V. Bhargava, J. - (1.) IN this reference under Section 21 of the Excess Profits Tax Act, 1940, read with Section 66(2) of the INdian INcome Tax Act, 1922, the following two questions have been referred for the opinion of this Court : "Q. 1. Whether, on the facts and in the circumstances of the case, there was evidence to hold that the amount of Rs. 2,51,425/- represented trade debt from J. K. Kothi and as such would be excluded in the computation of the average capital of the assesses for the relevant chargeable accounting period? Q. 2. Whether the observation of the Tribunal contained in its remand order dated 20-3-1947, as also the observations in the other preceding orders were merely in the nature of obiter dicta and did not amount to giving any findings of fact relevant for the decision of the appeal or were binding on the Tribunal when it finally decided the matter on. 29-7-47?" The Tribunal submitted these questions for opinion of this Court with a statement of case drawn up by the Tribunal on 8-5-1952. The reference came up for hearing before a Bench of this Court and that Bench on 18-11-1954, summarised the findings of fact which were ascertained from the statement of the case and the appellate order of the Tribunal. The findings of fact, that were summarised, were 16 in number. The order of the Court mentions that, out of those 16 findings of fact, there was a dispute about the correctness of four findings of fact which were numbered in the summary of facts in the order of this Court as 5, 6, 7 and 11. Consequently, the case was sent back to the Tribunal to check the accuracy of the facts as they were set out in that order of the Court and to give clear findings on matters which were in dispute. The Tribunal was given the liberty to take fur ther evidence if it found it necessary to do so. When the case went back before the Tribunal, it appears that no further evidence was given by either party. The Tribunal, therefore, proceeded to record its find ings on the four disputed facts referred to above. The Tribunal, by the order of this Court, was further directed to prepare a summary of the accounts kept in the books of Messrs J. K. Kothi, of the assessee and of the Company relating to the cloth supplied, the payments made by Messrs J. K. Kothi and the deposits made by the assessee during the relevant chargeable accounting period from 10-7-1942 to 8-7- 1943." There was also a direction to the Tribunal to prepare a detailed report of the amounts of interest paid by Messrs J. K. Kothi to the assessee and by the assessee to Messrs ]. K. Kothi including the dates! of payment. IN response to this direction of the Court, the Tribunal has sent to this Court, in addition to findings on those four disputed items, a summary of certain accounts and a report on the relevant facts and circumstances. As a result, the facts, on the basis of which the reference has now to be decided, stand as follows: 1. That J. K. Cotton Spinning and Weaving Mills Limited thereinafter called the 'company') is a company which manufactures cloth : 2. That J. K. Kothi were the sole selling agents of cloth manufactured by the company upto 1-4-1939, upon which date Messrs Hari Shankar Gopal Hari were appointed the sole selling agents; 3. That on 8-4-1939, an agreement was entered into between Messrs Hari Shankar Gopal Hari and Messrs J. K. Kothi which provided inter alia (a) that Messrs J. K. Kothi would collect all the outstanding bills of Messrs Hari Shankar Gopal Hari and guaranteed fulfilment of all the obligations of that firm, and (b) that Messrs J. K. Kothi would receive from Messrs Hari Shankar Gopal Hari by way of remuneration a sum of Rs. 2,000/- fan amount which was later raised to Rs. 3,000/-), 4. That the assessee. Messrs Laxmi and Co., were the sole dealers in cloth manufactured by the company. 5. That there was no agreement between Messrs J. K. Kothi and the assessee about the beginning of April, 1939, or at any later time as contended. Messrs J. K. Kothi made supplies of cloth to the assessee by virtue of an arrangement entered into with Messrs Hari Shankar Gopal Hari. The assessee paid for these cloth supplies to Messrs J. K. Kothi. The assessee used to pay cash from time to time as advance for future supplies of cloth as is customary between the supplier and purchaser of cloth. INterest at the rate of 6 3/4 per cent was paid on the credit balances of Messrs J. K. Kothi in the books of the assessee and at the rate of 3 per cent reduced later on to 1 1/2 per cent on the debit balances of Messrs J. K. Kothi in the books of the assessee by virtue of trade custom. 