Law: Income Tax Act, 1961

Section: 256(2)

Income-tax-----Reference---Failure by Tribunal to consider relevant materials gives rise to a question of law---Whether a particular agreement is colourable or sham transaction is finding of fact---Question which does not arise from order of Tribunal---No direction to refer will be given---Indian Income Tax Act, 1961, S.256(2). The assessee-company entered into an agreement with A.P.J., to sell tea at various rates. It was in the form of a letter written by the director of the company to A.P.J. The Assessing Officer decided that it was not a genuine transaction. The Commissioner of Income-tax (Appeals) and the Tribunal upheld the genuineness of the agreement. The reference application was rejected by the Tribunal. The Revenue filed a petition under section 256(2) of the Income Tax Act, 1961: Held, that, whether there was actual transfer or there was no such transfer was the issue. These points were vital in nature and it was necessary for the Tribunal to apply its mind on those points. Hence, the question, whether the findings of the Tribunal that the transactions between the assessee and A.P.J., could not be said to be not bona fide was based on relevant considerations and whether the decision based on such consideration was not tenable in law was a question of law to be referred: Held also, that whether an agreement is a colourable or sham transaction is a question of fact. CIT v. Govind Narain (1975) 101 ITR 602 (All.); CIT v. Prithvi Raj Daga (1986) 159 ITR 193 (Raj.); CIT v. Rai Bahadur Hardutroy Motilal Chamaria (1967) 66 ITR 443 and Venkateswara District Motor Service v. CIT (1965) 55 ITR 597 (Mys.) ref. JUDGMENT D.N. BARUAH, J.---This application under section 256(2) of' the Income Tax Act, 1961, is against the order dated October 24, 1994, passed by the Income-tax Appellate Tribunal, Gauhati, in Reference Application No.4/(Gau) of 1994 arising out of the Income-tax Appeal No. 403/ (Gau) of 1991, for the assessment year 1987-88 rejecting the application under section 256(1) of the Income-Tax Act, and praying for a direction to refer the questions mentioned the petition for opinion of this Court. Facts in short may be stated as follows: The assessee,…

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