TaxTMI 
TaxTMI 
1970 (4) TMI 25
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....td. which owned a majority of the shares of the assessee. On October 7, 1946, the entire share capital of the assessee was purchased by Dalmia Investment Co. Ltd. and the Provident Investment Co. Ltd. resigned their office as managing agents of the assessee. Dalmia Cement and Paper Marketing Co. Ltd., hereinafter called "the D.C.P.M.", were incorporated on October 21, 1937, with the object, inter alia, of carrying on the business of and to work as selling agents or managing agents of any person, firm or company. By an agreement dated October 29, 1948, the D. C. P. M. were appointed selling agents of cotton goods manufactured by the assessee for a period of 10 years commencing from November 1, 1948, upon the terms and conditions mentioned ....
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....1951, as compensation for breach of contracts respectively to the selling agents and the managing agent. The Income-tax Officer rejected the claim for allowance and the Appellate Assistant Commissioner confirmed the order of the Income-tax Officer. In second appeal the Income-tax Appellate Tribunal observed: " . . . we are satisfied upon the facts and circumstances of this case that the selling agency and the managing agency agreements in both the appeals were merely a make-believe, or sham or colourable transactions and that the claim for compensation and the payments are equally fraudulent. They were part of a scheme...to withdraw a tax free sum from the appellants before their liquidation." The assessee then applied under section 66(....
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....ent of the managing agents to withdraw a tax free sum from the applicant-company before its liquidation? 7. Whether the Tribunal was justified to hold that the managing agency agreement was merely a make-believe or sham or colourable transaction and that the claim for compensation and the payment thereof was fraudulent? 8. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the nature of compensation payment of Rs. 46,80,000 made to the managing agents was the same as that of the payment in the English case of Godden v. A. Wilson's Stores (Holding) Ltd.? 9. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in ignoring the awards of the arbitrators and ....
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....ome-tax. The legislature, by the Finance Act of 1955, amended section 7, and added Explanation 2(i) and also incorporated section 10(5A). To the present case the amendment made by the Finance Act of 1955 does not apply. The revenue authorities and the Tribunal have, however, come to the conclusion that the appointments of the selling agents and the managing agent, and the agreements to pay compensation for determining their contracts formed a chain of sham or colourable transactions designed to ensure withdrawal of large sums tax free from the profits of the assessee before it was liquidated. The facts found by the Tribunal may be briefly set out. The shareholding of the assessee was controlled directly or indirectly "through interconne....
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....ell the mills if a suitable occasion arose". On August 16, 1950, a resolution was unanimously passed authorising the directors to sell the mills if "an opportunity arose". On October 26, 1950, the managing agency agreement between the assessee and V. V. was executed and on October 27, 1950, the assessee agreed to sell for Rs. 36,50,000 all its assets including stock-in-trade (except certain woollen goods, stock, stores, etc.) to M/s. Ram Sahai Mal More Ltd. of Calcutta. On October 31, 1950, the purchasers took charge of the mills. On January 10, 1951, a deed of conveyance for the properties was executed. On February 14, 1951, the D.C.P.M. and V.V. called upon the assessee to pay compensation for breach of their agreements, alleging that the....