D.K. Kapur, J.
1. These two, references (Nos. 217 and 218 of 1975) have been made under the orders of this High Court under section 256(2) of the Income-tax Act, 1961. The questions directed to be referred are in two sets :
(a) in I.T.C. No. 29 of 1973 :
'1. Whether there was any evidence before the Tribunal to justify the finding that profit of Rs. 2,10,000 made by Raisina Cold Storage and Ice Co. Limited was the assessed's income ?
2. Whether there was any evidence before the Tribunal to justify the finding that the payment of Rs. 41,039.67 made to Surjit Singh, Sham Singh and Rajinder Singh was the assessed's income and was rightly taxed as such in its hands ?
3. Whether there was any evidence before the Tribunal to justify the finding that the sum of Rs. 3,78,329 was the income of the assessed liable to tax as such ?
4. Whether, in any view of the matter, the sum of Rs. 3,78,329 was the assessed's income during the relevant year ending on October 31, 1960 ?
5. Whether there was any evidence before the Tribunal to justify the finding that the payment of Rs. 10,402 made to A. D. Gupta, Kartar Singh and S. K. Burman was the assessed's income ?
6. If answers to questions Nos. 1, 2, 3 and 5 are in the affirmative, whether the finding of the Tribunal in respect of the amounts referred to in the said questions are otherwise legally justified ?'
And (b) in I.T.C. No. 30 of 1973 :
(1) Whether, on the facts and in the circumstances of the case, the levy of penalty under section 271(1)(c) of the Income-tax Act, 1961, was justified ?
(2) If the answer to the aforesaid question is in the affirmative, whether, on the facts and in the circumstances of the case while levying penalty, the tax sought to be evaded is to be calculated by including in the income returned the amounts shown in Part F of the return ?
(3) Whether, on the facts and in the circumstances of the case, for calculation of the penalty, the item of Rs. 3,78,379 has to be disregarded as being income not liable to be returned ?
(4) Whether, on the facts and in the circumstances of the case for purpose of calculation of the penalty, assessed income has to be modified by making suitable adjustment in the value of the closing stock consequent upon disallowance of a portion of the purchase price ?'
2. The statement of the case submitted to us shows that the assessed company was originally known as the DLF Housing and Construction (P.) Ltd. It is pointed out that the company mainly carried on business in colonisation and land development. On the material dates which are stated to be July 18, 1959, and August 22, 1959, there were four directors : (1) Rai Bahadur Chaudhari Lal Chand, (2) S. B. Kartar Singh, (3) R. P. Burman and (4) S. Shiv Raj Singh. The Chief Administrative Officer was Ch. Raghavendra Singh, son of R. B. Ch. Lal Chand. The Assistant Administrative Officer was Ch. Davender Singh, another son of R. B. Ch. Lal Chand.
3. Then there is another company, M/s. Delhi Land and Finance Co. Ltd., which carried on business as financiers. The shareholders of this company were :
1. Chaudhari Raghavendra Singh
2. Chaudhari Davender Singh
3. Smt. Savitri Devi
4. R. S. Om Parkash.
4. The total number of shares of this company was 5,000 out of which Ch. Raghavendra Singh held 4,850 shares. There is a third company, M/s Raisina Cold Storage and Ice Co. Ltd., which had 3,505 shares. The main shareholders were the assessed company with 2,508 shares and M/s. Delhi Land and Finance Co. Ltd., with 700 shares. Ch. Raghavendra Singh and Ch. Davender Singh were also the directors of this company. Thus, these three companies formed an inter-related group.
5. The statement of the case has elaborately set out a number of facts relating to two transactions affecting the assessed company and the two other inter-related companies. The first set of facts relates to the purchase of 441 bighas and 12 bids was of agricultural land situated in village Majeshwar, Balabgarh Taluk, Gurgaon District, Haryana. The second transaction was also in relation to some other land situated in Majeshwar village.
