Decided on July 13,1962



V.S.DESAI J - (1.)THE question referred to as on this reference under S. 66(1) of the Indian IT Act relates to the order of assessment on the assessee for the asst. year 1946 -47. The assessee in the case is described as the joint committee of action B group merchants, Bombay. This association came to be formed some time on or about 1st June, 1945, in the following circumstances: On the introduction of cloth control in the year 1945, the cloth dealers in Bombay were divided into four groups, viz., (1) group A comprised of wholesalers who obtained their quotas for selling cloth only in bales, (2) group B who were semi -wholesalers who received bales from A group dealers and sold cloth by whole takas to the retailers, (3) group C was comprised of the retailers, and (4) group D of commission agents for sales outside Bombay. There were three associations of the cloth dealers, viz., (1) The Bombay Piecegoods Merchants Association; (2) The Bombay Country Fancy & Grey Piecegoods Merchants Association; and (3) The Hindusthan Native Merchants Association; and all the cloth dealers comprised in the four groups mentioned above belonged to one or the other of these three associations. The classification of the cloth dealers in the groups A, B and C was normally intended for the cloth to proceed from the wholesalers to the semi -wholesalers and then from the semi -wholesalers to the retailers, i.e., from A group dealers to the B group dealers and then from B group dealers to the C group dealers. It appears, however, that direct dealings took place between A and C groups in certain cases without the goods passing through the B group. The B group dealers, therefore, whose interests were prejudiced by these direct dealings between A and C groups, desired to have their interests protected. They sought the advice of the Government and were told that it was necessary in the interests of each of the three groups that they should form their own separate associations. On the 7th May, 1945, the small quota holders and semi - wholesalers held a meeting and resolved that a representation should be made to the Government that the goods kept for Government approved shops or for C group dealers for Bombay zone should also pass through the semi -wholesalers of Bombay. They sent letters to the various institutions and the authorities intimating to them their grievances and to their demands. On receipt of these intimations, the three associations, namely, the Bombay Piece goods Merchants Association, the Bombay Country & Fancy Grey Piecegoods Merchants Association and the Hindusthan Native Merchants Association, considered the grievances of the B group dealers and decided to appoint sub -committees to protect the interests of the small quota -holders and B group dealers. Thus each of these three associations appointed sub -committes consisting of seven of its members. The B group dealers thereafter held a meeting on 30th May, 1945, at which they appointed three of their members to be on the joint committee to be formed of the sub -committees appointed by the three associations. Thereafter, on the 1st June 1945, the members of the sub - committees appointed by the three associations as representing the three associations, formed the joint committee of action of the three associations, and also took on the said joint committee of action the three members of the sub -committee appointed by the B group dealers. The joint committee of action appointed three of its members as their secretaries, and authorised one of them, namely, Wadilal Chaturbhuj, to act as the president of the joint committee of action until the appointment of the president was made in due course and further resolved that the expenses incurred by the joint committee of action should be borne by the three associations equally. On the 7th June, 1945, the B group dealers at a general meeting decided that they should combine themselves into one group and take delivery of the goods in one group and issue supplies in accordance with the permits issued by the office of the Provincial Textile Controller and the group as well as B dealers individuals should keep a specific account of every piece of cloth received by them. They also decided that a request should be made to the Provincial Textile Controller to give them a reasonable margin to maintain their existence and further resolved that the Provincial Textile Controller should be requested that, until such time as the licences were issued to all the B group dealers, quota permits may be given in the name of the president of the joint committee of action, and the president should hold the B group dealers' profit on such goods in a pool in trust for the B group dealers and distribute the same amongst such of them to whom the licences may be issued on applications received by the Provincial Textile Controller on or before the 31st March, 1945. Thereafter, the joint committee of action of B group merchants, Bombay, which was thus formed (which will hereafter be referred to as the assessee), obtained from the Provincial Textile Controller, a quota of 7,421 bales of which it took deliveries from about 27th June, 1945, and distributed the said goods amongst all the B group dealers at actual cost without loading any profit. The price of these bales was produced by the B group dealers and it was paid to the A group dealers through the assessee who recorded both the receipts and payments in its own books. The B group dealers themselves who got the bales in this distribution recorded as the purchases in their own books and also the profits which they later on made on selling them to the C group dealers. The total number of B group dealers was 261; 69 out of these 261 made a profit of less than Rs. 1,500, on the allotments which they had obtained in the distribution of the 7,421 bales through the assessee. Some time thereafter, the assessee obtained a further quota of 1,844 bales from the Government. But when this quota was allotted, Government directed that it should be distributed directly to the C group dealers without distributing them to the B group dealers. The assessee accordingly distributed these goods directly amongst the C group dealers and also received payments in respect thereof from the C group dealers directly. In this transaction of 1,844 bales, there was a profit of Rs. 48,537. These were the only two transactions which were carried out by the assessee. They were completed before the 31st March, 1946. It appears that, thereafter, the joint committee of action, i.e., the assessee association, ceased to function, since the B group dealers formed a regular association of their own. Now, so far as the profit of Rs. 48,537 was concerned the assessee appropriated and distributed it as follows : Rs. 1,398 Lost on failure of the Exchange Bank. Rs. 35,285 To the 69 B group dealers who had made a profit of less than Rs. 1,500 as aforesaid. Rs. 7,500 To charity. These items totalled Rs. 44,183, leaving a balance of Rs. 4,354 as cash in hand with the assessee. After the association of the B group dealers was formed, it took over the cash on hand with the assessee, and also ratified the appropriation and distribution of profits made by the assessee, and the assessee ceased to function as an association.
(2.)ON the 24th Jan., 1955, the ITO issued a notice under S. 34 of the Indian IT Act, on Wadilal Chaturbhuj as ex -president of the association described as "the Joint Committee of Action, B Group Merchants, of M. J. C. Market, in front of Market, Bombay (present address c/o Mr. Wadilal Chaturbhuj, Krishna Chowk, M. J. C. Market, Bombay). " In the assessment proceedings, which were initiated on the said notice, the ITO assessed the assessee on a total income of Rs. 1,65,250. This assessment was reduced to Rs. 49,786 by the AAC. In the appeal to the Tribunal, the decision and order of the AAC was confirmed. In the appeal before the Tribunal, the assessee's contentions were, firstly, that the assessment was bad in law, as the assessee was incorrectly described; secondly, the profits, if any, did not belong to the assessee but to the three associations which had formed the joint committee of action, and for which and on whose behalf it was functioning, and was not a separate assessable entity apart from them; thirdly, the assessee organization was brought into existence for a non -trading purpose, which was only to help the Government in the scheme of distribution. It was not functioning for carrying on any business or for earning profits, and the profit which was left on its hands was the mere result of a Government order and not profit from business, and was, therefore, not assessable either because it was in the nature of a windfall or because it was not the result of a trading activity in the strict sense of the term. All these contentions were negatived by the Tribunal. Thereafter, at the instance of the assessee, the following question was drawn up by the Tribunal and referred to this Court under S. 66(1) of the Act :
"Whether there are materials for the Tribunal to hold that the sum of Rs. 49,786 is assessable in the hands of the assessee under S. 10, no part of which is exempt under S. 4(3)(vii) ?" Mr. Kolah, learned counsel appearing for the assessee, has raised two main contentions before us on this reference. His first contention is that the present assessment which has been initiated and made on the association after its dissolution is invalid and bad in law. His second contention is that, even assuming that assessment could be made on the assessee, the association had not carried on any business and had no business income which was assessable to tax. In addition to these main contentions, his further argument was that even if it were held that the assessee had carried on a business, such business was carried on by it not for itself, but for and on behalf of the B group dealers as their trustees or agent, and the income which it has received is the income held by it in the capacity of a trustee for the B group dealers, and, consequently, such income can be brought to tax only under the provisions and in the manner laid down in S. 41 of the Indian IT Act. Since the present assessment has not been made in the manner provided by S. 41, it cannot be allowed to stand.

