Full Judgment Text
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PETITIONER:
M/S. BASTI SUGAR NULLS CO. LTD. AND ORS.
Vs.
RESPONDENT:
COMMISSIONER OF INCOME-TAX, DELHI & RAJASTHAN
DATE OF JUDGMENT24/09/1971
BENCH:
ACT:
Income-tax Act, 1922, s. 66-Reference to High Court-
Tribunal’s findings of fact whether arrived at without
consideration of materials on record-Tribunal need not refer
In its order to insignificant evidence.
HEADNOTE:
The three appellant companies were controlled by G. Another
company which was the selling agent of the three appellant
companies was also controlled by G. The question in income-
tax proceedings was whether the commission paid to the
selling agent was a deductible item. In the original
assessments for 1947-48 in the cases of the three appellants
the Income-tax Officer allowed the deduction but later he
issued notices under s. 34 of the Income-tax Act, 1922 on
the footing that in the circumstances of the case the
commission was not allowable since the selling agent
rendered no service whatsoever so as to earn any commission.
In making the assessment under s. 34 it was so held by him.
In the appeals filed by the Appellant companies, the
Appellate Assistant Commissioner gave some relief by
allowing deduction in respect of sums paid directly as
commission to some sub-agents, but on the main question
relating to the amounts paid to the selling agent he agreed
with the Income-tax Officer. The contention that action
could not be taken under s. 34(1) (c) was also rejected.
The Appellate Tribunal took the same view. The appellants
then asked the Tribunal to refer four questions to the High
Court under s. 66(1) of the Act. The Tribunal rejected the
applications. The High Court under s. 66(2) directs the
Tribunal to refer the fourth question relating to the
applicability of s. 34 but held the other three questions to
be question of fact. In appeal before this Court against
the order of the High Court it was contended that the
Tribunal had erred in not taking into account the evidence
of two witnesses produced by the appellants, as also two
receipts showing payments made to some sub-agents by the
selling agent. The High Court’s view that it is not every
piece of evidence available on record that must be dealt
with by the Tribunal was questioned.
HELD : The criticism that the evidence of the two witnesses
produced by the appellants was not considered as such by the
Tribunal was only technically correct. The Tribunal had not
referred to witness R by name but had referred to the
relationship between the selling agent and the firm of which
R was a proprietor, as well as to the effect of a telegram
which was claimed to show privity of contract between the
selling agent and R’s firm. Therefore it could not be said
that the Tribunal had not considered R’s evidence. As to
the other witness S, his evidence had only to be read to be
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rejected; the Tribunal had moreover given reasons for not
acting on his evidence. The two receipts relied on by the
appellants lost all significance after the rejection of the
evidence of the two aforesaid witnesses. Obviously in view
of the other evidence against the appellants the Tribunal
did not think it worthwhile to refer to the two receipts.
[893 H; 894 E; 895 C]
It must accordingly be held that the finding of Tribunal was
based on material on the record and that the finding was
such which could an the
888
evidence be reasonably reached. The High Court was hence
justified in holding that the first three questions were
questions of fact and in declining to give a direction to
the Tribunal to refer those questions. [895 G]
Udhavdas Kewalram v. C.I.T., Bombay City,- [1967] 66 I.T.R.
462, referred to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 1364 to
1373 of 1967.
Appeals by special, leave from the judgment and order dated
March 14, 1967 of the Delhi High Court in Income-tax Cases
Nos. 25-D of 1965 etc.
V. S. Desai A. K. Verma and B. D. Shingari, for the appel-
lants (in all the appeals).
R.H. Dhebar, B. B. Ahuja and R. N. Sachthey, for the res-
pondent (in all the appeals).
The Judgment of the Court was delivered by
Vaidialingam, J. These ten appeals, by special leave, are
directed against the common _judgment and order dated March
14, 1967 of the Delhi High Court declining to direct the
Income-tax Appellate Tribunal, Delhi Bench, to refer along
with the statement of case, questions Nos. 1 to 3 enumerated
in their applications.