6. According to the Income-tax Officer, the Appellate Assistant Commissioner and also the Tribunal, the transactions relating to the purchase of this land in Majeshwar village had been so organized by the assessed company as to inflate the purchase price and also part of the profits had been suppressed by siphoning the same to M/s. Raisina Cold Storage and Ice Co. Ltd. The transactions were elaborately discussed by the Income-tax Officer, the Appellate Assistant Commissioner as well as by the Tribunal. But, it is not necessary to go into complete details for the purposes of answering the reference which was directed to be submitted at the instance of this court. The same facts have been elaborately discussed in the judgment of this court in DLF United Ltd. v. CIT (I.T.C. No. 29 of 1973) decided on September 29, 1973. The other petition, namely, I.T.C. No. 30 of 1973, concerns some penalty orders which were passed consequential to the original assessment orders.
7. It is sufficient at this stage to deal with the original assessment. It may be noted that the questions set out in the beginning of this judgment show that we have to deal with a sum of Rs. 2,10,000, profit made by M/s. Raisina Cold Storage and Ice Co. Ltd., which has been treated as the assessed's income in the first question.
8. As far as the second question is concerned, we have to consider the payment of Rs. 41,039.67 made to Shri Sham Singh, Shri Surjit Singh and Shri Rajinder Singh and to determine whether the same is the assessed's income.
9. The third question is concerned with the sum of Rs. 3,78,329 which was determined by the Appellate Assistant Commissioner as the profit of M/s. Raisina Cold Storage and Ice Company Limited from the balance-sheet of that company. The question is whether this is the assessed's income. The 5th question is the consideration of a sum of Rs. 10,402 which was paid to Shri A. D. Gupta, Shri Kartar Singh and Shri S. K. Burman in respect of another transaction.
10. It is now necessary to give a short summary of the facts. On July 18, 1959, the board of directors of M/s. Raina Cold Storage and Ice Company Limited decided to set up a potato farm and cold storage plant by purchasing agricultural land measuring 441 bighas and 12 bids was at the rate of Rs. 1,275 per bigha and also to purchase another plot measuring 176 kanals and 17 marlas for an amount of Rs. 1,35,215. This land was close to Faridabad Township. The transaction was to be put through via Ch. Devender Singh, one of the directors of the company. An advance of Rs. 60,000 to him was also sanctioned. On that very date, July 18, 1959, Shri A. D. Gupta, who was a director of M/s. Raisina Cold Storage and Ice Co. Ltd., and also an employee of the assessed company, entered into a lease deed with the owners of the same 441 bighas and 12 bids was of land. The lease period was 20 years with an option for renewal for another 20 year. Possession of the land was taken by Shri A. D. Gupta on that very day. On October 17, 1959, the directors of Raisina (for short) held a meeting wherein they discussed the effect of the Punjab Security of Land Tenures Act, 1953, to the effect that not more than 30 standard acres of agricultural land could be held by one person. It was decided that only one-fourth of the land agreed to be purchased in Majeshwar village should be retained and the balance three-fourths should be sold at the best available price. This sale was to be subject to the leasehold rights of Shri A. D. Gupta.
11. For the purpose of giving effect to this decision, a committee was appointed consisting of two directors - Ch. Raghavendra Singh and Shri R. K. Jain, who decided to assign the right to purchase the three-fourths of the land to (1) Shri Sham Singh, (2) Shri Surjit Singh, and (3) Shri Rajinder Singh. The amount to be paid by each of these three persons was Rs. 84,000 of which Rs. 70,000 would be the profit of M/s. Raisina Cold Storage and Ice Co. Ltd. and Rs. 14,000 would go towards the advance already made to the owners of the land.
12. These three persons, Shri Sham Singh, Shri Surjit Singh and Shri Rajinder Singh entered into agreements with M/s. Delhi Land and Finance Co. Ltd. for financing the arrangement. Interest was to be paid and also part of the profit.
13. On October 30, 1959, the original owners of the land, i.e., the owners of 441 bighas and 12 saws of land in Majeshwar village, executed sale deeds selling the land to four parties - Raisina to the extent of one-fourth and to Shri Sham Singh, Shri Surjit Singh and Shri Rajinder Singh to the extent of one-fourth each.
14. On July 18, 1960, there were agreements between these three persons and the assessed company for developing the land and sub-dividing it into plots and selling the same. These three agreements were then substituted on May 9, 1961, by three other agreements by which they were to get lump sums in respect of the rights under the original agreement dated July 18, 1960.
