Arijit Pasayat, C.J— This is an appeal under Section 260A of the Income-tax Act, 1961 (in short, the ‘Act’) filed by assessee. The dispute relates to the assessment year 1992-1993. Challenge is to the order passed by the Income-tax Appellate Tribunal, Delhi Bench ‘C’, New Delhi (in short, the Tribunal’).

2. Factual position, as highlighted by assessee, which needs to be noted is essentially as follows:

Assessee is a private limited company, which derived income at the relevant point of time from exhibition of shorts/slides, hiring of news reels, rental of shops, show rooms in its film exhibition complex, rendering of various management services to a cold storage concern. Assessee also received an amount on account of disputed claims and dues in respect of its erstwhile business of civil construction works carried under several contracts. The aforesaid contracts were with M/s. Hindustan Steelworks Construction Co. Ltd. (in short, ‘HSCL’). These related to the construction of steel plant complex at Bokaro during the period from 1967 to 1984. In respect of these contracts, disputes arose between assessee and HSCL in the matter of settlement of claims for payment claimed to be due to it. The payments related to extra or additional items of work executed by assessee, which was accepted by HSCL in respect of two items, that is, in relation to contract No. LI/CE/6 and GM/386/75 dated 27.6.1967 and 25.4.1975 respectively. The contracts were completed in 1973 and 1978 respectively. Similarly, contract No. GM/469/78 and contract No. CM/486/79 were closed in May, 1981. HSCL refused permission to the assessee to remove its constructional machinery and equipments from the work sites and also issued notices to the effect that the additional work would be carried out by HSCL at the risk and expenses of assessee. A substantial part of claims of assessee related to four contracts referred to above. There was exchange of correspondence between the parties in regard to the settlement to be arrived at. Awaiting settlement and outcome of negotiations, the Board of Directors of assessee transferred the actionable claims against HSCL in respect of aforesaid four contracts to another company, namely, M/s. Bhagat Papers Ltd. (in short, BPL). The transfer was made for a sum of Rs. 50,000/- subject to the liabilities and equities attached to assessee in respect of aforesaid four contracts and bearing of expenses of the litigation. This was done on the basis of an instrument of transfer dated 14.12.1981 After some point of time, BPL transferred the aforesaid actionable claims to another company, namely, M/s. D.R Bhagat Brothers Ltd. (in short, DRB). This was purportedly on the basis of a resolution dated 12.10.1982 of the Board of Directors of BPL. The aforesaid transfer was made by a tripartite arrangement dated 12.10.1982 between assessee, BPL and DRB. On 10.3.1987, DRB acquired 51% of equity shares capital of M/s. Maya Enterprises Pvt. Ltd. (in short, MEP). The said company was converted into a public company limited, named as M/s. Maya Enterprises Ltd. (MEL). On 13.4.1987, DRB authorised the assignment of actionable claims by way of a gift to MEL. This was in terms of a special resolution dated 30.4.1987 In 1988, HSCL filed a Money Suit bearing No. 2 of 1988 against the assessee in the Court of the Sub-Judge of Chas. This was in respect of six contracts being the four noted above; the other contracts being contract No. MD/650-VI/74-3782 and contract No. GM/485/79. Assessee made a counter claim for an amount of Rs. 3.32 crores. Subsequently, disputes between the parties in respect of these contracts were referred to arbitration and were the subject matter of nine proceedings before various Arbitrators. On 4.1.1990, the Patna High Court passed an order on the application of assessee staying the proceedings in Suit and allowed time of four months for completion of various proceedings before the Arbitrators. On 30.4.1990, the High Court passed an order on the aforesaid appeal appointing a retired Judge of the Supreme Court as the Sole Arbitrator. On 6.8.1990, the Arbitrator appointed held its first sitting. Subsequently on 22.11.1991, claims and counter-claims of BPL and HSCL were mutually settled and HSCL agreed to pay a net amount of Rs. 1,88,35,357/- in respect of all the contracts. These were subjected to certain conditions. Assessee debited in its books in the account of MEL litigation expenses of Rs. 67,886/- in respect of various actionable claims. In 1992, a sum of Rs. 71,89,770/- was determined to be payable to MEL in respect of actionable claims. MEL in turn accounted the aforesaid receipt in its books of accounts for the period ended on 31.3.1993 The amount was accounted for as capital receipt arising from the realization of alleged actionable claims as transferred. During assessment of assessee for the relevant assessment year, Assessing Officer brought an amount of Rs. 71.89 lacs (approximately) as income chargeable under Section 28(iv) of the Act. Matter was carried in appeal before the Commissioner of Income-tax (Appeals) (in short, CIT(A)) by the assessee. CIT(A) confirmed the aforesaid addition. Matter was carried further in appeal before the Tribunal. Referring the factual aspects, as highlighted above, the Tribunal came to the conclusion that it is permissible to lift the veil of corporate entity if it is used for tax evasion or to circumvent tax obligations or to perpetuate fraud and the true essence of the transactions can be gone into. It was held that colourable devices were adopted and the transactions entered into by different concerns were not genuine and the income belonged to assessee. Some of its, conclusions are to the following effect:

