RAY J. - The following questions have been referred to us :
'(1) Whether in the facts and circumstances of the case the arrangement between the assessee and the Bharatiya Vidya Bhavan for the publication of 8 books for and on behalf of the assessee was a transaction of a commercial nature and whether the loss incurred thereby is allowable under section 10 of the Income-tax Act.
(2) Whether the Appellate Tribunal was right in failing to consider the alternative claim for allowance of the loss under section 12 of the Act arising on the identical facts ?'
The assessee is a public limited company and the accounting year is the year ending the 31st March, 1954, relevant for the assessment year 1954-55. It had for its object in the memorandum,manufacturing and selling of paper. According to the memorandum it had also as one of its objects, carrying on any other industry, trade or business whether manufacturing, commercial or otherwise and as general merchants, contractors, agents, guarantors, etc.
In 1951 the Bharatiya Vidya Bhavan of Bombay intended to bring out books of popular editions on topics of Indian culture. The scheme of Bharatiya Vidya Bhavan was tendered by consent of parties and marked as exhibit B. It appears from that scheme that 100 books in English were to be published and the books would be approximately of 250 pages each and at popular prices. The copyright in the books as also the editorial authority and the general planning and direction were to be with the Bhavan. There was to be publisher committee in order to share the printing and publication work. On that committee were to be represented publisher who, on behalf of the Bharatiya Vidya Bhavan, would undertake to finance certain books and share the net profits of those books with the Bhavan or pay for the copyright of the books published by them. In paragraph 12 of the scheme it was stated that the Bhavan expected that 100 books in each of the nine languages which were to be published would cost approximately Rs. 20,00,000 and it was expected that the first years programme of 50 English books would cost in the neighbourhood of Rs. 1,75,000 but the sale in the initial year would naturally be restricted and amount to not more than Rs. 25,000. The Bhavan in that scheme stated that it needed Rs. 1,50,000 to start with and arrangements would have to be made in that behalf. In the scheme it was further pointed out that the negotiations were going on with Messrs. Orient Paper Mills Ltd. for the said supply of uniform kind of paper and further that Messrs. Orient Paper Mills Ltd. agreed to publish 25 books in the English series on their own cost on the basis of the profits being handed over to them and they bearing the loss, if any. The scheme further stated that friends of the Bhavan were requested to undertake the Bhavans cost of one or more books at Rs. 3,500 for a book in English and Rs. 2,500 for a book in Indian language so that the burden of initial outlay might be distributed.
Correspondence started early in the year 1951 between Sri K. M. Munshi and Sri. B. M. Birla. The first letter written by Sri. Birla and Sri Munshi dated January 30,1951, stated that the Hindusthan Cellulose and Paper Mills Ltd. would be publishers of the series of 25 English books to be selected by the Bhavan and the net profits of the series in the first edition, if any, might be divid on a suitable basis between the Hindusthan Cellulose and Paper Mills Ltd. and the Bhavan in the proportion of 25% for the Bhavan and 75% for the mills. On February 21, 1951, Sri Munshi wrote to Messrs. Orient Paper Mills Ltd. that the Bhavan was willing to alloow Orient Paper Mills Ltd. to publish 25 books at the expense of the mills on, inter alia, these conditions :
(a) The cost of preparation and production of the 25 volumes will be borne by the mills;
(b) The cost would include royalty, if any, payable in respect of any such volume;
(c) The mill would be entitle to the profits of the volumes and would be liable for losses in respect of such works;
(d) The mill will advance Rs. 500 for each volume for preparation of the manuscript.
This letter was tendered by consent of parties and marked as exhibit A.
On May 24, 1951, after certain discussions had been had between Sri Birla on behalf of the assessee and Sri Munshi, the president of the Bhavan, Sri Munshi wrote to Hindusthan Cellulose and Paper Mills Ltd. that the Bhavan was grateful to the mills for their agreeing to publish 25 books at their expense and specified certain conditions. Eight such conditions were set out. By a letter date June 9, 1951, Hindusthan Cellulose and Paper Mills Ltd. agreed to conditions Nos. 1,3 5 and 6 thereof. As regards conditions Nos. 2 and 4 mentioned in the letter dated May 24, Hindusthan Cellulose and Paper Mills Ltd. stated that the total financial investment in the publication of each of the 25 volumes would in no circumstances exceed Rs. 3,500 and that in the event of loss the mill would not be liable for any loss beyond the invested amount of Rs. 3,500. Condition No. 7 related to an advance of Rs. 1,000 to be made by the mill in respect of each volume and the mill wrote that they would be glad to pay an advance as and when the work for a volume was undertaken in hand. On July 3, 1951, Sm. Lilavati Munshi, vice-president of the Bharatiya Vidya Bhavan, wrote to the mill referring to conditions Nos. 2 and 4 in the letter dated May 24, 1951, that the Bhavan agreed that the total financial investment in the publication of each of the 25 volumes would in no circumstances exceed Rs. 3,500 and that in the event of loss the mills would not be liable for any losses beyond the invested amount of Rs. 3,500. On this correspondence the net effect is that the assessee was to bear losses to the extent of Rs. 3,500 for each volume and profits, if any, were to go to the assessee.
