TaxTMI 
TaxTMI 
TaxTMI 
1950 (12) TMI 4
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.... 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 :---- " Memorandum of Agreement made between the Calcutta Agency Limited of the one part and Basanti Cotton Mills Ltd. of the other part WHEREAS the Nath Bank Limited demanded from the Mills the payment of the sum of Rs. 1,80,000 and interest thereon AND WHEREAS the said Mills repudiated their liability in respect thereof as it appeared from the books of the said Mills that the said Mills did not have the use of the said sum of Rs. 1,80,000 or any part there....
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....e-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 to realise this amount due on the hundis which would have exposed the applicant company to the public and in order to save themselves from the scandal and maintain the managing agency they agreed to the deduction of certain amounts from the managing agency commission due to it" and therefore their case fell within the principles of the decision of Mitchell v. B. W. Noble Ltd. The Tribunal found as facts: (1) That the applicant company agreed to pay off the decretal a....
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.... 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 the company to remove a difficulty in carrying on the business of the company and to earn profits in its business. Therefore this case is covered by the judgment of the Court of Appeal in Mitchell's case.............." Applying this line of reasoning the High Court differed from the conclusion of the Tribunal and allowed the deduction to the respondent company under Section 10(2)(xv) of the Income-tax Act, as claimed by the respondents. The Commissioner of Income-tax, ....
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....ailing 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's case as the law and argue that the facts in the present case covered the situation. In our opinion this is an entirely wrong approach and should not have been permitted by the High Court. The High Court fell into a grave error in omitting first to ascertain what were the facts found in the case stated by the Tribunal. The High Court overlooked that in Mitchell's case the whole discussion started with a quotation from the case stated by the Commissioners as the facts....