framed ;

“(i) Whether the assessee had discharged the onus of establishing that gifts of $ 200,000 made in favour of Miss Monica Oswal and Miss Ruchika Oswal through him by Shri O. S. Gill and Shri B. P. Bhardawaj were valid ?

(ii) Whether the amounts gifted by Shri O. S. Gill and Shri B. P. Bhardawaj to Miss Monica Oswal and Miss Ruchika Oswal are to be treated as the income of the assessee under Section 69A of the Act ?”

85. Shri G. C. Sharma, learned counsel for the assessees, submitted that the court shall first determine whether any substantial question of law arises in these appeals within the meaning of Section 260A of the Act and if in the opinion of the court, any such question arises, then the appeals should be admitted for regular hearing by a Division Bench, else the same should be dismissed as not maintainable.

86. For deciding whether or not any substantial question of law arises for determination in these appeals, it will be useful to notice the relevant facts.

87. The assessees in these appeals are related to each other, inasmuch as, Jawahar Lal Oswal (respondent in I. T. A. No. 49 of 1999) is the father of the respondents in the remaining two appeals, namely, Miss Monica Oswal and Miss Ruchika Oswal. Two gifts of $ 2,00,000 each were received by Jawahar Lal Oswal in the United Kingdom on behalf of his daughters through account payee draft. One of the gifts was given by Shri B. P. Bhardawaj and the other was given by Shri O. S. Gill. These drafts were credited in the bank accounts of Miss Monica Oswal and Miss Ruchika Oswal in India. In the course of assessment proceedings for the assessment year 1994-95, the Assessing Officer asked the assessee, namely, Jawahar Lal Oswal to prove the creditworthiness and financial capacity of the donors. He also carried out extensive enquiries through the Central Board of Direct Taxes, Ministry of Finance, New Delhi, who approached the Inland Revenue in the United Kingdom. The assessee-Jawahar Lal Oswal produced Shri O. S. Gill for examination and his statement was recorded by the Assessing Officer. However, the other donor, namely, Shri B. P. Bhardawaj, was not produced before the Assessing Officer.

88. After considering the material produced before him, the Assessing Officer framed the assessment under Section 143(3) of the Act. He assessed the income of Miss Monica Oswal at Rs. 65,05,792 which included the addition made on account of unexplained foreign gift of $ 2,00,000 equivalent of Rs. 62,12,432 on protective basis. In the case of Miss Ruchika Oswal, the Assessing Officer assessed her income at Rs. 65,20,795 which included an addition of Rs. 62,12,432 on protective basis on account of unexplained foreign gift of $ 2,00,000. In the case of Jawahar Lal Oswal, the Assessing Officer made addition of Rs. 1,24,40,864 including the addition of two foreign gifts amounting to Rs. 1,24,24,864 made on protective basis in the hands of his daughters.

89. The assessees filed appeals against the orders dated February 28, 1997, passed by the Assessing Officer. The Commissioner of Income-tax (Appeals), Ludhiana (for short, “the CIT (Appeals)”), vide his orders dated December 19, 1997, deleted the addition of $ 2,00,000 received by Miss Ruchika Oswal in the form of gift from Shri O. S. Gill but confirmed the addition made by the Assessing Officer in lieu of the gift received by Miss Monica Oswal from Shri B. P. Bhardawaj. Accordingly, he partly allowed the appeals filed by the assessees.

90. Dissatisfied with the order of the Commissioner of Income-tax (Appeals), the Revenue filed appeals before the Income-tax Appellate Tribunal, Chandigarh (for short, “the Tribunal”). The assessees also filed appeals against the addition made on account of the gift of $ 2,00,000 received by Miss Monica Oswal from Shri B. P. Bhardawaj. The Tribunal deleted the additions made by the Assessing Officer under Section 69A of the Act on account of foreign gifts received by Miss Monica Oswal, it held that such addition can be made only on the basis of unimpeachable evidence and not on the basis of suspicion, surmises and conjectures, as was done by the Assessing Officer. Accordingly, the Tribunal dismissed the appeals of the Revenue and allowed those filed by the assessees.

