Case: Commissioner Of Income-Tax,West Bengal Vs. Calcutta Agency Ltd

final statement of facts. Surprisingly, we find that the High Court, in its judgment, has taken the argument of Mr. Mitra as if they were facts and have based their conclusion solely on that argument. Nowhere in the statement of the case prepared by the Tribunal and filed in the High Court, the Tribunal had come to the conclusion that the payment was made by the assessee company to avoid any danger of public exposure or to save itself from scandal or in order to maintain the managing agency of the appellant company. The whole conclusion of the High Court is based on the unwarranted assumption of facts which are taken only from the argument of counsel for the present respondents before the High Court. The danger of failing to recognise that the justification of the High Court in these matters is only advisory and the conclusions of the Tribunal on facts are the conclusions on which the High Court is to exercise such advisory jurisdiction is illustrated by this case. It seems that unfortunately counsel for the respondents caught hold of Mitchells case, and basing his argument on the Circumstances under which a payment could be described as a business expenditure failing within the terms of S. 10 (2) (xv), argued that the facts in the present case were the same. Instead of first ascertaining what were the facts found by the Tribunal in the present case, the process was reversed and the procedure adopted was to take Mitchells case, as the law and argue that the facts in the present case covered the situation. In our opinion this is an entirely wrong approach and should not have been permitted by the High Court. The High Court fell into a grave error in omitting first to ascertain what were the facts found in the case stated by the Tribunal. The High Court overlooked that in Mitchells case, the whole discussion started with a quotation from the case stated by the Commissioners as the facts of the case.6. A scrutiny of the record in the present case shows that before the Income-tax Officer the assessees claimed only a deduction of the interest of Rs. 5,582.00 us a permissible deduction under S.10 (2) (iii), Income-tax Act. That claim was rejected by the Income-tax Act. Officer. When the matter went to the Assistant Income-tax Commissioner it was argued that the Income-tax Officer was in error in not allowing the deduction of interest and was also wrong in not allowing the entire sum of Rs. 22,500.00 as a deduction on the ground that that portion of the income (viz. Rs. 22,500.00) should be treated as not earned or deemed to be earned by the assessees at all, having regard to the decision of the Privy Council in Bijoy Singh Dudhurias case. Paragraph 1 of the order of the Appellate Assistant Commissioner contains the following statement : In disallowing this (interest) claim the Income-tax Officer was following the decision of my predecessor in his order dated 16/3/1942 in App. No. 1.C.11 of 1941-42. My predecessor observed : " Nothing is in evidence to show that the managing agency company had surplus money and such money was invested or that there was any need to borrow. Thus the need to borrow is not established. There is no doubt that money was borrowed but unless it can be proved that the borrowing is for the purpose of the business and the loan was used in the business, the interest cannot be allowed under S. 10 (2) (iii)." The second objection raised before the Appellate Assistant Commissioner was in these terms :"That the Income-tax Officer should have allowed the said sum of Rs . 22,500 as allowable expenditure being allocation of a sum out of the revenue receipt before it became income in the hands of the assessee."The wording of the objection and the argument noticed in the order of the Appellate Assistant Commissioner show that the contention was that this sum should be treated as not having become the income of the assessee at all because it was deducted at the source by the Mill company. Reliance was placed for this contention on Bijoy Singh Dudhurias case. The Contention was rejected. At the third stage, when the assessee urged his contentious before the Income-tax Appeal Tribunal, he thought of urging as an argument that this was a permissible deduction under S. 10 (2) (xv) because of the principles laid down in Mitchells case. No evidence, it appears, was led before the Income-tax Tribunal, nor has the Tribunal recorded any findings of fact on which the principles laid down in Mitchells case, could be applied. The Tribunals conclusions of facts were only as summarized in the earlier part of the judgment. It is, therefore, clear that the necessary facts required to be established before the principles laid down in Mitchells case, could be applied have not been found as facts in the present case at any stage of the proceedings and the High Court was in error in applying the principles of Mitchells case, on the assumption of facts which were not proved. The High Court was carried away, it seems, by the argument of the counsel and through error accepted the argument as facts. Indeed, if it had noticed the contention urged before the Income-lax Officer it would have seen at once that the argument urged in the High Court was to a certain extent in conflict with the contention that Rs. 1,80,000.00 being a loan on which the assessees had to pay interest, that interest item should be allowed to be deducted under S. 10 (2) (iii), Income-tax Act. In our opinion, therefore, this appeal should be allowed on the simple ground that the facts necessary to he established by the respondents to support their claim for exemption under S. 10 (2) (xv), Income-tax Act, have not been established at any stage of the proceedings and therefore they are not entitled to the deduction claimed.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]6. A scrutiny of the record in the present case shows that before the Income-tax Officer the assessees claimed only a deduction of the interest of Rs. 5,582.00 us a permissible deduction under S.10 (2) (iii), Income-tax Act. That claim was rejected by the Income-tax Act. Officer. When the matter went to the Assistant Income-tax Commissioner it was argued that the Income-tax Officer was in error in not allowing the deduction of interest and was also wrong in not allowing the entire sum of Rs. 22,500.00 as a deduction on the ground that that portion of the income (viz. Rs. 22,500.00) should be treated as not earned or deemed to be earned by the assessees at all, having regard to the decision of the Privy Council in Bijoy Singh DudhuriasContention was rejected. At the third stage, when the assessee urged his contentious before the Income-tax Appeal Tribunal, he thought of urging as an argument that this was a permissible deduction under S. 10 (2) (xv) because of the principles laid down in Mitchells case. No evidence, it appears, was led before the Income-tax Tribunal, nor has the Tribunal recorded any findings of fact on which the principles laid down in Mitchells case, could be applied. The Tribunals conclusions of facts were only as summarized in the earlier part of the judgment. It is, therefore, clear that the necessary facts required to be established before the principles laid down in Mitchells case, could be applied have not been found as facts in the present case at any stage of the proceedings and the High Court was in error in applying the principles of Mitchells case, on the assumption of facts which were not proved. The High Court was carried away, it seems, by the argument of the counsel and through error accepted the argument as facts. Indeed, if it had noticed the contention urged before the Income-lax Officer it would have seen at once that the argument urged in the High Court was to a certain extent in conflict with the contention that Rs. 1,80,000.00 being a loan on which the assessees had to pay interest, that interest item should be allowed to be deducted under S. 10 (2) (iii), Income-tax Act. In our opinion, therefore, this appeal should be allowed on the simple ground that the facts necessary to he established by the respondents to support their claim for exemption under S. 10 (2) (xv), Income-tax Act, have not been established at any stage of the proceedings and therefore they are not entitled to the deduction claimed.