The reference was asked for by the three different Companies
by whom the above appeals are filed in respect of Income-tax
Case No. 26-D of 1965 connected with I.T.C. Nos. 21-D to 29-
D of 1965 arising from a common order of the Income-tax
Appellate Tribunal, Delhi Bench. As the facts in the case
and questions of law sought to be referred were common, the
following tabular statement will give an idea of the appeals
filed by the three Companies, who are the appellants
together with the particulars regarding the years of
assessment and Income-tax case numbers
--------------------------------------------------------------
C..A. No. I.T.C. No. Assessment Name of Company
year
----------------------------------------------------------------
13-54/67 28-D/65 1952-53 Basti Sugar Mills
1365/67 27-D/65 1950-51
1366/67 23-D/65 1948-49
1367/67 21-D/65 1951-52
1368/67 20-D/65 1950-51 Nawabganj Sugar Mills
1369/67 25-D/65 1948-49
1370/67 26-D/65 1951-52
1371/67 24-D/65 1949-50
1372/67 29-D/65 1952-53 Punjab Sugar Mill
1373/67 22-D/65 1955-56
----------------------------------------------------------
889
The Basti Sugar Mills Company Limited, which is the
appellant in Civil Appeals Nos. 1364 to 1367 owned two sugar
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factories at Basti and Waltharganj. It is their case that
for the purpose of selling their output of sugar they
appointed Selling agents at a commission of -0-12-0% of all
sales of sugar effected through the agents. Their Selling
agent prior to 1944 was M/s Gursarandas Kapur & Sons at
Kanpur. On July 26, 1944 by a resolution of the Board of
Directors, the Company appointed M/s Gokul Nagar Sugar Mills
Co. Ltd. as the Selling agents at -0-12-0% commission. In
the course of the original assessment for the years 1947-48,
which was completed on March 10, 1950, the Income-tax
Officer called upon the said Company to furnish details of
the items of work done by M/s Gokul Nagar Sugar Mills Co.’
Ltd. as Selling agents. The Company informed the Income-tax
Officer that the said Selling agents have been doing the
work that they were expected to, do and they in turn had
appointed sub-agents on commission basis for effecting sales
at various places. The Income-tax Officer accepted this
explanation and allowed, by order dated June 21, 1949 a
deduction for Rs. 47,921/- paid as commission to the selling
agents. But when the assessment proceedings for the
assessment year 1952-53 in respect of Nawabganj Sugar Mills
Co. Ltd. was being dealt with, the Income-tax Officer took
the view that the selling commission should not be allowed
and accordingly issued a notice dated March 29, 1954, under
S. 34(1) (a) of the Income-tax Act, 1922 (hereinafter- to be
referred as the Act). The Company filed a return under
protest.
Regarding Nawabganj Sugar Mills Company Ltd., which is
appellant in- Civil Appeals Nos. 1368-1371 of 1967 the facts
are also more or less identical except that for the
assessment year 1948-49, the Income-tax Officer by his order
dated February 28, 1951 allowed a deduction of Rs. 60,980/-
as the amount paid as ,commission to the selling agents M/s
Gokul Nagar Sugar Mills Co. Ltd. For the assessment year
1949-50 also the commission paid to the said selling agent
was allowed as deduction. But for the assessment year 1952-
53 the Income-tax Officer issued a notice dated January 19,
1957 requiring the said Company to explain why the amount of
commission claimed to have been paid by them to the selling
agents should not be disallowed.
The facts relating to M/s Punjab Sugar-Mills Company Ltd.,
which is the appellant in Civil Appeals Nos. 1372 and 1373
of 1967 are also identical except that in the course of
assessment for the assessment year 1947-48, the commission
of Rs. 37,978/paid to the same selling agent namely, Gokul
Nagar Sugar Mills Company Ltd. was allowed as per order
dated February 27, 1950. But when dealing with the case of
Nawabganj Sugar Mills Co.
890
Ltd. for the assessment year 1952-53, the Income-tax Officer
took the view that the selling agency commission claimed to
be paid to the selling agents should not be allowed. Hence
he issued a notice to the Company under s. 34(1) (a) of the
Act and the company filed a return under protest.
It may be stated that the managing agent of all the three
appellant companies are M/s Narang Brothers Ltd. and their
Chairman was. Dr. Gokulchand Narang. The selling agent of
the three appellants is also the commission agent, namely,
M/s Gokul Nagar Sugar Mills Co. Ltd.
The controversy before the Income-tax authorities related to
the claim made by all the appellants for deducting, an
expenditure of the business of the companies, the selling
agency commission paid to M/s Gokul Nagar Sugar Mills
Company Ltd. In respect of some years the jurisdiction of
the Income-tax Officer to Lake action under s. 34 of the Act
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was also challenged.
In respect of the assessment year 1952-53 relating to Nawab-
ganj Sugar Mills Co. Ltd., the evidence, both oral and
documentary, was let in by the assessee that M/s Gokul Nagar
Sugar Mills Co. Ltd. were the selling agents and that the
commission paid to them as selling agents should be deducted
as business expenditure. ’The evidence so let in was
treated as common in respect of the claims made by all the
three appellants.
