Case: Jiyajeerao Cotton Mills Limited Vs. Commissioner of Income Tax &amp; Excess Profits Tax, Bombay

The appellant is a public limited Company incorporated in 1921 under the provisions of the Gwalior Companies Act in what was then the independent State of Gwalior, and carries on business in the manufacture and sale of textiles. Its registered office is at Gwalior, and it is aCompany for the purposes of the Act. Its managing agents are Birla Brothers, Ltd., which is a private limited Company registered in British India.

Court's reasoning:
8. It was argued for the appellant that Gaurishanker Narandas, the accountant of Jawaladutt Kishanprasad, did not support the version given by Pillani. That is not quite correct. He stated at first that the dealings in question were entered in the accounts with the names left blank, but that later on, the name of J. R. Pillani, Gwalior was entered. He also deposed that some payments were made to Cotton Agents Ltd., and they were received back through J. R. Pillani, Bombay and sent to J. R. Pillani Gwalior. When he wason a later date, he said that what he had deposed to was not from his personal knowledge but from the information given by J. R. Pillani. But he also repeated that he had seen blanks in the accounts, and they were subsequently filled up. To this extent, his evidence does support J. R. Pillani.9.It was next contended that if there had been transfer of profits by Jwaladutt Kishanprasad from Cotton Agents Ltd., to J. R. Pillani, Gwalior, that must appear in the accounts of the latter, that those accounts were with then and under the control of the Department and had been withheld, and that the Tribunal did not advert to this circumstance.This argument lacks substance. Let us presume that the entries in those accounts would show that the dealings took place as contended for by the appellant. But if the arrangement of the appellant with Jwaladutt Kishanprasad was as deposed to by J. R. Pillani, the accounts of the Gwalior firm would have been maintained conformably to that arrangement. By itself, therefore, it would mean little. In this connection, it should be stated that according to Pillani the branch at Gwalior was really run by the employees of the Birlas, a statement which was accepted by the Appellate Assistants suggested by the learnedthat if the object of the appellant in setting up contracts in Gwalior was to throw a veil over its contracts with Jwaladutt Kishanprasad, that could not effectively be achieved by putting them in the name of J. R. Pillani, Gwalior, which was a branch of that firm, as the veil would have been too thin to conceal the true face of the contracts, and that is why the brokers were thoughtof. We think there is considerable force in this. Then again, Durgaprasad Mandalia was asked why he did not place the orders directly with Cotton Agents Ltd., Bombay or J. R. Pillani, Bombay, and he said that the policy of the appellant was not to do any business in British India. Mr. Kolah argues that there is nothing wrong in business being done in such a way as to escape taxation. No exception can be taken to that statement. Every person is entitled so to arrange his affairs as to avoid taxation, but the arrangement must be real and genuine and not a sham or make believe, and the question now under consideration is whether the contracts with the brokers wereMandalia was the manager of the appellant Company, and he gave evidence that he put the present transactions through the brokers, and that has been considered. If Birlas wanted themselves to give evidence, there was nothing to prevent them from doing so, and indeed, no complaint was made in the Court below that their evidence had not been taken. There is no substance in this contention.14. We have considered all the contentions urged on behalf of the appellant at some length. We would like to make it clear that we are not sitting here as a Court of Appeal on facts. We have examined the record only with a view to see whether there is any misdirection orsuch as is likely to have affected the result, and we have come to the conclusion that there is none, and that the finding of the Tribunal is not therefore open to attack.15.It was finally urged that even assuming that the contracts with the brokers were sham, the result would only be to substitute J. R. Pillani, Gwalior in their place, and even then the contracts would have been concluded at Gwalior. But that is not the case put forward by the appellant. Far from pleading that the brokers were nominal parties and that the contracts were with J. R. Pillani, Gwalior, the appellant contended that it had no privity of contract with J. R. Pillani, Gwalior, and the evidence adduced by it was to the effect that its contracts were only with the brokers. Another point which was sought to be raised was that the contracts must be taken to have been concluded at Bombay by the Birlas and not by the appellant.This again is a plea which was not taken by the appellant, and is directly opposed to its contention that it entered into these contracts with the brokers at Gwalior. In view of the fact that the profits were actually received by the appellant, this contention is, in our opinion, wholly preposterous.