1956 (9) TMI 1 - SC - Income Tax

Supreme Court rules intermediaries as dummies, adds foreign profits to income

Sree Meenakshi Mills Limited Versus Commissioner Of Income-Tax, Madras

The Supreme Court upheld the Tribunal's findings that the intermediaries were dummies created to conceal the appellant's profits and that the profits ... Whether on the facts and in the circumstances of the case there is any legal evidence to support the finding that the four firms, Meenakshi and Co., Sivagami and Co., Mangayarkarasi and Co., and Alagu and Co., were benamidars for the appellant and that the profits made by these firms were profits made by the appellant? Held that:- All the contentions of the appellant based on the assumption that the intermediaries had been held to be benamidars for the appellant must be overruled on the ground that on the findings of the Tribunal they do not really arise. As the matter is now concluded by authority, it will be an idle formality to direct the Tribunal to refer the question for the decision of the Court. The powers of this Court in appeal under article 136 are not intended to be exercised for such a purpose. That disposes of the main and substantial questions that have been agitated in these proceedings. Appeal dismissed. Issues Involved:1. Whether the intermediaries were benamidars for the appellant.2. Whether the Tribunal's findings were supported by legal evidence.3. Whether the profits made by the intermediaries should be added to the appellant's income.4. Whether the profits earned by the appellant's branches in foreign states were chargeable to tax.Detailed Analysis:1. Whether the intermediaries were benamidars for the appellant:The Tribunal concluded that the intermediaries were mere dummies created by the appellant to conceal its profits. The Tribunal found that the intermediaries were set up by Mr. Thyagaraja Chettiar, the Managing Agent, and were controlled by him. The intermediaries did not conduct any genuine business and were used solely to manipulate the appellant's accounts. The Tribunal determined that the intermediaries were not genuine entities but were created to hide the appellant's true profits. The Tribunal's findings were based on substantial evidence, including the fact that the intermediaries had no independent offices, staff, or business apart from transactions with the appellant.2. Whether the Tribunal's findings were supported by legal evidence:The Tribunal's findings were supported by substantial evidence, and the appellant's contention that there was no legal evidence was unfounded. The Tribunal's conclusion that the intermediaries were dummies was based on various factual findings, such as the intermediaries being newly formed, having no independent business, and the profits being in the possession of the appellant. The Tribunal's decision was not perverse or unreasonable and was based on a thorough examination of the evidence. The Tribunal's findings were purely factual and not open to review as questions of law.3. Whether the profits made by the intermediaries should be added to the appellant's income:The Tribunal found that the profits shown in the names of the intermediaries were, in fact, the profits of the appellant. The Tribunal held that the intermediaries were created to conceal the appellant's actual profits and that the sales transactions in the names of the intermediaries were sham. The Tribunal's conclusion was that the profits ostensibly earned by the intermediaries on these transactions were actually earned by the appellant and should be added to its income. The Tribunal's findings were supported by substantial evidence and were not open to attack as erroneous in law.4. Whether the profits earned by the appellant's branches in foreign states were chargeable to tax:The Tribunal held that the profits earned by the appellant's branches in foreign states were chargeable to tax under sections 42(1) and 42(3) of the Indian Income-tax Act. The appellant contended that these sections applied only to non-residents and that section 14(2)(c) should apply to residents. However, the Tribunal relied on the decision in Commissioner of Income-tax v. Ahmedbhai Umarbhai and Co., which held that sections 42(1) and 42(3) applied to both residents and non-residents. The Tribunal's decision was not contested before the High Court, and the appellant did not press this issue in the Supreme Court. The Tribunal's apportionment of profits in the ratio of 85:15 was a factual determination and not open to review under section 66(1).Conclusion:The Supreme Court upheld the Tribunal's findings that the intermediaries were dummies created to conceal the appellant's profits and that the profits should be added to the appellant's income. The Tribunal's findings were supported by substantial evidence and were not open to attack as questions of law. The profits earned by the appellant's branches in foreign states were chargeable to tax under sections 42(1) and 42(3) of the Indian Income-tax Act. The appeals were dismissed with costs.