The Income-tax Officer held that all the three companies
were controlled and supervised by Dr. Gokulchand Narang. He
further held that M/s Gokul Nagar Sugar Mills Co. Ltd., the
selling agent, was also controlled and supervised by Dr.
Gokulchand Narang. Though M/s Gokul Nagar Sugar Mills Co.
Ltd. was appointed as selling agent by a resolution dated
July 26, 1944, the, latter rendered no service whatsoever so
as to earn any commission. In this connection the Income-
tax Officer referred to various items of evidence that were
placed before him by the parties. Ultimately, he found that
the amount claimed to have been paid as selling agent
commission cannot be deducted as an item of business
expenditure.
In all the appeals filed by the/three Companies, the
Appellate Assistant Commissioner gave some relief by
allowing deduction in respect of sums paid directly as
commission to some subagents. But on the main question
relating to the amount paid to M/s Gokul Nazar Sugar Mills
Co. Ltd., the Appellate Assistant ,Commissioner also agreed
with the Income-tax Officer. The contention that action
could not be taken under s. 34 (1 ) (c) was also rejected.
891
The Income-tax Appellate Tribunal, Delhi Bench, by its
common order dated December 31, 1962 after a consideration
of the materials on record and the reasons given by the
Income-tax Officer and the Appellate Assistant Commissioner,
rejected the claim made by the appellants in respect of the
commission said to have been paid to the selling agent M/s
Gokul Nagar Sugar Miffs Co. Ltd. The view of the Appellate
Tribunal is that no evidence has been placed by the
appellants to show that M/s Gokul Nagar Sugar Mills Co. Ltd.
had really acted as selling agent and that on the other hand
the appellants themselves have been directly dealing with
several sub-agents. In.fact, the finding of the Appellate
Tribunal was that there was no privity of contract between
the appellants and M/s Gokul Nagar Sugar Mills Co. Ltd. On
this reasoning the Appellate Tribunal also agreed with the
findings recorded by the two officers that no claim for
deduction in respect of selling agent commission can be
allowed. The Appellate Tribunal also held that the action
taken under s. 34 was justified. The result was that all
the appeals filed by the three Companies were dismissed.
The assessee companies filed applications before the
Appellate Tribunal under s. 66(1) to state a case and refer
the following four questions to the High Court.
"1. Whether in the facts and circumstances of
the case, the Tribunal was justified in
holding that no services Were rendered by M/s
Gokul Nagar Sugar Mills Co. Ltd. to M/s
Nawabganj Sugar Mills Co. Ltd.
2. Whether in holding as they have done,
the Tribunal was justified in giving its
decision with out taking into account the
statement of Shri Ram Sahai Dhir and the
receipts showing the commission paid to M/s
Gursarandas Kapur and some sub-agents of the
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recipient company.
3. Whether in view of the facts and in the
circumstances of the case the Tribunal has
rightly concluded that Dr. Sir G. C. Narang
signed letters acting as the Chairman of the
Nawabganj Sugar Mills Co. Ltd. when he had no
capacity to deal with the sub-agents in that
capacity.
4. Whether on the facts and in the
circumstances of the case, the Tribunal was
legally justified in holding that the
provisions of S. 34(1) (a) were rightly
invoked."
By its order dated February 19, 1965 the Appellate Tribunal
rejected the said applications on the ground that no
question of law arose from the-order of the Tribunal and
that the decision of the Tribunal was exclusively on facts.
8 9 2
The appellants filed applications before the Delhi High
Court under s. 66(2) of the Act, to direct the Income-,tax
Appellate Tribunal to refer the four questions, enumerated
above. The High Court, by its order dated March 14, 1967,
directed the Income-tax Appellate Tribunal to state a case
and refer question No. 4 alone, but rejected the
applications of the appellants in so far as they related to
questions Nos. 1 to 3. The view to the High Court is ,,that
the points covered by the questions Nos. 1 to 3 are all on
facts and that in the face of the findings recorded by the
Appellate Tribunal, no question of law arose for
consideration.
