1. In this case, at the instance of the revenue, two questions are referred for our determination and they are as under :
'1. Whether the finding of the Tribunal that there is no basis for the addition of Rs. 76,92,566 is justified in law.
2. Whether, if the amount of Rs. 76,92,566 is at all considered to be the profit of the assessee-company, a deduction should be allowed to the assessee-company in respect of that amount on the ground that in the circumstances of the case the amount represented a revenue trading loss arising to the assessee-company in the course of its business ?'
2. The assessee-company consist of a group of cotton textile mills containing five units some of which are composite and some of which are not composite. For the year of account 1948, relevant to the assessment year 1949-50, the assessee-company submitted a return of income showing a net profit of Rs. 59,71,594 as per its books of account. Messrs. Agarwal & Co., a partnership firm, was the managing agent of the assessee-company. The managing agency firm consisted of certain partners some of whom were individuals and the others were firms. The management of the various mills as a group was divided amongst the individuals and firms for the sake of convenience. The distribution of the various mills amongst the individuals and firms was as follows :
Partners Share Mills allottedKhaitan group 6 as. No. 1 (whose) & Dye workswith (6).Morarka group 2 as.}Bagla group 2 as.} Nos. 2 and 3.Podar group 2 as. No. 4Seksaria group 2 as. No. 5Nihalchand group 2 as. Dye works with (1).
3. The selling agent of the assessee-company was the firm of Bhagwatiprasad Jagdambaprasad, which consisted of seven partners. Except for one partner by name S. N. Bagla no other partner of the selling agency firm was a member of the managing agency firm, nor was any partner of the selling agency firm a director of the assessee-company at the relevant time.
4. At the time of the assessment the Income-tax Officer did not accept the income as disclosed by the assessee-company and applying the proviso to section 13 of the Indian Income-tax Act, 1922, assessed the company on a total income of Rs. 1,18,03,914. Thus, having regard to the proviso to section 13, he added a sum of Rs. 76,92,566 as and by way of profits of the year to the amount already disclosed.
5. On an appeal by the assessee-company, the Appellate Assistant Commissioner remanded the matter to the Income-tax Officer for making his observations on the affidavit filed by Rameshwarprasad Bagla, the chairman of the assessee-company. The Income-tax Officer submitted his remand report on July 22, 1957. After the remand report was received the Appellate Assistant Commissioner heard the appeal and dismissed the same by his order dated May 16, 1969.
6. Aggrieved by the order of the Appellate Assistant Commissioner, the assessee-company preferred an appeal to the Tribunal. The Tribunal allowed the appeal. It came to the conclusion that the proviso to section 13 was not applicable in the present case and directed deletion of the addition of Rs. 76,92,566 made by the Income-tax Officer to the income of the assessee-company. The Tribunal in its order has exhaustively dealt with the various contentions that were urged both on behalf of the assessee-company as well as on behalf of the revenue. It was apparent from the facts disclosed to the Tribunal that during the accounting year for the period January 1, 1948, to January 20, 1948, there was complete control of prices, production and distribution; that for the period from January 20, 1948, to April 23, 1948, there was no control on prices but there was control on production and distribution. However, during this period there was more or less self-imposed control on prices fixed by the industry itself for this period. The prices of both fixed by the panel of the industry were required to be stamped on the cloth. For the third period beginning from April 24, 1948, to July 31, 1948, there was no control over prices or distribution while during the last period from August 1, 1948, to December 31, 1948, there was complete control reimposed and it was effective right up to the end of the accounting year. The case of the revenue before the Tribunal was that the anticipating and coming to know of the partial and full decontrol the assessee-company purported to sell large quantities of cloth to its own nominees at later dates, but at controlled prices ante-dating the contracts for the purposes, the implication being that the goods were sold by those nominees at really high rates after the decontrol when the prices ruled high, in certain of those cases, the firms in which either the Baglas or Khaitans had representations, and in others the media were third parties but ultimately the nominees. Several factors were brought to the notice of the Tribunal that the contracts, at least those ones up to and inclusive of 24th April, though ostensibly at controlled rates, were at higher prices, the assessee-company collecting the difference-what is commonly known as 'on money' disclosing in the books only the contracted controlled prices on the ante-dated dates. In support of this plea the revenue relied upon several factors. It was pointed out that there were contracts where the names of the parties had been changed and in certain cases there was a change of date as well. It was also pointed out on behalf of the revenue that in certain cases the sales advices were for later contracts and they have been