Quadri, J. - (1.) The Revenue is in appeal, by special leave, against the order of the Karnataka High Court dated August 4, 1980, in I.T.R.C. No. 180 of 1975, answering the following question, referred to it under Section 256(1) of the Income-tax Act, 1961, in the negative, that is, in favour of the assessee and against the Revenue."Whether on the facts and circumstances of the case the Tribunal was justified in law in upholding the assessment of the sum of Rs. 32,58,500/- as the icnome of the assessee for the assessment year 1960-61"
(2.) A brief narration of the facts leading to reference of the said question to the High Court may be necessary to appreciate the contention urged before us. On December 5, 1961, an order of regular assessment of the respondent/assessee was passed for the assessment year 1960-61 for which the relevant accounting year ended on May 31, 1959. Subsequently it came to the notice of the Income-tax Officer that a sum of Rs. 32,58,500/- had been received by the assessee purporting to the loan advanced under agreement dated November 15, 1958 entered into between the assessee and Parsons and Whittemore. The assessee promoted M/s. Mandva National Paper Mills (for short "the Paper Mills"). The capital requirement of the Paper Mills was proposed to be met by issue of equity and redeemable preference shares of rupees two crores and by arranging supply of machinery of Rs. 1,82 crores from two of the associates of Parsons and Whittemore. In that connection three agreements including the loan agreement in question, were entered into among different parties on the same date.
(3.) On the said information, the Income-tax Officer, reopened the assessment of the assessee and issued notice under Section 147(a) of the Income-tax Act on November 25, 1968. Finding the reply given to the said notice was not satisfactory, and disbelieving the plea that the amount was advanced as loan, the Income-tax Officer treated it as income received from business and accordingly passed the order of assessment, under Section 144 of the Income-tax Act, bringing to tax the said amount of Rs. 32,58,500/- on December 2, 1970. The respondent-assessee pursued the appeal before the Appellate Assistant Commissioner who dismissed the same on December 16, 1972. The assessee's appeal before the Income-tax Appellate Tribunal was also dismissed on May 21, 1974. From that order of the Tribunal the above said question arose.;