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indo-burma Petroleum Co. Ltd. Vs. Commissioner of Income-tax, Central - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 162 of 1971
Judge
Reported in[1980]124ITR719(Cal)
ActsIncome Tax Act, 1961 - Section 256(1) and 256(2)
Appellantindo-burma Petroleum Co. Ltd.
RespondentCommissioner of Income-tax, Central
Appellant AdvocateK. Ray and ;R.N. Datta, Advs.
Respondent AdvocateB.L. Pal and ;Ajit Sengupta, Advs.
Cases ReferredOmar Salay Mohamed Sait v. Commissioner of Income
Excerpt:
- .....accepted the finding of the ito that no business was carried on by the company in the accounting year in burma, which is fully supported by the directors' report.17. the finding of the aac, namely, that the business of the company was compulsorily acquired by the govt. of burma was not even challenged in argument on behalf of the company before the tribunal. therefore, it must be held that the company had accepted the aforesaid finding of the aac before the tribunal and the tribunal was bound to act on that finding.18. moreover, the only argument that was advanced on behalf of the company before the tribunal was that ' the office in burma had been kept going during the year and that until the amounts were realised from the government and remittances were made the business should be.....
Judgment:

Deb, J.

1. This reference under Section 256(2) of the I.T. Act, 1961, arises out of the assessment proceedings for the assessment year 1964-65 for which the previous year ended on December 31, 1963. The assessee is a company. The company carries on the business of distributing petroleum products. Its business was carried on in India, Burma and Pakistan. In the annual report, the directors of the company stated, inter alia, as follows :

' Since the arrangements for the acquisition by the Revolutionary Government of Burma of the oil companies' investments and marketing assets in that country have been fully completed, and the company has received the final instalments of the agreed price in December, 1963, and April, 1964, the directors now recommend a special distribution to the ordinary shareholders......

The company did not trade in Burma during 1963 and operations were limited to winding up the affairs of the Rangoon branch. '

2. Though the directors stated in the aforesaid report that the ' company did not trade in Burma during 1963 and operations were limited to winding up the affairs of the Rangoon branch ', the company nevertheless claimed in the assessment proceedings that the loss sustained by it in Burma was an allowable deduction. Therefore, the ITO, in his letter dated September 24, 1964, to the company wrote as follows :

' The company appears to have suspended its activities in Burma from 1-1-1963, vide the report of the directors to the shareholders at page 4. If this is the correct position then the expenses claimed under business in respect of the Rangoon branch, will not be allowable as no trading operations were carried on during the year. It is, therefore, proposed to disallow the loss computed in the Rangoon branch and ignore also the profits under the head ' Business '. You are requested to furnish your views on this point. '

3. The company replied by its letter dated October 29, 1964, as follows :

' While, broadly speaking, it is correct to say that the company did not trade in Burma during 1963 and operations there were limited to winding up of the affairs of the Rangoon branch, the company did nevertheless ' carry on ' business in Burma in the year 1963 inasmuch as the company continued to sell certain of its trading stocks, mainly lubricants and greases. Furthermore, the company continued to maintain an establishment for the purpose of finalising the outstanding affairs--mostly pertaining to the business. It should be appreciated that in the case of an Indian company, unless the remittance of the profits of the foreign Branch has been effected, the trading will not be complete and such remittance can take place only after all outstanding matters including accounting, taxation, etc., have been settled. '

4. Thereafter, there was a discussion between the ITO and a representative of the company. In connection with the said discussion, the company sent a note to the ITO giving additional information. This note, inter alia, reads thus :

' The business activities of the company in Burma were not really suspended as on January I, 1963, as the sales of all assets, etc., were not completed towards the latter part of 1963...... Although the fixed assetswere sold to the revolutionary Government of the Union of Burma, the sales of closing stocks of products, etc., as on December 31, 1962, were not merely confined to B.O.C. (1954) Ltd., but were also effected to dealers and outside parties. Some staff had to be retained for trading, etc., operations in the year 1963 and the services of the employees of ourmanaging agents were, like previous years, also availed of for which however the latter were, in terms of the provisions of the managing agency agreement, reimbursed by us. Thus, the usual business operations also continued in 1963 but on a small scale. Although the revolutionary Govt. of Burma agreed to take over a major portion of our assets as on January 1, 1963, the actual transfer took place long after that date. Thus, in point of fact the business of I.B.P. continued in Burma in 1963.

