COMMISSIONER OF INCOME TAX MADRAS Vs. MEENAKSHI MILLS LTD

JUDGEMENT

(1.) THE following Judgment of the court was delivered by :

(2.) THESE appeals are brought, by special leave, from the judgment of the High court of Madras dated 8/01/1963 in Tax Case No. 108 of 1960.

(3.) IN the course of its judgment, the appellate tribunal observed as follows: `Even so, it seems to us, we cannot escape the fact that Thyagaraja Chettiar, his two sons and the three Mills had a preponderant, if not the whole, voice in the creation, running and management of the Bank. We cannot also forget that Pudukottai is neither a cotton producing area nor has a market for cotton; except that it was a non-taxable territory, there was nothing else to recommend the carrying on of the business in cotton spinning or weaving there. There is yet another aspect to which our attention was drawn by the learned counsel for the assessee. That being, a non-taxable area, there were many very rich men there with an influx of funds to invest in banks and industries. By the same token, it appears to us it was not necessary for the Madurai Bank which was after all a creation of certain people which started with a small capital of Rs. 32,800.00 to have gone to Pudukottai for opening a branch. If there was an influx of money in Pudukottai because of the finances, nobody would have agreed to borrow money from it. At any rate, it is clear it would have had no field for investment in Pudukottai the only source of investment being outside Pudukottai.` The appellate tribunal further stated: `But having regard to the special position of Thyagaraja Chettiar and the balance sheets of the bank referred to above and the lack of investments in Pudukottai itself of' the moneys borrowed there, it seems more reasonable to conclude that the bank itself was started at Madurai and a branch of it was opened at Pudukottai only with a view to help the financial operations of Thyagaraja Chettiar and the mills in which he was vitally interested.` At the instance of the assessee-companies the appellate tribunal referred the following question of law for the determination of the High court: `Whether on the facts and in the circumstances of the case, the taxing of the entire interest earned on the fixed deposits made out of the profits earned in Pudukottai by the assessee's branches in the Pudukottai branch of the Bank of Madurai is correct?` The High court answered the question in favour of the assessee-companies holding that it was not established that there was any arrangement between the assessee-companies and the Bank whether at Pudukottai or at Madurai for transference of moneys from Pudukottai branch to Madurai and the facts on record did not establish that there was any transfer of funds between Pudukottai and Madurai for the purpose of advancing moneys to the assessee-companies. The High court further took the view that the transactions represented ordinary banking transactions and there was nothing to show that the amounts placed in fixed deposits in the branch were intended to, and were in fact transferred to head office for the purpose of lending them out to the depositor himself.