91. The appeals filed by the Revenue under Section 260A of the Act were heard by the Division Bench consisting of Jawahar Lal Gupta J. and Ashutosh Mohunta, J. While Jawahar Lal Gupta J. held that the finding recorded by the Tribunal on the issue of the genuineness of the gifts allegedly made by Shri O. S. Gill and Shri B. P. Bhardawaj was clearly untenable and that the additions made in the income of Jawahar Lal Oswal under Section 69A of the Act was justified, Ashutosh Mohunta J., held that the finding recorded by the Tribunal on the genuineness of the gifts made by Shri O. S. Gill and Shri B. P. Bhardawaj was a pure finding of fact and the Assessing Officer gravely erred in applying Section 69A of the Act for the purpose of assessing the income of Jawahar Lal Oswal. The relevant portions of the opinions expressed by the two hon’ble judges are reproduced below :

“Jawahar Lal Gupta J.–Section 260A provides for appeal to the High Court. The appeal lies when the High Court is satisfied that the case involves a substantial question of law. The aggrieved party has to precisely state the question. When the court is satisfied about the question posed, it can proceed to formulate the precise issue and hear the parties. Mr. Sharma pointed out that the scope of the appeal is limited. He referred to the decisions of the apex court in Kondiba Dagadu Kadam v. Savitribai Sopan Gujar [1999] 3 SCC 722 and Hari Singh v. Kanhaiya Lal [1999] 7 SCC 288. He also relied upon the decision of the Rajasthan High Court in the case of Deputy CIT v. Marudhar Hotels (P.) Ltd, [2000] 245 ITR 138 to contend that the principles governing a second appeal under Section 100 of the Code of Civil Procedure shall also apply to an appeal under Section 260A of the Income-tax Act, 1961. In these cases, it has been held that in view of the provisions of Section 100, the High Court cannot substitute its own opinion for that of the court. The jurisdiction of the court is limited to the extent conferred by the Legislature. Thus, the High Court can interfere in an appeal under Section 260A only when there is a substantial question of law.

Indisputably, the court can interfere when the finding is perverse. Or in a case where there is no evidence to support a finding. What is the position in the present case ? On an examination of the case, it appears that there is no evidence on the file to show that–

(i) The two donors had actually got $ 200,000 each on March 22, 1994, in their bank accounts or that they had the financial capability to make the alleged gifts.

(ii) There is no evidence to show that any money, much less $ 200,000 each was withdrawn from the accounts of the two donors for the preparation of the bank drafts. In fact, the report of the Inland Revenue clearly shows that Mr. Bhardawaj had got the money from Mr. Varinder Sharma. He had arranged. Who was this person ? What was the arrangement ? Why would he give the money ? Did he have any reason to do so ? Did he give a loan or a gift ? Did he know Mr. Oswal ? Is there a Moscow connection ? There is no answer. The truth is being intentionally withheld from the court.

(iii) The evidence on record is not such from which any reasonable person may be able to conclude that the donors and Mr. Oswal were friends, the pretence of love, affection and regard is not supported by any evidence on the file.

(iv) The Tribunal had not appreciated the cumulative effect of the evidence in its entirety.

Thus, the findings recorded by the Tribunal are clearly untenable.

Mr. Sharma referred to the decisions of a Bench of this court in Lal Chand Kalra v. CIT (22 STR 135 (P&H)) to contend that the findings of the Tribunal cannot be interfered with by this court.

This was a case where the genuineness of two gifts of Rs. 10,000 each was in issue. The High Court held that the alleged donees could not furnish any proof regarding their annual income. The donors were total strangers to the assessee. There was no reason why he should make a gift of Rs. 10,000 to him. Thus, the finding of the Tribunal was upheld. This decision does not support the case of the assessee in any manner whatsoever. In fact, it supports the Revenue. In the present case, as already noticed, the source of money has not been established. The donors were strangers. They had no reason to part with even a penny.

In view of the above, it is clear that the gifts are not genuine. The assessee and the two donors are not shown to have exchanged even one letter in ten to twelve years. There is not even a suggestion that the two friends had spoken to each other ten times in ten years. The assessee only knows them well enough to take but not to give.

Self-interest talks in all sorts of tongues and plays all sorts of roles. The indifference is indicative of the truth. Friendship is only a facade. Not a reality. The gifts are only a device, the assessee has not discharged the onus. Thus, questions Nos. (i) and (ii) as noticed above are answered in favour of the Revenue and against the assessee.

Mr. Sharma contended that even if the gifts are disbelieved, there is no evidence to show that the money had been provided by Mr. Oswal. Thus, it is not the assessee’s concealed income. Consequently, it could not have added to his taxable income. Is it so ?