“In the case of assessee, the amount of shown to be debt was receivable on account of work done in fulfilment of contract. Therefore, it was a revenue receipt. It would be pertinent to note that more than Rs. 50 lakhs of such receivables were sold for only Rs. 50,000/-. Further, the sum was not in existence at the time of transfer as would be clear from the agreement dated 14.12.1981 The operative clause referred to the actionable claims already filed or yet to be filed with the HSCL. The mere right to sue cannot be transferred. The relationship between assessee and HSCL was that of a contractor and contractee. There was a breach of contract and as such it could not be said that it was the actionable claim which were transferred.”

3. Accordingly assessee's appeal was dismissed.

4. Learned Counsel for assessee-appellant submitted that various material aspects were ignored by the Authorities and erroneously it has come to hold that there was a colourable device adopted to hide true actions of the transactions. The following questions have been formulated for adjudication:

“(1) Whether, on the facts and in the circumstances of the case borne on the record, the Appellate Tribunal is right in law in taking the view that the transfer by the assessee company of its actionable claims against HSCL (M/s. Hindustan Steelworks Construction Ltd.) in respect of its four completed/closed civil works construction contracts with it, to BPL (M/s. Bhagat Papers Ltd.) under an Instrument of Transfer dated 14.12.1981 involved a breach of the condition in Clause 5(a) of the General Conditions of the Contract between the parties, under which the contractor could not assign the contract or any part thereof or any benefit or interest therein without the written consent of the employer (i.e HSCL), and was, therefore, not permissible?

(2) Whether, on the facts and in the circumstances of the case borne on the record, the Appellate Tribunal is right in law in holding that the transfer by the assessee company of its actionable claims against HSCL (M/s. Hindustan Steelworks Construction Ltd.) in respect of its four completed/closed civil works construction contracts with it, to BPL (M/s. Bhagat Papers Ltd.) tinder the Instrument of Transfer dated 14.12.1981, and the subsequent transfers thereof by BPL to DRBBL (M/s. D.R Bhagat Brothers Ltd.) under the Instrument of Transfer dated 12.10.1982, and the DRBBL to its subsidiary company, MEL (M/s. Maya Enterprises Ltd.) by way of an absolute gift under an Instrument of Transfer dated 30.4.1987, were not genuine transactions?