made earlier and vice versa and in certain contracts one man alone has signed the contracts though they were in the names of different sets of people. Such contracts were alleged to have been signed by one Dhankalmal Dwarkaprasad. On enquiry it was found that there was no munim by that name. The Tribunal carefully considered the question that even if it is assumed or proved that these contracts were not genuine it was not established that the assessee-company could be held responsible for the same. On appreciation of the various facts before it, it came to the conclusion that some of the director who were also connected with the managing agents defrauded the assessee-company. The Tribunal also came to the conclusion that the managing agency firm have taken advantage of their position to enrich themselves at the expense of the assessee-company and in a hurry to put through these transaction several mistakes have also been committed by them. The Tribunal further pointed out that there was no material to show that the assessee-company received anything more than the prices contracted for; that it may be that the managing agents through these parties, some of whom were nominees or relations or their creations, taking advantage of their position, sold the assessee-company's goods at concessional rate, but it could not be said that the income accrued or was received by the assessee-company. The Tribunal came to a clear finding upon appreciation of the entire material and evidence on the record that the managing agents had no regard for the welfare of the assessee-company that was managed by them; they committed the assessee-company to the onerous responsibility of performing contracts for the supply of very large quantities of cloth a controlled rates with the object of benefiting themselves in the transactions by putting up nominees and relations of theirs to purchase the same. Upon scrutiny of all the circumstances the Tribunal came to the conclusion that as far as the assessee-company was concerned, it could not be said that the alleged income either accrued or was received in fact by the assessee-company. Accordingly, it was not possible on the facts and circumstances of the case to take the view that the proviso to section 13 could be invoked. The Tribunal accordingly held that no income as alleged had accrued or was received by the assessee-company and it directed deletion of the sum of Rs. 76,92,566 which was added by the Income-tax Officer. It is from this order of the Tribunal that the above two questions are referred for our determination.
7. Mr. Joshi on behalf of the revenue contended that having regard to the numerous defects pointed out before the Tribunal it was quite evident that numerous manipulations were made with a view to ante-date contracts at controlled prices even though they were entered into at much higher prices after the control was modified or abolished; that all the profits in respect of such contracts were actually received by the assessee-company, but the same were not disclosed in their books of account as they were treated as 'on money' and misappropriated.
8. The question whether the assessee-company received any amount in excess of the prices mentioned in the contracts is a pure question of fact. The Tribunal in its well-reasoned order has pointed out the various defects which were brought to its notice on behalf of the revenue but no link whatsoever was established with a view to show that any amount in excess of what was shown in the contracts or in the entries in the books of account was ever received by the assessee-company. All such contracts were entered into by the various partners of the managing agents who were in charge of the several units of the assessee-company and it may well be, though it is not necessary for us in this reference to decide the same, that such partners might have ante-dated the contracts at controlled prices and received much larger amounts that the prices mentioned in the contracts from the various purchases who may be their nominees or outsiders. In such an event the amount, if any, that might have been received by the managing agency firm can never be treated as amount received by the assessee-company, because no amount whatsoever accrued to the assessee-company and in fact none has been received by the assessee-company. As stated above, on the various circumstances which were pointed out on behalf of the revenue the Tribunal came to a clear finding that the managing agents had no regard for the welfare of the company that was managed by them and they committed the assessee-company to the onerous responsibility of performing contracts for the supply of very large quantities of cloth at controlled rates with the object of benefiting themselves in the transactions by putting up nominees and relations of theirs to purchase the same. When such is the position, it cannot be said that any additional income was received by the assessee-company or it accrued to it. Thus, the Tribunal was right that the provisions of the proviso to section 13 of the Act cannot be invoked in the present case and on the material on record the Income-tax Officer was not justified in adding the sum of Rs. 76,92,566 to the income disclosed.
9. In that view of the matter question No. 1 is answered in the affirmative. Having regard to the answer to question No. 1, question No. 2 does not survive.
10. As nobody appeared on behalf of the assessee-company there will be no order as to costs.