Dipak Kumar Sen, J.
1. This reference arises out of the assessment of business profits tax of Turner Morrison & Co. Ltd., Calcutta, the assessee, for the chargeable accounting period 1st January, 1948, to the 31st December, 1948, at the instance of the Commissioner of Income-tax (Central), Calcutta. Under Section 66(2) of the Indian Income-tax Act, 1922, read with Section 19 of the Business Profits Tax Act, 1947, the Tribunal has been directed to state a case on the following question:
'Whether, on the facts and in the circumstances of the case, in arriving at its conclusion that the sum of Rs. 10,00,000 allowable as a deduction in computing the business profit of the assessee of the relevant chargeable accounting period, the Tribunal misdirected itself in law in basing the said conclusion upon some evidence only but ignoring other essential matters discussed in the order of the Appellate Assistant Commissioner ?'
2. The facts found and/or admitted in this reference are as follows : The assessee carries on business, inter alia, as managing agents of companies. On the 1st February, 1931, one Reginald Foster was appointed as the manager of the assessee under an agreement dated the 9th March, 1931, on the following among other terms :
(a) The assessee Would employ from the 1st February, 1931, and Foster would act as one of the managers of the assessee in India for the period of fifteen years and thereafter for successive periods of three years at his option and the desire of Foster to continue this agreement for such periods to be notified to the assessee in writing three calendar months prior to the date upon which it otherwise would determine.
(b) There would be paid to Foster by way of remuneration for his services a yearly sum equal to five per centum of the yearly net profits of the assessee. The amount of the net profit for the purpose of -this clause would be arrived at half-yearly......
(c) The said remuneration would be payable half-yearly and would become due and payable within one month from the date on which the profit and loss account for the half year would be certified by the auditors of the assessee.
(d) Foster would be at liberty to terminate the agreement by six calendar months' notice in writing to the assessee and the assessee would be entitled to terminate this agreement in the event of the said Foster being unable or unwilling by reason of ill-health or other cause to devote the whole of his time and attention to the business of the assessee for a period of at least 12 calendar months.
3. By a supplementary agreement dated the 6th June, 1932, the rate of remuneration payable to Foster under the earlier agreement was increased from 5% to 10% of the net profits of the assessee, the other terms and conditions of the earlier agreement remaining unaltered.
4. On the 9th October, 1943, Foster exercised his option to continue the said agreement for a further period of three years by a letter addressed from the United Kingdom and, on his return to India, continued to attend the meetings of the managed companies and also performed his other duties.
5. On the 14th January, 1948, there was a meeting of the directors of the assessee where it was resolved that the assessee should ask Foster to vacate his position as from the 1st January, 1948, and .relieve the assessee from the said agreement dated the. 9th March, 1931. Accordingly, a letter dated the 14th January, 1948, was addressed to Foster on behalf of the assessee.
6. On the next day, i.e., the 15th January, 1948, Foster replied to the said letter stating that he was prepared to release the assessee from its obligation as from the 1st January, 1948, in consideration of a sum of Rs. 10 lakhs being paid to him as compensation for loss of office under the agreement.
7. It is found that the remuneration due to Foster in 1947 was Rs. 4,56,613 and in the year 1948, such remuneration would have been Rs. 4,63,616.
8. On receipt of this reply from Foster there was another meeting of the directors of the assessee on the 16th January, 1948, and in this meeting the payment of Rs. 10 lakhs to Foster was formally sanctioned. Foster left India some time in March, 1948, and died on the 11th December, 1963, in the United Kingdom.
9. In the income-tax assessment of the assessee for the assessment year 1949-50, the corresponding previous year being the calendar year 1948, the amount of Rs. 10 lakhs paid to Foster was claimed as a deduction and was disallowed by the Income-tax Officer. On appeal, the Appellate Assistant Commissioner confirmed the assessment and held that the payment of the said sum was not compensation for termination of service but a price paid for buying off an onerous agreement. The appeal filed by the assessee against this order was found to be time-barred and dismissed by the Tribunal. Accordingly, the assessment became final.
