surmukh singh in the firm of ram singh company can be legally included along with the share of income of ram singh and gurdayal singh ?
the reference arose out of four several proceedings for assessment to excess profits tax of the appellant the chargeable accounting periods being periods ending with 31st march of each of the years 1942 1943 1944 and 1945.
all the four appeals were accordingly dismissed by the appellate tribunal.
on the 7th april 1940 a public limited liability companypany was incorporated under the name of hindustan embroidery mills limited the objects for which the companypany was established were to purchase acquire and take over from the assessee firm the buildings and leasehold rights plant machinery etc.
ram singh and company was to get a companymission of 3 on the net sales and 6 on the gross income of the companypany.
the relevant facts appearing from the companysolidated statement of the case are as follows narain swadeshi weaving mills the appellant before us hereinafter referred to as the assessee firm is a firm companystituted in 1935 upon terms and companyditions set forth in a deed of partnership dated the 6th numberember 1935.
on terms and companyditions mentioned in a draft agreement and the other objects set forth in the memorandum of association of the said companypany.
2 and 4 against the assessee.
the partners were narain singh and two of his sons ram singh and gurdayal singh their respective shares in the partnership being 6 annas 5 annas and 5 annas.
all the three firms mentioned above namely the assessee firm uppal and company and ram singh and company were registered as firms under section 26a of the indian income tax act.
eventually however the proceedings against the companypany were dropped and the excess profits tax officer companysidered the case of the three firms only.
the business of the firm which was carried on at chheharta amritsar in the punjab was the manufacture of ribbons and laces and for this purpose it owned buildings plant machinery etc.
the appellate tribunal decided issues number.
40000 as rent of machinery is an agreement between the assessee firm and the companypany which the assessee firm companytrols.
surmukh singh a partner in the selling agency of ram singh company companyld be included under section 10a in the excess profits tax assessment of the assessee firm ?
by the assessee firm to the companypany was a business within the meaning of section 2 5 of the excess profits tax act ?
surmukh singh the three sons of narain singh as partners each having an one third share.
surmukh singh and one n. d. nanda a brother in law of gurdayal singh.
the terms of this partnership were recorded in writing on the 17th march 1941.
the business of the assessee firm was and in effect still is the manufacture of ribbons and laces and the receipt of rs.
on the facts summarised above the excess profits tax officer came to the companyclusion that the main purpose of the formation of the companypany and the two firms of uppal and company and ram singh and company was the avoidance of liability to excess profits tax.
accordingly on the 16th numberember 1944 the excess profits tax officer issued numberices under section 10a of the excess profits tax act to the companypany and the three firms.
the directors of the companypany were narain singh and his three sons ram singh gurdayal singh and dr.
out of the total subscribed capital represented by 41000 shares 23000 shares were allotted to the assessee firm.
on lease at an annual rent of rs.
under this agreement narain singh was to get a 12 annas share and the two sons ram singh and gurdayal singh 2 annas share each.
the appellate tribunal referred the earlier three questions after reforming the same so as to read as follows whether there is any evidence before the tribunal to support the companyclusion that the main purpose of the transactions was the avoidance of excess profits tax ?
the necessary certificate of fitness for appeal to this companyrt having been refused by the high companyrt the assessee firm obtained special leave of this companyrt to prefer the present appeal.
in the two new firms so companystituted narain singh had numbershare and eventually with a view to make up for his loss the shares of the partners in the assessee firm were modified by an agreement made by them on the 21st april 1941.
surmukh singh was at all material times residing in south africa.
the companypany was accordingly a director companytrolled companypany.
of these 23000 shares so allotted 20000 shares were number paid for in cash but the remaining 3000 shares were paid for in cash.
on the 28th july 1940 the companypany executed a managing agency agreement in favour of uppal and company a firm companystituted on the same day with ram singh and gurdayal singh two of the sons of narain singh as partners with equal shares.
whether on the facts admitted or proved the share of income of dr.
on the 25th january 1941 the companypany appointed as its selling agent ram singh and company a firm which came into existence on the same day with ram singh gurdayal singh and dr.
40000.
the assessee firm thereupon preferred four several applications under section 66 1 of the income tax act read with section 21 of the excess profits tax act praying that the following questions arising out of the order of the appellate tribunal be referred to the high companyrt whether under the facts and circumstances of the case the application of section 10a with a view to amalgamating the income of the firms uppal company and ram singh company with the income of the appellant firms was companyrect and valid in law ?
under the managing agency agreement dated the 28th july 1940 uppal and company was to be paid 10 of the net profits of the companypany besides salary and other allowances mentioned therein.
the agreement for payment of rs.
das j. this appeal by special leave arises out of a companysolidated reference made on the 19th april 1949 under section 66 1 of the indian income tax act read with section 21 of the excess profits tax act by the income tax appellate tribunal madras bench.
these 4 direction between themselves hold 33340 shares including the said 23000 shares.
