TaxTMI 
TaxTMI 
1966 (10) TMI 45
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.... years Mills Mills Mills Rs. Rs. Rs. 1946-47 1,08,902 ... 25,511 1947-48 1,18,791 24,953 30,620 1948-49 1,50,017 33,632 36,890 1949-50 ... 42,369 41,393 1950-51 1,27,314 41,957 42,092 The bank aforesaid was incorporated on February 8, 1943, with Thyagaraja Chettiar as founder director, the head office being at Madurai. Out of 15,000 shares of this bank issued, 14,766 were held by Thyagaraja Chettiar, his two sons and the three assesssee-companies as shown below : Shareholding 1. Thyagaraja Chettiar 1,008 2. Manickavasagam 250 3. Sundaram 250 4. Meenakshi Mills 5,972 5. Rajendra Mills 3,009 6. Saroja Mills 4,177 All the three assessee-companies borrowed moneys from the Madurai branch of the bank and on the security of the fixed deposits made by their branches with the Pudukottai branch of the bank. It is the admitted case that the loans granted to the assessee-companies were far in excess of the available profits at Pudukottai. In the assessment proceedings of the assessee companies for the various years under dispute, the Income-tax Officer was of the view that the borrowings in British India on the security of the fixed deposits made....
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....sactions formed part of an arrangement or scheme. In the course of its judgment, the Appellate Tribunal observed as follows : " Even so, it seems to us, we cannot escape that fact that Thyagaraja Chettiar, his two sons and the three mills had a preponderant, if not the whole, voice in the creation, running and management of the bank. We cannot also forget that Pudukottai is neither a cotton producing area nor has a market for cotton; except that it was a non-taxable territory, there was nothing else to recommend the carrying on of the business in cotton spinning or weaving there. There is yet another aspect to which our attention was drawn by the learned counsel for the assessee. That being a non-taxable area, there were many very rich men there with an influx of funds to invest in banks and industries. By the same token, it appears to us, it was not necessary for the Madurai Bank which was after all a creation of certain people which started with a small capital of Rs. 32,800 to have gone to Pudukottai for opening a branch. If there was an influx of money in Pudukottai because of the finances, nobody would have agreed to borrow money from it. At any rate, it is clear, it wou....
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....y this court that in a reference the High Court must accept the findings of fact reached by the Appellate Tribunal and it is for the party who applied for a reference to challenge those findings of fact first by an application under section 66(1). If the party concerned has failed to file an application under section 66(1) expressly raising the question about the validity of the findings of fact, he is not entitled to urge before the High Court that the findings are vitiated for any reason. We, therefore, proceed to decide the question of law raised in these appeals upon the findings of fact reached by the Appellate Tribunal. Section 42 of the Act states as follows: " 42. All income, profits or gains accruing or arising, whether directly or indirectly .... through or from any money lent at interest and brought into the taxable territories in cash or in kind .... shall be deemed to be income accruing or arising within the taxable territories ...." This section accordingly requires, in the first place, that any money should have been lent at interest outside the taxable territory. In the second place, income, profits or gains should accrue or arise directly or indirectly fro....
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...., if not the whole, voice in the creation, running and management of the bank and that Pudukottai was neither a cotton producing area nor had it a market for cotton and, except that it was a non-taxable territory, there was nothing else to recommend the carrying on of the cotton spinning or weaving business there. The Tribunal further remarked that having regard to the special position of Thyagaraja Chettiar and the balance-sheets of the bank and lack of investments in Pudukottai, it was reasonable to conclude that the bank itself was started at Madurai and a branch was opened at Pudukottai only with a view to helping the financial operations of Thyagaraja Chettiar and the mills in which he was vitally interested. The Tribunal found that the Pudukottai branch of the bank had transmitted funds deposited by the assessee-companies for enabling the Madurai branch to advance loans at interest to the assessee-companies and the transmission of the funds was made with the knowledge of the assessee-companies who were the major shareholders of the bank. In the context of these facts it must be held that the entire transactions formed part of a basic arrangement or scheme between the creditor....