SEN J. - This is a reference under section 66(2) of the Indian Income-tax Act, 1922, hereinafter described as the Act.
The facts, as appearing in the statement of the case, are stated below :
The assessee, J. Thomas & Company Limited, Calcutta, is a private limited company doing business as tea and shellac brokers. Mr. R. A. S. Thomas belonging to the family of the founders joined the business in 1929 as an assistant. In terms of an agreement between the firm and Mr. Thomas, he appointed a co-managing director for a period of two years with effect from April 1,1949. With effect from April 1, 1951, the agreement was renewed for a period of another three years expiring on March 31, 1954. In terms of the agreement the salary was Rs. 40,000 per annum plus a commission of 5 per cent. on the net profit. He was also the holder of 325 ordinary shares of the company. On this qualification he was given a share of the profits in the firm of Messrs. Thomas Cumberlege & Inskipp carrying on business in the United Kingdom. Under the articles of association of J. Thomas and Company Limited, a retiring director was required to sell all the ordinary shares and by convention the sharing of profits in the English firm was to be discontinued. During the first period of his service, Mr. R. A. S. Thomas was absent from India from February 3, 1948, to August 1, 1948, and again from February 2, 1950, to May 24, 1950, on leave.
The assessment year is 1952-53 and the corresponding accounting year is the financial year ending on March 31, 1952. Before the income-tax authorities Mr. T. C. W. Roe, a partner of the solicitors firm, Messrs. Orr Dignam and Company, made a statement. His statement was to the effect that in October-November, 1951, the chairman of the firm informed him that Mr. Thomas was not behaving satisfactorily and, as such, certain other directors had tried to induce him to retire from the company. The chairman was, however, at that time reluctant to call upon him to retire, as he had served the company for many years, but instead warned him to behave properly. Mr. Roe further stated that during the aforesaid time the chairman obtained a letter from Mr. Thomas to the effect that if called upon to do so, he would resign from the position of the managing director. The chairman of the company approached Mr. Roe and informed him on February 20, 1952, that the directors took an adamant attitude that unless Mr. Thomass services were dispensed with, the other directors would resign. This was followed by a discussion between the chairman and Mr. Toe, who gave him some advice. There were discussions in the matter between the chairman and Mr. Thomas and there is a definite statement that Mr. Thomas also approached Mr. Palmer of Sandersons and Morgans regarding his position and as a sequel thereof, he vehemently expressed his desire not to retire from the company. This attitude on the part of Mr. Thomas gave rise to a discussion between Mr. Palmer and Mr. Roe and eventually, Mr. Thomas was prevailed upon to retire on payment of a compensation of Rs. 2,80,000. It was also stated by Mr. Roe that the chairman expressed anxiety throughout to avoid unpleasantness and publicity and any litigation and, therefore, advised the chairman to compromise the matter by payment of compensation to Mr. Thomas. The statement of Mr. Roe before the Income-tax Officer was supported by the day-book of the firm of solicitors, which was also placed before the Income-tax Officer. The day-book showed that the matter was discussed with the chairman during the period from February 20, 1952, to March 10, 1952. On March 14, 1952, the chairman wrote to Mr. Thomas that if he would agree to resign, the terms of retirement would be settled. On March 15, 1952, Mr. Thomas finally wrote to the chairman that he was a not prepared to resign. On the very same date, Mr. Thomas was present in the meeting of the board of directors where the chairman stated that Mr. Thomas had refused to resign and expressed his anxiety to fulfill the agreement and work for the company. Accordingly, the chairman recommended to the board that if Mr. Thomas did not resign and the company did not desire him to continue to serve the remaining period in terms of the agreement, the agreement with Mr. Thomas must be determined with effect from March 31, 1952, and as a compensation for breach of the agreement, a sum of Rs. 2,80,000 would be paid to Mr. Thomas. Therefore, another meeting of the board was held on the 26th March, 1952, and on Mr. Thomass acceptance of the terms, the agreement was terminated.
