M/S. Basti Sugar Nulls Co. Ltd. &
Ors Vs. Commissioner of Income-Tax, Delhi & Rajasthan  INSC 265 (24
Income-tax Act, 1922, s. 66-Reference to High
Court- Tribunal's findings of fact whether arrived at without consideration of
materials on record-Tribunal need not refer In its order to insignificant
The three appellant companies were controlled
by G. Another company which was the selling agent of the three appellant
companies was also controlled by G. The question in income- tax proceedings was
whether the commission paid to the selling agent was a deductible item. In the
original assessments for 1947-48 in the cases of the three appellants the
Income-tax Officer allowed the deduction but later he issued notices under s.
34 of the Income-tax Act, 1922 on the footing that in the circumstances of the
case the commission was not allowable since the selling agent rendered no
service whatsoever so as to earn any commission.
In making the assessment under s. 34 it was so
held by him.
In the appeals filed by the Appellant
companies, the Appellate Assistant Commissioner gave some relief by allowing
deduction in respect of sums paid directly as commission to some sub-agents,
but on the main question relating to the amounts paid to the selling agent he
agreed with the Income-tax Officer. The contention that action could not be
taken under s. 34(1) (c) was also rejected.
The Appellate Tribunal took the same view.
The appellants then asked the Tribunal to refer four questions to the High
Court under s. 66(1) of the Act. The Tribunal rejected the applications. The
High Court under s. 66(2) directs the Tribunal to refer the fourth question
relating to the applicability of s. 34 but held the other three questions to be
question of fact. In appeal before this Court against the order of the High
Court it was contended that the Tribunal had erred in not taking into account
the evidence of two witnesses produced by the appellants, as also two receipts
showing payments made to some sub-agents by the selling agent. The High Court's
view that it is not every piece of evidence available on record that must be
dealt with by the Tribunal was questioned.
HELD : The criticism that the evidence of the
two witnesses produced by the appellants was not considered as such by the
Tribunal was only technically correct. The Tribunal had not referred to witness
R by name but had referred to the relationship between the selling agent and
the firm of which R was a proprietor, as well as to the effect of a telegram
which was claimed to show privities of contract between the selling agent and
R's firm. Therefore it could not be said that the Tribunal had not considered
R's evidence. As to the other witness S, his evidence had only to be read to be
rejected; the Tribunal had moreover given reasons for not acting on his
evidence. The two receipts relied on by the appellants lost all significance
after the rejection of the evidence of the two aforesaid witnesses. Obviously
in view of the other evidence against the appellants the Tribunal did not think
it worthwhile to refer to the two receipts.
[893 H; 894 E; 895 C] It must accordingly be
held that the finding of Tribunal was based on material on the record and that
the finding was such which could an the 888 evidence be reasonably reached. The
High Court was hence justified in holding that the first three questions were
questions of fact and in declining to give a direction to the Tribunal to refer
those questions. [895 G] Udhavdas Kewalram v. C.I.T., Bombay City,-  66
462, referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeals
Nos. 1364 to 1373 of 1967.
Appeals by special, leave from the judgment
and order dated March 14, 1967 of the Delhi High Court in Income-tax Cases Nos.
25-D of 1965 etc.
V. S. Desai A. K. Verma and B. D. Shingari,
for the appel- lants (in all the appeals).
R.H. Dhebar, B. B. Ahuja and R. N. Sachthey,
for the res- pondent (in all the appeals).
The Judgment of the Court was delivered by
Vaidialingam, J. These ten appeals, by special leave, are directed against the
common _judgment and order dated March 14, 1967 of the Delhi High Court
declining to direct the Income-tax Appellate Tribunal, Delhi Bench, to refer
along with the statement of case, questions Nos. 1 to 3 enumerated in their
The reference was asked for by the three
different Companies by whom the above appeals are filed in respect of
Income-tax Case No. 26-D of 1965 connected with I.T.C. Nos. 21-D to 29- D of
1965 arising from a common order of the Income-tax Appellate Tribunal, Delhi
Bench. As the facts in the case and questions of law sought to be referred were
common, the following tabular statement will give an idea of the appeals filed
by the three Companies, who are the appellants together with the particulars
regarding the years of assessment and Income-tax case numbers
-------------------------------------------------------------- C..A. No. I.T.C.
