1. In compliance with the requisition of this court, the Tribunal has stated the case under sub-section (2) of section 66 of the Income-tax Act on the following two question :
'(1) Whether, on the facts and in the circumstances of the case, the customs rebate amounting to Rs. 25,170 (rupee twenty-five thousand one hundred and seventy) and Rs. 25,230 (rupee twenty-five thousand two hundred and thirty) received by the assessee was liable to be taxed in the hands of the assessee
(2) Whether there is any evidence on the record to justify the finding of the Tribunal that the customs rebate was not received by the assessee on behalf of a third party and it was a revenue receipt of the assessee ?'
2. We are here concerned with the two assessment year 1952-53 and 1953-54, the relevant assessment years being Maru years 2007/8 and 2008/9. The assessee is a registered firm and, at the material time, was carrying on business in cloth including export of fine and super-fine cloth. There was import duty livable on the cotton imported into India which was being used for manufacture of fine and super-fine cloth. As a result of representation made by various traders, the Government of India decided to allow some rebate on customs duty in respect of foreign cotton on which import duty had been paid and which had been used for the manufacture of fine and super fine cloth. By a circular letter dated 8th March, 1950, the Government of India declared that with a view to encourage export of fine and super-fine cloth of Indian manufacture, it decided to grant from February 1, 1950, a rebate, out of the import duty paid on foreign cotton which had entered into the production of such cloth, at a flat rate of 2 annas per pound on the net weight of all such export to certain specified countries. The said latter further directed that the rebate be paid by the Collector of Central Excises to the exporter. It may also be stated that, since February, 1950, there was no price control on sales by mills to exports The Government of India by its letter of 27th February, 1950, had lifted the said price control. In the relevant assessment years, the assessee had purchased fine and superfine cloth from the mills and had exported it to certain countries. In respect of this exported cloth, the assessee had from time to time received various amounts of rebate. The total amount of rebate received by the assessee in the assessment year 1952-53 was Rs. 25,170 and in the next assessment year the amount was Rs. 25,230.
3. The Income-tax Officer, sought to tax these amounts in the hands of the assessee as its income. The claim of the assessee was that it was not its income, but, on the other hand, the amounts of rebate had been received by it on behalf of the mills and, therefore, the said amounts represented its liability to the mills. According to the assessee, at the time of purchase of the cloth from the mills, the assessee had agreed to refund the amounts of rebate when received by it. In support of its contention the assessee had filed certain contracts which, according to it, it had entered into at the time. In the form of contracts produced before the Income-tax Officer, there appeared a foot-note to the following effect :
'Imported cotton duty refunded to the exporter will be recovered by the mills'
'The foreign cotton rebate @ 2 annas per lb. allowed by the Government for using the same in fine and superfine cloth will be paid to the mills in case it is received by us (exporter).'
4. A copy of such a contract has been attached to the statement of the case as annexure 'C'. In this contract, the latter endorsement appears as a foot-note. The alleged contract is of date July 21, 1950. It is purported to be one between the assessee and Navjivan Mills Ltd. through its agents. The price at which cloth has been sold is ex-mills plus 8%. The Income-tax Officer rejected the claim of the assessee. The reason given by him is in the following terms :
'The facts of the case, however, are that the assessee received this amount during the previous year and it has admittedly not been passed on to the mills till now. The assessee's representative had also been frank enough to admit that the assessee-firm have no intention of returning the said amount to the mills and, therefore, the amount is nothing but the income of the firm. Since this amounts was received by the assessee or accrued to them during the previous year, it has to be rightly, included in the total income pertaining to this year.'
5. The assessee filed appeals before the Appellate Assistant Commissioner. Before the Appellate Assistant Commissioner also it had been contended on behalf of the assessee that the said amounts of rebate received by the assessee were its liability to the mills and not its income, and therefore, not liable to tax. In support of its claim, the assessee had placed reliance on Morley v. Tattersal. The Appellate Assistant Commissioner also rejected the claim of the assessee and dismissed the appeals. Further appeals were taken to the Income-tax Appellate Tribunal. On the material placed before it, the Tribunal took the view that the real arrangement between the mills and the assessee was that the amount of rebate or refund belonged to the assessee. In this view of the matter, the Tribunal held that the said amounts both the appeals. An applications made to it by the assessee under section 66(1) was rejected by the Tribunal, and as already stated, in compliance of the order made by this court under section 66(2), the Tribunal has stated the case on the aforesaid two questions.
6. Now, it is not in dispute that if the answer to the second question goes against the assessee, the answer to the first question also would go against the assessee. If, on the other hand, the answer to the second question goes if favour of the assessee, the answer to the first question also must necessarily go in favour of the assessee. We would, therefore, proceed to deal with the second question first, and that question is whether there is any evidence on record to justify the finding of the Tribunal that the customs rebate was not received by the assessee on behalf of the third party (viz., the mills) and it was a revenue receipt of the assessee.