10. In the assessment of the business profits tax of the assessee, the Income-tax Officer did not allow the said sum of Rs. 10 lakhs paid to Foster. This disallowance was confirmed by the Appellate Assistant Commissioner. On appeal, the Tribunal set aside the order and remanded the matter to the Appellate Assistant Commissioner for consideration on merits.
11. In the subsequent proceedings the Appellate Assistant Commissioner found from the books of the assessee that remuneration payable to Foster had been credited in his account for the years 1941 to 1946, twice a year, once on the 30th June and the other on the 31st December. But in the year 1947, the remuneration payable to Foster had not been credited in his account neither on the 30th June, 1947, nor on the 31st December, 1947, in spite of the fact that the assessee had made a net profit of Rs. 44,46,129 in the said year. He noted further that in the income-tax return filed for the assessment year 1948-49 (the accounting year ending 31st December, 1947), the assessee did not claim any deduction for the said sum of Rs. 4,46,612 payable to Foster as remuneration.
12. On being called upon to state the circumstances as to why in the year 1947, the remuneration payable to Foster was neither provided for nor claimed as expenditure in the income-tax assessment, the assessee by its letter dated the 17th November, 1965, stated that they were unable to furnish the details of the same.
13. From this, the Appellate Assistant Commissioner concluded that Foster did not work for the whole of the year 1947 as manager and was not able to devote the whole of his time and attention to the business of the assessee during that year. He held that, for that reason, the assessee did not claim any deduction for remuneration payable to Foster in the said year. The agreement dated the 9th March, 1931, automatically came to an end and the question of payment of compensation of Rs. 10 lakhs to Foster in the year 1948 did not arise. This payment was, in any event, neither warranted by any business expediency nor was authorised by the agreement dated the 9th March, 1931, which had come to an end. Such expenditure could not be said to have been laid out wholly and exclusively for the purpose of business of the assessee, but was made for some personal consideration. He upheld the disallowance of the said sum.
14. From this order of the Appellate Assistant Commissioner an appeal was preferred by the assessee to the Income-tax Appellate Tribunal. It was, inter alia, contended by the assessee that the agreement with Foster could run on indefinitely and the assessee got rid of Foster by payment of a sum of Rs. 10 lakhs solely motivated by commercial considerations, Foster was not a shareholder of the assessee in the real sense and the assessee had no interest in him to warrant the suggestion that the said sum was paid for personal consideration. In any event, the assessee being a limited company, there could be no scope of personal consideration.
15. On behalf of the revenue, it was contended that the terms of the agreement were such as to create serious doubts about its being a bona fide commercial agreement and that the assessee did not claim this sum in the income-tax return nor in the profit and loss account and further there was no evidence to show that Foster was acting as chairman and manager. It was pointed out that no remuneration was paid to Foster in 1947 and as such the currency of the agreement could not be accepted without proof.
16. The Tribunal held that the genuineness of the agreement dated the 9th March, 1931, as varied by the supplementary agreement dated the 6th June, 1932, had never been in dispute and the amount paid to Foster on the basis of this agreement had been allowed as deduction year after year, though the terms of the agreement were peculiar, one-sided and loaded in favour of Foster. The Tribunal found that the agreement of 1931 was genuine, and the assessee's power to determine the said agreement could be exercised only when Foster would be unable or unwilling to devote the whole of his time and attention to the business of the assessee for at least 12 calendar months; the alternative course open to the assessee was negotiation for termination of the agreement. It was found further that there was nothing sinister in the negotiations or in the manner in which the offer of Foster to terminate the agreement on payment of Rs. 10 lakhs was accepted by the assessee and that the payment thereof was not made out of any consideration other than business. The Tribunal allowed the appeal and directed the allowance of the said sum of Rs. 10 lakhs.
17. At the hearing before us Mr. Suhas Sen, learned counsel for the revenue contended that the Tribunal ignored the following findings of the Appellate Assistant Commissioner :
(a) The remuneration payable to Foster for the year 1947 was not credited in the account of Foster.