6. That the assessee did not take delivery of cloth directly from the Company but took delivery of the cloth from Messrs J. K. Kothi. 7. That detailed bills for cloth supplied to Messrs J. K. Kothi were made out in the name of Messrs. J. K. Kothi and that Messrs J. K. Kothi, made payment of these bills to the company. Messrs J. K. Kothi, in its turn, supplied goods to the assessee and made out a bill by way of entries in the Sarkhat Bahi. The assessee paid for these supplies in cash. 8. That interest at the agreed rate of 6 3/4 per cent was, in fact, paid by the assessee to Messrs J. K. Kothi in the difference between the price of cloth supplied and the amount deposited. 9. That all interest received by Messrs J. K. Kothi from the assessee was retained by it and not made over to Messrs Hari Shankar Gopal Hari. 10. That, during the accounting period (10-7-1942 to 8-7-1943), the amounts deposited by the assessee never exceeded the price of cloth supplied and, consequently, no payment of interest was made by Messrs J. K. Kothi during this period. 11. That the interest paid by Messrs, J. K. Kothi to the assessee was not debited to the account of Messrs Hari Shankar Gopal Hari. 12. That all commission received by Messrs J. K. Kothi from the Company for the cloth supplied to the assessee was credited in the books of Messrs J. K. Kothi as commission payable to Messrs Hari Shankar Gopal Hari and the remuneration of Messrs J. K. Kothi of Rs. 2,000/-, which was subsequently raised to Rs. 3000/-, was adjusted against that amount. 13. That though proper entries were made in the books of account of the assessee and of Messrs J. K. Kothi in respect of the price of cloth supplied and of the deposits made, there were no similar entries in the books of account of Messrs Hari Shankar Gopal Hari. 14. That the accounts between Messrs J. K. Kothi and the assessee started with a deposit of Rs. 101/- made by the assessee followed by another deposit of Rs. 2,000/-; and the first three deliveries of doth were of 18 bales on 10-7-1942, of 60 bales on 14-7-1942 and of 35 bales on 17-7-1942: and 15. That Rs. 2,51,425/- was the average difference for the whole year and Rs. 2,11,634 was the difference on the last day of the accounting period, i.e., 8-7-1943, between the value of the cloth received by the assessee and the amount of the deposits made by it. We may mention that, in this summary of facts given by us above, items 1 to 4 are the same as items 1 to 4 mentioned in the order of this Court dated 18-11-1954. IN place of items Nos. 5, 6 and 7 as they were entered in that order of this Court, we have substituted the findings now received from the Tribunal on these items which are contained in the order of the Tribunal dated 13-9-1955. Items Nos. 8, 9 and 10 are again the same as items of the same number in the order of this Court dated 18-11-1054, whereas items Nos. 11 to 15 are identical with items Nos. 12 to 16 in the order of this Court dated 18-11-1954. As regards the item which was Number 11 in the order of this Court dated 18-11-1954, the Tribunal had been directed to ascertain facts in respect of it but, in the order dated 13-9-1955, the Tribunal has recorded no finding of fact on this item. The reason given by the Tribunal for not recording any finding on this item is that the Tribunal considered it unnecessary to express any view on the point raised as the dealings in the chargeable accounting period 1945-46 will have no bearing on the determination of the true character of the dealings between the assessee and Messrs J. K. Kothi during the period. 10-7-1942 and 8-7-1943. This refusal by the Tribunal to record any finding in respect of this fact was brought to our notice by learned counsel for the assessee but learned counsel was unable to show that the view of the Tribunal that no finding on this point was necessary was incorrect. The chargeable accounting period 1945-46 was a subsequent period during which owing to control of cloth distribution, supplies were made by the Company directly to the dealers and the distributors of cloth got from the Company only a commission on the sales effected to the dealers. Dealings in this chargeable accounting period were, therefore, of a special nature and we think that the Tribunal made no mistake at all in coming to the opinion in these circumstances that the dealings during that chargeable accounting period would not be relevant to the determination of the nature of the dealings in the chargeable accounting period 1942-43 with which we are concerned in this reference. The reference has, therefore, to be answered on the basis of the 15 facts which have now been summarised by us above.
