(1.)This is an appeal by special leave against the judgment and order of the High Court of Bombay. It arises out of a reference by the Income-tax Appellate Tribunal under S. 66 (1) of the Indian Income-tax Act (hereinafter termed the Act). The appellant in this appeal is the Commissioner of Income-tax and the respondent is a partnership firm which by an agreement dated September 23, 1935, was appointed the Managing Agent of the Keshav Mills Ltd., Petlad. For the sake of convenience the respondent firm will, in this judgment, be termed the Managing Agent and the Keshav Mills Ltd., the Managed Company. By Cl. 4 of this agreement the Managing Agent was to get a commission of 4 per cent on the sale proceeds of the cloth, yarn or other goods manufactured and sold by the company and 15 per cent on the amount of bills for charges of ginning and pressing and dyeing or bleaching and on the amount of labour bills and other work done in the running of the factory. The commission was exclusive of other charges such as adat, interest, discount, brokerage etc. The amount of commission was to be credited in the account of the Managing Agent every six months and it was entitled to interest at the rate of six per cent per annum on the amount so credited. There were other conditions in the Agency Agreement which are not necessary for the purposes of this case. The total commission for the accounting year 1950 was a sum of Rs. 3,09,114. Sometime during the accounting year, at the oral request of the Board of Directors of the Managed Company, the Managing Agent agreed to accept a sum of Rs. 1,00,000 only as its commission which was credited to the account of the Managing Agent in the books of the company at the end of the year 1950. The Income-tax Officer and the Appellate Assistant Commissioner held that the amount which accrued as commission to the Managing Agent was Rs. 3,09,114 and that amount was taxable. An appeal was taken to the Income-tax Appellate Tribunal by the Managing Agent. By an order dated February 26, 1953, the Appellate Tribunal held that the amount which accrued to the Managing Agent as commission was Rs. 3,09,114 but it accepted Rs. 1,00,000 as taxable income and Rs. 2,09,114 was held to be an allowable expenditure within S. 10(2)(xv) of the Act and it was therefore allowed. The Tribunal in its order said that in the past also the Managing Agent had, in the interest of the Managed Company, waived a portion of a commission and then made the following observation :
"The Tribunal has also held that if the Managing Agency commission or a part thereof is foregone in the interest of the Managed Company, it would be allowed as an expenditure under S. 10 (2) (xv) of the Act. We allow the amount foregone under S. 10 (2) (xv)."
Against this order, at the instance of the appellant, a case was stated to the Bombay High Court for its opinion on the following two questions :
(i) Whether on the facts and in the circumstances of the case, the sum of Rs. 2,09,114 was assessable in the hands of the assessee as its income.
(ii) If the answer to question (i) is in the affirmative whether the said sum is an allowable deduction from the assessee's income under S. 10 (2) (xv) of the Act.
The Judgment of the High Court shows that it was inclined to decide the questions in favour of the appellant, but at the instance of the Managing Agent the Appellate Tribunal was directed to submit a supplementary statement.
(2.)No fresh evidence was led before the Tribunal but it appears that some emphasis was laid on a letter of the Managing Agent dated September 18, 1951, sent to the Income-tax Officer. In this letter the Managing Agent had stated that the only commission which accrued to it was a sum of Rs. 1,00,000 and nothing had been foregone from out of the commission or relinquished. It is also stated that the amount of Rs. 1,00,000 accrued because of the variation of the terms of the Managing Agency Agreement. Reference was also made in the letter to the Balance Sheet of the Managed Company ending December 31, 1950, showing that the paid up capital was rupees 30 lacs, depreciation fund rupees 14 lacs, totalling rupees 44 lacs. As against this sum the Block Account showed a debit of over rupees 48 lacs and it was with the object of strengthening the financial position of the Managed Company and in its interest that the Chairman of the Board of Directors had requested and the Managing Agent had agreed to accept rupees 1 lac as commission. The Income-tax Appellate Tribunal submitted a supplementary Statement of Case dated May 3, 1954 in which it said (1) that there was no oblique motive in accepting Rs. 1,00,000 instead of rupees 3 lacs odd as commission and that the remission was bona fide. It was also remarked that it was not even faintly suggested by the Department that what was given up by the Managing Agent from the commission was done with some dishonest motive; (2) the amount foregone by the Managing Agent was an expenditure incurred wholly and exclusively for the purpose of the business of the Managing Agent; (3) that when the appeal was decided by the Appellate Tribunal it did not have the slightest doubt in its mind that the commission was foregone for business considerations; and (4) that the amount was given up or expended for reasons of commercial expediency. A very significant paragraph in the supplementary Statement of the Case was paragraph 4 which stated :
"It was assumed that what was in the interest of the managed company was in the interest of the managing agent. The interest of the managing agent and the managed company are so to say linked up. If the managed company is put on a sounder position, not only the share-holders of the managed company benefit, but also the managing agent, inasmuch as the managing agent would get a larger commission in future."
The basic facts which arise out of the Statement of the Case and the documents which were produced by the Managing Agent are : (1) the rather unsatisfactory financial position of the managed company as shown by the Balance Sheet (2) in the past also the Managing Agent had been remitting a part or whole of the commission whenever the profits of the Managed Company were unsatisfactory; (3) in the year of account the profits of the managed company as per profit and loss account were Rs. 5,72,192. This was after paying to the managing Agent a commission of Rs. 1,00,000 and if whole of the accrued commission had been deducted then the profits would have been Rs. 3,63,078 which would be the lowest amount since 1940 and the amount of commission would have been the highest. (4) it was not a bounty by the Managing Agent to the Managed Company; (5) the business of the Managing Agent was so linked up with the Managed Company that if the letter was put on a sounder position the Managing Agent would also get a larger commission in future; and (6) the Managing Agent had accepted Rs. 1,00,000 at the instance of the Chairman of the Board of Directors of the Managed company. This was the material on which the Tribunal gave a finding in its supplementary statement 'that what was given up by the assessee was an expenditure for the purpose of the asessee's business'. On this statement the High Court by its judgment dated February 15, 1955, held the finding of the Appellate Tribunal to be one of fact. It said :
"Now this is a finding of fact and unless it can be suggested that there was no evidence to support the finding of fact we are concluded by this finding of fact."
Therefore the question in regard to S. 10 (2) (xv) was answered in favour of the Managing Agent. It is against this judgment and order that the appellant has come in appeal to this Court by special leave.
(3.)For the appellant it was argued that there was no evidence in support of the finding that the amount of about rupees 2 lacs which was foregone by the Managing Agent was wholly and exclusively laid out for the purpose of the Managing Agent's business and emphasis was laid on the finding of the Appellate Tribunal in its order dated February 26, 1953, that in the past the commission had been given up by the Managing Agent in the interest of the Managed Company and that if the Managing Agent's commission or part thereof was foregone in the interest of the Managed Company it was not an allowable expenditure under S. 10 (2) (xv). It was also argued that there was no evidence in support of the finding that the amount was expended for the benefit of the Managing Agent and that even if as a result of the amount being foregone the Managing Agent was helped because it benefited the Managed Company, then S. 10 (2) (xv) would not be attracted, in other words the question had to be looked at from the point of view of the direct concern of the Managing Agent and not of remoter or indirect result which may flow as a result of the benefit to the Managed Company and in each case the question on each set of the facts is whether the benefit is to the assessee i.e., the Managing Agent or to some one else.