On the above facts the Income-tax Officer found that the payment of Rs. 2,80,000 cannot be treated as an expenditure laid out wholly and exclusively for the purpose of business under section 10(2) (xv) of the Act. It was further held that all the transactions in writing were recorded with a particular colour to create evidence that Mr. Thomas was forced to resign and that the said amount was paid as compensation in view of the premature termination of the contract. The reasons for such a conclusion were that there was no evidence to show that Mr. Thomas was an inconvenient managing director and that there was no record of any 'ill-conduct' of Mr. Thomas. It was further held that the retirement was for other considerations and the payment was for some extra commercial reasons. The contention of the assessee-company throughout was that the amount of Rs. 2,80,000 was paid to Mr. Thomas in the interest of business as he was found to be an inconvenient managing director. The Appellate Assistant Income-tax Commissioner affirmed the decision of the Income-tax Officer, an appeal by the assessee.
There was a difference of opinion between the Judicial Member and the Accountant Member of the Appellate Tribunal in the second appeal preferred by the assessee. The Judicial Member was of opinion that having regard to the circumstances and probabilities, the sum of Rs. 2,80,000 was not wholly and exclusively spent for the purpose of the companys business. The Accountant Member on the other hand that the facts warranted the conclusion that the transaction was a bona fide one and that the payment of compensation was for the premature termination of the contract. The matter was referred to the President under section 5A(vii) of the Act and the President concurred with the decision made by the Accountant Member and held the there was evidence to show that the expenditure claimed to be deducted was laid out absolutely for the purpose of the assessees business. His further reason was that the managing director of the company, Mr. Methold, was present before the Income-tax Officer and had the Income-tax Officer any doubt about the statement of Mr. Roe and the stand taken by the company, the Income-tax Officer ought to have cross-examined him. According to the President there was no material on the record to warrant the conclusion that the payment was made for any extra-commercial reasons and that there was no good and sufficient reasons for disbelieving the company, when it was said that it paid the money as a price for getting rid of a director who had two years more to run under his contract and whose presence on the board was regarded as detrimental to the profitable conduct of the companys business.
On the above facts the following question has been framed under section 66(2) of the Act for a decision by this court : 'Whether, on the facts and in the circumstances of the case and on the materials before it, the Tribunal was right in law in holding that the sum case and on materials before it, the Tribunal was right in law in holding that the sum of Rs. 2,80,000 paid by the assessee-company to Mr. R. A. S. Thomas was an expenditure admissible amount paid to the said Mr. R. A. S. Thomas as compensation for termination of his connection with the company which had become detrimental to the companys interest.
Mr. Meyer, the learned counsel appearing for the Commissioner of Income-tax, Calcutta, urged mainly that the conclusions arrived at by the majority members of the Tribunal was utterly wrong, as there was no material and/or evidence in the record to show that the amount of Rs. 2,80,000 was paid as compensation simpliciter to Mr. Thomas. Before he began to elucidate his point, Mr. Sampath Iyengar appearing for the assessee-company (respondent), submitted that this court could not enter into the evidence as to the nature and factum of payment, under the provisions of section 66(2) of the Income-tax Act, as this court had restricted the scope of the question by incorporating the expression 'being an amount paid to the said R. A. S. Thomas as compensation for termination of his connection with the company which had become detrimental to the companys interest'. This expression, according to Mr. Iyengar, assumes as a fact found by the Tribunal that the said sum was paid in order to get rid of Mr. Thomas. The only question, therefore, was whether on those facts found the said amount could be allowed as a deductible amount under section 10(2) (xv) of the Act. This court, according to Mr. Iyengar, did not raise the question whether there was any evidence for the said finding of the Tribunal.
The objection as raised by Mr. Iyengar was overruled by us on the ground that the first part of the question is clear enough to show that this court is within its jurisdiction to enter into the question whether the Tribunal was right in holding that the sum of Rs. 2,80,000 paid by the assessee-company to Mr. Thomas was an expenditure admissible as an allowance, on the facts and in the circumstances of the case and on the materials before the Tribunal. The first part of the question has been framed in such a manner that this court can go into the question whether was no material and/or evidence in the record to show that the amount was not paid as compensation.
