By TIOL News Service

NEW DELHI, JUNE 03, 2014: THE issue before the Bench is - Whether when the interpretation of a document placed before the Settlement Commission results in a finding of fact, it does not call for interference by the High Court under Article 226 of the Constitution. And the verdict goes against the Revenue.

Facts of the case

Revenue filed a Writ petition against the order of Settlement Commission u/s 245D of the Act and contended that assessee had not made a full and true disclosure and therefore the impugned orders were liable to be quashed and set aside. The first point was relating to transaction in respect of a property in respect of which assessee with his wife declared Rs. 7.60 crores as undisclosed investment.

The other issue was relating to five receipts of cash totalling to Rs.6.00 crores which were found during the search operation. Assessee contended that although the said receipts representing Rs.6.00 crores were receipts of loans received by him, the same had been disclosed as income before the Settlement Commission. Revenue contended that the said sum was not the principal amount of loans received by the assessee but only the interest received by the assessee on much larger loans extended to five persons. Revenue contended that consider the receipt disclosed at 1.25% rate, the total principal amount would be Rs. 80 crores. Thus, revenue contended that though the interest has been disclosed, the assessee had not disclosed the principal amount and thus had not made a full and true disclosure of his income.

The revenue contended that the amount received is confirmed by assessee. If the reverse calculation is done, it indicates that assessee advanced cash loan on which interest income is received. Assessee could not produce any evidence to show that loans were received by assessee. No confirmation from the persons who were mentioned in the documents had been submitted. Revenue further stated that in the statement recorded u/s 132(4), assessee stated that it was unable to recollect the exact nature of the receipts. Considering the transaction, stating the amount received as loan is an afterthought. The word "loan" has not been mentioned on the documents seized during the search. Assessee had not disowned the documents and the contents. The presumption u/s 132(4) has not been rebutted.

Assessee contended that the amount was received as borrowing from different persons through a common broker. Though the language gives an impression that it was on account of receipt of interest, in actual it was in respect of money received as loan. In search, nothing has been found to indicate that any sum was advanced to the person mentioned on the receipts on interest. It is very unnatural that the applicant is preserving the photocopy receipts (of interest received) issue by him and does not preserve the original documents on the strength of such he could secure the repayment without which he could not have recovered the amount advanced, if any. The revenue could have made enquiries from the broker but it was not done.

Settlement Commission considered the same and stated that the words used are "interest payable" and not "interest receivable". The words "interest payable" will be applicable to the person who has signed the receipt and not to the person for whom the receipt is signed. It is a wide practice that even in cases of unaccounted transactions, proper documents are executed in order to put pressure of legal action on borrower so that he may not default. Such a receipt also acts as a deterrent as any default would seriously affect the borrower's credibility in the market and nobody would do any business with him in future. Therefore, if Rs.6 crores is the interest, in that case, assessee should have with him original copy of the receipts as well as necessary documents/ papers to support his claim in respect of amounts given as loan. In view of the same it is considered that the amount of Rs. 6 crores was loan taken by assessee and not interest.

After hearing both the parties, the High Court held that,

++ in view of the various facts, both the interpretations of assessee as well as revenue is possible. The question that arises is as to what degree, if at all, can this Court interfere when two possible interpretations are placed before it with regard to a document which is of vital importance and when one of the interpretations has been accepted by the Settlement Commission. It is apparent that the power of interference under Article 226 is limited. This Court under Article 226 can only interfere with the Settlement Commission if it is found to be contrary to the provisions of the Act and that even if the Court disagrees with an interpretation placed by the Settlement Commission on a document, it cannot substitute its view in place of that of the Settlement Commission unless and until the interpretation given by the Settlement Commission is clearly arbitrary and perverse;

++ the only point urged by Revenue is that the interpretation placed on the receipts was erroneous. The interpretation which has been placed by the Settlement Commission on the documents in question, first of all, results in a finding of fact which, cannot be interfered with. The interpretation sought to be placed by the Revenue may be a possible interpretation but, so, too, would be the interpretation placed by the Settlement Commission which has also been espoused by assessee. In such a situation no interference with the Settlement Commission’s order is warranted.

(See 2014-TIOL-888-HC-DEL-IT)