(3.)NOW , with regard to the first contention raised by Mr. Kolah, Mr. Joshi, learned counsel for the Revenue, has raised an objection in the nature of a preliminary objection that the contention cannot be allowed to be raised since it has not been raised before the Tribunal and does not arise out of its order. Mr. Joshi points out that the only ground urged before the Tribunal, so far as the invalidity of the proceedings initiated under S. 34 is concerned, was that the notice was issued to an entity which did not exist as described therein. The basis of the contention was that the association described in the said notice was "the Joint Committee of Action, B group Merchants, of M. J. C. Market, in front of Market, Bombay," while the assessee was not the joint committee of action of B group merchants, but of the three other distinctly different associations. Mr. Joshi, therefore, has urged that the present contention sought to be raised by Mr. Kolah that the assessment is invalid since it has been made on the association after it has been dissolved is a new contention which has been sought to be urged for the first time in this reference. According to him, even though the contention may be one of law, the question of law which is not raised before the Tribunal nor considered by it will not be a question of law arising out of its order as held by the Supreme Court in CIT vs. Scindia Steam Navigation Co. Ltd. (1961) 42 ITR 589 (SC). In our opinion, the preliminary objection raised by Mr. Joshi cannot be sustained. It is true that a new question of law not raised before the Tribunal nor considered by it will not be a question arising out of its order, so as to be capable of being agitated on a reference under S. 66(1). But the contention which Mr. Kolah is raising before us is, in our opinion, not a new question of law, but an additional legal argument available to him in support of the point which he had urged before the Tribunal and had been considered by the Tribunal, namely, that the assessment made on the assessee is not valid in law. Moreover, no new facts are required to be investigated in order to entertain the legal contention which Mr. Kolah wants to raise. It is undisputed on the record that the assessee association had ceased to function and had been dissolved long before the notice under S. 34 was issued by the ITO.

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