(b) In the assessment for the year 1948-49, the assessee did not claim anything paid on account of remuneration to Foster.
(c) The assessee when called upon, failed to furnish details of the circumstances under which such remuneration was not provided for nor claimed as expenditure in its income-tax assessment.
(d) Foster did not work as manager in the year 1947 and he was not able to devote the whole of his time and attention to the business of the assessee in that year.
(e) The agreement dated the 9th March, 1931, automatically came to an end and thereafter there was no further question of payment of compensation.
18. Mr. Sen contended that the failure of the Tribunal to consider the aforesaid findings and conclusions of the Appellate Assistant Commissioner has vitiated the order of the Tribunal. In support of his contentions Mr. Sen cited authorities which are considered hereafter chronologically :
(a) Dhirajlal Girdharilal v. Commissioner of Income-tax : 26ITR736(SC) . In this case, the accepted position was that the Tribunal in reaching its conclusion had drawn upon its own imagination and had made use of a number of surmises and conjectures. But it was contended that after eliminating the irrelevant materials accepted by the Tribunal there was still sufficient material on which the finding of fact could be supported. The Supreme Court negatived this contention and observed as follows (page 740):
'It is well established that when a court of fact acts on material, partly relevant and partly irrelevant, it is impossible to say to what extent the mind of the court was affected by the irrelevant material used by it in arriving at its finding. Such a finding is vitiated because of the use of inadmissible material and thereby an issue of law arises.' (b) Commissioner of Income-tax v. Greaves Cotton and Co. Ltd. : 68ITR200(SC) . In this case, the question before the Supreme Court was as follows :
'Whether, on the facts and in the circumstances of this case, the amount of Rs. 18 lakhs paid by the assessee-company to the managing agents on the termination of their managing agency agreement dated May 10, 1950, was an admissible deduction under Section 10(2)(xv) of the Income-tax Act ?' Here, the decisions of the Tribunal was assailed as defective in law on the ground that there was no clear finding recorded by the Tribunal, that the termination of the managing agency agreement was not bona fide or made with ulterior or oblique motive. It was urged that the Tribunal had not considered the relevant evidence in deciding the question. The Supreme Court held on the facts that the order of the Tribunal was highly unsatisactory as it had not taken into account all the material evidence adduced that its finding was not clear and, therefore, defective in law.
(c) Commissioner of Income-tax v. S. P. Jain : 87ITR370(SC) .The judgment of the Supreme Court at page 381 of the report contains thefollowing: 'In our view, the High Court and this court have always the jurisdiction to intervene if it appears that the Tribunal......has arrived at a finding based on no evidence or where the finding is inconsistent with the evidence or contradictory of it, or it has acted on material partly relevant and partly irrelevant or where the Tribunal draws upon its own imagination, imports facts and circumstances not apparent from the record, or bases its conclusions on mere conjectures or surmises, or where no person judicially acting and properly instructed as to the relevant law could have come to the determination reached. In all such cases the findings arrived at are vitiated.'
19. Mr. Sen also cited the decisions in Dalhousie Investment Trust Co. Ltd. v. Commissioner of Income-tax : 66ITR473(SC) and Khan Bahadur Ahmed Alladin and Sons v. Commissioner of Income-tax : 68ITR573(SC) for the observations of the Supreme Court as to how a statement of case should be drawn up and also how the Appellate Tribunal should record its findings.
