Case: Commissioner of Income Tax, Bihar and Orissa Vs. Ashoka Marketing Limited

SHAH C.J. 1. M/s : Ashoka Marketing Ltd. carries on the business of selling agent for various companies and in stocks and shares, jute and speculation. In the account year ending August 31, 1951, the company earned a profit of Rs. 59, 91, 721 in certain jute transactions. In the proceeding for assessment of income under the Income-tax Act, 1922, for the assessment year 1952-53, the company claimed that out of the profits received, the amount of Rs. 14, 30, 561 was not taxable because the company had acted in purchasing and selling jute as agent of Dalmia Cement Paper Marketing Company Ltd., hereinafter referred to for the sake of brevity as D.C.P.M. Ltd.. This contention was rejected by the Income-tax Officer and by the Assistant Commissioner of Income tax. The order was confirmed by the Income-tax Appellate Tribunal. The Tribunal found that the claim of the company would not be accepted, because : (1) there was no evidence, documentary or otherwise contemporaneous with the transactions requiring the assessee to undertake transactions of sale and purchase on behalf of D C.P.M. Ltd. ; (2) that no entries had been made in the books of the assesse as pertaining to D.C.P.M. Ltd. either immediately or periodically after the transactions ; (3) that no money was advanced by the D.C.P.M. Ltd, nor was any debit raised of any interest payable by D.C.P.M. Ltd. in respect of the various purchases till the completion of the corresponding sales ; and (4) that the books of the company did not contain any record of brokerage, commission or any benefit accruing to the assessee for the services rendered as the alleged agent of D.C.P.M. Ltd The finding of the Tribunal that the transactions in jute were of the company and not on behalf of D.C.P.M.. Ltd. was clearly a finding on a question of fact. The Tribunal was, however, persuaded to submit to the High Court of Patna a statement of case under section 66(1) of the Indian Income-tax Act, 1922, the following question Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the profit of Rs. 14, 30, 561 on jute transactions were the profits of the assessee-company liable to be included in its total income ?2. The High Court recorded a finding in the negative and in favour of the company. The learned judges of the High Court were in reaching their conclusion impressed by two circumstances : (1) that the amount of Rs. 14, 30, 561 sought to be assessed in the hands of the company had previously been assessed to tax in the hands of the D.C.P.M. Ltd. ; and (2) that there was on the record of the court a credit advice dated August 31, 1951, sent by the D.C.P.M. Ltd. This appeal has been filed before us with certificate granted by the High Court, observing that the appeal raised substantial questions of law of far-reaching private importance between the parties. There has been a sequence of exceptional orders : the Tribunal after deciding the appeal on appreciation of evidence drew up a statement of case in relation to a question which was essentially one of fact : the High Court recorded an answer disagreeing with the Tribunal on matters of appreciation of evidence, and then proceeded to grant a certificate to this court without specifying the substantial questions of law of far-raching importance. 3. Before we deal with this question it is necessary to notice two important facts. The year of account of the assessee-company ended on August 31, 1951, and the year of account of the D.C.P.M. Ltd. ended on February 29, 1952. Between August, 1951, and February 11, 1952, there was no documentary evidence relating to these transactions either coming from the assessee-company or D.C.P.M. Ltd. The original of the credit advice is not produced. Only a copy of the credit advice dated August 31, 1951, was produced for the first time before the Tribunal. The Tribunal was of the view that, when the company found that it had earned in the jute transactions large profits amounting to nearly Rs. 60 lakhs, it made an attempt to distribute the profits between its sister concerns with a view to evade liability for payment of tax. The High Court did not regard that decision of the Tribunal as binding, because in their view it was the usual practice in transactions relating to jute to effectuate purchases orally and therefore on behalf of the D.C.P.M. Ltd. on oral advice the transactions could have been carried out by the company. Apart from the fact that the inference raised by the Tribunal is purely on a question of fact and based on appreciation of evidence, it has to be borne in mind that the transactions were between two limited companies, and being commercial transactions of the value of crores of rupees would normally be supported by some written record. The Tribunal held that the transactions were not on behalf of the D.C.P.M. Ltd. but of the assessee-company. In reaching that conclusion the Tribunal is not shown to have committed any error of law. The High Court could not in exercise of its advisory jurisdiction express a different view. Referring to the second ground, the High Court observed that the prevailing custom in the trade was to debit the suppliers ledger with the actual payment and no entry need be made in the books of account of the assessee immediately or periodically after