The latest position is that even now (as at date) we have not received the amount of money due from Burma branch and that a very skeleton establishment is being maintained in Rangoon to finalise and settle remittance and other pending matters. '

5. In view of the directors' report, the ITO held that as no business was admittedly carried on by the company in Burma, the loss claimed by it was not admissible. He also held that the stocks held by the company at the close of the earlier accounting year were taken over by the Govt. of Burma and that there were no purchases or charges relating to trading except those relating to opening stocks. He also stated as follows :

' It has been contended that an establishment was maintained in Rangoon to finalise the outstanding affairs pertaining to the business and that ' unless the remittance of the profits of the foreign branch has been effected, the trading will not be complete and such remittance can take place only after all outstanding matters including accounting, taxation, etc., have been settled '...... No evidence has been produced to prove theexistence of any trading activity during this accounting year. The references to certain activities made by the company all relate to the winding up of the branch...... All available evidence indicates the non-existenceof any business......

The sale of stocks, plant and machinery, by the Rangoon office was not an operation in furtherance of the business carried on by the company but was a realisation of its assets in the process of gradual winding up of its business. Hence, the loss claimed in respect of the Rangoon office is not admissible. '

6. The company filed an appeal before the AAC and stated before him that in view of the restrictions imposed by the Govt. of Burma it was not possible for it to produce its books of accounts and documents pertaining to 1963 either before him or before the ITO.

7. The AAC sustained the order under appeal and stated, inter alia, as follows :

' I have heard the arguments on both sides. The ITO has given a categorical finding that the entire opening stocks were taken over by the Government of Burma as well as the assets and that the directors themselves have reported that there was no trading during the calendar year1963. In these circumstances, it is difficult to accept the appellant's contention that the opening stocks were disposed of piecemeal during 1963 which is not supported by any evidence......The business was compulsorilyacquired by the Government of Burma as found by the ITO. In these circumstances, I agree with the ITO that no business was carried on in Burma.'

8. The company then went to the Tribunal and argued that ' the office in Burma had been kept going during the year and that until the amounts were realised from the Government and the remittances were made, the business should be taken to have been carried on by the company and, therefore, the loss was allowable as deduction'. The departmental representative relied on the directors' report of the company and also on the findings of the authorities below in support of the disallowance.

9. The Tribunal dismissed the appeal in the following terms :

' We have considered the rival contentions. As the business itself had been acquired by the Government, there is no question of the assessee carrying on any business in Burma in the relevant year. The directors' report rightly says that the company did not trade in Burma during 1963 and that the operations were limited to winding up of the affairs of the Rangoon branch. In view of this clear statement, we consider that the assessee cannot get deduction for the loss sustained......in Burma. '

10. Since the Tribunal rejected the company's application under Section 256(1) of the Act, a Division Bench of this court called for the following questions under Section 256(2) of the Act :

' (a) Whether there was any evidence in support of the Tribunal's finding that the assessee's business in Burma had itself been acquired by the Government to justify its conclusion that there was no question of the assessee carrying on any business in the relevant year ?

(b) Whether the finding of the Tribunal that the assessee did not carry on any business in Burma in the concerned year is sustainable in law as it was arrived at by the Tribunal without taking into account all relevant evidence relied upon by the assessee '

11. Mr. K. Ray, learned advocate for the company, rightly admits before us that question (b) has not been properly framed, for it presupposes that the Tribunal has not ' taken into account all relevant evidence relied upon by the assessee '. Therefore, in the context of his argument, we reframe it as follows :

' (b) Whether any relevant evidence relied upon by the assessee before the Tribunal was ignored by it in arriving at its conclusion that the assessee did not carry on any business in the accounting year and, if so, whether the said finding is not sustainable in law? ' Mr. Ray argues as follows :

(i) The expression ' marketing assets ' used in the directors' report means the assets by which the products are ordinarily sent to market for sale, e.g., the petrol tank and packages containing lubricants, etc. Therefore, it should be held that the stocks were not taken over by the Govt. of Burma and that the directors' report was misconstrued by the ITO and the AAC.

