Commissioner Of Income-Tax, West Bengal v. Calcutta Agency Ltd

1008 SUPREME COURT REPORTS [1950] 1950 of section 14, it seems to me, they would be bringing themselves under the bar of section 18 (2). The Patntalal Jankid-:u respondents cannot therefore claim that the loss of the v, goods was explosion damage within the meaning of the Mohanlal and and Ordinance so as to bring the case within section 14 and Another, at the same time contend that the loss was not "due to or did not in any way arise ont of the explosion" in Pata1tjali order to a void the bar under section 18. Both sec-S11stri J. tion 14 and section 18 have in view the physical cause for the loss or damage to property for which compen-sation is claimed and not the cause of action in rela-tion to the person against whom relief is sought. The respondents cannot, in my opinion, be allowed to take up inconsistent positions in order to bring themselves within the one and to get out of the other. 1950 Patntalal Jankid-:u Mohanlal and and Another, I would therefore allow the appeal and dismiss the counter-claim. DAS J. agreed with the Chief Justice. Appeal dismissed. Agent for the appellants: Mohan Behari Lal. Agent for the respondents : I. N. Shroff. !950 Deo, 21. COMMISSIONER OF INCOME-TAX, WEST BENGAL CALCUTTA AGENCY LTD. [SHRI HARILAL KANIA CJ., PATANJAL! SASTRI and DAS JJ.] fo·li.tn Income-tax Act (XI of 1922), ss. 10 (2) (xv), 66-Refer-ence-Jwrisdiction of High Ooilf·t-Duty to decide case ori facts stated by Tribuna.l-Accepting arauments of CO'ltnsel as proved fa.cts and basing decision on them, impropriety of-Business expenditnre-Payments to avoid disclosure of misfeasance of director.~-Burden of prcof. The jurisdiction of the High Court in the matter of income-tax references is an advisory jurisdiction and under the Inco:ne-tax Act the decision of the Appellate Tribunal on facts is final unless it can be successfully assailed on the ground tha~ there was no evidence for the conclusions on facts recorded by the Tribnnal. 1950 It is therefore the duty of the High Court to start by looking at tbe facts found by the Tribunal and ans~'e!: the questions of lHW Cornmiss:oritr of on that footing. It is not p1·oper to depart fron1 this rule of law Incnme-tax, as it will convert the High Court into a fact finding authority, Wcst Bengal which it is not, under the advisory jurisdiction. v. v. Ltd. As the statement of the case prepared by the Appellate Tri· Calcutta Ag•ncy bunal in accordance v.'ith the rules fran1ed under the Income-tax Ltd. Act is prepared with the knowledge of the parties concerned and they have full opportunity to apply for any addition or deletion from that statement, if they have approved of the state1nent n1ade by the Tribunal, it iR the agreed etatement of facts by the parties on w bich the Iligh Court has to pronouncs its judgment. The High Court would be acting improperly if it takes the arguments of the counsel for the assessee as if they were facts and bases its conclusion on tboso arguments. 1008 1950 129 1010 1950 1008 1950 (11 (1927) .. 719, Section: CONCLUSION One of the directors of the assessee company, acting in the capacity of managing agents of certain l\'fills, had dra\vn some hundis in the name of tho Mills, aod as the Mills repudiated lia-bility, suits were filed on the hundis against the Mills and the assessees. The assessees thereupon agreed to reimburse the Mills by permitting the latter to deduct a moiety of the commission pa.yable to them under the agreement of managing agency, against payments which the Mills may have to make under the decrees. In their assessment fio income-tnx the assessees claimed that the amounts so deducted should bo excluded from their asRessable income as business cxpenditme under s. 10 (2) (xv) of tbe Income-tax Act. The Appellate Tribunal found that the assessees had agreed to pay off the decree a1nount from the remuneration due to them, that the decre.e was passed against them evidently for some misfeasance committed by their directors, that the books of both companies showed that the assessees were paid their remunera-tion in full, and that the expenditure was not therefore laid out for the purpose of carrying on the business, and also that, as the payment was made for the liquidation of a debt, it was not a revenue expenditure. In the High Court the assessees' counsel argued, relying on the case cf Mitchell v. B. W. Noble Ltd.