- (1.) This is an appeal by special leave against the judgment of the Bombay High Court passed in a reference under S. 66 (1) of the Indian Income-tax Act, 1922 (herein after referred to as the Act) and Ss. 21 and 19 of the Excess Profits Tax Act, 1940 and of the Business Profits Tax Act, 1947, respectively read with S. 66 (1) of the Act. The dispute between the parties relates to the assessment of income-tax for the assessment years 1946-47, 1947-48 and 1948-49 and of excess profits tax for the chargeable accounting periods, September 8, 1945 to March 31,1946, April 1, 1946 to March 31, 1947 and April 1, 1947 to March 31, 1948, and it arises out of the same facts and involves the same points for determination.
(2.) On June 15, 1945 three brothers Sir Padampat Singhania, Lala Kailashpat Singhania and Lala Lakshmipat Singhania who were carrying on business under the name of Juggilal Kamlapat, executed a deed or trust, Exhibit A, whereby they settled a sum of Rs. 1,00,000/- on various charities specified therein and called the J. K. Trust, Bombay, and appointed themselves and two other persons Lala Ramdeo Podar and Sir Chunnilal Mehta as its trustees. The trust deed provided inter alia that "the trustees may with the help of the trust fund, for and on behalf of and for the benefit of the trust carry on such business including the taking up and conducting the managing agency or selling agency of any company in such name or names as they in their absolute direction may think fit and proper and may close and re-start such business and utilise the profits for all or any of the objects aforesaid." Large powers were conferred on them in the conduct of the business, and they were also authorised to "raise or borrow money required for the purpose of the trust."
(3.) At this time, Messrs E. D. Sassoon and Co. Ltd., were the managing agents of a public company called the Raymond Woollen Mills Ltd. The firm of Juggilal Kamlapat of which the three Singhania brothers, were the partners, acquired a controlling interest in the said Mills by purchase of the shares of Messrs E. D. Sassoon and Co. therein and following on this, the shareholders passed a special resolution on September 3, 1945, appointing the trustees of the J. K. Trust as managing agents of the Company in the place of Messrs. E. D. Sassoon and Co., Ltd., who resigned. On September 10, 1945, a memorandum of agreement, Exhibit B, was duly executed by the Company constituting the trustees of the J. K. Trust, Bombay as its managing agents on the terms and conditions set out therein. It is to be noted that the five persons named as trustees under Exhibit A were appointed as managing agents in their character as trustees, and it is expressly provided therein that the expression 'managing agents'. "unless excluded by or repugnant to the context shall include the Trustees for the time being of the said Trust or any other Trust with which the same may be amalgamated." The agency was to be for a period of 20 years; but it was open to the trustees to throw it up on giving three months' notice. The managing agents were to get a remuneration of 10 per cent. of the net annual profits subject to a minimum of Rs. 50,000 and an office allowance of Rs. 1,000 per mensem. Clause 7 of the agreement provided that. "During the continuance of this agreement, the Managing Agents shall maintain with the Company a deposit of Rs. 1,00,000/- (Rupees one lac only) in cash by way of security for due fulfilment of their obligations as specified therein and shall be entitled to charge interest at 3 1/2 per cent per annum on the amount of such deposit in addition to their remuneration." Clauses 8 laid an obligation on the managing agents. "to arrange loans and advances to the Company as and when required up to and not exceeding Rs. 10 lacs at any time and if necessary to guarantee such loans or advances from time to time. Under cl. 14 "Notwithstanding anything herein contained, all the terms and conditions of this Agreement including the period of appointment of the Managing Agents may be varied or abrogated by mutual agreement." ;