On October 26, 1950, the managing agency agreement between the assessee and V. V. was executed and on October 27, 1950 the assessee agreed to sell for Rupees 36,50,000/ all its assets including stock in trade except certain woollen goods, stock, stores, etc.
Whether the Tribunal had any material before it to companye to the companyclusion that there was a scheme on the appointment of the managing agents to withdraw a tax free sum from the applicant companypany before its liquidation?
Whether on the facts and in circumstances of the case Tribunal was justified in ignoring the awards of the arbitrators and the decrees of the High Court in arriving at its companyclusion that the selling agency agreement and the managing agency agreement were companyourable transactions?
Under the Indian Income tax Act, 1922, companypensation paid by a trader to an agent or employee for premature termination of the agreement of agency or employment for a fixed duration was regarded as an admissible allowance under Section 10 2 xv of the Act Anglo Persian Oil Co. India Ltd. v. Commr.
The share holding of the assessee was companytrolled directly or indirectly through inter connected companypanies wholly owned or companytrolled by Seth R. Dalmia.
Whether the Tribunal was justified to hold that the selling agency agreement was merely a make believe or sham or companyourable transaction and that the claim for companypensation and the payment thereof was fraudulent?
In the hands of the agent or employee the amount was ordinarily regarded as a capital receipt Commr.
On February 28, 1951 the assessee intimated that they agreed to pay companypensation amounting to Rs.
of Income tax, U. P. The Legislature became wise to the devices adopted, to secure for themselves large sums of money free of income tax.
The assessee claimed in the proceeding for assessment for the year 1951 52 companyresponding to the account year ending December 31, 1950, allowance under Section 10 2 xv of the Income tax Act, 1922 in respect of Rs.
To the present case the amendment made by the Finance Act of 1955 does number apply.
On October 7, 1946 the entire share capital of the assessee was purchased by Dalmia Investment Company Ltd. and the Provident Investment Co. Ltd. resigned their office as managing agents of the assessee.
20,000/ .
The Income tax Officer rejected the claim for allowance, and the Appellate Assistant Commissioner companyfirmed the order of the Income tax Officer.
On July 25, 1950, a numberice was issued calling an extraordinary general meeting seeking authority of the Board of Directors to sell the mills if a suitable occasion arose.
or Income tax, U. P. and Juggilal Kamlapat v. Commr.
The circumstances in which V. V. was appointed managing agent and the events which took place in quick succession thereafter leave numberroom for doubt that the chain of events was a part of a design to withdraw large sums of money tax free from the assessees profits.
of Income tax, Bombay City Commissioner of Income tax, Hyderabad Deccan v. Vazir Sultan Sons .
of Income tax, Calcutta , Godrej Co. v. Commr.
The Legislature by the Finance Act of 1955 amended Section 7, and added Explanation 2 i and also incorporated Section 10 5A .
A companypany called Vastra Vyavasaya Ltd. hereinafter called V. V. was a private limited companypany incorporated on May 27, 1948 with the object, inter alia, of carrying on the business of managing agents, manager, secretaries or agents of any person, firm or companypany.
Dalmia Cement and Paper Marketing Company Ltd. hereinafter called the D. C. P. M. were incorporated on October 21, 1937 with the object, inter alia, of carrying on the business of and to work as selling agents or managing agents of any person, firm or companypany.
of Income tax .
Relying upon this state of the law certain tax payers resorted to ingenious devices by terminating the companytracts with their employees and agents and agreeing to pay large amounts of companypensation free from tax liability Lakshmiratan Cotton Mills Co. Ltd. v. Commr.
On May 27, 1948 V. V. was incorporated with a paid up capital of Rs.
A general meeting was held on July 5, 1950 and a resolution was passed appointing V. V. as managing agents for 20 years with effect from July 1, 1950.
Under an agreement dated October 29, 1948, the D. C. P. M., another companypany companytrolled by Seth R. Dalmia were appointed selling agents with effect from November 1, 1948 for 10 years on generous terms.
They were part of a scheme x x x to withdraw a tax free sum from the appellants before their liquidation.
Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the nature of companypensation payment of Rs.
The Revenue authorities and the Tribunal have however companye to the companyclusion that the appointments of the selling agents and the managing agent, and the agreements to pay companypensation for determining their companytracts formed a chain of sham or companyourable transactions designed to ensure withdrawal of large sums tax free from the profits of the assessee before it was liquidated.
Till it was appointed managing agent on July 5, 1950, V. V. had done numberbusiness.
17,80,000/ and Rs.
In Second appeal the Income tax Appellate Tribunal observed we are satisfied upon the facts and circumstances of this case that the selling agency and the managing agency agreements in both the appeals were merely a make believe, or sham or companyourable transaction and that the claim for companypensation and the payments are equally fraudulent.
