Malik - (1.) THIS is a reference under Section 66 (1) of the Indian Income-tax Act, 1922, read with Section 21 of the Excess Profits Tax Act, 1940. The question referred to us is as follows: Whether, in the circumstances of the case, 10A of the Excess Profits Tax Act was rightly applied and, if so, whether there is material to justify the finding that the main purpose of the transaction, i.e., appointment of two general managers in addition to the already existing whole-time manager and managing agents, was the avoidance or reduction of liability to excess profits tax.
(2.) THE assessee is the Maheshwari Devi Jute Mills, Ltd., Kanpur. It was a private limited company up to the 7th August, 1941, By a resolution of the company it was changed from a private limited to a public limited company. THE members of two closely related families of Khaitan and Bagla formed the private limited company. THE managing agents of this company were the Khaitan and Bagla families and they were working on a remuneration of Rs. 1,500 per month, in addition to a commission of 10 per cent. on the profits of the company. On the 27th September, 1941, a resolution was passed appointing 1 member each of the two families as joint managers of the assessee company on a remuneration of Rs. 2,000 per mensem each, free of all taxes, to look after the management of the company. THE two persons so selected were Harishankar Bagla and Mr. Munna Lal Khaitan. THEy were to work with effect from the 1st October, 1941 THE reason for the appointment of two joint general managers was because it was stated that "the company's work had considerably increased.'' The Income-tax Officer has under 10 (2) (xii) of the Act [now Section 10 (2) (xv)] held that this was an expenditure incurred for the purpose of business and allowed a deduction of Rs. 54,779 as business expenditure. The Excess Profits Tax Officer, however, came to the conclusion under Section 10A of the Excess Profits Tax Act that " the main purpose " behind the appointment of two joint general managers was to reduce the liability to pay excess profits tax. The question framed by the Appellate Tribunal can be divided in two parts. One part of it is whether there was material to justify the finding that the main purpose of the transaction was the avoidance or reduction of liability to excess profits tax.
(3.) IT is obvious that what was the main purpose of the assessee in entering into a transaction of this nature cannot be proved by direct evidence and the conclusion must always depend upon the facts and circumstances of each case. If the facts and circumstances were such that the Income-tax Appellate Tribunal could come to the conclusion that the transaction was entered into with the purpose of avoiding or reducing the liability to pay excess profits tax, then this Court not being a court of appeal, has no right to interfere. All that we are called upon to do is to answer the question whether there was material before the Appellate Tribunal which could lead them to the conclusion arrived at by them. I want to make it clear that even if two views were possible and the Appellate Tribunal had taken a view which is not the view* that we would have taken it is not open to us to say that there was no material on which the conclusion could be arrived at. The facts and circumstances mentioned by the Appellate Tribunal on which they came to the conclusion that the main purpose was the avoidance or the reduction of liability under the Excess Profits Tax Act were as follows: (1) That the private limited company was formed by the members of two closely related families of Khaitan and Bagla ; (2) That the members of the same family were working as managing agents under the name of Khaitan Bagla & Company ; (3) That Harishankar Bagla was a director of the company and both ho and Munna Lal Khaitan were partners in the managing agency firm ; (4) That there was a whole time manager who was paid a remuneration of Rs. 19,482; (5) That the ostensible reason given by the directors was false as the loom age of the company had practically remained unchanged and there had been no substantial increase in the outturn ; (6) That as a matter of fact, the outturn was somewhat less in the chargeable accounting period than in the preceding year; (7) That the joint general managers were required to do what was the duty of the firm of managing agents who under the Articles of Association of the company were required to carry on the business of the company ; and (8) That the transaction equally benefited the two families who had equal interest and the two joint general managers came one from each family. ;