Mr. Meyer in opposing the decision of the Income-tax Appellate Tribunal had urged (1) that there was no evidence to show that the services of Mr. Thomas were unsatisfactory; (2) that Mr. Thomas actually resigned towards the end of November, 1961, but as the amount paid could not be claimed as deduction, a colour was given to the transaction in order that it might be treated as compensation; (3) that the amount of Rs. 2,80,000 was an ex gratia payment; (4) that the letter of resignation, which, if produced, would have given a different story, was suppressed and the story of withdrawal of the letter by Mr. Thomas was untrue and (5) that it was not established that the payment was solely in the interest of the appellants business, there being no proof that Mr. Thomas was an inconvenient managing director. He also stressed upon the fact that it was necessary for the assessee to call one of the directors for proving the assessees case and that Mr. Roes evidence should be rejected on the ground that he was proceeding in the matter on what Mr. Liddle, the chairman of the board of directors, told him and, therefore, his evidence should be treated as a hearsay evidence and that such a statement should be disbelieved as it is an embellishment upon the earlier entries in the day-book. Before the Income-tax Officer Mr. Roe in writing and the day-book were available and before the Appellate Assistant Commissioner, it appears that the assessee wanted to improve his case by introducing a tissue of new charges. The Appellate Assistant Commissioner called upon the assessee to prove these charges but no evidence was forthcoming. His further argument is that Mr. Liddles statement ought to have been obtained and that the best evidence ought to have been produced for the purpose of proving the assessees case. In brief Mr. Meyers argument boils down to this position that the finding of the majority members of the Tribunal was perverse and unreasonable, unsupported by reliable evidence and, therefore, the question should be answered in favour of the applicant. In order to find whether the Tribunal came to its conclusion in favour of the assessee or airy nothing, it is necessary for us to examine the evidence as appearing in the record. First of all the terms of the agreement may be looked into. The agreement dated April 11, 1949, was entered into for the period of two years from April 1, 1949. In this document (vide page 6 of the paper-book) it will appear that the salary of Mr. Thomas was Rs. 40,000 per annum and he was also to receive a commission of 5 per cent. of the net profits. Furthermore, he was entitled to entertainment allowance, costs and upkeep of motor car and any other items of expenditure as might be sanctioned from time to time. He was also given liberal leave facilities and was entitled to first class sea or air passage and first class railway fare during his leave. This agreement was for a period of two years as stated before and the second agreement was for three years and was to terminate on March 31, 1954, under the same terms and conditions of the first agreement excepting that the unlimited entertainment costs were reduced to Rs. 300. Thus it appears that under the terms of the agreement he was to continue in service till March 31, 1954, and there was no penal clause for termination of service within the period of contract. His services were however terminated on the 31st March, 1952, by a resolution of the board of directors dated 21st March, 1952 (vide page 31 of paper-book). In this meeting of the board Mr R. A. S. Thomas and the chairman, Mr. G. W. B. Liddle, were present. The substance of the statement of Mr. Roe and the contents of his day-book have been stated before. The day-book shows that Mr. Roe had discussions and communications with Mr. Liddle regarding Mr. Thomass affairs who was adamant in resigning. This day-book also indicates that he attended Mr. Palmer, a solicitor of Sanderson and Morgans Limited, who agreed that he would get in touch with Mr. Thomas on the lines suggested by him regarding his exit from office. Undoubtedly, this day-book does not show that Mr. Thomass services were considered altogether unsatisfactory and certain other directors had tried to dispense with Mr. Thomass services and that Mr. Roe advised Mr. Liddle that if Mr. Thomas failed to resign, an extraordinary general meeting should be convened to get rid of Mr. Thomas as a director provided Mr. Jack Thomas was prepared to vote in favour of this proposal (vide annexure 'D', page 23 of the paper-book). There is also a very important statement of Mr. Roe to the effect that he was informed by Mr. Liddle on 21st February, 1952, about Mr. Thomass refusal to resign. On this, he advised Mr. Liddle to go ahead for dispensing with the service of Mr. Thomas by calling an extraordinary general meeting of the board, as he was informed of a threat of suit in the High Court by him.
