9911796707
TMI Blog1968 (9) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany's business. The facts which give rise to the reference require to be stated in some detail. The company was incorporated in 1934. The shares of the company were held in equal moities by members of two families, who may, for the sake of convenience, be referred to as " Singhanias " and " Guptas ". Under a deed dated August 3. 1934, Singhanias and Guptas formed a partnership to carry on, in the name of Beharilal Kailashpat, several businesses including the business of secretaries, treasurers and agents of the company. By agreement dated May 2, 1935, the company appointed Beharilal Kailashpat as its managing agents. The firm then consisted of eight partners--four belonging to the family of Singhanias and the other four belonging to the family of Guptas. Under the articles of association of the company two ex-officio directors were to be nominated by Beharilal Kailashpat. Clause 2 of the managing agency agreement read as follows : " In consideration of the agreement hereinbefore contained on the part of the firm and in further consideration of the firm having promoted the company, the company hereby promise and agree with the firm and its members for the time being : (a) T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to time without thereby in any way affecting their appointment as agents of the company. From time to time the constitution of Beharilal Kailashpat was changed--some members ceased to be partners and new members entered the firm--without affecting the equal representation of Singhanias and Guptas. On February 15, 1943, a fresh deed of partnership of Beharilal Kailashpat was executed under which the four representatives of Singhanias were--(1) Smt. Ansuiya Devi ; (2) Pushpavati Devi ; (3) Vijaipat (minor) and (4) Ajaipat (minor) [Nos. (3) and (4) being minor sons of Lala Kailashpat Singhania] ; the representatives of Guptas were--(1) Smt. Ramdevi ; (2) Smt. Keshobai ; (3) Lala Ram Rattan Gupta, and (4) Lala Ram Prasad Gupta. Each of the families collectively held an eight annas share. Under the terms of this partnership deed it was agreed that Lala Ram Rattan Gupta, a partner of the firm, will be entitled to carry on business on behalf of the firm. Disputes arose in 1943 between Singhanias and Guptas in regard to the management of the various businesses in which they were interested. These disputes were referred for adjudication to Thakur Kanhaiya Singh who made and published h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the office and the managing agency agreement be terminated with effect from September 30, 1944. Thereafter the members representing the Singhanias claimed compensation from the company for wrongful termination of the managing agency. The Guptas also made a claim for compensation and threatened to bring an action against the company. By agreement dated October 19, 1944, the disputes between the company and Beharilal Kailashpat were referred to the arbitration of Mr. K. M. Munshi with authority to decide two questions --(1) whether the termination of the managing agency and removal from the office of the managing agents of the firm of Beharilal Kailashpat and/or its alleged successor, Beharilal Ramcharan, was wrongful or not ; and (2) if it was wrongful, to what compensation, if any, are the ex-managing agents entitled ? Before Mr. Munshi entered upon the reference, the award made by Thakur Kanhaiya Singh was modified by a supplementary award made by Thakur Kanhaiya Singh with the consent of the parties. Under the award so modified, it was provided that : " Regarding the claim of the retiring partners for a share in the goodwill of the said firm and in the value of the said ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilal Kailashpat and Rs. 13,300 were disbursed as expenses of arbitration. The Income-tax Officer rejected the claim of the company to treat as a permissible allowance under section 10(2)(xv) of the Income-tax Act, 1922, the amount of Rs. 19,03,300. He held that the expenditure incurred was not connected with the business of the company and in any event it was capital expenditure. In appeal the Appellate Assistant Commissioner held that the payment was made " for some improper purpose ... not connected with the business ". In further appeal before the Tribunal, counsel for the company urged two arguments in support of the claim for allowance : (1) that the main object in terminating the managing agency was to save the company from loss which the company would have suffered on account of the disputes between the two groups of partners of the managing agency firm ; and (2) that the company was by the payment absolved from liability to the remuneration of the managing agents for the year of account and for future years also. The Tribunal held that before the termination of the managing agency agreement the affairs of the company were administered by Lala Ram Rattan Gupta and La ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en questions set out in the application be referred to the High Court. The Tribunal rejected the application holding that no question of law arose out of the order of the Tribunal, and that the questions sought to be raised by the company " were pure questions of fact ". The company then moved an application in the High Court of Allahabad requesting that the Tribunal be directed to state a case in respect of two questions : " (1) Whether, in the circumstances of the case, the expenditure made by the assessee-company for the purpose of getting rid of the managing agents was not expenditure admissible under section 10(2)(xv) of the Income-tax Act ? (2) Whether there was any or sufficient evidence to justify the Tribunal to hold that no services whatever were rendered by the managing agents to the assessee-company under the managing agency agreement and that there was nothing payable to the managing agents in respect of such services ? " The High Court directed the Tribunal to state a case on questions of law arising out of its order. Pursuant to this order, the Tribunal on December 29, 1954, submitted the following question : " Whether there was any material on which the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no jurisdiction under section 66(4) of the Income-tax Act to direct the Tribunal to submit a second statement of case and the questions in addition to the one submitted before the Tribunal " could not legally have come before the High Court ", since the earlier statement of the case was not quashed, nor was it returned to the Tribunal ; and the court in calling upon the Tribunal to submit another statement of case did not act in conformity with the provisions of sub-section (4) of section 66 of the Income-tax Act. In the view of the High Court a comparison of the question originally framed with the questions referred