20. Dr. Debi Pal, learned counsel for the assessee, has contended on the other hand that the Tribunal has not only considered all aspects of the matter but has taken due note of the order of the Appellate Assistant Commissioner and his conclusions, which were admittedly before, the Tribunal. There is no reason to assume that the Tribunal did not consider the same. The specific finding of the Tribunal is that remuneration paid to Foster in 1947 was Rs. 4,46,613 which has also been categorically stated in the statement of case. The Tribunal has taken pains to record the contentions on behalf of the revenue. He submitted that it was not for the Tribunal to record meticulously all the conclusions of the. authorities below. Unless shown to the contrary, it would be assumed that the Tribunal has noted and considered at least the order under appeal. In support of his contentions Dr. Pal cited the case of Homi Jehangir Gheesta v. Commissioner of Income-tax : 41ITR135(SC) for the following observation of the Supreme Court at page 141 of the report :
'......we do not think that......decisions require that the order of theTribunal 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.' He next cited Hooghly Trust (Pvt.) Ltd. v. Commissioner of Income-tax : 73ITR685(SC) for the following observations made by the Supreme Court at page 691 of the report: 'The Tribunal does not appear to have discussed the entire evidence on which the findings were based but the order of the Appellate Assistant Commissioner and his findings as also the entire record were before it and there is nothing to suggest that all the material facts were not present to its mind except that they are not mentioned in detail.'
21. In order to appreciate the scope of the dispute, the position of Foster vis-a-vis the assessee after the 31st January, 1946, is to be examined. The agreement of 1931 fixed the period of employment of Foster for an initial period of 15 years beginning from February, 1931. It cannot be disputed that Foster remained employed under the assessee from the 1st February, 1931, till the 31st January, 1946, when the initial period of 15 years came to an end by efflux of time.
22. It is not in dispute that a letter was written by Foster on the 9th October, 1945, whereby he exercised his option to continue on the same terras for a further fixed period of three years. Therefore, on the exercise of such option by Foster his period of employment was extended up to the 1st February, 1949.
23. During this period, i.e., from 1st February, 1946, till 31st January, 1949, the employment of Foster would stand terminated at the instance of the assessee, only if-
(a) Foster became unable or unwilling to devote the whole of his time and attention to the business of the assessee for a period of at least 12 calendar months; and
(b) the assessee terminated the services of Foster on that ground. Unless both these conditions were fulfilled, it could not be said that the extended employment of Foster came to an end.
24. The Appellate Assistant Commissioner held that such employment stood terminated on the sole fact that in 1947 no remuneration was shown in the accounts of the. assessee to have been provided for and paid to Foster. From this, the Appellate Assistant Commissioner came to the conclusion that, (a) Foster did not render services to the assessee for an entire year, and (b) that his services came to an end automatically under the agreement. The Tribunal has found as a fact that after exercising the option Foster came back to India and rendered services to the assessee. The presumption of automatic termination of the services of Foster is not borne out by the agreement and is erroneous in law.
25. What the departmental representative contended in the appeal before the Tribunal was :
(a) There was no evidence to show that Foster was acting as the manager.
(b) As no remuneration was paid to Foster in 1947, the currency of the agreement could not be accepted without proof.
26. The Tribunal has specifically noted both these contentions. The Tribunal has found that in 1947 a sum of Rs. 4,46,613 was paid to Foster and this finding has not been challenged as being without evidence. Proof of the currency of the agreement, before the Tribunal, were the letter of Foster dated the 9th October, 1945. The admitted payments of the remuneration of Foster for the year 1946, the factum of Foster's return to India, and his continuing in service were also, considered by the Tribunal.
27. In the question referred the contention seems to be that the Tribunal has ignored essential 'matters' discussed in the order of the Appellate Assistant Commissioner, and material evidence. Reading the order of the Tribunal with the evidence on record we cannot accept the contention of the revenue that the Tribunal ignored any material evidence. The Appellate Assistant Commissioner came to a certain conclusion on the evidence on record on which the Tribunal has come to a different conclusion. The fact that the conclusion of the Appellate Assistant Commissioner has not been expressly negatived by the Tribunal, in our opinion, makes little difference to the matter inasmuch as the Tribunal having considered all the relevant evidence before it reached its own conclusion. No authority has been cited on behalf of the revenue for the proposition that the Tribunal must deal in extenso with entire order appealed from and in our opinion it was not necessary for the Tribunal to do so.
28. For the above reasons we answer the question referred in the negative and in favour of the assessee.
29. On the facts and circumstances of the case, there will be no order as to costs.
C.K. Banerji, J.
30. I agree.