(2.) BEFORE we proceed to express our opinion on the questions which have been referred to us, we may take notice of the arguments of learned counsel for the assesses that the findings of fact recorded by the Tribunal on items Nos. 5, 6 and 7 are vitiated and should not, therefore, be accepted by us. All these three items deal with questions of fact and the Tribunal was the final authority to give findings on these questions of fact. Learned counsel's contention was that the findings on items Nos. 6 and 7 were vitiated by an error of law when the Tribunal recorded those findings relying on the statement of Sanwal Ram who had an interest in the assessee firm, being a partner in a firm which itself was a partner in the assessee firm. It was urged by learned counsel that, when recording a finding on items Nos. 6 and 7, the Tribunal based its view on the statement of Sanwal Ram whereas, when dealing with the evidence of Sanwal Ram at the time of discussing item No. 5, the Tribunal held that no reliance could be placed on Sanwal Ram's statement. Learned counsel's submission, therefore, is that the finding recorded on the basis of Sanwal Ram's statement which became irrelevant? On the ground of being unreliable, must not be accepted as correct by us. Having looked at the order of the Tribunal dated 13-9-1955, we are unable to see any force in this submission. It is true that, when finally recording the finding on item No. 6, the Tribunal said that the finding was being recorded on a consideration of facts and circumstances mentioned earlier in that order, Amongst facts and circumstances mentioned earlier was the statement of Sanwal Ram. Subsequently, however, the Tribunal proceeded to elaborate its consideration of the facts and circumstances on which the finding on item No. 6 was based. The Tribunal summarised these facts and circumstances which it had in fact taken into account in order to record its finding on item No. 6 and, in the summary of facts, there is no mention at all of Sanwal Ram's statement. Ira fact, in this summary, they have, in the last sentence, given the reason which led them to record that finding. That reason is given in the following words : "In fact, the entries in the 'Sarkhat Bahi' taken together with the entries in the books of the company lead to this inevitable inference." Thus the Tribunal came to the finding given by it on item No. 6 on the view that the entries in the Sarkhat Bahi taken together with the entries in the books of the Company could lead to that inference only and to no other inference. It could not be urged by learned counsel that the entries in the Sarkhat Bahi or the entries in the books of account of the Company were inadmissible evidence or were irrelevant for the purpose of giving the finding. As long as the finding was based on this relevant and material evidence, the earlier mention of Sanwal Ram's statement becomes immaterial, because the final conclusion is not based on that statement at all. The most favourable interpretation in favour of the assessee, in these circumstances, could be that the Tribunal, having arrived at the finding on the basis of the entrie in the Sarkhat Bahi and the entries in the books of the Company, sought to strengthen its conclusion by reference to the statement of Sanwal Ram also. Even if this was so, the finding would not be vitiated because the finding was recorded independently of Sanwal Ram's statement on the basis of other relevant evidence and facts, which the Tribunal held were sufficient to justify that finding. When recording the finding on item No. 7 or item No. 5, no reliance was placed on the statement of Sanwal Ram. In fact, when the finding on item No. 5 was recorded, Sanwal Ram's statement was specifically ignored on the ground that, in this case, there was the statement of Sanwal Ram as against the oral evidence tendered on behalf of the assessee and the nature of the two was such that it was not safe to rely on either Sanwal Ram's statement or on the oral evidence given on behalf of the assessee, This opinion expressed by the Tribunal related to a question of weight to be attached, to the evidence before it and thus it raises no question of law which could be gone into by this Court. The second point urged by learned counsel for the assessee to challenge findings on items Nos. 6 and 7 was that it had been found as a fact that Messrs J. K. Kothi derived no profit from their supplies of cloth to the assessee and this was a relevant consideration which has not been taken into account by the Tribunal. It appears to us that the question whether Messrs. J. K. Kothi derived any profit or not depending on the extent