the transactions, but the adjustment entries may be posted after the relevant transactions of sale were completed, and that the Tribunal rejected without cogent reasons the explanation given by the assessee-company. But in so observing, the High Court, in our judgment, assumed jurisdiction which it did not possess. The Tribunal rejected the explanation of the assessee-company, because of complete absence of contemporaneous entries in the books of account, and other corroborative documentary evidence. It was not open to the High Court to discard the finding relying upon a practice of the business which was not proved by the companyThe High Court then observed that the purchases were financed by the Albion Jute Company to the extent of Rs. 38 lakhs odd and by the New Central Jute Company to the extent of Rs. 30 lakhs odd and there was a credit balance of the D.C.P.M. Ltd. to the extent of Rs. 7, 48, 396. The transactions which fetched a profit of Rs. 14 lakhs could certainly not have been financed out of the credit balance to the extent of Rs. 7 lakhs odd. In any event, the books of account of the D.C.P.M. Ltd. were not before the income-tax authorities or before the Tribunal. Assuming that the Albion Jute Company and the New Central Jute Company had financed the transactions no inference of law arose that the transactions in jute of the assessee-company were wholly or in part of the D.C.P.M. Ltd. It may in this behalf be noticed that there are no entries of interest due by the D.C.P.M. Ltd. for the large amount required to finance the transactions. Transactions of this magnitude could not be made without posting entries for the advance made and interest due in books of account of the D.C.P.M. Ltd. and in the books of the assessee-company 4. Finally, the High Court observed that the absence of entries of brokerage, commission, etc., in the books of the assessee-company for the service rendered was also explainable, because the brokerage was directly paid to the assessee by the Albion Jute Company and the New Central Jute Company to whom the jute was ultimately sold. But if the transactions were carried through on behalf of the D.C.P.M. Ltd. there would be some entry posted with regard to the payment of brokerage or commission by the D.C.P.M. Ltd 5. The High Court observed that some indication of the explanation with regard to grounds (3) and (4) was given before the Income-tax Officer. Assuming that it was so, if the Tribunal having regard to the circumstances attendant upon the transactions, refused to accept the explanation, we do not think that any case was made out for the High Court to interfere with the findings recorded by the Tribunal. The jurisdiction of the High Court under section 66 of the Indian Income-tax Act is advisory. The High Court must accept the findings of fact recorded by the Tribunal and render advice only on questions of law arising out of the order of the Tribunal. In this case the High Court in effect sat in appeal over the judgment of the Tribunal, and attempted to reappreciate evidence. In doing so it assumed jurisdiction which it is not invested withWe discharge the answer recorded by the High Court and record an answer in the affirmative on the question submitted to the Tribunal.

Decision reasoning: 1[ds]But in so observing, the High Court, in our judgment, assumed jurisdiction which it did not possess. The Tribunal rejected the explanation of the, because of complete absence of contemporaneous entries in the books of account, and other corroborative documentary evidence. It was not open to the High Court to discard the finding relying upon a practice of the business which was not proved by the companyThe High Court then observed that the purchases were financed by the Albion Jute Company to the extent of Rs. 38 lakhs odd and by the New Central Jute Company to the extent of Rs. 30 lakhs odd and there was a credit balance of the D.C.P.M. Ltd. to the extent of Rs. 7, 48, 396. The transactions which fetched a profit of Rs. 14 lakhs could certainly not have been financed out of the credit balance to the extent of Rs. 7 lakhs odd. In any event, the books of account of the D.C.P.M. Ltd. were not before thex authorities or before the Tribunal. Assuming that the Albion Jute Company and the New Central Jute Company had financed the transactions no inference of law arose that the transactions in jute of theThe High Court observed that some indication of the explanation with regard to grounds (3) and (4) was given before thex Officer. Assuming that it was so, if the Tribunal having regard to the circumstances attendant upon the transactions, refused to accept the explanation, we do not think that any case was made out for the High Court to interfere with the findings recorded by the Tribunal. The jurisdiction of the High Court under section 66 of the Indianx Act is advisory. The High Court must accept the findings of fact recorded by the Tribunal and render advice only on questions of law arising out of the order of the Tribunal. In this case the High Court in effect sat in appeal over the judgment of the Tribunal, and attempted to reappreciate evidence. In doing so it assumed jurisdiction which it is not invested withWe discharge the answer recorded by the High Court and record an answer in the affirmative on the question submitted to the Tribunal.