No. Assessment Name of Company year
28-D/65 1952-53 Basti Sugar Mills 1365/67 27-D/65 1950-51 1366/67 23-D/65
1948-49 1367/67 21-D/65 1951-52 1368/67 20-D/65 1950-51 Nawabganj Sugar Mills
1369/67 25-D/65 1948-49 1370/67 26-D/65 1951-52 1371/67 24-D/65 1949-50 1372/67
29-D/65 1952-53 Punjab Sugar Mill 1373/67 22-D/65 1955-56
---------------------------------------------------------- 889 The Basti Sugar
Mills Company Limited, which is the appellant in Civil Appeals Nos. 1364 to
1367 owned two sugar factories at Basti and Waltharganj. It is their case that
for the purpose of selling their output of sugar they appointed Selling agents
at a commission of -0-12-0% of all sales of sugar effected through the agents.
Their Selling agent prior to 1944 was M/s Gursarandas Kapur & Sons at
Kanpur. On July 26, 1944 by a resolution of the Board of Directors, the Company
appointed M/s Gokul Nagar Sugar Mills Co. Ltd. as the Selling agents at
-0-12-0% commission. In the course of the original assessment for the years
1947-48, which was completed on March 10, 1950, the Income-tax Officer called
upon the said Company to furnish details of the items of work done by M/s Gokul
Nagar Sugar Mills Co.' Ltd. as Selling agents. The Company informed the
Income-tax Officer that the said Selling agents have been doing the work that
they were expected to, do and they in turn had appointed sub-agents on
commission basis for effecting sales at various places. The Income-tax Officer
accepted this explanation and allowed, by order dated June 21, 1949 a deduction
for Rs. 47,921/- paid as commission to the selling agents. But when the
assessment proceedings for the assessment year 1952-53 in respect of Nawabganj
Sugar Mills Co. Ltd. was being dealt with, the Income-tax Officer took the view
that the selling commission should not be allowed and accordingly issued a
notice dated March 29, 1954, under S. 34(1) (a) of the Income-tax Act, 1922
(hereinafter- to be referred as the Act). The Company filed a return under
Regarding Nawabganj Sugar Mills Company Ltd.,
which is appellant in- Civil Appeals Nos. 1368-1371 of 1967 the facts are also
more or less identical except that for the assessment year 1948-49, the
Income-tax Officer by his order dated February 28, 1951 allowed a deduction of
Rs. 60,980/- as the amount paid as ,commission to the selling agents M/s Gokul
Nagar Sugar Mills Co. Ltd. For the assessment year 1949-50 also the commission
paid to the said selling agent was allowed as deduction. But for the assessment
year 1952- 53 the Income-tax Officer issued a notice dated January 19, 1957
requiring the said Company to explain why the amount of commission claimed to
have been paid by them to the selling agents should not be disallowed.
The facts relating to M/s Punjab Sugar-Mills
Company Ltd., which is the appellant in Civil Appeals Nos. 1372 and 1373 of
1967 are also identical except that in the course of assessment for the
assessment year 1947-48, the commission of Rs. 37,978/paid to the same selling
agent namely, Gokul Nagar Sugar Mills Company Ltd. was allowed as per order
dated February 27, 1950. But when dealing with the case of Nawabganj Sugar
Mills Co. Ltd. for the assessment year 1952-53, the Income-tax Officer took the
view that the selling agency commission claimed to be paid to the selling
agents should not be allowed. Hence he issued a notice to the Company under s.
34(1) (a) of the Act and the company filed a return under protest.
It may be stated that the managing agent of
all the three appellant companies are M/s Narang Brothers Ltd. and their
Chairman was. Dr. Gokulchand Narang. The selling agent of the three appellants
is also the commission agent, namely, M/s Gokul Nagar Sugar Mills Co. Ltd.
The controversy before the Income-tax
authorities related to the claim made by all the appellants for deducting, an expenditure
of the business of the companies, the selling agency commission paid to M/s
Gokul Nagar Sugar Mills Company Ltd. In respect of some years the jurisdiction
of the Income-tax Officer to Lake action under s. 34 of the Act was also
In respect of the assessment year 1952-53
relating to Nawab- ganj Sugar Mills Co. Ltd., the evidence, both oral and
documentary, was let in by the assessee that M/s Gokul Nagar Sugar Mills Co.
Ltd. were the selling agents and that the commission paid to them as selling
agents should be deducted as business expenditure. 'The evidence so let in was
treated as common in respect of the claims made by all the three appellants.