of sales to the assessee could not be relevant for purposes of arriving at a finding whether, in fact the actual supplies to the assessee were being made by Messrs J. K. Kothi or by some one else, such as the Company or Messrs Hari Shankar Gopal Hari. Messrs J. K. Kothi might have considered it fit to make supplies without having any interest in the actual profits because of their relations with Messrs Hari Shankar Gopal Hari or of their arrangement with them. It is not necessary that the benefit to the actual supplier must depend on the supplies made by him. Messrs J, K. Kothi were not doing the work gratis. They were receiving the payment of Rs. 2,000/- per mensem. Then there is the circumstance that, subsequently, this amount of Rs. 2,000/- per mensem was raised retrospectively to Rs. 3000/- per mensem. This may itself provide an explanation why Messrs J. K. Kothi worked as suppliers without any interest in the profits. They could anticipate that, if the profits were large, they would succeed in getting their remuneration raised retrospectively. While such possibilities exist, the fact that the benefit of Messrs J. K. Kothi, at the time when they made the supplies was not proportionate to the profits earned on the supplies! would not, in any way, show that the supplies were not being made by Messrs J. K. Kothi but were being made by some one else. The factor relied upon by by learned counsel would, therefore, appear to be one which had no bearing on the question which the Tribunal was called upon to decide. The third and the last point raised by learned counsel to challenge the finding on items Nos. 6 and 7 was that the Tribunal paid no consideration to the arrangement which had been arrived at between the Company, Messrs J. K. Kothi and Messrs Hari Shankar Gopal Hari with regard to the bills being made out in the name of Messrs J. K. Kothi. It was urged that the nature of the arrangement, under which the bills were made out in the name of Messrs J. K. Kothi, was a relevant consideration showing whether the supplies to the assesses were being made by Messrs J. K. Kothi or were made by Messrs Hari Shankar Gopal Hari. Again, it is to be noticed that that arrangement between the Company, Messrs J. K. Kothi and Messrs Hari Shankar Gopal Hari was equally consistent with the case on these items put forward by the other side The case on behalf of the Department was that, though there was such an arrangement, the actual suppliers were Messrs J. K. Kothi and not Messrs Hari Shankar Gopal Hari. Under the arrangement, no doubt, Messrs Hari Shankar Gopal Hari had become the sole selling agents, yet the supplies to the assessee, who was the sub-selling agent, were continued to be made by Messrs J. K. Kothi. It could be that the actual suppliers were Messrs J. K. Kothi and not Messrs Hari Shankar Gopal Hari and the effect of the arrangement was to constitute Messrs J. K. Kothi the suppliers and not merely agents of Messrs Hari Shanker Gopal Hari. On the other hand, the case of the assessee was that Messrs J. K. Kothi were not suppliers of cloth to the assesses at all. It is, however, significant that at no stage was any specific case put forward on behalf of the assessee as to who were the actual suppliers of cloth to the assessee. In this case, there were four remands by the Tribunal to the Excess Profits Tax Officer for recording findings on disputed questions and then, again, there was a remand by this Court to the Tribunal to take further evidence, if necessary, and record its findings on these facts. At none of these various stages did the assessee put forward the case that the actual supplies of cloth to the assessee were made either directly by the mills or by Messrs Hari Shankar Gopal Hari. The assessee only relied on the statement made on behalf of Messrs J. K. Kothi that they had not supplied any cloth. That statement the Tribunal found to be unreliable and of no evidentiary value. In these circumstances, the Tribunal found that the remaining evidence led to the inference that the supplies were made to the assessee by Messrs J. K. Kothi and we agree with the Tribunal that there was sufficient material to justify that view. This point also does not vitiate the finding of fact recorded by the Tribunal on these items.