(3) Whether, on the facts and in the circumstances of the case borne on the record, the Appellate Tribunal is right in law in holding that the transactions of the transfer by the assessee company of its actionable claims against HSCL (M/s. Hindustan Steelworks Construction Ltd.) in respect of its four completed/closed civil works construction contracts with it, to BPL (M/s. Bhagat Papers Ltd.) under the Instrument of Transfer dated 14.12.1981, and the subsequent transfers thereof by the concerned transferees, ending with the transfer of the said actionable claims by DRBBL (M/s. D.R Bhagat Brothers Ltd.) to its subsidiary company, MEL (M/s. Maya Enterprises Ltd.) by way of an absolute gift to it under an Instrument of Transfer dated 30.4.1987, were colourable devices adopted by the assessee company to evade its tax liability on the amounts which might be received in satisfaction of the said actionable claims, where for the amount of Rs. 71.89 lakhs received by it from HSCL, about ten years after the transfer by it of its aforesaid actionable claims against HSCL to BPL on 14.12.1981, under the Indenture of Settlement dated 22.11.1991 between the parties in a compromise settlement of the said claims outside the pending proceedings in Arbitration and the Money Suit No. 2 of 1988 of HSCL against the assessee company, is assessable to tax as being the income of the assessee appellant company?

(4) Whether, on the facts and in the circumstances of the case borne on the record, the Appellate Tribunal is right in law in not recognizing the factual and legal position that upon the transfer by the assessee company of its actionable claims against HSCL (M/s. Hindustan Steelworks Construction Ltd.) in respect of its four completed/closed civil works construction contracts between them, to BPL (M/s. Bhagat Papers Ltd.) under an irrevocable Instrument of Transfer dated 14.12.1981 for a monetary consideration, duly assessed to tax as its business income of the assessment year 1982-1983, the assessee company stood divested of all its rights and interest in the said actionable claims which, thereupon, vested in the transferee or subsequent transferees thereof, ending with MEL (M/s. Maya Enterprises Ltd.) which held the said actionable claims as the transferee thereof as from 30.4.1987, whereby the right and title to receive the income represented by the sum of Rs. 71.89 lakhs received by the assessee company from HSCL under the Indenture of Settlement dated 22.11.1991 between them in a compromise settlement of the said actionable claims, was diverted at source by an over-riding title to MEL, and was not assessable to tax in the hands of the assessee company?”

5. Learned Counsel for Revenue, on the other hand, submitted that questions, as framed, are purely questions of fact. The Tribunal's conclusions have been arrived at after noticing the various factual aspects, already highlighted by Assessing Officer and CIT(A). They have rightly lifted the veil of corporate entity to find out the true nature of the transactions. In fact, questions do not have any relevance with any question of law and, therefore, this appeal is thoroughly misconceived.

6. Section 260A(1) of the Act reads as follows:

“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.”

7. It is to be noted that what can be the subject matter of examination in appeal under Section 260A of the Act is a substantial question of law. It was observed by the Apex Court in Sir Chunnilal V. Mehta & Sons Ltd. v. Century Spinning & Manufacturing Co. Ltd., AIR 1962 SC 1314, that the proper test for determining whether a question of law raised in the case is substantial would be whether it is of general public importance or whether it directly or 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 the Supreme Court or by the Privy Council or by the Federal Court or is not free from difficulty or calls for discussion of alternative views. In Sree Meenakshi Mills Ltd. v. C.I.T, (1957) 31 ITR 28, 40 (SC), the Apex Court has held where the determination of an issue depends upon the appreciation of evidence or materials resulting in ascertainment of basic facts without application of any principle of law, the issue raises a mere question of fact.

8. Basically, following are the tests to determine whether the question involved is one of fact or law.

(1) As the Tribunal is a final fact finding authority, if it has reached certain findings upon examination of all relevant evidence and materials before it, the existence or otherwise of certain facts at issue is a question of fact.

(2) Any inference from certain facts is also a question of fact. If a finding of fact is arrived at by the Tribunal after improperly rejecting evidence, a question of law arises.

(3) Where a Court of facts acts on materials partly relevant and partly irrelevant and it is impossible to say as to what extent the mind of the Adjudicating Forum was affected by the irrelevant material used by it in arriving at the finding gives rise to a question of law. Such a finding is vitiated because of the use of inadmissible material.