The Income-tax Officer held that all the
three companies were controlled and supervised by Dr. Gokulchand Narang. He
further held that M/s Gokul Nagar Sugar Mills Co. Ltd., the selling agent, was
also controlled and supervised by Dr. Gokulchand Narang. Though M/s Gokul Nagar
Sugar Mills Co. Ltd. was appointed as selling agent by a resolution dated July
26, 1944, the, latter rendered no service whatsoever so as to earn any
commission. In this connection the Income- tax Officer referred to various
items of evidence that were placed before him by the parties. Ultimately, he
found that the amount claimed to have been paid as selling agent commission
cannot be deducted as an item of business expenditure.
In all the appeals filed by the/three
Companies, the Appellate Assistant Commissioner gave some relief by allowing
deduction in respect of sums paid directly as commission to some subagents. But
on the main question relating to the amount paid to M/s Gokul Nazar Sugar Mills
Co. Ltd., the Appellate Assistant ,Commissioner also agreed with the Income-tax
Officer. The contention that action could not be taken under s. 34 (1 ) (c) was
891 The Income-tax Appellate Tribunal, Delhi
Bench, by its common order dated December 31, 1962 after a consideration of the
materials on record and the reasons given by the Income-tax Officer and the
Appellate Assistant Commissioner, rejected the claim made by the appellants in
respect of the commission said to have been paid to the selling agent M/s Gokul
Nagar Sugar Miffs Co. Ltd. The view of the Appellate Tribunal is that no
evidence has been placed by the appellants to show that M/s Gokul Nagar Sugar
Mills Co. Ltd.
had really acted as selling agent and that on
the other hand the appellants themselves have been directly dealing with
several sub-agents. In fact, the finding of the Appellate Tribunal was that there
was no privity of contract between the appellants and M/s Gokul Nagar Sugar
Mills Co. Ltd. On this reasoning the Appellate Tribunal also agreed with the
findings recorded by the two officers that no claim for deduction in respect of
selling agent commission can be allowed. The Appellate Tribunal also held that
the action taken under s. 34 was justified. The result was that all the appeals
filed by the three Companies were dismissed.
The assessee companies filed applications
before the Appellate Tribunal under s. 66(1) to state a case and refer the
following four questions to the High Court.
"1. Whether in the facts and
circumstances of the case, the Tribunal was justified in holding that no
services Were rendered by M/s Gokul Nagar Sugar Mills Co. Ltd. to M/s Nawabganj
Sugar Mills Co. Ltd.
2. Whether in holding as they have done, the
Tribunal was justified in giving its decision without taking into account the
statement of Shri Ram Sahai Dhir and the receipts showing the commission paid
to M/s Gursarandas Kapur and some sub-agents of the recipient company.
3. Whether in view of the facts and in the
circumstances of the case the Tribunal has rightly concluded that Dr. Sir G. C.
Narang signed letters acting as the Chairman of the Nawabganj Sugar Mills Co.
Ltd. when he had no capacity to deal with the sub-agents in that capacity.
4. Whether on the facts and in the
circumstances of the case, the Tribunal was legally justified in holding that
the provisions of S. 34(1) (a) were rightly invoked." By its order dated
February 19, 1965 the Appellate Tribunal rejected the said applications on the
ground that no question of law arose from the-order of the Tribunal and that
the decision of the Tribunal was exclusively on facts.
8 9 2 The appellants filed applications before
the Delhi High Court under s. 66(2) of the Act, to direct the Income-,tax
Appellate Tribunal to refer the four questions, enumerated above. The High
Court, by its order dated March 14, 1967, directed the Income-tax Appellate
Tribunal to state a case and refer question No. 4 alone, but rejected the
applications of the appellants in so far as they related to questions Nos. 1 to
3. The view to the High Court is ,,that the points covered by the questions
Nos. 1 to 3 are all on facts and that in the face of the findings recorded by
the Appellate Tribunal, no question of law arose for consideration.