Admittedly, the amount involved is $ 400,000, there is no evidence to show that the alleged donors had so much money. In this situation, the question that arises is–who could have provided the funds ? A stranger would have no reason to part with this money. It was Mr. Sharma’s claim that Mr. Oswal was running business worth Rs. 2,000 crores. In this situation, the inference is obvious.

Mr. Sharma is right in contending that the onus is on the Revenue. It is also correct that the court cannot proceed on surmises and suspicions. However, one cannot lose sight of the fact that dark deeds are performed under the cover of darkness. Direct evidence can never be available for everything. Sometimes, facts speak loud and clear. Very often the courts have to draw inferences from attendant circumstances. The case in hand is an instance. Two gifts of $ 400,000 from two persons who are not in any way related to the donees and have not made a gift to any one else are too difficult to believe. This is all the more so in view of the fact that Mr. Gill has not made a gift even to a member of his family ever. Why would he part with a substantial amount to Mr. Oswal’s daughter ? In the absence of any evidence to show that the donors had the money or even the reason to do so, the inevitable inference is that the funds were provided by the assessee.

Mr. Sharma submitted that the Tribunal had taken a possible view. The High Court should not interfere.

In principle, counsel is correct. Whenever an authority takes a view on the basis of the evidence on the file, the court does not substitute its own opinion for that of the Tribunal. However, when there is no evidence to support a finding, as in the present case, the court cannot remain silent.

Thus, even the third question is answered in favour of the Revenue and against the assessee.

Mr. Sharma also submitted that there was no reason for the Revenue to assess the amount of gifts as income in the hands of the three appellants.

Admittedly, all the three have taken the position that the amount of $ 200,000 is not his or her income. The Revenue maintains that it is the income of Mr. Oswal. It has only made protective assessment in the hands of the assessee’s two daughters. The authority had merely acted cautiously. With the avowed object of protecting the financial interest of the State and the public at large. For no other consideration. In doing so, it has committed no error or illegality.

Ashutosh Mohunta J.

92. After going through the entire record, it is clear that the Tribunal has considered all the evidence on record. It has not ignored any relevant piece of evidence. After considering all the arguments and submissions made before it by the parties, it has recorded pure findings of fact. Indeed, so far as the amount of gift received from Mr. O. S. Gill goes, there are concurrent findings of the first appellate authority, i.e., the Commissioner of Income-tax (Appeals), and the second appellate authority, i.e., the Tribunal. Even in respect of the amount of gift received from Mr. Bhardawaj, the Tribunal has discussed the issue threadbare after considering all the evidence on record, including the statements of the donors, the documents in support of the gifts through bank drafts drawn from banks in the U. K., identity, credit-worthiness and financial capacity and report of the Inland Revenue in the U. K. In any event, the view taken by the Tribunal is plausible and reasonable, based on relevant materials. There is no perversity in the view taken and I find no material to disturb the findings of fact arrived at by the Tribunal after taking into consideration all the relevant material I would like to add that in these cases the Revenue attempted to get all evidence, if any, to support the Assessing Officer’s assessments through the U. K. Revenue authorities, yet could not find any piece of evidence for impugning the genuineness of the gifts.

93 It may be noted that the Assessing Officer deemed the amounts gifted as income of Mr. Jawahar Lal Oswal under Section 69A of the Income-tax Act, 1961, and the amount gifted to the daughters as their income under Section 68 of the Act. I have examined the provisions of Sections 69A and 68. In my view, Section 69A can only be applied after it has been found that the assessee is the owner of a certain amount of money and he cannot explain how he became the owner thereof. It has already been held that there is no evidence to support that he was the owner of the gifted amounts. Section 69A of the Act, is therefore, clearly inapplicable.

94. Turning to Section 68 of the Act, as applied in the cases of the two daughters by the Assessing Officer, the same would also be inapplicable as it is nobody’s case that the daughters obtained loans from any party and credited the amounts in their account books. Indeed the Assessing Officer, made a protective assessment in the case of the two daughters and did not go into the question of the genuineness of the amounts received by them in their own right and bring the sole beneficiary thereof. I agree that a protective assessment was not permissible in their cases as they never admitted the gifts to be their income in their returns. In any event, as the allegation of the Revenue that the gifts were not genuine has been successfully rebutted by the assessee before the Tribunal, the question of applicability of Sections 69A and 68 of the Act becomes only academic.”