(3.) ON item No. 5, the finding recorded by the Tribunal is challenged by learned counsel on two grounds : ONe ground is that the Tribunal committed an error in relying on a custom about payment of interest between the supplier of goods and the purchaser of goods on amounts standing to the credit or debit of each other in the books of account from time to time. In an income-tax proceeding, the provisions of the Indian Evidence Act do not apply. A well known mercantile custom can always be relied upon by the Income Tax Officer or the Tribunal. The custom, according to the Tribunal, was that, often enough, the supplier of goods gave goods to the purchaser on credit and charged interests on amounts outstanding against the purchaser. At the same time, the purchaser may make advance deposits against future supplies in which case he would receive interest on the amount standing to his credit with the supplier for being used for future supplies. ON behalf of the assessee emphasis was laid on the fact that, during the chargeable accounting period in question, the rate of interest payable to Messrs J. K. Kothi by the assessee on amounts standing to the credit of Messrs J. K. Kothi was higher whereas the rate of interest payable to the assessee fey Messrs J. K. Kothi in respect of amounts standing to the credit of the assessee was lower. Reference was made to the fact that at a time when Messrs J. K. Kothi were themselves the sole selling agents the rate of interest, which was payable between Messrs J. K. Kothi and the assessee on credits or debits in favour of or against each other was uniform; whereas, later on, when the firm, Messrs Hari Shankar Gopal Hari became the sole selling agents,, the rates of interest were varying as mentioned above. It was urged that the Tribunal was not entitled to rely on any custom with regard to the varying rate of interest payable between the supplier and the purchaser. Having gone through the order of the Tribunal, we find that the custom, which was relied upon by the Tribunal, was that mutual payment of interest between the supplier and the purchaser on sums standing in the accounts to their credit or debit was to be made with the qualification that the rate of interest on amounts in favour of the supplier and the rate of interest on amounts standing to the credit of the purchaser need not be uniform and would be determined by agreement between the parties. Though this is not to be found in so many words in the order of the Tribunal, this is clear from the fact that the Tribunal has accepted the correctness of the rates at various times which were put forward on behalf of the assessee. The Tribunal, no doubt, held that there was no evidence of any specific agreement between the assessee and Messrs J. K. Kothi which might have taken place after 1-4-1939, when Messrs J. K. Kothi ceased to be the sole selling agents of the Company but otherwise the Tribunal accepted fixation of the rates of interest by agreement between the assessee and Messrs J. K. Kothi. In doing so, we do not consider that the Tribunal committed any error of law which would vitiate the finding recorded by it. The last point urged by learned counsel was that the Tribunal did not examine the question of law whether the suppliers of cloth to the assessee were in law Messrs Hari Shankar Gopal Hari even though the actual supplies were being made to the assessee by Messrs J. K. Kothi. It appears to us that this question did not arise because, at no stage, did the assessee come forward with the case that supplies of cloth to the assessee by Messrs J. K. Kothi were made on behalf of Messrs Hari Shankar Gopal Hari. On behalf of the Department the case set up was that Messrs J. K. Kothi supplied goods to the assessee on their own behalf. On behalf of the assessee, there was partial contest on this question by raising the point that Messrs J. K. Kothi were not suppliers at all but there was no contention or suggestion that the suppliers were Messrs Hari Shankar Gopal Hari. Further, there was no evidence on this point. Whatever arrangement had been arrived at between Messrs Hari Shankar Gopal Hari, Messrs J. K. Kothi and the Company it related to financial arrangements including making out the bills but there was no mention at all as to who was to be the actual supplier of the goods to the assessee, to the sub-selling agent or to any other person to whom the goods were supplied through the selling agent. While no specific case was put forward, the Tribunal took notice of the fact that the assessee had failed to show any correspondence which would show that supplies to it were being made by Messrs Hari Shankar Gopal Hari or the mills whereas the documentary evidence inevitably led to the inference that the supplies were being made by Messrs J. K. Kothi. It was in these circumstances that the Tribunal proceeded to record its finding on item No. 5 as mentioned above. We do not, therefore, think that any finding of fact recorded by the Tribunal is vitiated by any error of law. ;