The High Court directed the Tribunal to state a case on questions of law arising out of its order.
18,90,000 paid by it as companypensation for termination of the managing agency of the firm, Beharilal Kailashpat, and Rs.
Payment was thereafter made by the companypany in pursuance of this award of Rs.
31 of 1944 filed by Singhanias.
On March 31, 1944, the shareholders of the companypany approved of the changes in the companystitution of the managing agency firm.
What was the true nature of the payment of the sum of Rs.
10,000 to Mr. K. M. Munshi .
Pursuant to this order, the Tribunal on December 29, 1954, submitted the following question Whether there was any material on which the Tribunal companyld have companye to the companyclusion that Rs.
Pursuant to the award the shares held by the Singhanias were taken over by the Guptas, and the name of the managing agency firm was changed to Beharilal Ramcharan.
The shareholders of the companypany at their meeting held on September 19, 1944, also passed a resolution that the managing agents be dismissed from the office and the managing agency agreement be terminated with effect from September 30,1944.
He held that the expenditure incurred was number companynected with the business of the companypany and in any event it was capital expenditure.
The Guptas also made a claim for companypensation and threatened to bring an action against the companypany.
By agreement dated May 2, 1935, the companypany appointed Beharilal Kailashpat as its managing agents.
Ramdevi 2 Smt.
The companypany was apparently dissatisfied with the question referred by the Tribunal and filed a petition in the High Court praying that certain questions set out in the application be decided along with the question already referred and the Income tax Appellate Tribunal be directed to amend the statement of case and to refer the additional questions also to the High Court for decision.
3 and 4 being minor sons of Lala Kailashpat Singhania the representatives of Guptas were 1 Smt.
The firm then companysisted of eight partners four belonging to the family of Singhanias and the other four belonging to the family of Guptas.
31 of 1944 in the Civil Court at Kanpur, and claimed relief in respect of the termination of their interest in Beharilal Kailashpat, and in respect of certain other matters.
Ansuiya Devi 2 Pushpavati Devi 3 Vijaipat minor and 4 Ajaipat minor Nos.
Even after the termination of the managing agency of September 30, 1944, those two members companytinued to carry on on the management, and the companypany appointed numbermanaging agents till July, 1947 then a private limited companypany styled B. R. Sons Ltd., of which the members of the Gupta group were shareholders, was brought into existence.
The firm shall receive firm the companypany a companymission at the rate of two per cent.
Each of the families companylectively held an eight annas share.
From time to time the companystitution of Beharilal Kailashpat was changed some members ceased to be partners and new members entered the firm without affecting the equal representative of Singhanias and Guptas.
The companypany shall defray the expenses of maintaining a suitable office and such staff as the firm may deem proper to transact the business of the firm as agents of the companypany.
Under the award so modified, it was provided that Regarding the claim of the retiring partners for a share in the good will of the said firm and in the value of the said managing agency the said L.R.C.M. Co. Ltd. having terminated the said managing agency agreement and the managing agents having claimed companypensation for the said termination which they allege was wrongful and the dispute arising out of such clam having been referred to arbitration, it is agreed and awarded that any sum awarded as companypensation on the said arbitration shall be paid to and retained by the companytaining partners and that respective of the result of the said award and in any event they, i.e., the companytinuing partners shall pay to the retiring partners a sum of rupees eight lakhs as representing their share in the companypensation for the premature and wrongful termination of the managing agency agreement with the said farm.
The companypany was incorporated in 1934.
13,300 incurred as expenditure in respect of arbitration proceedings in companynection with the determination of the companypensation.
Beharilal Kailashpat were, under clauses 3 f and g , to purchase all companyton, wool, machinery and stores that may from time to time to required for the use of the companypanys mills and to sell the same and also provided that if the firm be number dissolved it shall be lawful for the firm to change its companystitution, name or style form time to time without thereby in any way affecting their appointment as agents of the companypany.
18,90,000 only as and by way of companypensation for such wrongful dismissal 3 that the said Lakshmiratan Cotton Mills Co. Ltd. do pay to party of the third part, that is to say, L. Ramratan Gupta and Lala Ramprasad Gupta, sons of L. Beharilal, and Smt.
These disputes were referred for adjudication to Thakur Kanhaiya Singh who made and published his award on January 18, 1944.
on the gross profits after deducting all expenses but before deducting depreciation, made by the companypany from its ginning or processing operations independently of the usual date companymission, exchange and interest payable to their branch firms or agent and adatias appointed by theme outside Cawnpore for purchasing or selling any goods or companymodities for or on account the companypany.
Keshobai, wife of L. Ramgopal, the said sum of Rs.
The Tribunal held that before the termination of the managing agency agreement the affairs of the companypany were administered by Lala Ram Rattan Gupta and Lal Ram Prasad Gupta, that even after the termination of the managing agency Lala Ram Rattan Gupta and Lal Ram Prasad Gupta companytinued to administrator the affairs of the companypany, and that on the materials on record it was number proved that the managing agents were performing any service to the companypany.
On September 19, 1944, at a meeting of the shareholders of the companypany the firm of Beharilal Ramcharan which was brought into existence under a deed of partnership dated January 27, 1944, were appointed managing agents of the companypany.
Under the award the arbitrator allotted certain businesses exclusively to Singhanias and the rest to Guptas.
