RAMASWAMI, - (1.) THE Judgment of the court was delivered by-
(2.) THESE appeals are brought by certificate from the judg-ment of the Calcutta High court, dated 28th September, 1964, in Income-tax Reference No. 18 of 1961. The respondent (hereinafter called the assessee) is a private limitedcompany incorporated in India and is a subsidiary of the Imperial ChemicalIndustries, London, which hold's the entire share capital of the assessee. Thebusiness of the assessee consists mainly of acting as selling agents in India fora large variety of goods such as chemicals, dyes, explosives, etc. manufacturedor purchased by its London principals and sold in India. The ImperialChemical Industries (Export) Glassgow [hereinafter referred to as the 1. C. 1.(Export) Ltd.] is another subsidiary of I.C.I., London, which holds theentire share capital of 1. G. 1. (Export) Ltd. The 1. C. 1. (Export) Ltd.had appointed as their selling agents in India four companies, viz., (1)GillandersArbuth not and Go. Ltd., Calcutta, (2) Best and Co. Ltd., Madras,(3) Anglo-Thai Co. Ltd., Bombay and (4) Shaw Wallace and Co. Ltd. Witheffect from 1st April, 1948, the 1. 1. C. 1. (Export) Ltd. terminated the servicesof the aforesaid selling agents and appointed the assessee as its sole sellingagent. The 1. C. 1. (Export) Ltd. had agreed to pay to the former sellingagents compensation at the rate of two-fifth, two-fifth and one and two-fifths of the commission earned by the assessee for the three years from 1/04/1948. The compensation was paid to the four companies throughthe accounts of the assessee. For this purpose the modus operandi adopted wasas follows : The compensation payable to the former agents was spread overa period of three years and on the assumption that the turnover was constant,the compensation payable to the selling agents was on an average) an amountequal to the ll/15th of the commission earned by the assessee at the normalrates. In order to arrive at the amount of commission to be credited to theassessee's profit and loss account each year the assessee in the first placecredited the commission account and debited the 1. C. 1. (Export) Ltd.account with the full amount of compensation earned by it at normal rateson sales effected during the year. Next, the assessee transferred from thecommission account to a special reserve account called the 'Explosives Ex-Agents Compensation Reserve Account', the proportion payable to the ex-agents as compensation, namely, I I/I 5th (2/5 + 2/5 + 7/5) = 11/5 X 1/3= 11/15) (leaving 4/15th towards commission account) so that funds mightbe accumulated for payment to the four companies from time to time. The year of account of the assessee is from 1st October to 30thSeptember every year. As a result of the above method of accounting, thefollowing figures appeared in the assessee's books of accounts : JUDGEMENT_629_1_1969Html1.htm 632 For the assessment years 1949-50, 1950-51, 1951-52 and 1952-53 theassessee showed the net amounts of commission earned on the selling agenciesby the I. C. I. (Export) Ltd. adding a footnote that the amounts werearrived at after deducting the amount of compensation payable to the out-going agents. By his order, dated 28/01/1957, for the assessment year1951-52 the Income-tax Officer held that the deductions were not permissible.In an appeal preferred by the assessee the Appellate Assistant Commissionerconfirmed the assessment by his order, dated 25/11/1957. Theassessee took the matter in further appeal to the Appellate tribunal whichdismissed the appeal. The Appellate tribunal held that there was no justifi-cation for the absence of a written agreement between the I. C. I. (Export)Ltd. and the assessee when the former selling agencies were terminated andthe assessee was appointed as the sole selling agent. It was observed that theassessee was not collecting any commission on behalf of the out-going agentsand it was not their legal obligation to pay compensation to the out-goingagents. If the assessee was not entitled to more than 3/5th of commissionduring the first two years, it should have credited that amount whereas theassessee had actually credited four-fifteenth on a notional basis which was notin consonance with the arrangement. The conclusion reached by theAppellate tribunal was that "there was no agreement between the assesseeand the I. C. I. (Export) Ltd. and "if there was one it was not acted upon".It was held by the Appellate tribunal that the payment of compensation wasnot because of an overriding title created either by the act of the parties or byoperation of law.