Mr. V. S. Desai, learned counsel for the appellants, urged
that the Income-tax Appellate Tribunal, which is the final
authority on facts, has not taken into account the material
evidence adduced by the parties. He ,further urged that the
appellants had adduced the evidence of certain witnesses to
establish that M/s Gokul Nagar Sugar Mills Co. Ltd. were the
selling agent and the persons who gave evidence had been
appointed as sub-agents by them and that commissions were
also paid to them by the selling agent. Particularly, the
counsel pointed out that the evidence of Ram Sahai Dhir and
Shiv Nand Verma has not at all been adverted to by the
Appellate Tribunal. The counsel also urged that certain
receipts produced Nos. 948 dated April 24, 1946 and 298
dated February 13, 1947 showing the payments made by M/s
Gokul Nagar Sugar Mills Co. Ltd. as commission to their sub-
agents have not been even referred to by the Appellate
Tribunal. The counsel further pointed out that even the
High Court has held that the Income-tax Appellate Tribunal
has made-no reference to ’the evidence of the two
witnesses, nor has it adverted to the receipts claimed to
have been given by the sub-agents. The High Court’s view in
this regard that it is not every piece of evidence available
on record that must be dealt with by the Appellate Tribunal,
is strenuously criticised by Mr. V. S. Desai. The counsel
relied on the decision of this Court in Udhavdas Kewalram v.
Commissioner of Income-tax, Bombay City(1) where it has been
held that the Tribunal has to act judicially and consider
all the evidence in favour and against the assessee and that
an order recorded on a review of only a part of the evidence
and ignoring the remaining evidence, cannot be regarded as
conclusively determining the questions of fact raised before
the Tribunal. Mr. Desai, hence urged that the High Court
was not justified in declining to direct the Appellate
Tribunal to refer questions Nos. 1 to 3.
Mr. R. H. Dhebar, learned counsel for the Department has re-
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ferred us to the findings recorded by the Income-tax
Officer, the Appellate Assistant Commissioner as well as the
elaborate discussion contained in the order of the Appellate
Tribunal, and
(1) [1967] 66 I.T.R. 462.
893
pointed out that all relevant material on record has been
taken into account by all the authorities, including the
Appellate Tribunal and that the appellants can have no
grievance in that regard. All material facts have been
considered and findings have been recorded on facts against
the appellants that M/s Gokul Nagar Sugar Mills Co. Ltd.
rendered no service whatsoever as selling agent and that the
materials on record conclusively establish that the
appellants themselves were dealing with their sub-agents
direct. The learned counsel further pointed out that the
Income-tax Officer summoned Dr. Gokul Chand Narang under s.
37 of the Act to produce the correspondence with the sub-
agents as well ,as the sugar mills. Only 13 letters spread
over a period of three years written by Dr. Gokul Chand
Narang in his personal capacity and in the letter heads of
M/s Gokulchand Ram Sahai were produced. None of the replies
to those letters from the sub-agents were produced. The
counsel finally urged that the order of the High Court
declining to direct the Appellate Tribunal to refer
questions Nos. 1 to 3 is correct.
We are of the opinion that there is no substance in these
appeals. We have gone through the orders of the Income-tax
Officer, the Appellate Assistant Commissioner, as well as
the Income-tax Appellate Tribunal. No doubt, there is a
resolution produced by the appellants dated July 26, 1944 in
and by which the sugar selling agency of Nawabganj Sugar
Mills Co. Ltd. is given to M/s Gokul Nagar Sugar Mills Co.
Ltd. on -0-12-0% There is no other evidence to show the
nature of the arrangement or as to how exactly this
resolution is To be carried out.
A reading. of questions Nos. 1 to 3 clearly shows that the
points raised therein are purely questions of fact. But as
the contention of Mr. V. S. Desai is that certain material
facts have not been considered at all by the Tribunal and
hence the findings arrived at by it cannot be conclusive, in
view of this infirmity, we will refer to the evidence on
record not with a view to decide whether the Tribunal has
properly appreciated the evidence but to see whether there
was evidence to support the findings recorded by the
Tribunal and whether that finding could on that evidence be
reasonably reached.
We have already referred to the resolution dated July 26,
1944. The first criticism of Mr. V. S. Desai is that the
evidence of sub-agents appointed by the selling agent has
not been considered by the Appellate Tribunal. The two
witnesses in this regard are Ram Sahai Dhir and Shiv Nand
Verma. The contention of Mr. V. S. Desai that the evidence
of Ram Sahai Dhir has not been considered, as such, by the
Appellate Tribunal, is only technically correct because it
is seen from the order of the Appellate Tribunal that it has
referred to the relationship between
894
the appellants and a company known as M/s Ramdev and Corn-
pany. Ram Sahai Dhir in his evidence has clearly stated
that he is the sole proprietor of M/s Ramdev and Company.