Mr. Meyer points out that the threat of suit by Mr. Thomas and Mr. Roes advice to Mr. Liddle to pay Mr. Thomas a compensation as appearing in Mr. Roes statement were merely embellishments for supporting the companys case. If these statements were correct, they ought to have found a place in the day-book. Accordingly, his statement cannot be treated as the foundation of the assessees case. The evidence of Mr. Roe was believed by the majority members of the Tribunal and it was found by it that the dairy was corroborated in all respects by the letter dated March 14, 1952, written by the chairman to Mr. Thomas and the reply of Mr. Thomas thereto dated March 15, 1952. These letters will be found respectively on pages 27 and 28 of the paper-book. In the letter dated 14th March, 1952, addressed by Mr. Liddle to Mr. Thomas, it appears that a decision was taken to call upon Mr. Thomas to resign and if agreed to resign, the matter would be placed before a formal board meeting in which the terms of retirement would be approved. In reply Mr. Thomas said that he was not prepared to resign and must leave the matter to the chairman (meaning the board) to take such steps as he might consider fit. The order of the President of the Tribunal would go to show that there was evidence that Mr. Thomas was being advised by Mr. Palmer of Messrs. Sanderson and Morgans, solicitors, and some legal action was contemplated which the company was anxious to avoid. He has also laid great stress upon the fact that Mr. Methold, another managing director, was present before the Income-tax Officer during the proceedings, but in spite of his presence he was not examined by him to dispel his doubts, if there was any. As such a step was not taken it was not possible to draw an adverse inference that some extra-commercial consideration had come into play in breaking the agreement with Mr. Thomas and paying him the compensation.
What appears from their orders is that Mr. Thomas was only 41 years of age when his services were dispensed with and that he was hale and hearty and would have become the chairman of the appellant-company in course of time. There was no reason whatsoever for him to resign. This shows that he was losing a substantial interest and had to forgo not only the employment as a managing director but the shareholding interest in the company as also the shares and profit in the firm of Messrs. Thomas Cumberlege and Inskipp carrying on business in the United Kingdom. These were the main reasons for which compensation was justifiably paid by the company and the whole transaction was not a colourable one, according to the Tribunal.
From the above, it will appear that the Tribunal principally placed reliance upon Mr. Roes statement for its conclusion even assuming that his statement was uncorroborated. Mr. Meyer criticised the order of the Tribunal as being a decision based on the principles of some decided cases and the case was not fashioned on the evidence in the record, i.e., in the total absence of evidence, emphasis was laid by the Tribunal that a payment of Rs. 2,80,000 was made as compensation, as Mr. Thomas was found to be an inconvenient member and as he was threatening to institute a suit.
Mr. Meyer has referred us to certain English cases to show that in those cases the decision was really made on the basis of cogent evidence and materials placed before the income-tax authorities. The Accountant Member has referred to a portion of the decision in B. W. Noble Limited v. Mitchell, which runs as follows :
'It seems to me that the directors had to handle a situation of both delicacy and gravity, and, their bona fides not being questioned, it is clear that they took a course which they were justified in taking and made a payment in the interest of the carrying on of their trade.'
Mr. Meyer contends that this observation was borne out of facts which are found at page 380. It is stated that :
'During 1920 and 1921 considerable friction of a personal nature arose between Mr. Haylor and his co-directors and there was evidence before us of conduct on the part of Mr. Haylor, improper in a director of the company. The other directors desired to get rid of him and considered it necessary for the sake of the good name of the company to do so. It was admitted in evidence before us that the company might possibly have been justified by law in exercising its power of dismissal, in which case Mr. Haylor would have been entitled to no compensation, but as the other directors were anxious that the matter should not become public, and that a scandal affecting the reputation of the company should be avoided, they entered into negotiations with Mr. Haylor for his retirement. He at first demanded Pounds 50,000 as compensation, but a compromise was eventually arrived at, and on the 30th December, 1921, an agreement was entered into between the company, the remaining directors and Mr. Haylor whereby Mr. Haylor agreed (1) to retire from the company, (2) to transfer his shares, which at this time were Pounds 3001 share, at their face value of Pounds 1 per share to the remaining directors and (3) to surrender his participating notes. The company agreed to pay Mr. Haylor Pounds 19,200 and the directors to pay him Pounds 300, making together the sum of Pounds 19,500, and that Mr. Haylor agreed to accept that sum in full and complete satisfaction of all claims which he had or might have against the company or the directors. (The Pounds 300 paid by the directors was expressed to be the consideration for his shares).'
