TMI Blog1990 (2) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... has also returned it on the same day to Messrs. Paksons Industries through the medium of these ten persons' ? (4) Was the doctrine of real income, adopted by the Tribunal, applicable to the facts and circumstances of the case?" These questions were referred by the Tribunal as directed by the judgment of this court in 0. P. No. 3271 of 1974. The assessee is a registered firm. The assessment year in question is 1978-79 for which the previous year ended on December 31, 1977. The assessee had business dealings as agents and stockists of its principals. The assessee executed certain contracts for a firm by name Messrs. Paksons Industries. The total amount of the contract was Rs. 3,54,000. Messrs. Paksons Industries had obtained financial assistance from the Kerala Financial Corporation. On December 29, 1977, it is seen that the assessee had received a sum of Rs. 74,000 in the form of a demand draft from Messrs. Paksons Industries. It is also seen that, on the same day, the assessee had purported to have paid Rs. 74,000 to ten different persons. The finding of the Income-tax Officer is that the said amount of Rs. 74,000 had ultimately reached Messrs. Paksons Industries. Before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this sum of Rs. 74,000 in its hands and that it had received the amount on a particular day and returned the same on that day itself to Messrs. Paksons Industries through the medium of ten persons and so the sum of Rs. 74,000 could not be said to be the "real income" of the assessee. In the result, the Tribunal deleted the disallowance of Rs. 74,000. To support this conclusion, the Tribunal has relied on the decision of the Madras High Court in CIT v. Coimbatore Salem Transport. (Private) Ltd. [1966] 61 ITR 480. The Revenue was aggrieved and at the instance of the Revenue, the questions set out in paragraph 1 of this judgment have been referred to this court for its decision. We heard counsel on both sides. In the order of the Tribunal, it is seen stated that one of the persons who ostensibly received the commission was a partner of Messrs. Paksons Industries. The Tribunal understood the contention of the assessee as an arrangement to receive an amount of Rs. 74,000 from Messrs. Paksons Industries only to be returned to Paksons Industries in the method stated by the assessee in order to help Messrs. Paksons Industries "to obtain a higher amount as loan from the Kerala Financi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income-tax Officer himself has traced the ten recipients to whom the amount has been paid, and that "there has been an active collusion" between the assessee and Messrs. Paksons Industries for putting up "artificially" the cost of the freezing plant and that this conduct would clearly show that the assessee had not retained any part of the sum of Rs. 74,000 in its hands. Finally, the Tribunal, relying on CIT v. Coimbatore Salem Transport (Private) Ltd. [1966]. 61 ITR, 480 (Mad), held that "if, in the instant case, the sum of Rs. 74,000 is considered to be part of the receipt of the assessee under the contract, then the expenditure of Rs. 74,000 should also be considered as an expenditure incurred in the course of the business of the assessee." Holding so, the Tribunal upheld the claim of the assessee for the deduction of the amount from the business income of the assessee. Counsel for the assessee referred us to the decision in CIT v. Karam Chand Thapar and Bros. (P.) Ltd. [1989] 176 ITR 535, 540 (SC), where Kania J., has observed that "the Tribunal is the final fact-finding body. The questions whether a particular loss is a trading loss or a capital loss and whether the loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that he was taking the currency notes to Pakistan to purchase gold there and smuggle it into India. The customs authorities confiscated the currency notes. The income-tax authorities found that the assessee was carrying on the business of smuggling and that he was liable to pay income-tax on income from that business and such income was assessed to tax. The question was whether the assessee was entitled to deduction of the loss of Rs. 65,000 arising by the confiscation of the currency notes. The Supreme Court held that "the carriage of the currency notes across the border was an essential part of the smuggling operation and detection by the customs authorities and the consequent confiscation was a necessary incident and constituted a normal feature of such an operation". It was found that "the confiscation of the currency notes was a loss occasioned in pursuing the business, of smuggling. It was a loss in much the same way as if the currency notes had been stolen or dropped on the way while carrying on the business. It was a loss which sprang directly from the carrying on of the business and was incidental to it and its deduction had to be allowed under section 10.". Counsel refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and then state its conclusions. It has failed to do so. The order of the Appellate Tribunal is vitiated. The Appellate Tribunal states that the particular arrangement between the assessee and Messrs. Paksons is a "collusive arrangement between the parties, that the Commissioner of Income-tax has opined that there was 'active collusion' and that the arrangement might have shades of illegality", and "that the make believe arrangement between the parties was not in order to minimise the tax liability of the assessee, etc." If the arrangement was "collusive", meaning that it is fraudulent, a party to the arrangement cannot take advantage of it. That principle has not been applied herein. Why ? If the arrangement was only "make believe" (sham), nothing took effect. In reality, there "was no payment as also no receipt". The entire thing should have been ignored, as a package. Why was it not so done ? What the Appellate Tribunal meant in the passages stated above is neither clear nor intelligible. Then again, the Tribunal proceeded on the basis that the sum of Rs. 74,000 left the coffers of the assessee, that the 10 persons to whom it was alleged to have been made payments, rendered ..... X X X X Extracts X X X X X X X X Extracts X X X X
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