TMI Blog1975 (3) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... ser. He would dispose of the products at the rates fixed by the company from time to time. The work would be carried out by him as a sole trustee of the trust known as "Durga Devi Fund" which had been created by Shrimati Krishna Devi Dalmia, wife of Seth Jai Dayal Dalmia, for the benefit of the children of Mr. Ram Krishna Dalmia in the name of Rajpura Biscuit Company (hereinafter referred to as "the Rajpura Company"). He also placed a copy of the draft agreement embodying the terms and conditions, discussed and settled between him and Mr. Ram Krishna Dalmia. The board formed the opinion that it would be in the interest of the company to make the agreement. It was resolved that the agreement between the Patiala Biscuit Company and the Durga Devi Fund, by its sole trustee, Mr. Ram Krishna Dalmia, be made for the disposal of the production of the company as per draft agreement signed by the chairman of the meeting. It was also resolved that Mr. G. P..Mittal, secretary of the Patiala Biscuit Company, be authorized to execute the aforesaid agreement and sign the same on behalf of Patiala Biscuit Company. The trust was started by Shrimati Krishna Devi with a corpus of Rs. 5,000. The sole ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... priate the income of the assessee-company in favour of his relatives-beneficiaries. He also held that there was no necessity for appointment of sole selling agents, as there was no fear of competition and the products of the company were such that they need no canvassing for being sold. He also gave a finding that, if the assessee had not appointed the Rajpura Company as its agents, the profits that it earned would have been earned by the Patiala Biscuit Company. The assessee went up in appeal before the Appellate Assistant Commissioner. He held that the Income-tax Officer could not be the judge of the necessity or otherwise for the appointment of the sole selling agent and that there was no material to hold that the sole selling agents were the benamidar of the Patiala Biscuit Company. He therefore, held that the Income-tax Officer could not make an addition of Rs. 4,03,938 on hypothetical considerations. He, consequently, accepted the appeal. The department having felt aggrieved by the order of the Appellate Assistant Commissioner went up in appeal before the Appellate Tribunal on the following grounds : " (1) The Appellate Assistant Commissioner erred in deleting the addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agents, Rajpura Company, and other evidence on record properly. It was held by the Tribunal that there were no sufficient grounds for rectification of its order, dated January 12, 1972. It consequently dismissed the application. The assessee also made an application under section 256(1) of the Act for making a reference of certain questions of law to this court. On the application, the Tribunal in Reference No. 24 of 1973, referred the following question of law to this court : " Whether, on the facts and the circumstances of the case, the Tribunal was justified in law in holding that there was no mistake apparent from the record in its order dated January 12, 1972, which could be rectified under section 254(2) of the Income-tax Act, 1961 ? " It is contended by the learned counsel for the assessee that the Income-tax Officer while deciding the case did not place reliance on section 40(c) of the Act and, therefore, the Tribunal could not place reliance on that section and hold that the amount of Rs. 4,03,938 represents the amount of excessive expenditure. He further submits that the opinion has to be formed in the first instance by the Income-tax Officer according to that sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e interpreting the proviso to section 13 of the Indian Income-tax Act, 1922, which related to the method of accounting. In that section similar language had been used by the legislature, namely, " in the opinion of the Income-tax Officer ". S. K. Das J., while speaking for the court, observed as follows : " Whether the income, profits and gains can properly be deduced from the assessee's method of accounting is undoubtedly a matter which the Appellate Assistant Commissioner, can go into when he has seizin of the appeal from the order of assessment of the Income-tax Officer. If the Income-tax Officer has failed to apply his mind to the proviso to section 13 or has come to a wrong determination for or against the assessee in the computation of the income, the Appellate Assistant Commissioner can correct that error when he has seizin of, the assessment on an appeal filed by the assessee. Whether in a particular case a remand will be the proper order depends on the circumstances of each case : the Appellate Assistant Commissioner has the power to correct the error in the way most suitable in the circumstances of the case. The proviso to section 13 does not import any limitation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee and the Rajpura Company was an agreement of sale from principal to principal. He further submits that Mr. Ram Krishna Dalmia had given a guarantee for purchasing all the goods produced by the assessee and implementing the agreement and in case the assessee bad suffered any loss on account of the default of the Rajpura Company, he would have been personally responsible to reimburse the assessee. He further submits that in the circumstances the Tribunal misdirected itself in holding that the amount of Rs. 4,03,938, earned as profit by the Rajpura Company, represented the amount of excessive expenditure of the assessee under section 40(c) of the Act. In order to decide this question, it will be necessary to peruse the deed of agreement executed between the parties. It is stated in the deed that several biscuit factories were being established in the country and ; as a result thereof, there was likelihood of unhealthy competition between the manufacturers and, therefore, to meet the contingency, it was desirable to make pucca arrangement for the disposal of the entire production. The agreement had to remain in operation for a period of three years commencing from January 1, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... take over all the stockists, dealers and distributors and the pending orders as on December 31, 1965, from the assessee and it was free to make any changes in their appointments, terms and conditions. It was also authorized to make necessary arrangements at its own discretion. It was to be paid an overall rebate of 15% on the goods purchased by it from the assessee. Later on, however, by a separate agreement, the amount of rebate was reduced to 10% on confectionary and bread. Mr. Ram Krishna Dalmia became a surety for implementation of the agreement. In case the agreement between the parties was genuine, it cannot be said that the rebate which was given to the Rajpura Company by the assessee would become an expenditure by the assessee. It is the outlook of the seller to dispose of its goods in any manner it likes. It can sell the goods at cheaper rates. If the transaction is genuine, the, assessee cannot be taxed for the income which would have accrued to it in case it had not sold the goods at cheaper rates. In the aforesaid view, we are fortified by the observations of the Supreme Court in Commissioner of Income-tax v. A. Raman and Co.,which are as under : " The law does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned counsel for the revenue, that the question whether the case is covered by section 40(c) of, the Act or not cannot be raised before this court as the same has not been referred to it. In the draft statement, the following three questions were proposed ; " (1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in allowing the respondent to urge a new ground in respect of the disallowance of Rs. 4,03,938 under the provisions of section 40(c) of the Income-tax Act, 1961, as this ground was neither considered by the Income-tax Officer nor arose out of the order of the Appellate Assistant Commissioner ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in itself examining the provisions of section 40(c) and to arrive at a decision that the amount to the extent of Rs. 4,03,938, out of Rs. 22,49,838 represented excessive or unreasonable remuneration paid by the assessee to the sole selling agents ? (3) Whether, on the facts, and in the circumstances of the case, the finding of the Tribunal regarding the disallowance of Rs. 4,03,938 out of the remuneration paid to the sole sel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by the assessee or the Income-tax Officer. The question that arises is whether the mistake in the present case is apparent from the record. The Supreme Court has interpreted the aforesaid section in T. S. Balaram, Income-tax Officer, Company Circle IV Bombay v. Volkart Brothers, wherein it has been observed that a mistake apparent from the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may be conceivably two opinions. It is further held that a decision on a debatable point of law is not a mistake apparent from the record. We have already given the facts and the interpretation of the law above. A reading of the case clearly shows that the mistake cannot be said as apparent on the face of the record. It depends upon the consideration of the facts and the interpretation of law. In our view, the Tribunal, rightly held that no application was maintainable under section 254(2) of the Act. In view of the aforesaid discussion, our replies to the questions are as follows : Income-tax Reference No. 23 of 1973. Reply to Question No. 1. The Tribunal was not right in holding that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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