95. Shri R. P. Sawhney, learned senior counsel for the Revenue, supported the order passed by Jawahar Lal Gupta J. and argued that the finding recorded by the Tribunal on the genuineness of the gifts made by Shri O. S. Gill and Shri B. P. Bhardawaj has been rightly held by the learned judge to be perverse. He read out the evidence produced by Jawahar Lal Oswal and submitted that the scheme devised by him to convert black money into white money by showing the gifts of $ 2,00,000 each by Shri O. S. Gill and Shri B. P. Bhardawaj in favour of his daughters was rightly declared as a sham transaction by the Assessing Officer and the Tribunal gravely erred in interfering with the finding recorded by the Assessing Officer. Shri Sawhney relied on the judgments in CIT v. Durga Prasad More [1971] 82 ITR 540 (SC) and Sumati Dayal v. CIT [1995] 214 ITR 801 (SC) and argued that in such case, the court should test the veracity of the evidence on the touch-stone of human probabilities for deciding whether or not the gift was genuine. He then referred to CIT v. Smt. Durgawati Singh [1998] 234 ITR 249 (All) and argued that the Assessing Officer did not commit any illegality by making protective assessment in the hands of Miss Ruchika Oswal and Miss Monica Oswal. In the end, he submitted that the question framed by the Revenue is a substantial question of law which merits consideration by this court.

96. Shri G. C. Sharma, learned senior counsel for the assessees, vehemently argued that the finding recorded by the Tribunal on the genuineness of the gifts made by Shri O. S. Gill and Shri B. P. Bhardawaj to the two daughters of Jawahar Lal Oswal is essentially a finding of fact based on appreciation of evidence and the mere possibility of this court expressing a different opinion than the one formed by the Tribunal is not sufficient for holding that a substantial question of law arises in these appeals, Shri Sharma referred to Section 100(1) of the Code of Civil Procedure and Section 260A of the Act and argued that an appeal filed under Section 260A of the Act cannot be entertained unless this court comes to the conclusion that a substantial question of law arises for consideration by the court. In support of this argument, Shri Sharma relied on the judgments of the Supreme Court in Sir Chunilal V. Mehta and Sons Ltd. v. Century Spinning and Manufacturing Co. Ltd., AIR 1962 SC 1314; Reserve Bank of India v. Ramkrishna Govind Morey, AIR 1976 SC 830; Panchugopal Barua v. Umesh Chandra Goswami [1997] 4 SCC 713 ; Kshitish Chandra Purkait v. Santosh Kumar Purkait [1997] 5 SCC 438 ; Ram Prasad Rajak v. Nand Kumar and Bros. [1998] 6 SCC 748; Kondiba Dagadu Kadam v. Savitribai Sopan Gujar [1999] 3 SCC 722; Hari Singh v. Kanhaiya Lal [1999] 7 SCC 288; Santosh Hazari v. Purushottam Tiwari [2001] 251 ITR 84 (SC); Deputy CIT v. Marudhar Hotels (P.) Ltd. [2000] 245 ITR 138 (Raj); Mahavir Woollen Mills v. CIT [2000] 245 ITR 297 (Delhi); Chaman Lal v. CIT [2000] 245 ITR 730 (Delhi); CIT v. Satinder Kumar [2001] 250 ITR 484 (P&H) and CIT v. Burma Electro Corporation [2001] 252 ITR 344 (P&H). Shri Sharma then argued that the doctrine of human probability can be applied only when no evidence is produced by the parties or where the evidence led by the parties is palpably unreliable and not in a case where two opinions are possible on the evidence produced by the parties. In the end, Shri G. C. Sharma submitted that he had not suggested framing of any question of law, as is mentioned at pages 5 and 6 of the order of Jawahar Lal Gupta J. and, at any rate, the appeals could not have been finally disposed of without framing the substantial question of law.

97. Section 260A of the Act under which the present appeal has been filed reads as under :

“260A. (1) An appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal, if the High Court is satisfied that the case involves a substantial question of law.

(2) The Chief Commissioner or the Commissioner or an assessee aggrieved by any order passed by the Appellate Tribunal may file an appeal to the High Court and such appeal under this sub-section shall be–

(a) filed within one hundred and twenty days from the date on which the order appealed against is received by the assessee or the Chief Commissioner or Commissioner ; . . .

(c) in the form of a memorandum of appeal precisely stating therein the substantial question of law involved.

(3) Where the High Court is satisfied that a substantial question of law is involved in any case, it shall formulate that question.

