R.S. Pathak, J. -
(1.)THE assesses, Messrs. Haji Rahmat Ullah and Co., was a partnership firm which carried on the business of supplying goods under contract with the military department during the last World War. THE assessee entered into contracts for the supply of fowl and eggs to the military authorities at Dehra Dun and Ranikhet during the period commencing April 1, 1943. and ending March 31, 1944. It then entered into two subleases with Messrs. Abdul Salam and Brothers, Lucknow, for the supplies to be made at Dehra Dun and Ranikhet in return for a fixed commission of Rs. 600 per mensem. Messrs. Abdul Salam and Brothers further sublet the Dehra Dun contract to Messrs. Zahur Ahmad Mohd. Yusuf and that pertaining to Ranikhet to Messrs. Musaraf Ali Iqbal Ahmad. THE contracts between the assessee and the military department specified the rates at which supplies were to be effected, and in the contracts entered into by the assessee with Messrs. Abdul Salam and Brothers and by the latter with the sub-lessees it was expressly stipulated that sup plies would be made at those specified rates.
(2.)IN as much as the assessee was entitled to a commission at Rs. 600 per mensem only, the INcome-tax Officer assessed its profits under the contract for the assessment year 1944-45 at Rs. 7,200.
It seems that subsequently it was discovered that the contractual rates of supply were less than the cost of the supplies. The assessee made repeated representations to the military authorities for enhancing the rates. The first representation which was made on February 16, 1945 some months after the close of the chargeable accounting period during which the supplies had been effected, was turned down by the military authorities on February 23, 1945, in the view that the fluctuation in the market rates since the submission of the tender by the assessee had been negligible in the case of chicken and there had been no increase in the price of eggs. Another representation made thereafter was rejected on May 31, 1945. The military authorities informed the assessee that no useful purpose would be served by pursuing the matter further and that no action would be taken upon any application for enhancing the rates. The assessee, undaunted, sought an interview with the military authorities, but that was also refused. It persevered, however, in its attempts, and it appears that after making successive representations its attempts bore fruit, and it succeeded in persuading the military authorities to grant two successive enhancements of the rates, once in July, 1946, and again in May, 1947.
As a result of this, it received an amount totalling Rs. 1,42,989 in addition to what had already been received upon the rates specified in the contracts One of the sub-lessees, namely Messrs. Zahur Ahmad Mohd. Yusuf, claimed that it was entitled to the amount so received in respect of the supply of goods made at Dehra Dun As the assessee seemed to be reluctant in acknowledging the claim, Messrs. Zahur Ahmad Mohd. Yusuf instituted a suit before the Civil Judge, Dehra Dun, and succeeded in obtaining a decree for Rs. 66,006 against the assessee. Out of the amount of Rs. 1,42,089 the assessee paid out the sum no decreed, and after deducting litigation expenses in the sum of Rs. 14,980 found itself with a balance of Rs. 62,009.
The Income-tax Officer initialed proceedings against the assessee under Section 34 of the Income-tax Act, 1922, and under Section 15 of the Excess Profits Tax Act, 1940. for the purpose of bringing to tax the amount received by the assessee, and in the assessments so made the sum of Rs. 62,009 was treated as profits taxable in the hands of the assessee for the assessment year 1944-45 in the income-tax assessment and as the profits of the chargeable accounting period ending March 31, 1944 in the excess profits tax assessment. Upon appeal by the assessee against the two assessments, the Appellate Assistant Commissioner held in the income-tax appeal that the conditions necessary for acquiring jurisdiction when initiating proceedings under Section 34(1)(a) were not satisfied and, therefore, the income-tax assessment was a nullity, and in the excess profits tax appeal he found that the profits had not accrued during the chargeable accounting period ending March 31, 1944, as the assessee did not enjoy any right during that period to receive the two payments in question, and holding that these amounts could not be considered in that chargeable accounting period, he set aside the assessment.
The Excess Profits Tax Officer appealed against the order of the Appellate Assistant Commissioner in the excess profits tax case. The Income-tax Appellate Tribunal allowed the appeal, holding that the amounts received by the assessee arose directly out of the performance of the contract during the chargeable accounting period ending March 81, 1944, and was, therefore, a trading receipt, and further that as the entire contract was executed during that chargeable accounting period and the payments received arose directly out of that contract, they fell to be taxed as the profits of that chargeable accounting period. The assessee then obtained a reference of the following question for the opinion of this Court:
"Whether the sum of Rs. 62,009 received by the assessee in 1946 could be assessed to excess profits tax for the chargeable accounting period ending on 31-3-1944?"
(3.)THE statement of the case refers to the sum of Rs. 62,009 as resulting from the enhancement of the rates, once in July, 1946, and then in May, 1947. It is not clear why the question refers to the year 1946 alone.
Two contentions have been raised before us on behalf of the assessee. One is that the sum of Rs. 62,009 could not be assessed as profits relating to the chargeable accounting period ending March 31, 1944, and the other is that the sum was not assessable in the hands of the assessee at all because it was entitled merely to a commission of Rs. 600 per mensem. As regards the latter contention, we cannot allow the assessee to raise it because this question was not raised before the Appellate Tribunal nor, even though not raised, has it been decided by it. It does not also, we think, arise out of the question referred by the Appellate Tribunal. Consequently, we shall confine ourselves to the consideration of the first contention only.