(3.) AT the instance of the assessee the following question of law wasreferred to the High court under Section 66(1) of the Income-tax Act, 1922(hereinafter called the Act) : "Whether the inclusion by the Income-tax Officer of Rs. 2,03,503.00,Rs. 5,42,526.00, Rs. 5,29,284.00 and Rs. 4,00,052.00 in the assessment forthe years 1949-50, 1950-51, 1951-52 and 1952-53 for the relevant account-ing years ending the 30th September, 1948, 1949, 1950 and 1951 respec-tively in the computation of the total income of the assessee is justifiedand correct ?" The High court answered the question in the negative in favour of theassesee holding that the inclusion of the amount of compensation in the totalincome of the assessee for the relevant assessment years was not justified. On behalf of the appellant it was contended that the High courthad no legal justification for interfering with the finding of the AppellateTribunal, that there was no proof of the agreement between the assessee andthe I. C. I. (Export) Ltd. with regard to the quantum of commission to bepaid to the assessee for the period between 1/04/1948 and 31/03/1951. On this point reference was made by Mr. Chagia to (a) the letter,dated 11/03/1947, from the I. C. I. (Export) Ltd. to M/s GillandersArbuthnot and Co., (A) the affidavits of Mr. W. A. Bell and Mr. J. W.Donaldson and (c) the letter, dated 3/01/1958 of M/s Lovelocke andLewes, Chartered Accountants, Calcutta. It was argued that these docu-ments established that there was an agreement between the I. G. I. (Export)Ltd. and the assessee that for the period 1st April, 1948 to 31/031/03/1951the assessee was entitled to receive as its commission only the amounts repre-senting the difference between the normal rates of commission and the com-pensation payable to the former agents during that period. The AppellateTribunal had considered all these documents and reached the conclusion thatthere was no agreement between the I. C. I. (Export) Ltd. and the assessee633and 'if there was one it was not acted upon'. The Appellate tribunalremarked that the letter, dated 11/03/1947, from the 1. C. 1. (Export),Ltd. setforth only the terms and conditions subject to which the sellingagencies of the out-going agents were terminated. It was silent on thecrucial question of commission to be paid to the asaessee during the threeyears from the date of its appointment as sole selling agent. The affidavits ofMr. Bell and Mr. Donaldson were produced for the first time before theAppellate Assistant Commissioner. The affidavits were made many yearsafter the crucial date of the appointment of the assessee as the sole sellingagent of the I. C. I. (Export) Ltd. The affidavits did not mention theamount of commission to be paid to the out-going agents and the affidavitswere also not consistent with the entries in the books of accounts of theassessee. The letter of M/s. Lovelocke and Lewes was produced at a verylate stage during the hearing of the appeal before the tribunal and evenotherwise the letter merely explains the method of accounting adopted by theassessee and did not carry the matter any further. In the circumstances, theAppellate tribunal held that there was no agreement between the assesseeand the I. C. I. (Export) Ltd. and if there was any such agreement it wasnot acted upon. It is manifest that the finding of the Appellate tribunal onthis question is a finding on question of fact and the High court was notentitled to interfere with this finding. It is well established that the High courtis not a court of Appeal in a reference undersection 66(1) of the Act and itis not open to the High court in such a reference to embark upon a reappraisalof the evidence and to arrive at findings of fact contrary to those of theAppellate tribunal. It is the duty of the High court while hearing thereference to confine itself to the facts as found by the Appellate tribunal andto answer the question of law in the context of those facts. It is true thatthe finding of fact will be defective in law if there is no evidence to support itor if the finding is perverse. But in the hearing of a reference underSection 66 (1) of the Act it is not open to the assessee to challenge such afinding of fact unless he has applied for the reference of the. specific queitionunder Section 66(1). In India Cements Ltd .v. Commissioner of Income Tax,it was held by this court that in a reference the High court must accept thefindings of fact reached by the Appellate tribunal and it is for the party whoapplied for a reference to challenge those findings of fact, first, by an, appli-cation under Section 66(1). If the party concerned has failed to file an appli-cation under Section 66(1) expressly raising the question about the validity ofthe finding of fact, he is not entitled to urge before the High court that thefinding is vitiated for any reason. The same view has been expressed by thisCourt in. Commissioner of Income Tax v .Sri Aleenakshi Mills Ltd. and Commis-sioner o/Income Tax, Bombay City I v. Greaves Cotton and Co. Ltd* la thepresent case the assessee has in his application under Section 66(1) expresslyraised the question about the validity of the finding of the Appellate tribunalas regards the agreement but the question was not referred by the AppellateTribunal to the High court and the contention of the assessee with regard tothe question must be deemed to have been rejected. The assessee did notthereafter move the High court under Section 66(2) of the Act requiring it tocall for a statement of the case on that specific question. We are therefore ofopinion that the High court was in error in embarking upon a reappraisal ofthe evidence before the Appellate tribunal and setting aside the finding of theAppellate tribunal that "there was no agreement as alleged in the amdavits634 of Mr. W. A. Bell ondMr.J. W. Donaldson" and "if there was such anagreement it was not acted upon".;