Mr. Meyer contends that reference of this case by the Accountant Member was uncalled for as in this reported decision there was considerable evidence to show that the payment of compensation was justified. He has also invited our attention to the case in G. Scammel and Nephew Limited v. Rowles, where it was decided that certain payment was made for the purpose of the appellant-companys trade and, accordingly, they were allowable deductions in computing its profits for income-tax purposes. In this decision also it has to be found that actually a writ was issued by a director and there were other conditions for which compensation had to be paid. The headnote of the case runs as follows :
'The directors of the appellant-company acquired a controlling interest in another company, whose operations thereafter they carried on as directors. The second company became indebted to the appellant-company on trading account and issued debentures in its favour to secure the debt.
The holder of the remaining shares of the second company, who had been a director of the second company and claimed that he had never relinquished that office, issued a writ against the two companies and the before-mentioned individual directors. The latter were advised that the arrangement which they had made with the appellant-company as directors of the second company, including the issue of debentures, could be impugned and avoided. A compromise was thereupon reached on terms which included, inter alia, (a) the sale of the directors shareholding in the second company to the plaintiff shareholder, the surrender of its debentures for cancellation and the settlement of its indebtedness to the appellant-company on agreed terms, (b) the payment of a contribution towards his costs, and (c) the withdrawal of a slander action commenced against him by the directors (to one whom the company paid a sum of money to secure his assent to such withdrawal).
On appeal by the company against an assessment to income-tax in respect of its trading profits, the Special Commissioner held that the compromise was effected, not for purposes of the companys trade, but to enable it to terminate a trading relation which it found inconvenient with the minimum sacrifice of the balance of account resulting from that relationship, and that the payments made to secure the assent of the parties to the compromise and the legal costs of carrying it through were not money wholly and exclusively laid out or expended for the purpose of the companys trade.'
On the above facts it was decided that the payment in question was made for the purpose of the appellant-companys trade and, accordingly, they were allowable deductions in computing its profits for income-tax purposes. Mr. Meyer has pointed out that it was found in this case that the situation was such that one of the directors had to be got rid of as his retention was extremely inconvenient for running the affairs of the company efficiently, that there were specific cases of friction and threat of suit. In the instant case, Mr. Meyer on the principles decided in the aforesaid cases, invited our attention to his contention that the majority members of the Tribunal had no justification in saying that the statement of Mr. Roe is corroborated by the day-book entries wherein there is no recital that retention of Mr. Thomas was reported to be inconvenient nor is there any record to show that there was any complaint against him or warning was issued by the chairman to Mr. Thomas and there was a threat of resignation given by the directors. Further there was nothing to show that the steps taken by the directors were for avoiding publicity and unpleasantness. The Appellate Assistant Commissioner, according to Mr. Meyer, clearly found that Mr. Thomas would resign and go away from the company. At page 51 of the paper-book the Appellate Assistant Commissioner came to the conclusion that Mr. Thomas did not want to continue to serve the company probably for health reasons. We are not concerned to examine whether the finding of the Appellate Assistant Commissioner, which may be looked into for ascertaining facts, was correct or not. Our decision will hinge on the fact whether the Tribunal based its finding on evidence as to the matters referred to by Mr. Meyer. Before dealing with this aspect of the case it is necessary to refer to the decision of the Supreme Court in Commissioner of Income-tax v. E. D. Sheppard. The majority judgment is that 'compensation' in Explanation 2 to section 7(1) of these Income-tax Act does not mean compensation which is payable or compellable by law. Compensation for loss of employment is a well-known term; it means payment to the holder of an office as compensation for being deprived of profits to which as between himself and his employer he would, but for an act of deprivation by his employer or some third party such as legislature, have been entitled. When the deprivation is by the legislature there could be no question of liability or compellability to pay damages by law. The emphasis is on the act of deprivation, which may or may not give rise to any liability to law. It was further decided that the payment as found from the facts of the reported case was payment made solely as compensation for loss of employment and it, therefore, could not be treated under Explanation 2 of section 7(1) as profit received in lieu of salary. Therefore in the instant case it need be considered whether the Tribunal came to a correct finding on the evidence in record whether the amount of Rs. 2,80,000 was paid as compensation for loss of employment, that, is, for being deprived of profits to which as between himself and the company Mr. Thomas would, but for an act of deprivation by his employer, has been entitled.
Mr. Meyer has urged that the finding of the President is absolutely conjectural, unreasonable and perverse when he says :
'There is no material on record to warrant the conclusion that the payment was made for any extra-commercial consideration. In the circumstances of the case, I see no good and sufficient reasons for disbelieving the company when it says that it paid the sum as the price for getting rid of a director who had two years more to run under his contract and whose presence on the board was regarded as detrimental to the profitable conduct of the companys business.'
