TMI Blog1950 (12) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... mber, 1932, the Basanti Cotton Mills Co., Ltd., was incorporated and the respondents were appointed the managing agents. Their remuneration was fixed at a monthly allowance of Rs. 500 and a commission of 3 per cent. on all gross sales of goods manufactured by the mill company. The fixed monthly allowance was liable to be increased in the event of the capital of the company being increased. The details are immaterial. It appears that certain hundis were drawn by one of the directors of the respondent company, acting in the capacity of the managing agents of the mill company, in the name of the mill company and the same were negotiated to others. The Nath Bank Ltd. claimed payment of these hundis. The mill company repudiated its liability as it appeared from the books of the mill company that they had not the use of the sum of Rs. 1,80,000 claimed by the Nath Bank Ltd. under the hundies. The Nath Bank Ltd. instituted four suits against the mill company, in two of which the respondents were party defendants. The mill company was advised to settle the suits and the respondent company entered into an agreement with the mill company, the material part of terms of which runs as follows :- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of such business, profession or vocation. " In the statement of the case submitted by the Tribunal after reciting the fact of the incorporation of the company and the terms of the compromise mentioned above, the arguments urged on behalf of the assessee company have been recapitulated. The first argument was that under the first proviso to Section 7 of the Indian Income-tax Act, this payment was liable to be exempted. The Tribunal rejected that argument. On the reference, the High Court also rejected the same and it was not presented before us. The next argument of the respondent company was that in respect of Rs. 22,500 it was entitled to exemption under Section 10(2)(xv) of the Income-tax Act on the ground that the payment was an expenditure which was not in the nature of a capital expenditure or personal expenses of the applicant company but was an expenditure laid out wholly avoid exclusively for the purpose of its business. The assessees urged that if the applicant company did not agree to pay this amount, "Basanti Cotton Mills Ltd. could have brought a suit against the company t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... danger of public exposure and in order to save itself from the scandal and in order to maintain the managing agency, the applicant company agreed to deduct certain amounts from the managing agency commission and therefore such expenditure came within Section 10(2)(xv) of the Act." The High Court thereafter noticed several cases including Mitchell's case and towards the close of the judgment delivered by Chatterjea J, observed as follows :--- "In this case it is clear that the agreement was entered into with a view to avoid the publicity of an action aginst the managing agents and consequent exposure and scandal and in order to maintain the managing agency so that the company could carry on its business as before. The payment in question did not bring in any new assets into existence nor in my opinion can it properly be said that it brought into existence an advantage for the enduring benefit of the company's trade. The Appellate Tribunal observed that the decree was evidently passed against the appellant company for certain misfeasance committed by its directors and the appellant company agreed to pay it off from its remuneration ....... The object of the agreement was to enable th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal and filed in the High Court, the Tribunal had come to the conclusion that the payment was made by the assessee company to avoid any danger of public exposure or to save itself from scandal or in order to maintain the managing agency of the appellant company. The whole conclusion of the High Court is based on this unwarranted assumption of facts which are taken only from the argument of counsel for the present respondents before the High Court. The danger of failing to recognise that that the jurisdiction of the High Court in these matters is only advisory and the conclusions of the Tribunal on facts are the conclusions on which the High Court is to exercise such advisory jurisdiction is illustrated by this case. It seems that unfortunately counsel for the respondents caught hold of Mitchell's case and basing his argument on the circumstances under which a payment could be described as a business expenditure falling within the terms of Section 10(2)(xv), argued that the facts in the present case were the same. Instead of first ascertaining what where the facts found by the Tribunal in the present case, the process was reversed and the procedure adopted was to take Mitchell' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntention was that this sum should be treated as not having become the income of the assessee at all because it was deducted at the source by the mill company. Reliance was placed for this contention on Raja Bijoy Singh Dudhuria's case. The contention was rejected. At the third stage, when the assessee urged his contentions before the Income-tax Appeal Tribunal, he thought of urging as an argument that this was a permissible deduction under Section 10(2)(xv) because of the principles laid down in Mitchell's case. No evidence, it appears, was led before the income-tax Tribunal, nor has the Tribunal recorded any findings of fact on which the principles laid down in Mitchell's case could be applied. The Tribunal's conclusions of facts were only as summarizes the earlier part of the judgment. It is therefore clear that the necessary facts required to be established before the principles laid down Mitchell's case could be applied have not been found as facts in the present case at any stage of the proceedings and the High Court was in error in applying the principles of Mitchell's case on the assumption of facts which were not proved. The High Court was carried away, it seems, by the arr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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