(ii) The ITO has accepted the profit and loss account which forms part of the statement of the case and shows that some stocks were disposed of by the company during the accounting year. The ITO has held that the closing stocks were acquired by the Govt. of Burma, whereas the AAC has held that the opening stocks were acquired by the Govt. of Burma. Their findings on stocks are, therefore, contradictory and are also contrary to the profit and loss account and that in view of his aforesaid meaning of the words ' marketing assets ' it should be held that the findings of these two authorities relating to stocks were perverse and that the stocks were not acquired by the Govt. of Burma and accordingly it should also be held that the business in Burma was carried on by the company in the relevant year,

(iii) The AAC has said that the ' business was compulsorily acquired by the Govt. of Burma as found by the ITO ', but the ITO has nowhere said so. The Tribunal has merely adopted the aforesaid statement of the AAC and, therefore, it should be held that there was no evidence before the Tribunal to come to a finding that the business of the company in Burma was acquired by the Govt. of Burma and accordingly question (a) should be answered in favour of the company, and

(iv) The company in its letter dated October 29, 1964, stated : ' While, broadly speaking, it is correct to say that the company did not trade in Burma during 1963 and operations there were limited to winding up of the affairs of the Rangoon branch, as stated in the directors' report, the company did nevertheless ' carry on ' business in Burma in the year 1963 inasmuch as the company continued to sell certain of its trading stocks, mainly lubricants and greases '. Therefore, the company's case throughout was that the business in Burma was carried on by the company which was also supported by the aforesaid note. The ITO and the appellate authorities have ignored this note altogether and, therefore, question (b) should be answered in favour of the company.

12. We are not at all impressed by the arguments of Mr. Ray. The word ' marketing ', according to Shorter Oxford English Dictionary, 3rd Edn. Vol. I, p. 1208, means ' produce to be sold in the market ; also, a consignment of such produce '. This meaning gives a quietus to his aforesaid meaning of the words 'marketing assets'. It also repels his contention that the stocks of the company were not taken over by the Govt. of Burma.

13. The closing stocks of 1962 were the opening stocks of 1963. Therefore, wo do not find any inconsistency between the findings of the ITO and the AAC in this behalf. That apart, the company did not even argue before the Tribunal that its stocks were not taken over by the Govt. of Burma. No opinion on it has been expressed by the Tribunal. Accordingly, this pure question of fact does not arise out of the order of the Tribunal.

14. Moreover, it was not the case of the company before the Tribunal that in view of the profit and loss account the findings of the ITO and the AAC relating to stocks were perverse and, therefore, their findings should not be accepted. There is also no such question before us. Furthermore, the aforesaid finding of the AAC is binding on the company. Mr. Ray is also not entitled to take this unmeritorious plea before us.

15. The AAC took into consideration the order of the ITO and also the directors' report. The directors' report stares at the face of the company. The finding of the AAC is that the business of the company in Burma was compulsorily acquired by the Govt. of Burma.

16. It is true that he has added the words ' as found by the ITO ' to his finding, but we do not find anything wrong in it on a fair and reasonable reading of the order of the ITO although the ITO has not specifically said so. The AAC has also accepted the finding of the ITO that no business was carried on by the company in the accounting year in Burma, which is fully supported by the directors' report.

17. The finding of the AAC, namely, that the business of the company was compulsorily acquired by the Govt. of Burma was not even challenged in argument on behalf of the company before the Tribunal. Therefore, it must be held that the company had accepted the aforesaid finding of the AAC before the Tribunal and the Tribunal was bound to act on that finding.

18. Moreover, the only argument that was advanced on behalf of the company before the Tribunal was that ' the office in Burma had been kept going during the year and that until the amounts were realised from the Government and remittances were made the business should be taken to have been carried on by the assessee '. In other words, it was not the case of the company before the Tribunal that the company in fact carried on the business in Burma. On the other hand, its case was that ' the business should be taken to have been carried on ' in Burma.