(4) The appeal shall be heard only on the question so formulated, and the respondents shall, at the hearing of the appeal, be allowed to argue that the case does not involve such question :

Provided that nothing in this sub-section shall be deemed to take away or abridge the power of the court to hear, for reasons to be recorded, the appeal on any other substantial question of law not formulated by it, if it is satisfied that the case involves such question.

(5) The High Court shall decide the question of law so formulated and deliver such judgment thereon containing the grounds on which such decision is founded and may award such cost as it deems fit.

(6) The High Court may determine any issue which–

(a) has not been determined by the Appellate Tribunal; or

(b) has been wrongly determined by the Appellate Tribunal, by reason of a decision on such question of law as is referred to in subsection (1).

(7) Save as otherwise provided in this Act, the provisions of the Code of Civil Procedure, 1908 (5 of 1908), relating to appeals to the High Court shall, as far as may be, apply in the case of appeals under this section.”

98. Sub-section (1) of Section 260A of the Act is substantially similar to Section 100(1) of the Code of Civil Procedure which reads as under :

“100. Second appeal–(1) Save as otherwise expressly provided in the body of this Code or by any other law for the time being in force, an appeal shall lie to the High Court from every decree passed in appeal by any court subordinate to the High Court, if the High Court is satisfied that the case involves a substantial question of law.”

99. The expression “substantial question of law” which appears in Sub-sections (1), (2)(c) and (3) of Section 260A of the Act and Sub-section (1) of Section 100 of the Code of Civil Procedure has not been defined in either of the statutes. Therefore, it will be appropriate to notice the judicial precedents in which the said expression has been interpreted in the context of Section 100 of the Code of Civil Procedure (as amended in 1976).

100. In Panchugopal Barua v. Umesh Chandra Goswami [1997] 4 SCC 713, their Lordships of the Supreme Court interpreted Section 100 of the Code of Civil Procedure, as amended in the year 1976, and observed (page 719) :

“A bare look at Section 100 of the Code of Civil Procedure shows that the jurisdiction of the High Court to entertain a second appeal after the 1976 amendment is confined only to such appeals as involve a substantial question of law, specifically set out in the memorandum of appeal and formulated by the High Court. Of course, the proviso to the section shows that nothing shall be deemed to take away or abridge the power of the court to hear for reasons to be recorded, the appeal on any other substantial question of law, not formulated by it, if the court is satisfied that the case involves such a question. The proviso presupposes that the court shall indicate in its order the substantial question of law which it proposes to decide even if such substantial question of law was not earlier formulated by it. The existence of a ‘substantial question of law’ is thus, the sine qua non for the exercise of the jurisdiction under the amended provisions of Section WO of the Code of Civil Procedure.”

101. In Ram Prasad Rajak v. Nand Kumar and Bros. [1998] 6 SCC 748, the Supreme Court held (page 751) :

“Unless there was a substantial question of law, the High Court had no jurisdiction to entertain the second appeal and consider the merits. It has been held by this court in Panchugopal Barua v. Umesh Chandra Goswami [1997] 4 SCC 713 and Kshitish Chandra Purkait v. Santosh Kumar Purkait [1997] 5 SCC 438 that existence of a substantial question of law is sine qua non for the exercise of jurisdiction under Section 100 of the Code of Civil Procedure. In both the aforesaid cases, one of us (Dr. Anand J.) was a party to the Bench and in the former, he spoke for the Bench.”

102. In Kondiba Dagadu Kadam v. Savitribai Sopan Gujar [1999] 3 SCC 722, their Lordships of the Supreme Court lamented that the High Courts were deciding second appeals without formulating substantial questions of law and observed (page 725) :

“It is not within the domain of the High Court to investigate the grounds on which the findings were arrived at, by the last court of fact, being the first appellate court. It is true that the lower appellate court should not ordinarily reject witnesses accepted by the trial court in respect of credibility but even where it has rejected the witnesses accepted by the trial court, the same is no ground for interference in second appeal when it is found that the appellate court has given satisfactory reasons for doing so. In a case where from a given set of circumstances two inferences are possible, one drawn by the lower appellate court is binding on the High Court in second appeal. Adopting any other approach is not permissible. The High Court cannot substitute its opinion for the opinion of the first appellate court unless it is found that the conclusions drawn by the lower appellate court were erroneous being contrary to the mandatory provisions of law applicable or its settled position on the basis of pronouncements made by the apex court, or was based upon inadmissible evidence or arrived at without evidence.