7. It is the contention of Mr. B. A. Palkhivala, learned counsel for the assessee, that the finding of the Tribunal that the amount of rebate had not been received by the assessee on behalf of the mills, being contrary to the terms of the contract between the assessee and the mills, is erroneous. It is also his contention that from the fact that the rebate was directed to be paid to the exporter it must be inferred that is was intended that the exporters would pay the rebate to the mills. It is his arguments that the circular letter which the Tribunal has taken into consideration in coming to this conclusion that the rebate was not received by the assessee on behalf of the third party was not relevant or material evidence.
8. We find it difficult to accept the contentions raised on behalf of the assessee. The circular letter has been annexed as annexure 'A' to the statement of the case. It is evidence as to who in law was entitled to receive the rebate. It does not appear from this letter anywhere that it is was the intention of the Government that the exporters should hand over the rebate when received by them to the mills. On the other hand, it in express terms directs that it be paid to the exports. The letter further directs that for the benefit of the exports the said rebate be linked with the procedure which already obtains for claiming rebates of central excise duty on exports of such cloth. From the extract of the Appellate assistant Commissioner's order, which has been reproduced in the statement of the case. It appears that the import duty which the mills had paid for importing cotton was passed on by the mills to the exporters at the time of the sale of the cloth, therefore, the mills had no right to claim back the amount of rebate. We are, therefore, unable to raise any inference that in granting rebate there was any intention on the part of the Government that the exporters should hand over the amount to the mills.
9. Now, it is indeed true that the copies of the contracts which have been Produced contain either as a term or as a footnote that the assessee would pay the amount of rebate to the mills, in case it is received. It is this endorsement which was the basis of the claim of the assessee, in support of its contention that the amounts of rebate were received by it on behalf of the mills. The third piece of evidence on which the assessee had tendered before the income-tax authorities consisted of letters from the assessee the payment of the rebate. The third piece of evidence on which the assessee had place reliance were the certificates which the mills had given to the assessee for obtaining the refunds. As against the aforesaid evidence tendered by the assessee, the department had relied on certain circumstances and evidence in the case. Firstly it was pointed out that in the books of account of the assessee, the said amounts of rebate, when received, were not credited to the accounts of the mills. but were, on the other hand credited in its 'customs rebate account'. In the books of account, therefore, the assessee did not show that the amounts were received by the assessee on behalf of the third party. The other circumstance which was pointed out. was that not a single pie had been refunded to any of the mills in all these years. Considering the evidence, the Tribunal came to the conclusion that the real arrangement between the mills and the assessee was that the refund belonged to the assessee. The price at which the cloth was purchased included the amount of rebate which the assessee was to obtain from the Government. In other words, the finding of the Tribunal is that the true agreement between the parties was not that the amount of rebate was to be paid to the mills, but parties was not that the amount of rebate was to be paid to the mills, but the true agreement between the parties was that the amounts of rebate belonged to the assessee and not to the mills. In our opinion, the aforesaid finding of fact, which the Tribunal has reached, is not in any manner vitiated, but has been reached after taking into consideration all the material which had been placed before it. This is not a case where the Tribunal had failed to consider the material evidence which had been tendered before it. This is not a case where the Tribunal had failed to consider the material evidence which had been tendered before it, or has taken into consideration material which is not relevant to the issue which the Tribunal had to decide. The Tribunal had accepted the proposition of law which was submitted before it on behalf of the assessee that if the amount was in the first instance a liability it could not be treated as income of the assessee merely on account of the assessee's failure to pay up its liability or on account of its refusing to discharge the liability. The Tribunal then proceeded to deal with the rival claims put forward before it by the assessee on the one hand and by the department on the other. The claim of the assessee was that under the contracts entered into between the assessee and the mills, the amount of rebate was to be paid to the mills, while the claim of the department was the real agreement between the mills and the assessee was that the amount belonged to the assessee and not to the mills, though there was a term or an endorsement to that effect in the forms of the written contracts which had been produced by the assessee before the Income-tax Officer. The question, therefore, which the Tribunal proceeded to consider was what was the real agreement between the parties and had come to the conclusion, as stated above, that the real agreement between the parties was that the amount of rebate belonged to the assessee, and the finding, which, in our opinion, is a finding of fact, has not in any manner been vitiated. The material evidence which had been placed before the income-tax authorities and the Tribunal on behalf of the assessee was the agreement and the claims made in two cases by the mills for the return of rebate. That material had been taken into account by the Tribunal. The Tribunal also had taken into account the material which had been placed before it on behalf of the department principally that the credited in the accounts of the mills, but credited by the assessee in its own account. The books of account of the assessee showed that these amounts belonged to it and not to the mills. There was also another piece of evidence which was tendered on behalf of the department, and that was that the assessee had not paid a single pie to any of the mills at any time. On the other hand, when the matter was put to the assessee's representative by the Income-tax Officer that the assessee had no intention to return the said amounts to the mills. On considering the entire evidence before it, the Tribunal has also noticed that the price at which the mills had sold the cloth to the assessee included full import duty paid by it. Mr. Palkhivala contended that the entries in the books of account are not binding and conclusive piece of evidence. It is true that it was open to the assessee to rebut the presumption arising from the entries that the facts represented in the entries were true. But no explanation has been given by the assessee as to why these entries had been made by him in his books of account. Before us, an attempt was made by Mr. Palkhivala to explain that in respect of each entry the assessee stated the name of the mills in respect of whose goods the rebate has been received. These are only details, but the relevant fact which is material is that the amount has not been credited to the mills but has been credited to the account of the assessee itself. Similarly, the fact that the assessee had not paid a single pie to any of the mills is a conduct on the part of the assessee relevant to the issue. The conduct is totally inconsistent with the stand taken by the assessee before the income-tax authorities. No explanation has been given by the assessee about this conduct on its part.
