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TMI Blog1971 (9) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... nefit of the employees of the assessee-company and the members of the society were the employees of the assessee. This society was sponsored by the assessee and was registered as a co-operative society under the provisions of the Bombay Co-operative Societies Act, 1926. The managing committee of the society consisted of the officers of the assessee-company nominated by the assessee and some elected representatives of the members. In 1952, a sum of Rs. 2,35,268 was found to have been misappropriated from the funds of the society. One Ranchhodlal Parshottamdas was involved in this misappropriation. Thereafter, criminal proceedings were instituted against the said Ranchhodlal Parshottamdas and in 1966 he was convicted and sentenced to undergo a certain term of imprisonment. Fixed deposits aggregating to Rs. 1,15,248 were lying with the society and out of this amount Rs. 1,02,648 belonged to the employees of the assessee. The society went into liquidation and the liquidator started misfeasance proceedings against some persons including some of the members of the managing committee and he held them liable for the amount misappropriated. Some of the members preferred an appeal against th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . and it was apprehended that, if such tense situation was allowed to linger for long, it might lead to concerted action on the part of the workers which might lead to strikes, stoppage of work and loss of lives of some of the officers of the company and neglect in work which might adversely affect the working of the mill company and thereby affect the quantity and quality of production. Against this background of a tense situation thus set out in the resolution, the board of directors authorised Kasturbhai Lalbhai, a partner of the managing agency firm of the assessee company and one of the directors of the company, to conduct negotiations and enter into any agreement with Shyamprasad Vasavada, who was at that time the general secretary of the Textile Labour Association, Ahmedabad, in order to negotiate and compromise with the said Vasavada regarding the claims of depositors and shareholders of the society. In pursuance of this authority, negotiations appear to have been carried on between Kasturbhai Lalbhai and Shyamprasad Vasavada and ultimately an agreement appears to have been arrived at on November 12, 1956, between two of them. A report regarding this agreement was, thereaft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Registrar of Co-operative Societies ; and that officer by his order, dated January 2, 1962, authorised the liquidator to accept the compromise and to compromise the, matter. A draft tripartite agreement was entered into between the liquidator of the society, the company and the three members of the managing committee; and a copy of the draft agreement was produced before the board of directors of the assessee company at their meeting on March 1, 1962. The resolution passed at the meeting of March 1, 1962, by the board of directors stated: " Resolved that in view of the facts and circumstances hereinabove mentioned and with a view to establish, and maintain industrial peace and good relations with the employees of the company, the board of directors of the company hereby approves of and consents to, an agreement being entered into between the company, Shri Ratilal H. Dagli, the liquidator of the Raipur Mills Employees' Co-operative Credit Society Ltd. (in liquidation and Shri Keshvalal Havashabhai Patel, Anantral Chhotalal Mehta and Dinshaw Nanabhat Dastur, for the compromise and settlement of the claim proved by the creditors of the said society ....." In pursuance of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any, viz., one to stick to its legal rights and to resist all the demands of the workers to get reimbursement from the funds of the company, and thus to invite the possibility of a strike, stoppage of work and rowdyism in the mill premises and, as a result of this, a substantial loss in production. The second alternative was to make some sacrifice and thus to purchase peace so that the company could go on with its production and would thereby be able to make its usual profits with the co-operation of its workers. The company has obviously chosen the second alternative which to the best of its judgment was more conducive to its business interests." Thus, the finding of the Tribunal was that this payment was made by the assessee-company to buy peace and to see that the employees were contented and that there was no disturbance in the smooth working of its factory because of strike, stoppage of work or rowdyism in the mill premises. There are a large number of decisions laying down as to what is " business expediency " and we need refer to only two cases in this connection. The first case is of the Bombay High Court in Tata Sons Ltd. v. Commissioner of Income-tax. There the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of making or increasing the profits of the assessee-company. It has also been urged that the payment has been made not to the employees of the assessee company but to the employees of the managed company, a different entity altogether. Here again, if it can be shown that there was a very important nexus between the assessee-company and the managed company which necessitated the assessee-company making the payment to the employees of the managed company, then again it would be possible for the assessee-company to satisfy us that the expenditure was one which fell within the ambit of section 10(2)(xv). Now, it cannot be seriously disputed that the bonus was paid by the managed company to their employees in order to increase the efficiency of the working of the company. An increased efficiency of that company would incidentally result in higher and better profits, and the assessee-company would be as much interested in the working of the managed company being more efficient as the managed company itself. Whatever tended to increase the profits of the managed company would also tend to increase the income and profits of the assessee company. Therefore, it cannot be suggested that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness of the assessee and not something which is de hors the business. " In the instance case, the glaring facts, as pointed out by the Tribunal, are that in 1956 there was considerable discontent because of the misappropriation and economic suffering amongst the workers. The resolution, dated October 20, 1956, points out that a feeling of discontent and unrest prevailed amongst the workers against the company and the workers used to throng the office of the company for relief in their loss; on several occasions the situation became very tense and even the police was called in to control the mobs and to restore peace and order; and it was apprehended that if such a tense situation were allowed to linger for long, it might lead to concerted action on the part of the workers which might lead to strikes, stoppage of work and loss of lives of some of the officers of the company and neglect in work which might adversely affect the working of the mill-company and thereby affect the quantity and quality of production. It is true that a considerable period had elapsed since the time this situation was noted in 1956 and 1962 when the assessee-company through its board of directors resolved ..... X X X X Extracts X X X X X X X X Extracts X X X X
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