with the second statement of case by the Tribunal showed that the second set of questions were not parts of, or included in, the former question but were substantially different ; some of the, questions in the view of the High Court were pure questions of fact, some of them were overlapping, and the questions were different from the two questions mentioned in the application under section 66(2), and that on the application submitted by the company, even if it be treated as an application for calling for a statement of case under section 66(2), the only question that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsider whether the High Court acted with jurisdiction in calling for a second statement of case on questions which were not incorporated in the applications under section 66(1) and (2) of the Act after the Tribunal had submitted a statement of case in response to the order under section 66(2). Under section 66(1) of the Income-tax Act, 1922, the assessee or the Commissioner may by application in the prescribed form within the period provided require the Appellate Tribunal to refer to the High Court any question of law arising out of such order and the Tribunal is enjoined by law to draw up a statement of case and refer it to the High Court. If on any application made under sub-section (1) the Appellate Tribunal refuses to state a case on the ground that no question of law arises, the assessee or the Commissioner may, if he is not satisfied with the correctness of the decision of the Appellate Tribunal, make an application to the High Court to require the Appellate Tribunal to state the case and to refer it to the High Court and on receipt of any such requisition the Tribunal shall state the case and refer it. If the High Court is not satisfied with the statement of case referred u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a new question of law which does not arise out of the Tribunal's order and direct the Tribunal to investigate new or further facts necessary to determine this new question which had not been referred to it under section 66(1) or section 66(2) and direct the Tribunal to submit a supplementary statement of case. This power and jurisdiction which is vested in the High Court is to be exercised within the four corners of section 66. " It is also well settled that in an application under section 66(2) of the Income-tax Act the High Court cannot order that a case be stated on questions which were not included in the application submitted under section 66(1). It was observed by this court in Commissioner of Income-tax v. Scindia Steam Navigation Co. Ltd. : " ...... the power of the court to direct a reference under section 66(2) is subject to two limitations--- the question must be one which the Tribunal was bound to refer under section 66(1) and the applicant must have required the Tribunal to refer it.... It is, therefore, clear that under section tion 66(2), the court cannot direct the Tribunal to refer a question unless it is one which arises out of the order of the Tribunal and wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alling for, in exercise of the power under section 66(4), an additional statement of the case on questions which were not incorporated in the applications under section 66(1) and (2) was, in our judgment, irregular. Correctness of an order of the High Court calling for a statement of case may be challenged at the hearing of the reference and the court may decline to answer the question referred pursuant to the direction of the High Court, if it did not arise out of the order of the Tribunal, or is a question of fact or is academic or could not have been raised because it was not incorporated in the application under section 66(1) : Commissioner of Income-tax v. Smt Anusuya Devi. Counsel for the company has, therefore, rightly confined himself to the question which was originally submitted by the Tribunal by order dated December 29, 1954, and has raised his argument on that question only. The company claims that the expenditure of Rs. 19,03,300 is a permissible allowance under section 10(2)(xv) of the Indian Income-tax Act as expenditure wholly and exclusively incurred for the purpose of the business of the company. The burden of proof lay upon the company to prove that the expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... event based on no evidence. He relied upon the last paragraph of the statement of case that the " Tribunal's real finding " (on which the finding relating to the inadmissibility of the expenditure was based) was that a device was adopted to provide funds in the hands of the parties at the expense of the company for settling their individual accounts. Counsel also submitted that there was a mass of evidence which the Tribunal ignored in deciding whether the managing agents rendered any service. Our attention was invited to the terms of the managing agency agreement and also to assertions made in the correspondence between the company and the Singhanias, and also to the finding recorded by the Income-tax Officer who observed that all circumstances pointed to the fact that " the managing agents were managing the affairs of the company well. Hence if still they were removed from service the inference is clear that they were removed for some reasons not connected with business ". In reaching its confusion the Tribunal considered all the relevant evidence. The Tribunal has referred to the order of the Income-tax Officer, to the terms of the managing agency agreement and also to the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company invited our attention to the threat by the Singhanias to move the civil court to appoint a receiver for the management of the company, and contended that if a receiver was appointed for management of the company, the affairs of the company might possibly have been mismanaged. It is difficult to understand that because of the disputes between the two sets of partners of the managing agency firm, a civil court could have appointed a receiver to manage the affairs of the company : a receiver may have been appointed of the remuneration payable by the company but not of the management. It is not suggested that the affairs of the company were mismanaged. The management of the company was conducted after September 30, 1944, in the same manner and by the same directors as it was originally conducted. A futile threat could not reasonably be taken into consideration, and was not apparently taken into account, for determining the managing agency agreement. This plea was apparently not even suggested before the Tribunal. The burden of proving that the expenditure was incurred wholly and exclusively for the purpose of the business lay upon the company and no evidence was led and not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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