If the question of law termed as a substantial question stands already decided by a larger Bench of the High Court concerned or by the Privy Council or by the Federal Court or by the Supreme Court, its merely wrong application on the facts of the case would not be termed to be a substantial question of law. Where a point of law has not been pleaded or is found to be arising between the parties in the absence of any factual format, a litigant should not be allowed to raise that question as a substantial question of law in second appeal. The mere appreciation of the facts, the documentary evidence or the meaning of entries and the contents of the document cannot be held to be raising a substantial question of law. But where it is found that the first appellate court has assumed jurisdiction which did not vest in it, the same can be adjudicated in the second appeal, treating it as a substantial question of law. Where the first appellate court is shown to have exercised its discretion in a judicial manner, it cannot be termed to be an error either of law or of procedure requiring interference in second appeal.”

103. In Hari Singh v. Kanhaiya Lal [1999] 7 SCC 288, the Supreme Court referred to its earlier judgments and observed (headnote) :

“The purpose of amending Section 100 by the 1976 amending Act was to further limit the jurisdiction of the High Court. Prior to the amendment the interference could have been where an order was contrary to law or some usage having the force of law. But now it can only be if any substantial question of law arises. The words ‘substantial question of law’ brought in have significance and are not superfluous. So now interference cannot be only because the order is contrary to law, but when the disputed issues raise a substantial question of law. Creation of powers or limiting such powers in the appellate authorities is always a decision based on public policy expressed in the maxim interest reipublicae ut sit finis litium. This policy brings to finality some issues or a litigation at some point of time. If no appeal is provided, the original order becomes final. Thus it is open for the Legislature to bring finality to the adjudication on question of facts up to the stage of first appeal and limit the second appeal to question of law or to the substantial question of law or to such other limitation which the Legislature deems fit and proper.”

104. In Santosh Hazari v. Purushottam Tiwari [2001] 251 ITR 84, their Lordships of the Supreme Court referred to the report of the Select Committee and the Statement of Objects and Reasons contained in the Bill vide which the amendment in Section 100 of the Code of Civil Procedure was proposed and observed (page 89) :

“The phrase ‘substantial question of law’, as occurring in the amended Section 100 is not defined in the Code. The word substantial, as qualifying ‘question of law’, means–of having substance, essential, real, of sound worth, important or considerable. It is to be understood as something in contradiction with technical, of no substance or consequence, or academic merely. However, it is clear that the Legislature has chosen not to qualify the scope of ‘substantial question of law’ by suffixing the words ‘of general importance’ as has been done in many other provisions such as Section 109 of the Code or Article 133(1)(a) of the Constitution. The substantial question of law on which a second appeal shall be heard need not necessarily be a substantial question of law of general importance. In Guran Ditta v. T. Ram Ditta, AIR 1928 PC 172, the phrase ‘substantial question of law’ as it was employed in the last clause of the then existing Section 110 of the Civil Procedure Code (since omitted by the Amendment Act, 1973) came up for consideration and their Lordships held that it did not mean a substantial question of general importance but a substantial question of law which was involved in the case as between the parties. In Sir Chunilal V. Mehta and Sons Ltd. v. Century Spinning and Manufacturing Co. Ltd., AIR 1962 SC 1314; [1962] Supp. 3 SCR 549, the Constitution Bench expressed agreement with the following view taken by a Full Bench of the Madras High Court in Rimmalapudi Subba Rao v. Noony Veeraju, AIR 1951 Mad 969; ILR 1952 Mad 264 [FB] (page 1318) :

‘. . . when a question of law is fairly arguable, where there is room for difference of opinion on it or where the court thought it necessary to deal with that question at some length and discuss alternative views, then the question would be a substantial question of law. On the other hand, if the question was practically covered by the decision of the highest court or if the general principles to be applied in determining the question are well settled and the only question was of applying those principles to the particular facts of the case it would not be a substantial question of law.’ and laid down the following test as proper test, for determining whether a question of law raised in the case is substantial (page 1318) :

The proper test for determining whether a question of law raised in the case is substantial would, in our opinion, be whether it is of general public importance or whether it directly and substantially affects the rights of the parties and if so whether it is either an open question in the sense that it is not finally settled by this court or by the Privy Council or by the Federal Court or is not free from difficulty or calls for discussion of alternative views. If the question is settled by the highest court or the general principles to be applied in determining the question are well settled and there is a mere question of applying those principles or that the plea raised is palpably absurd the question would not be a substantial question of law.’ …