15. Consequent to these final agreements, the sums paid to these three parties were :
Rs.(1) Sham Singh 2,69,249(2) Surjit Singh 2,57,428(3) Rajinder Singh 2,69,253----------Total 7,95,930----------
16. In the assessed company's books, the price of the land was Rs. 7,95,930 as against the sum of only Rs. 5,63,040 paid for the entire land to the original owners. The assessed company's three-fourths share which they acquired from Shri Sham Singh, Shri Surjit Singh and Shri Rajinder Singh cost only Rs. 4,22,283 originally. So, the difference between the original sale price and the assessed company's book price was Rs. 3,73,647. The break-up for the whole transaction was as follows :
Rs1. Total amount paid to the original owners 5,63,040.002. Amount received by Raisina from Sham Singh,Surjit Singh and Rajinder Singh (Rs. 70,000 from each) 2,10,000.003. Interest received by the finance company fromSham Singh, Surjit Singh and Rajinder Singh 1,03,383.194. Profit paid to the finance company 11,988.765. Net profit of Sham Singh, Surjit Singh andRajinder Singh 41,039.67
17. We are concerned in question No. 1, with a sum of Rs. 2,10,000 which was received by Raisina from the three purchasers. It may be recalled that this was the profit resulting to that company from the assignment of the right to purchase three-fourth's share in the land in village Majeshwar. According to the income-tax authorities, this is a profit of the assessed company. We have also to deal with a sum of Rs. 41,039.67 which was the net profit of the three parties, viz., Shri Sham Singh, Shri Surjit Singh and Shri Rajinder Singh, in the above series of transactions.
18. The case of the income-tax authorities throughout had been that the assessed company was manipulating matters in such a way as to show the purchase price as Rs. 7,95,930. The interest charged by the Finance Company (for short) amounting to Rs. 1,03,383.19 and the profit received by the Finance Company amounting to Rs. 11,988.76 has not been treated as that of the asessee company. But, the profit relating to Shri Sham Singh. Shri Surjit Singh and Shri Rajinder Singh amounting to Rs. 41,039.67 has been treated as an inflation of price by the assessed whereas the profit of Rs. 2,10,000 obtained by Raisina has been treated as a profit of the assessed company. We are concerned with these two items in questions Nos. 1 and 2 which we have to deal with.
19. There was another transaction relating to agricultural land in Majeshwar village in which case the vendors were Kartar Singh, A. D. Gupta K. P. Singh and S. K. Burman. These persons had entered into similar agreements for purchase of land, had taken loans from the Finance Company and then eventually entered into agreements for development of land with the assessed company which was superseded and lump sum payments were received after conveyance was made to the assessed company. In this case, the original purchase price was Rs. 14,91,858, but the assessed company paid Rs. 16,35,000. There was a difference of Rs. 1,43,142 in the price paid to the original owners by the purchasers Kartar Singh, A. D. Gupta, K. P. Singh and S. K. Burman, and the price obtained by these purchasers from the assessed company. The Income-tax Officer found that in making these transactions, these four persons had paid a sum of Rs. 1,31,740 to M/s. Delhi Land and Finance Co. Ltd. and so the addition made to the income was Rs. 1,43,142 minus Rs. 1,31,740 which amounted to Rs. 10,402. This is the subject-matter of question No. 5.
20. The other amount with which we are concerned was the profit made by Raisina from the sale of its portion of the land. According to the Income-tax Officer, this amount was Rs. 3,76,490, but the Appellate Assistant Commissioner found that the profit was Rs. 3,78,329. As we will see later, even this amount may be wrong as far as Raisina's profit is concerned, but we take it for granted that this is the amount which was added to the income of the assessed.
21. It is now necessary to examine each question separately for the purpose of answering the same. The reasoning of the Income-tax Officer and the other appellate authority about the first question was that actually, this transaction was a transaction of the assessed company and Raisina and the other three parties - Shri Sham Singh, Shri Surjit Singh and Shri Rajinder Singh - were merely benamidars. The reason for this is that Shri Sham Singh, Shri Surjit Singh and Shri Rajinder Singh were men of no substance and were admittedly benamidars for the company. In fact, two of these persons were employees of the assesee company and one was a relation of Ch. Raghavendra Singh. It was also the case of the assessed company that they were benamidars. As far as Raisina was concerned, it was a company with practically no cash balance and even had to borrow Rs. 60,000 to advance to Ch. Davender Singh towards the earnest money. In fact, it had no money to purchase the land in question. So, the real person who purchased the land was the assessed company through the agency of these four parties.