He has further stated that after he got the subagency from
M/s Gokul Nagar Sugar Mills Co. Ltd. he along with his
brother and son formed a partnership for this purpose. in
the name of M/s Ramdev and Company. The Appellate Tribunal
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in paragraph of its order has considered a telegram sent on
September 1, 1948 to M/s Ramdev and Company by the Chairman
of Nawabganj Sugar Mills Co. Ltd. That telegram states that
the agency of M/s Gursardndas Kapur and Sons has been
terminated and M/s Ramdev and Company is asked to sell and
freely secure challans. Ram Sahai Dhir in his evidence has
stated that M/s Gursarandas Kapur and Sons were the selling
agent of the appellants originally and that he started his
own sugar business in or about 1947. Therefore, the
telegram, as held by the Appellate Tribunal, clearly shows
that the appellants were having direct dealings with Ramdev
and Company and that M/s Gokul Nagar Sugar Mills Co. Ltd. is
no where in the picture. This telegram also shows that this
privity of contract between the appellants and Ramdev and
Company will not be there if Ramdev and Company were the
sub-agents appointed by M/s Gokul Nagar Sugar Mills Company
Ltd. Therefore, it is clear that the relationship between
the appellants and M/s Ramdev and Sons of which Sri Ram
Sahai Dhir is the sole proprietor has, been considered by
the Appellate Tribunal.
Regarding Shiv Nand Verma, his evidence has only to be read
to be rejected. Even according to the appellants M/s Gokul
Nagar Sugar Mills Company Ltd. was appointed as Selling
Agent only by the resolution dated July 26 1944. Apart from
the very contradictory answers given by this witness, he has
categorically stated in answer to a specific question put by
the appellants that lie, was appointed even in 1942 as sub-
agent by M/s Gokul Nagar Sugar Mills Company Ltd. on a
commission of -0-4-0%. This evidence is absolutely false
and of no use to support the case of the appellants because
in 1942 M/s Gokul Nagar Sugar Mills Company Ltd. was not in
the picture. The evidence of this witness does not
establish that M/s Gokul Nagar Sugar Mills Company Ltd. had
appointed him as their sub-agents and were paying him
commission, in their capacity as the selling agent of the
appellants. The Appellate Tribunal has referred to the
evidence of Shiv Nand Verma given before the Income-tax
Officer and it has also noted the reasons for not acting on
that evidence. Therefore, it is not as if that the
Appellate Tribunal was not conscious of this evidence, on
record which is absolutely valueless so far’ as the
appellants are concerned.
Regarding the receipts Nos. 948 dated 24-4-1946 and 298
dated February 13, 1947, it is no doubt true that they have
not
89 5
been specifically adverted to by the Appellate Tribunal.
But it is rather surprising that the appellants should be
able to produce only these two receipts when they claim that
M/s Gokul Nagar Sugar Mills Company Ltd. has been acting as
their selling agent from 1944. Further the persons who are
mentioned there as sub-agents have not at all given evidence
before the Income-tax authorities. Those receipts lose all
significance especially when the evidence of Ram Sahai Dhir
and Shiv Nand Verma who claim to have been appointed as sub-
agents by the selling agent has been rejected by the
Appellate Tribunal. Obviously, in view of the other
evidence against the appellants, the Appellate Tribunal did
not think it worthwhile to specifically refer to these two
receipts on record. But the non-reference to these two
receipts cannot be. said to have in any manner vitiated the
conclusion arrived at by the Appellate Tribunal. As we have
stated earlier, we have only referred to these items of
evidence on record to show that the finding of the Appellate
Tribunal are based on the material on record and that the
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finding is such which could on that evidence be reasonably
reached.
The statement in the order of the High Court that the
Appellate Tribunal has not referred to the evidence of Ram
Sahai Dhir as such is prima facie correct. But the High
Court missed the crucial fact that his evidence is really as
proprietor of M/s Ramdev and Company and the relationship
between this company and the appellants has been considered
by the Appellate Tribunal.
As laid down by this Court in, Udhavdas Kewalram v. Com-
missioner of Income-tax, Bombay City-1(1) the Income-tax
Appellate Tribunal has to act _judicially in the sense that
it has to consider with due care all material facts and the
evidence in favour of and against the assessee and record
its finding on all the contentions raised by the assessee
and the Commissioner in the light of the evidence and the
relevant law. From the discussion contained above it is
clear that it cannot be said that the Appellate Tribunal in
the case before us has omitted to consider any material fact
or any material piece of evidence.
To conclude we are in agreement with the findings of the
High Court that no point of law arises out of questions Nos.
1 to 3 and the High Court was _justified in declining to
give direction to the Appellate Tribunal to state a case and
refer those questions.
In the result the judgment and order of the High Court dated
March 14, 1967 are confirmed and the appeals are dismissed
with one set of costs to the respondent.
G.C. Appeals dismissed.
(1) [1967] 66 I.T, R. 462.
896