Mr. V. S. Desai, learned counsel for the
appellants, urged that the Income-tax Appellate Tribunal, which is the final
authority on facts, has not taken into account the material evidence adduced by
the parties. He ,further urged that the appellants had adduced the evidence of
certain witnesses to establish that M/s Gokul Nagar Sugar Mills Co. Ltd. were
the selling agent and the persons who gave evidence had been appointed as
sub-agents by them and that commissions were also paid to them by the selling
agent. Particularly, the counsel pointed out that the evidence of Ram Sahai
Dhir and Shiv Nand Verma has not at all been adverted to by the Appellate
Tribunal. The council also urged that certain receipts produced Nos. 948 dated
April 24, 1946 and 298 dated February 13, 1947 showing the payments made by M/s
Gokul Nagar Sugar Mills Co. Ltd. as commission to their sub- agents have not
been even referred to by the Appellate Tribunal. The counsel further pointed
out that even the High Court has held that the Income-tax Appellate Tribunal
has made-no reference to 'the evidence of the two witnesses, nor has it
adverted to the receipts claimed to have been given by the sub-agents. The High
Court's view in this regard that it is not every piece of evidence available on
record that must be dealt with by the Appellate Tribunal, is strenuously
criticised by Mr. V. S. Desai. The counsel relied on the decision of this Court
in Udhavdas Kewalram v.
Commissioner of Income-tax, Bombay City(1)
where it has been held that the Tribunal has to act judicially and consider all
the evidence in favour and against the assessee and that an order recorded on a
review of only a part of the evidence and ignoring the remaining evidence,
cannot be regarded as conclusively determining the questions of fact raised
before the Tribunal. Mr. Desai, hence urged that the High Court was not
justified in declining to direct the Appellate Tribunal to refer questions Nos.
1 to 3.
Mr. R. H. Dhebar, learned counsel for the
Department has re- ferred us to the findings recorded by the Income-tax
Officer, the Appellate Assistant Commissioner as well as the elaborate
discussion contained in the order of the Appellate Tribunal, and (1)  66
893 pointed out that all relevant material on
record has been taken into account by all the authorities, including the
Appellate Tribunal and that the appellants can have no grievance in that
regard. All material facts have been considered and findings have been recorded
on facts against the appellants that M/s Gokul Nagar Sugar Mills Co. Ltd.
rendered no service whatsoever as selling
agent and that the materials on record conclusively establish that the
appellants themselves were dealing with their sub-agents direct. The learned
counsel further pointed out that the Income-tax Officer summoned Dr. Gokul
Chand Narang under s.
37 of the Act to produce the correspondence
with the sub- agents as well ,as the sugar mills. Only 13 letters spread over a
period of three years written by Dr. Gokul Chand Narang in his personal
capacity and in the letter heads of M/s Gokulchand Ram Sahai were produced.
None of the replies to those letters from the sub-agents were produced. The
counsel finally urged that the order of the High Court declining to direct the
Appellate Tribunal to refer questions Nos. 1 to 3 is correct.
We are of the opinion that there is no
substance in these appeals. We have gone through the orders of the Income-tax
Officer, the Appellate Assistant Commissioner, as well as the Income-tax
Appellate Tribunal. No doubt, there is a resolution produced by the appellants
dated July 26, 1944 in and by which the sugar selling agency of Nawabganj Sugar
Mills Co. Ltd. is given to M/s Gokul Nagar Sugar Mills Co.
Ltd. on -0-12-0% There is no other evidence
to show the nature of the arrangement or as to how exactly this resolution is
To be carried out.
A reading. of questions Nos. 1 to 3 clearly
shows that the points raised therein are purely questions of fact. But as the
contention of Mr. V. S. Desai is that certain material facts have not been
considered at all by the Tribunal and hence the findings arrived at by it
cannot be conclusive, in view of this infirmity, we will refer to the evidence
on record not with a view to decide whether the Tribunal has properly
appreciated the evidence but to see whether there was evidence to support the
findings recorded by the Tribunal and whether that finding could on that
evidence be reasonably reached.
We have already referred to the resolution
dated July 26, 1944. The first criticism of Mr. V. S. Desai is that the
evidence of sub-agents appointed by the selling agent has not been considered
by the Appellate Tribunal. The two witnesses in this regard are Ram Sahai Dhir
and Shiv Nand Verma. The contention of Mr. V. S. Desai that the evidence of Ram
Sahai Dhir has not been considered, as such, by the Appellate Tribunal, is only
technically correct because it is seen from the order of the Appellate Tribunal
that it has referred to the relationship between 894 the appellants and a
company known as M/s Ramdev and Corn- pany. Ram Sahai Dhir in his evidence has
clearly stated that he is the sole proprietor of M/s Ramdev and Company.
