COMMISSIONER OF INCOME TAX Vs. CHAMBER OF COLOURS AND CHEMICALS LIMITED

JUDGEMENT

(1.) At the instance of the Commissioner of Income-tax, the Income-tax Appellate Tribunal Delhi Bench A has referred to this Court the following questions of law :-

(2.) According to the stated case, the 'assessee company which is a limited liability company had been running an exchange at Delhi for forward dealings in oil and oil seeds, At the relevant time it was dealing only in groundnut oil and mustard seeds. There was another Exchange known as Om Exchange Limited which was also doing similar business. Under the Forward Markets (Regulations) Act, 1952, the Forward Markets Commission had declared a policy that they would recognise only one Exchange for doing forward business in a particular commodity at any place. In order to get recognition and permission to carry on business in these commodities the assessee submitted two applications to the Forward Market Commission. On October 18, 1955 the assessee entered into an agreement with Om Exchange Limited. By virtue of this agreement the assessee agreed to transfer to Om Exchange Limited the possession of the premises in which the offices and the ring in which its trading members and brokers used to assemble and conduct their business including, furniture and fixtures. The agreement showed that the transfer of possession was for a consideration of Rs. 25,000.00. The agreement further provided that the Board of Directors of Om Exchange Limited shall be enlarged by representation being allowed to at least six members of the assessee company who shall be nominated by it. The trading members and brokers of the assessee company whose names were to be approved by its then Chairman were also to be taken over as such by Om Exchange Limited. Fifty per cent of the staff of the assessee company was also agreed to be taken over by Om Exchange Limited. In consideration of the settleent arrived at between two the companies the assessee company not only withdrew its two applications to the Forward Markets Commission for recognition in ground-nut oil and mustard seeds, but it also agreed to close down its. business in oil and oil seeds with effect from 31st October, 1955 and all outstanding contracts in its books of account were agreed to be transfered free of commission charges to Om Exchange Limited on the existing terms and conditions. In connection with the assessee company's assessment to Income-tax for the year 1956-57 (the accounting year being 1955-56) the Income-tax Officer computed the written down value of furniture and fixtures at Rs. 10,483.00 while the difference between that amount and the sum of Rs. 25,000.00 which had been received from Om Exchange Limited i.e. Rs. 14,517.00 was treated as revenue receipt by the assessee. The order made by the Income-tax Officer was confirmed in appeal by the Appellate Assistant Commissioner of Income-tax, but on second appeal to the Income-tax Appellate Tribunal it was held that the amount received was a capital receipt.

(3.) The assessee had also made a claim for a sum of Rs. 19,000.00 as a business loss on the ground that the amount had been embezzled by its then Manager Mani Ram. The latter was prosecuted before a magistrate and was found guilty of defalcation in respect of the said amount. It was brought out in evidence that Mani Ram used to handle the cash and keep accounts of the assessee company. There was a safe in the office for keeping the cash and its key used to remain with Mani Ram. His duty as Manager-cum-Cashier was one of general supervision over the cash and bank account of the assessee. He used to receive and pay cash, disburse salary to the members of the staff, pay brokerage, margin money and profits on settlement of transactions to the trading members as well as brokers. He was authorised to receive amounts deposited towards margin money, brokerage and loss etc. from trading members and brokers and was as such handling considerable amount of cash in the course of carrying on the business of the assessee company.