22. The first question to be asked by us is whether there is any evidence to show that the sum of Rs. 2,10,000 received by Raisina in assigning the right to purchase three-fourth share in the land can be treated as the income of the assessed company. The question is so framed as to require us to determine the evidence on which such a conclusion can be reached.
23. It may be recalled that the idea of purchasing 441 bighas and 12 bids was of agricultural land in Majeshwar village was mooted by the board of directors of Raisina. It was only later that it was decided that only one-fourth of this land should be retained. It is also obvious that the funds for making the purchase were not paid by the assessed company, but were paid by M/s. Delhi Land and Finance Co. Ltd., i.e., the Finance Company. The sequence of events may again be recalled for ready reference. On July 18, 1959, the decision was made to purchase the land. On October 17, 1959, the decision was altered to retain one-fourth of the land only because of the Punjab Security of Land Tenures Act, 1953. It was then decided by the two-man committee to effect sale in favor of Sham Singh, Surjit Singh and Rajinder Singh. These three persons entered into agreements with the Finance Company on October 28, 1959, to obtain necessary finance by pledge of the sale deeds. On October 30, 1959, the sale deeds were executed. Up to October 30, 1959, not a penny had passed from the assessed company for purchase of the land. The entire finance was obtained from the Finance company.. If it can be said that there was a benami transaction, it could only be traced to the source of the consideration which came entirely from the Finance Company.
24. When the three persons, Shri Sham Singh, Shri Surjit Singh and Shri Rajinder Singh, entered into an agreement with the assessed company for development of the plots and sale, they were already owners and had already paid the money to the original owners, without getting any help from the assessed company. Suppose, these persons had never entered into any agreement with the Finance Company, then it might be said that the consideration had been obtained from the assessed company for making the purchase from the original owners of the land in village Majeshwar. We fail to understand how the sum of Rs. 2,10,000 which was paid to Raisina from the money borrowed from M/s. Delhi Land and Finance Co. Ltd., can be said to belong to the assessed company. The entire transaction was financed by M/s. Delhi Land and Finance Co. Ltd., which advanced the money to Shri Sham Singh, Shri Surjit Singh and Shri Rajinder Singh, who paid, between them, Rs. 2,10,000 to Raisina, and also paid the consideration to the original owners of the land.
25. Annexures G-l and G-2 annexed to the statement of the case are copies of some of the sale deeds. Two sale deeds dated October 30, 1959, show the vendors as seven persons and the vendee as Raisina Cold Storage and Ice Co. Ltd. It shows that payment was made partially as earnest money, partially in cash and partially by bank drafts. So, the payment had been made without any help from the assessed company. A similar sale deed in favor of Shri Sham Singh has also been annexed to the statement of the case. This also gives the date as October 30, 1959, and shows that the payment has already been received. We are unable to understand how this payment can be traced to the assessed company. It is obvious that the funds had come entirely from the Finance Company by means of other agreements. The entire transaction, thereforee, consisted of three steps which may be summarised as follows :
The first step was that Raisina decided to buy the land. Shri A. D. Gupta took a lease for 20 years renewable for a period of 20 years. The purpose of this lease is a recognised device to prevent any pre-emption by others under the Punjab Pre-emption Act, 1913. Subsequently, Raisina discovered that they could not buy the entire land and so they decided to sell three-fourths share by assigning the right. In that transaction, a profit of Rs. 2,10,000 was earned by Raisina. The purchasers were three dummy purchasers. who were connected with the assessed company or with Ch. Raghavendra Singh, but the entire finance came from the Delhi Land and Finance Co. Ltd., which is not the assessed company. From those finances on which interest and profit was to be derived by that Finance Company, Raisina was paid its profit and the original purchasers were paid the consideration for the sale. In the course of this transaction, considerable extra amounts have been spent due to the interest charged by the Finance Company. So, the eventual price paid by the assessed company came to Rs. 7,95,930.18. The fact that the Finance Company provided the money for purchasing the land goes to show that the assessed company was not connected with the original purchase. If anything, it can be said that an agreement was made whereby Raisina made a profit.