He has further stated that after he got the
subagency from M/s Gokul Nagar Sugar Mills Co. Ltd. he along with his brother
and son formed a partnership for this purpose. in the name of M/s Ramdev and
Company. The Appellate Tribunal in paragraph of its order has considered a telegram
sent on September 1, 1948 to M/s Ramdev and Company by the Chairman of
Nawabganj Sugar Mills Co. Ltd. That telegram states that the agency of M/s
Gursardndas Kapur and Sons has been terminated and M/s Ramdev and Company is
asked to sell and freely secure challans. Ram Sahai Dhir in his evidence has
stated that M/s Gursarandas Kapur and Sons were the selling agent of the
appellants originally and that he started his own sugar business in or about
1947. Therefore, the telegram, as held by the Appellate Tribunal, clearly shows
that the appellants were having direct dealings with Ramdev and Company and
that M/s Gokul Nagar Sugar Mills Co. Ltd. is nowhere in the picture. This
telegram also shows that this privity of contract between the appellants and
Ramdev and Company will not be there if Ramdev and Company were the sub-agents
appointed by M/s Gokul Nagar Sugar Mills Company Ltd. Therefore, it is clear
that the relationship between the appellants and M/s Ramdev and Sons of which
Sri Ram Sahai Dhir is the sole proprietor has, been considered by the Appellate
Regarding Shiv Nand Verma, his evidence has
only to be read to be rejected. Even according to the appellants M/s Gokul
Nagar Sugar Mills Company Ltd. was appointed as Selling Agent only by the resolution
dated July 26 1944. Apart from the very contradictory answers given by this
witness, he has categorically stated in answer to a specific question put by
the appellants that lie, was appointed even in 1942 as sub- agent by M/s Gokul
Nagar Sugar Mills Company Ltd. on a commission of -0-4-0%. This evidence is
absolutely false and of no use to support the case of the appellants because in
1942 M/s Gokul Nagar Sugar Mills Company Ltd. was not in the picture. The
evidence of this witness does not establish that M/s Gokul Nagar Sugar Mills
Company Ltd. had appointed him as their sub-agents and were paying him
commission, in their capacity as the selling agent of the appellants. The
Appellate Tribunal has referred to the evidence of Shiv Nand Verma given before
the Income-tax Officer and it has also noted the reasons for not acting on that
evidence. Therefore, it is not as if that the Appellate Tribunal was not
conscious of this evidence, on record which is absolutely valueless so far' as
the appellants are concerned.
Regarding the receipts Nos. 948 dated
24-4-1946 and 298 dated February 13, 1947, it is no doubt true that they have
not 89 5 been specifically adverted to by the Appellate Tribunal.
But it is rather surprising that the
appellants should be able to produce only these two receipts when they claim
that M/s Gokul Nagar Sugar Mills Company Ltd. has been acting as their selling
agent from 1944. Further the persons who are mentioned there as sub-agents have
not at all given evidence before the Income-tax authorities. Those receipts
lose all significance especially when the evidence of Ram Sahai Dhir and Shiv
Nand Verma who claim to have been appointed as sub- agents by the selling agent
has been rejected by the Appellate Tribunal. Obviously, in view of the other
evidence against the appellants, the Appellate Tribunal did not think it
worthwhile to specifically refer to these two receipts on record. But the
non-reference to these two receipts cannot be. said to have in any manner
vitiated the conclusion arrived at by the Appellate Tribunal. As we have stated
earlier, we have only referred to these items of evidence on record to show
that the finding of the Appellate Tribunal are based on the material on record
and that the finding is such which could on that evidence be reasonably
The statement in the order of the High Court
that the Appellate Tribunal has not referred to the evidence of Ram Sahai Dhir
as such is prima facie correct. But the High Court missed the crucial fact that
his evidence is really as proprietor of M/s Ramdev and Company and the
relationship between this company and the appellants has been considered by the
As laid down by this Court in, Udhavdas
Kewalram v. Com- missioner of Income-tax, Bombay City-1(1) the Income-tax
Appellate Tribunal has to act _judicially in the sense that it has to consider
with due care all material facts and the evidence in favour of and against the
assessee and record its finding on all the contentions raised by the assessee
and the Commissioner in the light of the evidence and the relevant law. From
the discussion contained above it is clear that it cannot be said that the
Appellate Tribunal in the case before us has omitted to consider any material
fact or any material piece of evidence.
To conclude we are in agreement with the
findings of the High Court that no point of law arises out of questions Nos. 1
to 3 and the High Court was _justified in declining to give direction to the
Appellate Tribunal to state a case and refer those questions.
In the result the judgment and order of the
High Court dated March 14, 1967 are confirmed and the appeals are dismissed
with one set of costs to the respondent.
G.C. Appeals dismissed.
(1)  66 I.T, R. 462.