In order to find whether the submissions made by Mr. Meyer regarding the scope of interference by the High Court in a case like this are sustainable, it is necessary to refer to certain decisions cited by Mr. Sampath Iyengar, the learned counsel appearing for the respondent. The first case referred to by him is Saligram v. Commissioner of Income-tax. Their Lordships of the Punjab High Court decided, inter alia, that what had to be taken into consideration was whether there were facts or circumstances or both which would support the findings of the Tribunal in regard to its decision on the question of the main purposes of the transaction. The Bombay High Court decided in the case of Abdullabhai Abdul Kadar v. Commissioner of Income-tax that the materials may be direct evidence or they may be circumstances and probabilities on which a Tribunal may act. Inferences may be drawn from proved facts and the fact finding tribunal may act on those inferences. The question of law only arises when there is no material at all which would justify the finding of a particular fact. Consequently, the assessee could only ask the High Court to interfere with the findings of the Tribunal could be justified. It has also been observed by the Bombay High Court in the case of Rajputana Textile (Agencies) Limited v. Commissioner of Income-tax that the High Court is not concerned with the quality or the adequacy of the evidence led before the Tribunal. Whether the evidence was sufficient or not is for the Tribunal to decide. The High Courts jurisdiction can only be invoked if there was no evidence at all to justify the findings. In this connection the Supreme Court decision in Sree Meenakshi Mills Limited v. Commissioner of Income-tax may also be referred to. It has been observed by their Lordships, inter alia, that findings on questions of pure facts are not to be disturbed by the High Court on a reference, unless it appears that there was no evidence before the Tribunal upon which they, as reasonable men, could come to conclusion to which they have come; and this is so, even though the High Court would, on the evidence, have come to a conclusion entirely different from that of the Tribunal. In other words, such a finding can be reviewed only on the ground that there is no evidence to support it or that it is perverse.
The next case on which reliance has been placed by Mr. Sampath Iyengar is of Gouri Prasad Bagaria v. Commissioner of Income-tax. The facts are that the Income-tax Officer found the sum of Rs. 72,523 credited in the assessees account books in the name of his father. When called upon to explain the nature and the source of the amount the assessee stated that it represented the sale proceeds of gold purchased by him in 1918 in Bombay, that the gold was kept in the family chest, and that it was sold in the accounting year. The explanation offered was not accepted by the Income-tax Officer and he treated the amount as income from undisclosed sources. But on appeal the Appellate Tribunal accepted the explanation of the assessee. On a reference to the High Court, the latter held that there was no material before the Tribunal on which it could be said that the assessee had purchased gold in 1918, which he had sold in the year of account. On appeal to the Supreme Court, their Lordships held that when the assessees statement was believed, there was obviously material on which the finding of the Tribunal was based; and to seek for other material was tantamount to saying that a statement made by an assessee was not material on which a finding can be given. The Tribunal having believed the assessees statement, there was an end of the matter in so far as the fact was concerned, and if the finding was based upon a statement which was good material on which it could be based, no question of law really arose. It was further held, however, treating the question as one of law, that there was material, viz., the statement of the assessee believed by the Tribunal, on which the finding could be given. Accordingly, the judgment of the Calcutta High Court was reversed.
Having considered the reported decisions stated above, it is necessary for us to consider in the instant case (1) whether the finding of the Tribunal was unreasonable and perverse unsupported by any evidence, (2) whether this court can interfere when the statement of the assessees representative was the foundation of the finding by the Tribunal and (3) when such statement was believed, whether this court can reopen the matter on the ground that such a statement is not sufficient material for the purpose of arriving at the finding of the Tribunal.
