I. C. I. (INDIA) PRIVATE LTD. versus C. I. T., WEST BENGAL

Citation: [1972] 3 S.C.R. 138 · Decided: 20-01-1972 · Supreme Court of India · Bench: A.N. GROVER · Disposal: Appeal(s) allowed

Judgment (excerpt)

138 
I. C. I. (INDIA) PRIVATE LTD. 
v. 
C. I. T., WEST BENGAL 
January 20, 1972 
[A. N. GROVER AND M. H. BEG, JI.] 
Income-tax Act, (1961) ss. 52 and 256--Dlrectlons by High Court 
to Tribunal to refer questions-Scope of High Court's ;urisdiction 
After negotiations in 1953 with the concerned Department of the Gov-
ernment of India and the Reserve Bank, a Company, incorporated in U.K. 
advanced large sums by way of loans to its subsidiary in India, namely the 
assessee, for subscribing for shares in 80llle Indian Companies. The corm-
pondence showed that the U.K. Company had the right to acquire at any 
time the shares at par, in satisfaction of the loans. ln 1961, the asseisee 
transferred the ahares when called upon by the U.K. Company to do ao. 
The Income-tax Officer applied s. 52 of the Income-tax Act, 1961, and 
use&Sed the usessee to capital gains tax, which was not in existence in 
1953 but was re-introduced in the Finance Bill of 1959. The Income-tax 
Officer held that the object Of the transfer was to avoid or reduce the 
assessee's liability to capital gains tax. The Appellate Aaistant Commis-
sioner however, held that the assessee was not liable to capital gains tax, 
and the Appellate Tribunal, after an elaborate discussion of the corns-
pondence, confirmed the order, holding that the transfer was not effected 
with that object. 
A 
B 
c 
D 
The Department applied to the Tribunal to refer the questions, 
(i) 
E 
whether certain documents were not properly construed, (ii) whether the 
Tribunal ignored evidence on essential matten, (iii) whether the finding 
of the Tribunal was perverse, and (iv) whether s. 52 was not applicable, 
u arising out the Tribunal's order. 
The Tribunal rejected the application. 
The Department then moved the Higb Court and the High Court direct. 
ed ~ Tribunal to state a case in relation to the four questions, but the 
F 
High Court did not give any reasons for doini so. 
Allowing the appeal to this Court, 
HELD : The Higb Court can exercise its jurisdiction in the matter or 
reference, (a) when the point for determination is a pure question of law, 
such as, the construction of a statute or a document of title; (b) when the 
point for determination is a mixed question of law and fact-(Wbile the 
findings of the Tribunal on the facts ·are final, its decision as to the leJnll 
effect of the findings is a question of law. Where, however, the findin1 is 
one of fact, the fact that it is an inference from other basic facts will not 
alter its character as one of fact); and (c) when a finding on a que•tion 
of fact is pervene. rl47C-EJ 
The necessary ingredients of s. 52 are : (i) there should be a direct or 
indirect connection between the person who acquires a capital asset and 
the u9essee; (ii) the income-tax officer should have reason to believe that 
the transfer was effected with the object of avoidance or reduction of the 
liability of the assessee to capital gains; and (iii) if the ftnt two conditions 
G 
H 
A 
J.C.!. PVT, LTD. v. c.1.T. (Grover,/.) 
139 
are satisfied then the full value of consideration for the transfer may be 
tal<en to be the fair market value of the capital asset on the date of the 
transfer. The intention with which a particular transfer is made ·and the 
object which is to be achieved . by such transfer are essentially questions 
of fact, the conclusion relating to which, are to be arrived at_ on a conside· 
ration of relevant material; that is1 before the income·tax .officer can have 
B 
any reason to believe that a transfer was effected with the object mentioned 
in the section facts, must exist showing that the object .was to avoid or 
reduce the liability to capital gains. [141 H; 142 A·D] 
In the present case, the orders of the Tribunal show that there was no 
dispute as to the construction of any expression in any letter or document, 
that no relevant evidence was overlooked, that the inference was drawn 
from other facts and, that no question was raised on the construction of 
s. 52. When the Tribunal found, as a fact, that before there was any 
C 
proposal to re-impose the capital gains tax which had remained abolished 
for some time, the scheme between the assessee and the U.K. Company 
had been fully evolved, the applicability of s. 52 could not be attracted. 
The findings of the Tribunal that the object mentioned in the section could 
not be held to be established from the mere absence of a formal agree-
ment between the assessee and the U.

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