TMI Blog1955 (4) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... lli Chetti and Brothers. The reference is concerned with assessment year 1944-45, the accounting year being the calendar year 1943. A scrutiny of the books of account of the company disclosed a turnover of yarn in that year of ₹ 41,50,209. Out of these it was found that sales to three parties totaling ₹ 17,90,624 had been affected at much below the market rates prevailing on the dates of the sale transaction. The three parties in whose favour the sales were effected were : Rs.Kulli Chettiar and Brothers (the managing agency firm) ... 9,98,364 Arulappa Chettiar (one of the directors of the company) ... 4,87,864 Gopalaswami Chettiar and Brothers (a firm in which Muthuswami Chettiar, one of the director of the company, was a par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at no title was intended to pass from the company in favour of the three persons who were shown in its books as purchasers. In such a case these three parties would hod the goods for the company so that the profits which the company derived from the transaction have to be ascertained by ignoring these transaction of sales and computing them, on foot of the prices entered in the books, but on the basis of the prices realised by the three parties to whom they sold the goods purported to be bought by them. This cannot be established without the books of the three parties being examined with a view to discover whether there was any basis for treating the purchasers as name lender for the company, as also for computing the profits of the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the books of the three parties who had purchased the good from the mills and these books furnishing evidence to show the payment of a larger sum than had been shown in the books of the assessee. Lastly, the possibility was that the sales had been effected by the managing agents of the company at lower rates than those prevailing in the market in order that they might improperly profit themselves or their friends. It would undoubtedly be a gross fraud on their part but the benefit which these purchasers derived in the shape of concessional sales could on no principle be regarded as the profits of the company on which it could be taxed. The last one is exactly the conclusion which has been reached by the departmental authorities. The Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve allowed somebody to walk away with such large amounts from the coffers of the company. The income has thus been screened off by the mala fide transaction ..... The question whether these were concessional sales and the assessee had a right to market goods at concessional rates does not arise because of our finding that they were not bona fide sales and they were effected to screen off certain profits which would have otherwise been reflected in the companys books. Mr. Rama Rao Sahib, learned counsel for the Commissioner of Income-tax, urged upon us that as the Income-tax authorities including the Tribunal had characterised the sale to the three parties as not bona fide it followed as a matter of law that the addition of ₹ 1,46, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ales might fall would be wanting in bona fides and therefore the want of bona fides by itself would not determine whether the ₹ 1,46,000 could be added to the income of the assessee. On our above analysis it follows that the finding of the Revenue Authorities is to the effect that the transactions were merely concessional sales effected by the company to the managing agent or his friends in breach of their obligation to the company. Nothing more than the amount calculated at the concessional prices accrued to this company. On this basis though a right might accrue to the company to proceed against its directors or managing agents or whoever was responsible for these sales for reimbursement of the loss caused to it, there can be no add ..... X X X X Extracts X X X X X X X X Extracts X X X X
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