19. The Tribunal had agreed with the order of the AAC and, therefore, in view of the judgment of the Supreme Court in the case of CIT v. K. Y. Pilliah and Sons : [1967]63ITR411(SC) , it must be held that it was unnecessary for the Tribunal to give detailed or additional reasons in support of its conclusion.

20. Further, in view of the decision of the Supreme Court in the case of CIT v. Indira Balkrishna : [1960]39ITR546(SC) , it must also be held that it was no longer open to the Tribunal to go into the question as to whether the AAC was right in holding that the business of the company in Burma was compulsorily acquired by the Govt. of Burma inasmuch as it was not even challenged by the company before the Tribunal.

21. Furthermore, in the case of Homi Jehangir Gheesta v. CIT reported in : [1961]41ITR135(SC) , the Supreme Court at p. 141 of the report says thus :

' Having examined the order of the Tribunal and those materials, we are unable to agree with learned counsel for the appellant that the order of the Tribunal is vitiated by any of the defects adverted to in Dhirajlal Girdharilal v. Commissioner of Income-tax : [1954]26ITR736(SC) or Omar Salay Mohamed Sait v. Commissioner of Income-tax : [1959]37ITR151(SC) . We must make it clear that we do not think that those decisions require that the order of the Tribunal must be examined sentence by sentence, through a microscope as it were, so as to discover a minor lapse here or an incautious opinion there to be used as a peg on which to hang an issue of law. In view of the arguments advanced before us it is perhaps necessary to add that in considering probabilities properly arising from the facts alleged or proved, the Tribunal does not indulge in conjectures, surmises or suspicions.' (Underlining is for emphasis).

22. The Supreme Court also quoted its aforesaid observations in the case of Bhaichand Amoluk & Co. v. CIT : [1962]44ITR511(SC) of the report, to reject the contention that the finding of the Tribunal was based on no evidence or suspicions or conjectures or surmises.

23. The Tribunal is only concerned with the contentions made before it. If an aggrieved party does not challenge before the Tribunal a fact found by the authorities below, the Tribunal has no duty or power to go behind that fact or come to a different conclusion by making a suo motu finding. The Tribunal has rightly acted on the fact, namely, that the business of the company in Burma was compulsorily acquired by the Govt. of Burma as ' alleged ' by the department and not disputed by the company before the Tribunal.

24. In the premises, we hold that there was ample evidence before the Tribunal to hold that the business of the company in Burma was acquired by the Govt. of Burma and accordingly we answer question (a) in the affirmative and against the assessee.

25. Now, as to the reframed question (b), the note sent to the ITO by the company was not relied upon by the company before him and the AAC in argument. They also did not accept the contents of that note which isclear from a fair reading of their orders. No evidence was also adduced before them in support of that note.

26. The company did not even place any reliance on that note before the Tribunal. The Tribunal has stated in its appellate order that it has considered the ' rival contentions '. Therefore, in the context of the arguments made before it, it cannot be said that the Tribunal has ignored any relevant evidence relied upon by the company before it in arriving at its conclusion that the company did not carry on any business in Burma in the accounting year.

27. In the premises, we answer the refrained question (b) in the negative and against the assessee.

28. It may now be noted here that it does not appear from the order of the Tribunal that any evidence was relied upon on behalf of the company before the Tribunal in support of the aforesaid argument made on its behalf before the Tribunal as rightly contended on behalf of the revenue.

29. In this view of the matter, it is unnecessary for us to refer to the other cases, cited on behalf of the revenue in support of the contentions, namely, that this reference is misconceived and that in any event the questions are purely academic and should not be answered inasmuch as the company has not challenged the ultimate conclusion of the Tribunal to the effect that the loss suffered by it in Burma is not deductible in arriving at its total income from the business. For the same reason, we express no opinion on the foregoing contentions made on behalf of the revenue.

30. There will be no order as to costs.

C.K. Banerji, J.

31. I agree.


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