(4) When any finding is based on no evidence or material, it involves a question of law. In other words, if the Tribunal acts on irrelevant materials and evidence, a question of law is involved.

9. In Edwards v. Bairstow, (1955) 28 ITR 579 (HL), Lord Simonds observed that even a pure finding of fact may be set aside by the Court if it appears that the Commissioner has acted without any evidence or on a view of the facts which could not be reasonably entertained. Lord Radcliffe stated that no misconception may appear on the face of the case, but it may be that the facts found are such that no person acting judicially and properly instructed as to the relevant law could have come to the determination under appeal. In those circumstances the Court may intervene.

10. The expression “substantial question of law” has not been defined. But the same has acquired a definite connotation through a catena of judicial pronouncements. Usually five tests are used to determine whether a substantial question of law is involved. They are as follows:

(1) whether, directly of indirectly, it affects substantial rights of the parties; or

(2) the question is of general public importance; or

(3) whether it is an open question in the sense that the issue has not been settled by pronouncement of the Supreme Court or Privy Council or by the Federal Court; or

(4) the issue is not free from difficulty, and

(5) it calls for a discussion for alternative view.

11. These aspects were highlighted by us (Arijit Pasayat, Chief Justice) in Mahavir Woollen Mills v. Commissioner of Income Tax, Delhi, (2000) 245 ITR 297.

12. Section 260A is analogous to the provisions of Section 100 of the Civil Procedure Code, 1908 (in short, ‘Code’). Under Section 100 of the Code, a second appeal can be entertained only when a substantial question of law is involved. Such substantial question of law is required to be formulated in the memorandum of appeal. If the High Court is satisfied that a substantial question of law is involved in the case, then the Court is also required to formulate that question. The appeal is required to be heard only on the question so formulated. Amendment was introduced in this regard in the Code in the year 1976, which has brought about a change in the context of substantial nature. In Kondiba Dagandu Kadam v. Savitribai Sopan Gujar, (1999) 3 SCC 722 : AIR 1999 SC 2213, the Apex Court dealt with scope and ambit of the provision and inter alia observed as follows:

“Despite amendment by the amending Act 104 of 1976, Section 100 of the Code of Civil Procedure appears to have been liberally construed and generously applied by some Judges of various High Courts with the result that the drastic changes made in the law and the object behind that appears to have been frustrated. The amending Act was introduced on the basis of various Law Commission Reports recommending for making appropriate provisions in the Code of Civil Procedure which were intended to minimize the litigation, to give the litigant fair trial in accordance with the accepted principles of natural justice, to expedite the disposal of civil suits and proceedings so that justice is not delayed, to avoid complicated procedure, to ensure a fair deal to the poor sections of the community and restrict the second appeals only on such questions which are certified by the Courts to be substantial questions of law.”

13. The Court found that in a number of cases, no efforts are being made to differentiate between the “question of law” and “substantial question of law”. A right of appeal is neither natural nor an inherent right attached to the litigation. Being a substantive statutory right, it has to be regulated in accordance with the law in force at the relevant time. Some other decisions also throw considerable light on the issue, e.g, Mahindra and Mahindra Ltd. v. Union of India, (1979), 49 Comp Cas 419 and Panchugopal Barua v. Umesh Chandra Goswami, (1997) 4 SCC 713 : AIR 1997 SC 1401 : (1997) 4 SCC 713.

14. The issues raised by assessee in the appeal cannot be said to involve any question of law, much less any substantial question of law. A question of fact becomes a question of law, as indicated supra, if the finding is either without any evidence or material, or if the finding is contrary to the evidence, or is perverse or there is no direct nexus between the conclusion of fact and the primary fact upon which that conclusion is based. But, it is not possible to turn a mere question of fact into a question of law by asking whether as a matter of law the Authority came to a correct conclusion upon a matter of fact.