A point of law which admits of no two opinions may be a proposition of law but cannot be a substantial question of law. To be ‘substantial’, a question of law must be debatable, not previously settled by law of the land or a binding precedent, and must have a material bearing on the decision of the case, if answered either way, in so far as the rights of the parties before it are concerned. To be a question of law ‘involved in the case’ there must be first a foundation for it laid in the pleadings and the question should emerge from the sustainable findings of fact arrived at by court of facts and it must be necessary to decide that question of law for a just and proper decision of the case. An entirely new point raised for the first time before the High Court is not a question involved in the case unless it goes to the root of the matter. It will, therefore, depend on the facts and circumstances of each case whether a question of law is a substantial one and involved in the case, or not; the paramount overall consideration being the need for striking a judicious balance between the indispensable obligation to do justice at all stages and impelling necessity of avoiding prolongation in the life of any lis.”

105. In my opinion, the expression “substantial question of law” appearing in Section 260A of the Act deserves to be interpreted in the light of the propositions laid down in the above noted cases and the following guiding principles must be kept in view while entertaining an appeal under that section :

(a) An appeal under Section 260A of the Act cannot be entertained unless a substantial question of law arises for consideration by the High Court.

(b) To be substantial, a question of law must be debatable and must have a material bearing on the decision of the case and the rights of the parties. Where a question of law is fairly arguable or where there is a difference of opinion on the question of law, the same has to be treated as a substantial question of law.

(c) A point of law which admits of no two opinions may be a proposition of law but cannot be treated as a substantial question of law.

(d) If the question raised in the appeal is already settled by the highest court of the country or the jurisdictional High Court, then the same cannot be regarded as a substantial question of law. Similarly, if the general principles to be applied in determining the question are well settled and the only issue relates to application of those principles to the particular facts of the case, then no substantial question of law can be said to arise in the appeal.

(e) If the conclusions recorded by the Tribunal in the particular facts of the case are plausible, then it would not be a case of substantial question of law.

(f) The finding of fact recorded by the Assessing Officer or the first appellate authority or the Tribunal cannot be disturbed by the High Court in exercise of powers under Section 260A of the Act unless such finding is perverse or is such which no person of reasonable prudence could arrive at in the given facts of the case.

106. In the present case, the two judges constituting the Bench expressed divergent opinions on the genuineness and validity of the gifts made by Shri O. S. Gill and Shri B. P. Bhardawaj in favour of Miss Ruchika Oswal and Miss Monica Oswal, respectively. One of them–Jawahar Lal Gupta J., held that the gifts were not genuine. He further held that the Assessing Officer had rightly treated the amount of gifts received from Shri O. S. Gill and Shri B. P. Bhardawaj as the income of the assessee. The other judge (Ashutosh Mohunta J.) held that the finding recorded by the Tribunal on both the issues was correct. It is, thus, clear that the hon’ble judges constituting the Bench disagreed on the issue of maintainability of the appeals. Therefore, by applying the ratio of the judgment of the Full Bench of the Madras High Court in Rimmalapudi Subba Rao v. Noony Veeraju, AIR 1951 Mad 969 which was approved by the Constitution Bench of the Supreme Court in Sir Chunilal V. Mehta and Sons Ltd. v. Century Spinning and Manufacturing Co. Ltd., AIR 1962 SC 1314, which was, in turn, followed by a three-judge Bench of the Supreme Court in Santosh Hazari v. Purushottam Tiwari [2001] 251 ITR 84, I hold that the following questions of law arise for determination in these appeals :

(i) Whether the assessees had discharged the onus of establishing that gifts of $ 2,00,000 made in favour of Miss Monica Oswal and Miss Ruchika Oswal by Shri O. S. Gill and Shri B. P. Bhardawaj were genuine ?

(ii) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in deciding the deletion of the gifts of two lakhs US dollars each received by the assessees through their father, Shri Jawahar Lal Oswal, on protective basis in their hands and simultaneously deleting the addition made on substantive basis in the hands of their father, Shri Jawahar Lal Oswal, because the financial capability of the donor has not been proved at any stage, either at the assessment stage or at the appellate stage.

107. In the result, the appeals are admitted for hearing and determination of the aforementioned questions of law.

[Citation : 267 ITR 308]

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