26. Much has been made by the income-tax authorities of the fact that Raisina did not have the finance to purchase the land when the original scheme was thought out. We think, this is incorrect. It is obvious that the three companies are interconnected. The financing company was M/s. Delhi Land and Finance Co. Ltd., which could as easily have lent the money to Raisina as it lent the same to Shri Sham Singh, Shri Surjit Singh and Shri Rajinder Sigh.
27. As we view it, the manner in which the transaction was brought about, can be properly understood only by an analysis of the Punjab Security of Land Tenures Act, 1953. That Act was passed in 1953 and was amended from time to time by many subsequent amendments. By 1959, it had totally changed. Section l9A was enacted in 1959 (which is the same year as these transactions) by means of the Punjab Act 4 of 1959. The provisions of section 19A are as follows :
'19A. Bar of future acquisition of land in excess of permissible area. _ (1) Notwithstanding anything to the contrary in any law, custom, usage, contract or agreement, from and after the commencement of the Punjab Security of Land Tenures (Amendment) Ordinance, 1958, no person whether as landowner or tenant, shall acquire or possess by tansfer, exchange, lease, agreement or settlement any land, which, with or without the land already owned or held by him shall in the aggregate exceed the permissible area.
Provided that nothing in this section shall apply to lands belonging to registered, co-operative societies formed for purposes of co-operative farming of the land owned by an individual member of the society which does not exceed the permissible area.
(2) Any transfer, exchange lease, agreement or settlement made in contravention of the provisions of subsection (1) shall be null and void.'
28. The section shows that any transfer of land to a person of more than the permissible area is null ad void. It so happens that the 'permissible area' under the Act is limited to 30 standard acres. This is provided by section 2(3) of the Act, which defines 'permissible area', in relation to a landowner or a tenant, as thirty standard acres and where such thirty acres on being converted into ordinary acres exceed thirty acres, such sixty acres'. The effect of this amendment of 1959 was to make void any transaction in respect of agricultural land which is transferred or leased or exchanged of any area exceeding 30 standard acres.
29. Thus, by virtue of the Punjab Security of Land Tenures Act, 1953, as amended in 1959, Raisina could not have purchased land in excess of 30 standard acres. The land measuring 441 bighas and 12 bids was was in excess of this area. So, perforce, Raisina could not retain it. At the same time, the land could not be purchased also by the assessed company. So, in order to be able to obtain the same, some transactions had to be entered into by which the land could be saved from the operation of the Punjab Security of Land Tenures Act, 1953. This meant that some other persons had to be the purchasers. This is why Shri Sham Singh, Shri Surjit Singh and Shri Rjinder Singh had necessarily to purchase the land. As far as the finance was concerned, it was provided by M/s. Delhi Land and Finance Co. Ltd. The eventual result was that the land came to be purchased by those three persons with a view to utilising that land eventually for development into plots.
30. The first question is concerned with the transaction by Raisina. We have not been able to see how it is connected with the assessed. As already mentioned, the finance had come from the Finance Company. The extra amount has come by way of assignment of Raisina's rights to the three persons who were financed by the Finance Company. It would follow that profit of Rs. 2,10,000 which came from this source had no connection with the assessed company. In fact, the assessed company was not in the picture at all at that time, i.e., October 30, 1959.
31. thereforee, the answer to the first question has to be that there is no evidence to show that the profit of Rs. 2,10,000 earned by Raisina was the assessed's income. In other words, question No. 1 is answered in he negative, in favor of the assessed and against the Department.
32. Turning now to question No. 3, which is the profit coming to Raisina from the land it purchased in the original transaction, i.e., one-fourth share, we fail to understand how this profit is the profit of the assessed company. In fact, the conclusion of the Income-tax Officer or the Appellate Assistant Commissioner that Raisina earned a profit of Rs. 3,76,490 or Rs. 3,78,329 may be wrong. This point is revealed by examining the balance-sheet ofRaisina for the period in question. In the profit and loss account attached to the balance. sheet for the year ending October 31, 1959, the sum of Rs. 2,10,000 is shown as 'gain from agricultural land'. On October 31, 1959, the assessed company had not even entered into any transaction or agreement in respect of this land and yet Raisina had already earned this money. In the balance-sheet for the year ending October 31, 1960, which is annexure M annexed to the statement of the case, a sum of Rs. 7,17,150 is shown as receipt from sale of land. On the debit side, cost of land purchased during the year is shown as Rs. 1,55,327.21 and unsold land is shown as Rs. 31,006. A provision for development of plots is shown as Rs. 2,l4,500. The Income-tax Officer and the Appellate Assistant Commissioner in this case appear to have calculated the profit of Rs. 3,78,329 by deducting the purchase price and development cost from the amount received for the plots. Actually, at another place in the balance-sheet, i.e., on the right hand side of the balance-sheet, it appears that further Installments against plots amounting to Rs. 4,66,060 were still to be received and the provision for development cost has been made on the basis that the estimate for the whole scheme will cost Rs 2,68,000. As the plots were only purchase in 1959 and were only partially paid for, it also appears that the development was also partially completed. The actual profit of Raisina from this transaction would, thereforee, be quite different and cannot be taken as Rs. 3,78,329 because this is a mere estimate for which provision has been made in the profit and loss account.