(1), that the payments were made by th• assessees to avoid the publicity of an action against them and the consequent exposure and loss of reputation as a. managing agency company, and as such the payments were deductible as business expenditure. The High Court accepted this argument and reversed the decision of the Tribunal. Held, that the High Court acted wrongly in accepting the argurr1ents of the assessees' counsel as if they were proved facts and basing its decision on them ; and, as the facts necessary to support the claim for exemption under s. 10 (2) (xv) had not been established at any stage of the case, the assessees were not entitled to the deduction cJ.imed. (11 (1927] l K.B. 719, 1010 SUPREME COURT REPORTS [1950) Judgment of the Calcutta High Court reversed. 1950 0 onimissioner o . . / APPELLATE JumsDICTION : Civil Appeal No. 59 of 1"come-tax, 1950. West Bengal Appeal from a Judgment of of the High Court of Judi- West Bengal Appeal from a Judgment of of the High Court of Judi-v. cature at Calcutta (Harries C.J. and Chatterjea J.) Galcu~~/Y'"'Y dated 9th Septern ber, 1949, in a reference under · section 66 (2) of the Indian Income-tax Act, 1922. (Reference No. 8 of 1949). M. C. Setalvad, Attorney-General for India (G. N. ] oshi, with him) for the appellant. S. Mitra (B. Banerjee, with him) for the respond- ents. 1950. December 21. The Judgment of the Court was delivered by 1950 ents. KANIA C.J.-This is an appeal from the judgment of the High Court at Calcutta (Harries C.J. and Chatterjea J.) pronounced on a reference made to it by the Income.tax Tribunal under section 66 (2) of the Indian Income.tax Act. The relevant facts are these. The respondents are a private limited company which was brought into existence to float various companies including cotton mills. In November, 1932, the Basanti Cotton Mills Ltd. was incorporated and the respondents were appointed their managing agents. Their remuneration was fixed at a monthly allowance of Rs. 500 and a commission of 3 per cent. on all gross sales of goods manufactured by the Mills Company. The fixed monthly allowance was liable to be increased in the event of the capital of the company being increased. The details are immaterial. lt appears that certain hundis were drawn by one of the directors of the respondent company, acting in the capacity of the managing agents of the :Mill Company, in the name of the Mill Company and the same were negotiated to others. The Nath Bank Ltd. claimed payment of these hundis. The Mill Company repudiated its liability as it appeared from the books of the Mill Company that they had not the use of the sum of Rs. 1.80,000 claimed by the Nath Bank Ltd. under the hundis. The Nath Bank Ltd. instituted four suits Kan•a o. J. S.C.R. SUPREME COURT REPORTS 1011 1950 1950 against the Mill Company, in two of which the res-pondent company were party-defendants. The Mill Comm;:.;;;n.,· of Company was advised to settle the suits and the res-Incom•·ta:r:. pondent company entered into an agreement with the w .. t Bengal Mill Company, the material part of the terms of which •. rnns as follows ·-Calcutta Agency • Ltd. Calcutta Agency Ltd. Kama c. J. " Memorandum of Agreement made between the Calcutta Agency Limited of the one part and Basanti Cotton Mills Ltd. of the other part. \;\/HEREAS the Nath Bank Limited demanded from the Mills the payment of the sum of Rs. 1,80,000 and interest there-on AND WHEREAS the said Mills repudiated their liability in respect thereof as it appeared from the books of the said Mills that the said Mills did not have the use of the said sum of Rs. 1,80 000 or any part there-of AND WHEREAS the said Nath Bank Ltd. there-upon instituted four suits in High Court being suit Nos. 1683, 1720, 1735 and 1757 of 1939 for the said aggregate sum of Rs. 1,80,000 and the interest thereon AND WHEREAS the said Mills have been advised to settle the said suits amicably AND WHEREAS the Calcutta Agency Limited by its Directors, S.N. Mitter or S.C. Mitter, having been and being still the Manag-ing Agents of the said Mills have undertaken to reimburse the said Mills in respect of the decrees to oe made in the said four suits in the manner hereinafter appearing NOW THESE PRESENTS WITNESS AND IT IS HEREBY AGREED AND DECLARED (i) That out of the commission of 3% payable by the said Mills to the said Agency under Regulation 131 of the Articles of Association of the Company, the Company shall have paramount