JUDGMENT V. BHARGAVA C.J. - The following four question have been referred by the Income-tax Appellate Tribunal for our opinion in compliance with the order of this account made under section 66(2) of the Income-tax Act :
"Whether there is any material to justify the inference that the income from managing agency commission and allowance from Mewar Textile Mills Ltd., Bhilwara, was the income of the Hindu undivided family and not that of Seth Sobhagmal Lodh ?
2. Whether, on the facts and in the circumstances of the case, a previous year different from the Diwali year could be adopted in respect of the income from the managing agency commission and allowance subject to tax on (a) accrual basis and (b) receipt basis ?
3. Whether the amount said to have been received in British India in the previous year could be treated as income accruing or arising without British India in the same year and whether under section 4(1)(b)(iii) such amounts could be treated as assessable income for the assessment yea ? and
4. Whether the sum of Rs. 2,19,150 was rightly treated as having been received by the assessee in British India within the meaning of sections 4(1) and 14(2)(c) of the Income tax Ac ?"
The case relates to the assessment year 1945-46, for which the accounting period was the Diwali year, from 22nd October, 1943, to 16th October, 1944. A reference was also made by the Income-tax Appellate Tribunal in respect of the earlier assessment year 1944-45 in respect of the same assessee, and in that reference also four questions were referred for our opinion. The first three questions in the present reference are identical with the questions raised in that earlier reference relating to the assessment year 1944-45 and the facts which have to be taken into account for answering those three questions are also identical. The answer given by us in the reference relating to 1944-45 governs these three questions in this reference also. That reference was answered by us in the case registered as Income-tax Reference No. 441 of 1962, decided by us on 17th May, 1966. In accordance with our opinion given in that case all these three questions are answered against the assessee in the same words in which we have answered the first three questions in the reference referred to above.
So far as the fourth question is concerned, that question has to be answered on the special facts of the case relating to this year and not on the basis of the facts which appeared in that earlier income-tax reference.
The facts necessary for answering the fourth question, which have been found by the Income-tax Appellate Tribunal, are that income in the form of dividends, commission and salary were earned by the assessee outside the taxable territories and were deposited in the Bharat Bank at Kotah again outside the taxable territories. The assessee was carrying on business with headquarters at Ajmer and with branches, inter alia, at Bombay and Kotah. At Kotah the business of the assessee included the work of treasurer of the Kotah State in addition to the business of a discounting hundis. During the relevant previous year, the assessee was given a cheque for Rs. 2,19,150 by the Kotah State Darbar at Bombay for being encashed because the Kotah State Darbar had received a cheque for that amount from the Assistant Grains Officer, Bombay.
Before we go in with further facts, we may mention that learned counsel drew our attention to some documentary evidence, which forms part of the statement of the case, to show that the amount of the cheque actually received was Rs. 2,04,277-8-6 and not Rs. 2,19,150. However, that is a point which we ignore because we have to answer the question on the basis of the facts as found by the Income-tax Appellate Tribunal in the appellate order and as stated in the statement of the case, and in both these documents it is mentioned as Rs. 2,19,150. If there is any clerical error in these two orders in respect of that amount, the remedy of the assessee is to apply to the Income-tax Appellate Tribunal for rectification of that order. Our answer will remain the same whether the amount be Rs. 2,19,150 as mentioned in the question or whether it be the smaller amount of Rs. 2,04,277-8-6 which is the correct amount according to the learned counsel for the assessee.
Our answer depends on the fact that a cheque was received by the assessee from the Kotah State Darbar for being cashed at Bombay. That cheque was actually cashed and what the assessee did was to credit this amount in favour of the Kotah State Darbar in the account books in Bombay. Subsequently, according to the finding of the Income-tax Appellate Tribunal, an identical sum of Rs. 2,19,150 was withdrawn by the assessee from the assessees account in the Bharat Bank at Kotah and was paid at Kotah to the Kotah State Darbar. Thus the account of the Kotah State Darbar was balanced. There was a credit in favour of the Kotah State Darbar in the Bombay branch of the assessee because the assessee had encashed the cheque at Bombay and there was thereafter a debit of an equal amount in the accounts at Kotah because that amount was paid at Kotah by the assessee to the Kotah State Darbar. The Income-tax Appellate Tribunal also found that the accounts in the Bharat Bank at Kotah were so maintained by the assessee that the assessees income earned outside the taxable territories and received in Kotah was mixed up with the other funds of the assessee. The Income-tax Appellate Tribunal held that this sum, which was paid to the Kotah State Darbar, was actually paid out of the income earned outside the taxable territories which had been deposited in the Bharat Bank at Kotah to the extent of over rupees six lakhs. It is on these facts that the Income-tax Appellate Tribunal held the sum of Rs. 2,19,150 should be treated as having been received by the assessee in British India at Bombay during the relevant previous year, so that it became taxable by virtue of sections 4(1) and 14(2)(c) of the Income-tax Act.
The facts enumerated above very clearly indicate that the assessee adopted a procedure the result of which was that the assessees assets at Bombay increased to the extent of Rs. 2,19,150 while the assets of the assessee at Kotah outside the taxable territories decreased by the same amount and this decrease was in those assets which represented revenue income which had been earned outside the taxable territories. The device adopted was to receive the money from the Kotah State Darbar at Bombay and to pay out an equal amount to the Kotah State Darbar at Kotah. The amount received at Bombay was credited in the books of account of the assessees business there, while the amount paid to the Kotah State Darbar was paid out of the income which was in Kotah having been earned outside the taxable territories. This was, therefore, an indirect device by which this sum, which was not taxable at Kotah, as part of the revenue income earned outside the taxable territories, came into the hands of the assessee in Bombay within the taxable territories. On these facts, it is clear that according to the decision of the Supreme Court in Bipin Lal Kuthiala v. Commissioner of Income-tax and Commissioner of Income-tax v. Dharamdas Hargovandas, it has to be held that this sum of Rs. 2,19,150 was income earned outside the taxable territories which was brought into or received in the taxable territories at Bombay by the indirect means or device mentioned above.
The fourth question must, therefore, also be answered against the assessee and in the affirmative. The assessee will pay the costs of the department. Counsels fee is fixed at Rs. 200.