33. The real point which emerges from the examination of the balance sheet is that the cost of acquisition of the plots as well as the development cost are reflected in the balance-sheet of Raisina. There is not only an estimate of the development cost but there is also provision for further development and a possibility that substantial sums are still to come to that company from the plots. The details in the balance-sheet of Raisina could go a long way to show that this profit of Raisina cannot be taken to be the assessed's income. When the expenditure has to be met by Raisina and no part of it has been spent by the assessed, then the profit is also to come to Raisina as the expenses of development are also to be met by Raisina. We fail to understand how an inference of benami can be raised. These three companies, i.e., the assessed company, the Finance Company and Raisina are inter-connected inasmuch as the same persons or the same group of persons control all the three companies. They are, however, not connected in such a manner that the profit made by one company can be taken to be the profit of another company. On the same line of reasoning, it is possible to hold that the entire profit belongs to the Finance Company because the money came from that Finance Company. In determining whether the income made by Raisina can be taken to be the assessed's income, we have to ask a simple question. Did the assessed spend any amount in buying or developing the plots Did it pay in any way for Raisina's efforts in this direction. If the assessed company spent nothing, we fail to understand how Raisina's income can be the assessed company's income. So, our answer to question No. 3 has to be in the negative, infamous of the assessed and against the Department.
34. It is now necessary to turn to question No. 2. In this respect, the only question, we find, we have to ask is whether this sum was actually paid to Shri Sham Singh, Shri Surjit Singh and Shri Rajinder Singh. If it is determined that this amount was really paid as has been held by the income-tax authorities, we fail to understand how this money came back to the assessed-company. No doubt, these persons are benami of the assessed company in the sense that they were merely dummies to get the land transferred to the assessed company. However, they were necessary dummies because otherwise the assessed company could not purchase the land due to the Punjab Security of Land Tenures Act, 1953, which restricted the area to be purchased by one person to 30 standard acres. If some payments have been made to these persons in the course of this transaction and some payments have been made to M/s. Delhi Land and Finance Co Ltd., it cannot be said that it becomes the income of the assessed. It is nevertheless the expense of the assessed company for bypassing the effect of the Punjab Security of Land Tenures Act, 1953. Either it had to abandon the scheme or it had to go through by purchase of the land via an intermediary to enable conversion of agricultural land into developed plots. The expense, thereforee, flowed from the method of avoiding the Act and was thus a necessary part of the assessed's expense and could not be treated as part of the assessed's income. We fail to find by what evidence this expense of Rs. 41,039.67 can be held to be the assessed's income. It was a necessary expenditure for purchasing the land. As the assessed could not buy the land directly, it had to be bought through intermediaries, who had to be financed. The difficulty, in such transactions, is to find persons who could be trusted to purchase the land and were entitled to do so. The consequential expense had necessarily to be met and cannot be treated as part of the assessed company's income.