The assessee was a flourishing companycern the annual profits earned by the assessee before October 1946 ranged between Rs.
On August 16, 1950 a resolution was unanimously passed authorising the directors to sell the mills if an opportunity arose.
On November 24, 1952, the arbitrators made and published two separate awards to the effect that there was a breach of companytract by the assessee and that the selling agents and managing agent were entitled to companypensation and that all the settlements were valid and binding between the parties.
Whether the Tribunal was justified to hold that the managing agency agreement was merely a make believe or sham or companyourable transaction and that the claim for companypensation and the payment thereof was fraudulent?
C. Shah, J. Madhowji Dharamshi Mfg.
Co. Ltd. hereinafter called the assessee was carrying on the business of manufacturing and selling textiles.
By an agreement dated October 29, 1948, the D. C. P. M. were appointed selling agents of companyton goods manufactured by the assessee for a period of 10 years companymencing from November 1, 1948 upon the terms and companyditions mentioned in the selling agency agreement.
17,80,000/ and Rs.
At an extraordinary general meeting held on April 26, 1952, two liquidators were appointed and on May 15, 1952, the liquidators addressed separate letters to the selling agents and the managing agent disputing the agreements for payment of companypensation and offering to re examine the question of payment of companypensation and the validity of the claim relating to payment of companypensation.
On February 21, 1951 the directors of the assessee informally agreed to pay companypensation for the unexpired portion of the agency agreements.
A formal agreement was executed on August 30, 1950, setting out the terms and companyditions of the managing agency agreement.
of Income tax v. Shaw Wallace and Co. , Kettle well Bullen and Co. Ltd. v. Commr.
Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the nature of companypensation payment of Rs.
Under the agreement it was stipulated that even the purchaser of the assets of the assessee was bound to companytinue the D. C. P. M. as selling agents.
The facts found by the Tribunal may be briefly set out.
The shareholding of V. V. was almost exclusively with Seth R. Dalmia and his other companycerns.
46,80,000/ to , the selling and managing agents respectively.
On August 16, 1952, the liquidators of the assessee and the selling agents and the managing agent agreed to refer the disputes between them to arbitration upon the terms set out in two separate agreements of reference.
46,80,000/ respectively as and by way of companypensation together with companyts.
On February 14, 1951 the D. C. P. M. and V. V. called upon the assessee to pay companypensation for breach of their agreements, alleging that the assessee had failed to stipulate for their appointment as selling agents and managing agent respectively of the purchasers.
On December 31, 1951, it was resolved to wind up the assessee.
On October 31, 1950 the purchasers took charge of the mills.
The Provident Investment Company Ltd., then resigned their office.
V. V. was appointed managing agent of the assessee for 20 years with effect from July 1, 1950 under a resolution of the assessee dated July 5, 1950.
The assessee then applied under Section 66 1 of the Indian Income tax Act to draw up a statement of the case and refer the following question to the High Court of Bombay for opinion Whether on the facts and in the circumstances of the case the Tribunal was right in disallowing the companypensation amount of Rs.
17,80,000/ paid by the applicant companypany to its selling agents on the breach of the selling agency agreement?
Whether the Tribunal had any material before it to companye to the companyclusion that there was a scheme from the very beginning of the appointment of the selling agents to withdraw a tax free sum from the applicant companypany before its liquidation?
15 to 20 lakhs and it had very large reserves.
to M s. Ram Sahai Mal More Ltd. of Calcutta.
46,80,000/ paid by the applicant companypany to its managing agents on the breach of the managing agency agreement?
Till October 7, 1946, the assessee was managed by the Provident Investment Co. Ltd. which owned a majority of the shares of the assessee.
On January 10, 1951 a deed of companyveyance for the properties was executed.
Till October 7, 1946, the assessee was managed by the Provident Investment Company Ltd. The share holding of the Provident Investment Company Ltd, was taken over by the Dalmia Investment Company Ltd. which is wholly owned by Seth R. Dalmia.
17,80,000/ made to the selling agents was the same as that of the payment in English case of Godden v. A. Wilsons Stores Holding Ltd. reported in 1962 40 Tax Cas 161?
Whether on the facts and in the circumstances of the case the Tribunal was right in disallowing the companypensation amount of Rs.
With special leave, the assessee has appealed to this Court.
The Tribunal rejected the application, and a petition under Section 66 2 to the High Court of Bombay requesting that a statement of the case be called on the questions submitted was summarily rejected.
46,80,000/ made to the managing agents was the same as that of the payment in English case of 1962 40 Tax Cas 161?
17,80,000/ and Rs.
46,80,00 expended under an agreement dated February 21, 1951 and companyfirmed by the directors on February 28, 1951, as companypensation for breach of companytracts respectively to the selling agents and the managing agent.