We have in extends dealt with the submissions of Mr. Meyer before. To sum up, his argument is that the statement of Mr. Roe, which is unsupported by the day-book is a colourable one in so far as it relates to threat of suit, annoyance of other directors and the alleged misconduct of Mr. Thomas. Accordingly, the Tribunal ought not to have relied upon his statement for its finding. It appears to us that his submissions, in view of the principles of law discussed before, cannot be accepted inasmuch as before the Tribunal there were the day-book of Mr. Roe and his statement in writing on which the Tribunal could come to a finding according to its own judgment. It may be said that when there is some evidence in the record the conclusion one way or the other by the Tribunal cannot be questioned in a reference by the High Court, unless such a conclusion was based upon unreasonableness and perversity. On a careful consideration of the order passed by the Accountant Member and the President, it appears to us that their findings are not tainted with unreasonableness or perversity. If they have believed the statement made by Mr. Roe no question of law can arise for our interference. It has also been argued on behalf of the department that the best evidence has not been produced to show that compensation was paid to Mr. Thomas on account of the reasons made out by them. We are of opinion that such an approach is initially wrong in a reference under section 66 of the Act. It will appear from the order of the Income-tax Officer (page 41 of the paper-book) that one of the directors of the firm, Mr. J. H. Methold, managing director of the company, and Mr. T. C. W. Roe of Messrs. Orr Dignam and Company were present at the time when the matter was being considered by the Income-tax Officer was doubtful about the case made out by the company, he did not take any steps to cross-examine Mr. Roe, nor did he think it necessary that in case of any doubt Mr. J. H. Methold, one of the directors, who was present before him, ought to have been examined for the purpose of eliciting the real state of affairs. The Income-tax Officer in such circumstances might have summoned Mr. Palmer of Sanderson and Morgans Ltd. under section 37 of the Income-tax Act. This was not done and much has been said on behalf of the department that the first letter of resignation submitted by Mr. Thomas had been withheld by the company with the obvious purpose of concealing the real nature of transaction. In this respect also it may be said that it ought to have been called for by the department and as this was not done, there cannot be any adverse inference against the assessee.
As regards the threat of suit by Mr. Thomas in the High Court it appears clear from the statement of the case settled in the presence of both the parties that Mr. Thomas approached Mr. Palmer of Sanderson and Morgans Limited for the purpose of taking the advice as to what steps should be taken as there was an offer of threat of removal. From the letter of Mr. Thomas dated 15th March, 1952 (page 28 of the paper-book), it is clear that he was not prepared to resign and left the matter to the company to take such steps as the company might consider fit. This letter also weighed with the Tribunal in coming to the conclusion that the statement of Mr. Roe was believable with regard to the matters stated in the foregoing paragraphs.
Apart from the day-book, the Tribunal appears to have considered other materials in record for a conclusion that there was disharmony between the directors and Mr. Thomas and the directors desired to resign in a body if Mr. Thomas continued in service. In view of these facts and circumstances, it cannot be said, as urged by Mr. Meyer, that the Tribunal decided the case on the principles of decided cases without any material in record and that the evidence in record was not fashioning the case. It may rather be said that the principle decided in the English cases, B. W. Noble Ltd. v. Mitchell and G. Scammel and Nephew Ltd. v. Rowles, referred to by Mr. Meyer may aptly be invoked in aid of the assessees case. This court, in our opinion, is not called upon to consider the adequacy or inadequacy of the evidence laid before the income-tax authorities as opposed to want of evidence. Furthermore, it appears that the surrounding circumstances and probabilities were considered by the Tribunal and no case of unreasonableness or perversity of the finding has been made out by the department before us.
As regards the payment of compensation amounting to Rs. 2,80,000, it appears that it was paid after due consideration as to the loss of income to be sustained by Mr. Thomas by losing the service which was terminated by the board. Out of the said amount, Rs. 80,000 may reasonably be paid to him as compensation towards salary income for two years and we do not think that the payment of a sum of Rs. 2,00,000 towards commission was also unreasonable, inasmuch as this income towards commission might have been more and even less. Accordingly, on this account also, it cannot be said that the said amount is not a compensation allowable as a deduction.
In view of the facts and circumstances stated above, our conclusion is that when the statement of the assessees representative was believed, there was obviously material on which the finding of the Tribunal was based. The Tribunal having believed the statement, there was an end of the matter in so far as its finding was concerned. We do not also think that the statements of Mr. Roe and other matters appearing in the record were not good materials on which the finding was based nor can it be said that it smacks of unreasonableness and perversity. In the result, the question is answered in the affirmative.
The applicant will pay costs to the respondent. Certified for counsel.
SANKAR PRASAD MITRA J. - I agree.
Question answered in the affirmative.