35. There is another aspect of this case which has to be kept in mind. The agreements relating to the land were made by Raisina in October, 1959. At that time, private development of land was also going on in Delhi and M/s. DLF Co. Ltd. (the assessed-company) was a well-known coloniser. Roundabout the end of 1959, the Government took action under the Land Acquisition Act to issue notifications taking over large blocks of land around Delhi for a public purpose, namely, the development of Delhi in a planned manner. After that, private colonisation in Delhi came to an end. It is probably for this reason that in July, 1960, M/s. DLF, the assessed, entered into the transactions of July, 1960, for developing plots out of the land held by Shri Sham Singh, Shri Surjit Singh and Shri Rajinder Singh. However, for the purpose of this case, we may assume that the assessed company had this object in mind from the very beginning and intended to utilise this portion of the land for developing plots. The question is : Could the company have bought the three-fourths share of the agricultural land on its own This does not appear possible because the lad was more than 30 standard acres. In any case, as already explained, this land was purchased with money borrowed from the Finance Company. The assessed company had no hand in the purchase except to the extent that it provided reliable persons to hold the land. It is on record that there was some litigation even with these persons who claimed an account regarding the development. A suit was filed by Shri Rajinder Singh as Suit No. 90 of 1966. The plaint and written statement filed in that suit are on record. Even in the assessed company's written statement, it is pointed out that the finance had been provided by M/s. Delhi Land and Finance Co. Ltd., which had been paid off by the funds provided by the assessed company, to Shri Sham Singh, Shri Surjit Singh and Shri Rajinder Singh. The facts, thereforee, show that the assessed company had expended the funds that it showed in its books as cost of the purchase. We fail to understand how the net profit of Rs. 41,039.67 that came to Shri Sham Singh, Shri Surjit Singh and Rajinder Singh in this way can be treated as the assessed's income. We asked learned counsel for the Department to explain how this sum came back to the company. In fact, the suit filed by Shri Rajinder Singh failed because of the defense that full and final payment had been made on January 20, 1961, as a result of the subsequent agreements dated May 9, 1961. A payment made by the assessed company to three other persons cannot be treated in any way as the income of the assessed company. We accordingly answer question No. 2 in the negative, in favor of the assessed and against the Department.
36. In view of our answer to question No. 3, it is not really necessary to answer question No. 4. If the amount of Rs. 3,78,329 is not the assessed's income at all, it could not also be its income of year ending October 31, 1960. However, if it is the assessed's income and the calculation is correct, it will have to be the assessed's income during the relevant year ending on October 31, 1960, because that is how it is shown in Raisina's books. Our answer to this question is in the affirmative on the assumption that the income is not of Raisina but of the assessed company.
37. Turning to question No. 5, it seems to us that this question is not any different from question No. 2 already answered by us. In this case, the purchase from the original vendors of the land was made via Shri Kartar Singh, Shri A.D.Gupta, Shri K.P.Singh and Shri S.K.Burman. Shri K.P.Singh was the son-in-law of Ch. Raghavendra Singh, but the other three persons are employees of the assessed company. The amount paid by Shri K.P.Singh was obtained from the assessed company and he made nothing extra personally in the transaction. The remaining and which was purchased by Shri A.D.Gupta, Shri Kartar Singh and S.K.Burman was financed by the Finance Company in exactly the same way as in the case of Shri Sham Singh, Shri Surjit Singh and Shri Rajinder Singh. As a result of the transactions, they received Rs. 10,402 extra between them.
38. Again, it seems to be a purchase made by the dummies of the company. However, as pointed out earlier, the effect of the Punjab Security of Land Tenures Act, 1953, was to prevent the assessed company from buying the land directly. As the object of the company appears to have been to have a large housing project, if it did not have dummies, it could not have acquired the land and there could not have been any project. So, the land was purchased in the names of different persons and those persons had to be financed. The extra amount of Rs. 10,402 is the profit Shri A.D.Gupta, Shri Kartar Singh and Shri S.K.Burman have received in the transaction. As there was no other way in which the transaction could be effected, the only question we have to ask is whether this amount of Rs. 10,402 came back to the assessed company in some way. If these persons received the money and did not give it back to the assessed company, it has to be considered as a necessary expenditure for acquiring the land. There is no material at all to show that the amount came back to the assessed company. So, we have to answer question No. 5 in the negative, in favor of the assessed and against the Department.
39. Question No. 6 would only survive if questions Nos. 1, 2, 3 and 5 are answered in the affirmative. So, this question is not answered in view of our answers to the other questions.
40. In view of the above analysis, questions Nos. 1, 2, 3 and 5 are answered in the negative, in favor of the assessed and against the Department. Question No. 4 does not really survive, but it is answered in the affirmative if it survives. Question No. 6 is not answered at it does not survive. The reference is answered accordingly. The assessed to get costs. Counsel's fee Rs. 1,000.