lien on and deduct and set off a moiety thereof against any payment which the said Mills may make in respect of the decrees or any of them and/or costs of the said suits. (ii) The said moiety shall be one half of the commission so payable less such sum as the Directors of the Mills may from time to time allow to be deducted." Under the said agreement, the respondent company paid to the Mill Company Rs. 22,500 made up of 1012 SUPREME COURT REPORTS [1950] 1950 1014 1950 t9oO Rs. 18,107 as principal and Rs. 4,393 as interest in the -:--:-0 omm1ssioner o 1[accounting year. The assessee company claimed this ]. Incomo-ta:c before the Income-tax Appellate Tribunal as a deduc-Weat Benadi tion permitted under section IO (2) (xv) of the Indian v. Income-tax Act. The relevant part of that section Calcutta Agency runs as follows :-Ltd. "10. (1) "The tax shall be payable by tax shall be payable by shall be payable by by an assessee assessee Ltd. "10. (1) "The tax shall be payable by tax shall be payable by shall be payable by by an assessee assessee Kania o. J. under the head 'Profits and gains of business, pro-fession or vocation' in respect of the profits or gains of any bminess, profession or vocation carried on by him. (2) Such profits or gains shall be computed after making the following allowances, namely:- (xv) any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of such business, profession or voca-tion." In the statement of the case submitted by the Tribunal after reciting the fact of the incorporation of the company and the terms of the compromise mention-ed above, the arguments urged on behalf of the assessee company have been recapitulated. The first argument was that under the first proviso to section 7 of the Indian Income-tax Act, this payment was liable to be exempted. The Tribunal rejected that argument. On the reference, the High Court also rejected the same and it was not presented before us. The next argu-ment of the respondents was that in respect of Rs. 22,500 it was entitled to exemption under section 10(2) (xv) of the Income-tax Act on the ground that the payment was an expenditure which was not in the nature of a capital expenditure or personal expenses of the applicant company but was an expenditure laid out wholly and exclusively for the purpose of its busi-ness. They urged that if the applicant company did not agree to pay this amount, Basanti Cotton Mills Ltd. could have brought a suit against the company to realise this amount due on the hundis which would 1013 1950 1950 1016 1950 [1950) have exposed the applicant company to the public and 1950 in order to save themselves from the scandal and main-tain the managing agency they agreed to the deduction Commissioner of of certain amounts from the managing agency commis. 1"come-ta•, sion due to it and thereby brought it within the West ,Bengal principles of the decision of 1Vlitchell v. B. W. Noble Oalcutt."Agency Ltd.([1]) The Tribunal found as facts: (1) That the Ltd. applicant company agreed to pay off the decretal amount from the remuneration which they are entitled K.,nia o. J. to get from the Basanti Cotton Mills. (2) The decree was passed against the applicant company evidently for certain misfeasance committed by its directors and the applicant company agreed to pay it off from its remuneration. (3) The books of account of Basanti Cotton Mills Ltd. would show that they were paying the applicant company in full its remuneration and the books of the applicant company also show that it was entitled to its remuneration in full. (4) In the circumstances the Tribunal held that the expenditure was not laid out wholly and exclusively for the purpose of carrying on the business. (5) Besides, the Tribunal was of the opinion that in this case it was not a revenue expenditure at all. As the payment had to be made towards liquidation of the decretal amount the Tribunal held, in the circumstances of this case, that it was a capital payment. On behalf of the res-pondent it was argued in the further alternative that the Privy Council decision in Raja Bijoy Singh Dudhuria's easel.') would cover the present case. That contention was rejected by the Tribunal. This statement of the case prepared by the Income-tax Tribunal and submitted to the High Court for its opinion was perused by the parties and they had no suggestions to make in respect of the same. The state-ment of the case was thus settled with the kn