Counsel for the assessee contended that the intention of the assessee was to make profit and because of profit making intention there is an indicia of trade and it was entitled to claim the loss of Rs. 28,000 suffered in respect of the eight publications. Reliance was also placed on conditions Nos. 6 and 7 in the letter dated May 24, 1951, to which I have referred. Condition No. 6 referred to the first right of refusal regarding the second edition of the volumes being given to the mills and condition No. 7 related to the advance of Rs. 1,000 for each volume. Counsel for the assessee contended that it was only a trade advance of such money and, therefore, the dominant character of transaction was trade. Condition No. 6 was not agreed upon. In any event if condition No. 6 was attracted it did not lay down the terms on which the second edition would be printed. Furthermore, it is uncertain as to when and on what terms the second edition would be printed. As to conditions No. 7 it appears that the assessee did not agree to this condition as laid down but agreed to advance Rs. 1,000 per volume when the work would be undertaken in hand.
Before the revenue authorities it was contended that it was a venture between the Bharatiya Vidya Bhavan on the one hand and the assessee on the other. That contention was rejected inasmuch as there was no agreement for sharing of profits or losses.
Counsel on behalf of the Commissioner contended that the scheme of Bharatiya Vidya Bhavan read along with the entire correspondence would furnish the key to the entire transaction. If profit making was the sole motive it might mean trade. The question here is whether there was the sole intention of making profit or whether there was any question of making profits at all in the background. It is apparent in the context of the scheme and the correspondence that in the initial stage the publications would cost Rs. 1,50,000 and the Bhavan expected persons to assist the Bhavan in the scheme and share the expenses at least to the extent of Rs. 3,500 for each volume. Counsel for the department contended that it was strange that the figure of Rs. 3,500 should eventually be accepted by the mills as the figure of bearing losses. That may be accidental or that may be intentional. But in the present case I have no doubt in my mind that the dominant intention from the beginning was that the mills would help the Bhavan in its undertaking of publication of the various books in one of the languages that the mills undertook to publish and the amount of bearing losses at the rate of Rs. 3,500 per volume was undertaken by the assessee for the altruistic purpose of making a donation to the Bhavan to that extent.
The Tribunal came to the conclusion that suffering loss to the extent of Rs. 3,500 per book was for the purpose of making a donation in respect of the same to the Bharatiya Vidya Bhavan. In the context of the correspondence and the terms on which the assessee agreed to publish the work, the conclusion reached by the Tribunal is justified.
The second question in the present case is whether the Tribunal was right in failing to consider the alternative claim for allowance of the loss under section 12 of the Income-tax Act. The Tribunal held that this new plea could not be allowed to be set up. Counsel for the assessee conceded that it was not an arbitrary or capricious order but contended that it was not a judicious order. His contention was that the Tribunal should have allowed the assessee to raise the contention under section 12. Counsel for the assessee relied on the decisions in Raghuvanshi Mills Ltd. v. Commissioner of Income-tax [ 22 I.T.R. 484;  S.C.R. 177.], Commissioner of Income-tax v. Breach Candy Swimming Bath Trust [ 27 I.T.R. 279.], and Gangadas Sarda v. Commissioner of Income-tax [ 29 I.T.R. 799.], in support of his contention that additional grounds could be urged before the Tribunal.
Counsel for the Commissioner, in my view, rightly contended that allowing a plea under section 12 of the Act would be on the basis that it is a revenue receipt and such a holding would be inconsistent with the spending of Rs. 28,000 as a donation on the facts and circumstances of this case. He further contended that if the Tribunal exercised its discretion properly, the court would not interfere on a reference. The Tribunal is the master of its own procedure and he contended that in the present case it could not be shown that there was any arbitrary or capricious or injudicious element in the order. The Tribunal has given its reasons as to why it did not allow the new case to be made at that stage. Counsel for the assessee contended before us that he did not wish to introduce any fresh evidence or rely on any new fact and, therefore, he should have been allowed to raise that point. It might be that the department wanted to rely or would want to rely on additional or new facts if such a plea were gone into. I am therefore, unable to find that the Tribunal acted injudiciously in not allowing the assessee to raise that contention.
Counsel for the department further contended that in order to sustain a claim under section 12 of the Act it would have to be shown that there was income before the assessee could claim deduction for loss in respect of such heads of income under section 12. He relied on the recent Bench decision in the case of (I. T. Ref. No. 52 of 1955) Madanlal Sohanlal v. Commissioner of Income-tax [ 47 I.T.R. 1.] It has been held there that section 12 operates on the field where there is some kind of income against which deduction can be claimed and further that profit and income are not the same thing though the concept of profit includes the concept of income. Taking into consideration all these circumstances I am of the opinion that the answer to both the questions must be against the assessee and I, accordingly, answer question No. 1 in the negative and question No. 2 in the affirmative. The assessee is to pay the costs of this reference. Certified for two counsel.
G. K. MITTER J. - I agree.