15. It has to be noted that the Tribunal noticed Revenue's case and observed that it was based not on the validity of the agreement but on the genuineness of the transactions. Even if assessee's claim in regard to transfer is correct, the issue according to the Tribunal was whether the department is entitled to probe into the genuineness of the transaction or whether it has been effectively done or not. Therefore, the Tribunal did not go into the validity of the transaction, specifically when it was stipulated as per Clause 5(A) of the General Conditions of the Contract that the contractor is not supposed to assign contract or any part thereof or any benefit thereon or thereunder without the written consent of the employer. Breach of terms of the contract of the clause and its effect on the transaction was not the issue before the Tribunal as it was not considered by the Revenue Authorities.

16. In the aforesaid background, the Tribunal confined itself to the issue whether on the facts, the department has been able to prove that the series of transactions as resorted to constitute colourable device to evade tax. Following conclusions on facts were recorded by the Tribunal:

(1) Assessee transferred alleged actionable claim for a sum of Rs. 50,000/- when as per its own version it was of far more value than for what it was transferred. While the Money Suit was filed some time in 1988, assessee's claim before HSCL was to the extent of Rs. 5 crores. Even if the counter-claim of HSCL is considered, still assessee's claim outweighed the amount for which transfer was made.

(2) In the first transfer agreement, the assessee was a party, but it was not so in the subsequent transaction No supporting material was furnished for transferring the available claim for a paltry sum of Rs. 50,000/-.

(3) Before the Tribunal, no evidence was placed to show that because of assessee's preoccupation with other matters, it could not pursue its claim with HSCL. The factual position was otherwise, as all along the assessee was an active party to the proceedings in respect of the claim and even expenditure on proceedings were initially incurred by assessee.

(4) Legal proceedings were taken by HSCL against assessee and more importantly it was ultimately assessee who received the amount from HSCL as per agreement entered into.

(5) If the transfer was complete and all rights had passed on to the other parties, it was not explained as to in what capacity assessee could transact dealings with HSCL.

(6) The amount was first entered in the books of assessee company and as on 31.3.1992, assessee still owned Rs. 71,82,692/- to MEL. Advance tax for the year was also debited to the account of MEL in the books of assessee and so was the litigation expenses.

(7). What happened subsequently and how the amount came to be paid was not before the Tribunal.

17. In view of the aforesaid conclusions, Tribunal held that the fact remained right from the beginning till end, that assessee were the main party behind the transaction. Transfer made was to the companies, which were under the same management with common shareholders. As observed in the case of Commissioner of Income-tax, Madras v. Sree Meenakshi Mills Ltd., (1966) 62 ITR 38 (SC) and of Juggilal Kamlapat v. Commissioner of Income-tax (U.P), (1968) 73 ITR 702 (SC), though from the juristic point of view, a company is a legal personality entirely distinct from its members but in exceptional cases, the Court is entitled to lift the veil of corporate entity if it is used for tax evasion or to circumvent tax obligations or to perpetuate fraud. While one factor may not be sufficient to prove the colourable device, cumulative effect of all factors can be taken into account to conclude about the real purpose intended behind the corporate veil. The Tribunal came to conclude ultimately that various transactions as entered into by assessee, vis-a-vis different concerns are not genuine and the income belongs to the assessee. That being the conclusion, Revenue's action was upheld and assessee's appeal was dismissed.

18. It may be necessary to deal with the question of ‘colourable device’. A colourable transaction is one which is seemingly valid, but a feigned or counterfeit transaction entered into for some ulterior purpose. A conclusion about nature of a transaction, i.e, whether it is colourable or otherwise, if supported by material or evidence is essentially one of fact.

19. From the factual scenario projected by us above, as culled out from the Tribunal's order, it is clear that the inferences were from factual aspects, and in order. Above being the position, no question of law, much less any substantial question of law is involved.

20. The appeal is without any merit and is dismissed.

Appeal dismissed.