10. Mr. Palkhivala also contended that it may be that these pieces of evidence are material and relevant to the issue and support the department's case. But the fact that in the contracts there is a term that the rebate was to be refunded to the mills and that a few mills had made demands completely outweigh this evidence. In fact, these two facts completely render the evidence tendered on behalf of the department a nullity. We find it difficult to accept such a proposition. The evidence tendered on behalf of the assessee and the evidence tendered on behalf of the department were pieces of evidence on which the Tribunal had reached a conclusion. The Tribunal came to the conclusion. There was evidence to support the conclusion reached by it. We are not sitting in appeal over the order of the Tribunal to ascertain whether the finding of fact recorded by the Tribunal is correct or not. All that we are concerned with is whether there is any evidence in support of that conclusion of the Tribunal, or whether the finding of the Tribunal is, in the circumstances, perverse. In our opinion, as discussed above, there is evidence. We also do not consider that the conclusion reached by the Tribunal is a perverse one in the circumstances of the case. On the finding reached by the Tribunal on this issue of fact, the Tribunal was justified in holding that the amounts of rebate was the income of the assessee. The two decisions on which reliance has been placed by Mr. Palkhivala are, in our opinion, distinguishable on facts, and have no application to the facts of this case.
11. Facts in Morley v. Tattersall were : The assessee was a firm of auctioneers. Its profits consisted principally of commission charged by it on auction sales held by it. One of the conditions of sale was that the assessee would not send money fetched in the auction by postal remittances without a written order from the persons whose goods it had auctioned. As its result moneys belonging to some of the constituents of the assessee-firm had remained with the assessee. In the deed relating to the new constitution of the firm, it was provided that these accumulations should in a particular ratio be credited to the accounts of the partners. It was, however, provided that all liabilities subsisting should continue to be taken by the partnership. The question arose whether the said amounts which had been credited to the partners were liable to be taxed in the hands of the assessee. It was held that 'the quality and nature of a receipt for income-tax purposes were fixed once and for all when the subject of the receipt was received was received; consequently, as the unclaimed balances, when first received, were obviously liabilities, no subsequent operation could turn them into trading receipts. They were not, therefore, assessable to income-tax.' Now on the finding of the Tribunal in the instant case, receipt of these rebate amounts in the first instance, at the time they were received, was the property of the assessee. The decision, therefore, has no application to the case with which we are here concerned.
12. Similar also are the facts in the other decision in K. P. S. V. Rajarathina Nadar and Sons v. Commissioner of Income-tax/Excess Profits Tax, on which reliance was placed by Mr. Palkhivala. The amount relating to which the dispute arose was in the first instance showed in the books of account as a liability. Later on, the assessee had reversed the entries by making a corresponding credit entry, thereby indicating that he has no intention to pay the liability The department claimed to assess this amount in the hands of the assessee. The claim of the department was negatived by the High Court. It was held that 'an ascertained liability was still there and legally enforceable against the assessee; that the assessee intended not to discharge the liability did not affect his legal liability to his creditor', and the amount, therefore, did not cease to be a liability. We have pointed out that, on the findings reached by the Tribunal, there was no liability on the part of the assessee to return this amount to the mills.
13. For the reasons stated above, our answer to the second question will have to be against the assessee. It is not in dispute that if the answer to this question goes against the assessee, the answer to the first question also necessarily has to be against the assessee. In the result, our answer to both the questions is in the affirmative. The assessee will pay the costs of the Commissioner.
14. Questions answered in the affirmative.