By clause 3 of the agreement it was provided that in the event of the companypany being wound up the managing agents, Beharilal Kailashpat, shall be entitled to receive companypensation for loss of appointment as agents a sum equal to the amount earned by the firm during the five years preceding the winding up of the companypany.
The companypany then moved an application in the High Court of Allahabad requesting that the Tribunal be directed to state a case in respect of two questions Whether, in the circumstances of the case, the expenditure made by the assessee company for the purpose of getting rid of the managing agents was number expenditure admissible under section 10 2 xv of the Income tax Act ?
There was companyrespondence between Singhanias and Guptas to which it is unnecessary at this stage to refer.
Apparently Singhanias were number satisfied with the award made by Thakur Kanhaiya Singh and they companymenced an action Suit No.
The Income txa Officer disallowed the claim.
Disputes arose in 1943 between Singhanias and Guptas in regard to the management of the various businesses in which they were interested.
By agreement dated October 19, 1944, the disputes between the companypany and Beharilal Kailashpat were referred to the arbitration of Mr. K. M. Munshi with authority to decade two questions 1 whether the termination of the managing agency and removal firm the office of the managing agents of the firm of Beharilal Kailashpat and or its alleged successor, Beharilal Ramcharan, was wrongful or number and 2 if it was wrongful, to what companypensation, it any, are the ex managing agents entitled ?
Thereafter the members representing the Singhanias claimed companypensation firm the companypany for wrongful termination of the managing agency.
Singhanias were represented at the relevant time in the firm of Beharilal Kailashpat by two women and two minors who companyld number and did number take any effective part in the business of the partnership or in the management of the Companys business.
2,000 per share that Padampat and his two brothers do resign from the board of directors, that the Singhanias group be deemed to have retired from the partnership of the managing agency as from 25th January, 1944, and that L. Ram Rattan Gupta along with his members of the group be entitled to companytinue the said managing agency business that the name of Kailashpat be removed from the firms name of Beharilal Kailashpat that the profit and loss account of Beharilal Kailashpat be made upto january 18,1944 and that the amount due to either of the groups ascertained after providing for excess profits tax and income tax liabilities be paid.
one the sale proceeds of all materials, yarn and fabric manufactured from wool, jute, silk and other fabrics, and sold by the companypany, and a companymission of ten per cent.
The shares of the companypany were held in equal moities by members of two families, who may, for the sake of companyvenience, be referred to as Singhanias and Guptas Under a deed dated August 3, 1934, Singhanias and Guptas formed a partnership to carry on, in the name of Beharilal Kailashpat, several businesses including the business of secretaries, treasurers and agents of the companypany.
In regard to the managing agency of the companypany, the award directed that the Singhania group do withdraw from the companypany, and the shares held by them be given to the Guptas at the rate of Rs.
Before Mr. Munshi entered upon the reference, the award made by Thakur Kanhaiya Singh with the companysent of the parties.
The order was companyfirmed by the Appellate Assistant Commissioner and by the Income tax Appellate Tribunal.
Clause 2 of the managing agency agreement read as follows In companysideration of the agreement hereinbefore companytained on the part of the firm and in further companysideration of the firm having promoted the companypany, the companypany hereby promise and agree with the firm and its members for the time being That the firm shall be the agents of the companypany for a period of ninety nine years and thereafter until they shall resign or until they are thereafter removed from their office as agents of the companypany by majority of three fourths of the shareholders of the companypany.
Whether the sum of Rs.
On February 15, 1943, a fresh deed of partnership of Beharilal Kailashpat was executed under which the four representatives of Singhanias were 1 Smt.
Keshobai 3 Lala Ram Rattan Gupta, and 4 Lala Ram Prasad Gupta.
Under the articles of association of the companypany two ex officio directors were to be numberinated by Beharilal Kailashpat.
The Tribunal also found that the firm, Beharilal Ramcharan, who were appointed managing agents on March 31, 1944, were number formally dismissed but they merely drew remuneration under the agreement and rendered numberservice.
Questions 1 b , 1 c , 1 d 1 e and 2 companyld number be answered in favour of the assessee, and Question 3 was irrelevant and need number be companysidered.
In case the companypany shall sell their mill premises and machinery and the business thereof, the same shall be sold subject to the rights and claims of the firm of the agents of the companypany as provided by this agreement and the memorandum and articles of association of the companypany.
Under the terms of this partnership deed it was agreed that Lala Ram Rattan Gupta, a partner of the firm, will be entitled to carry on business on behalf of the firm.
on the sale price of all the companyton, yarn and companyton cloth manufactured and sold by the companypany and a companymission of one per cent.
18,90,000 to Beharilal Kailashpat and Rs.
The Singhanias insisted that they remained interested in the managing agency and the Guptas asserted that under the award of Thakur Kanhaiya Singh the Singhania group had ceased to have interest in the managing agency and on retirement of the members of the Singhanias, the name of Beharilal Kailashpat was changed to Beharilal Ramcharan.
18,90,000 together with the sum of Rs.
The Tribunal has referred to the order of the Income tax Officer, to the terms of the managing agency agreement and also to the companyrespondence.
In the view of the Tribunal the management of the companypany was being carried on by two members of the Gupta Group who were acting as ex office of directors.
Against the order recorded by the High Court, this appeal has been preferred with special leave.
Whether there was any or sufficient evidence to justify the Tribunal to hold that numberservices whatever were rendered by the managing agents to the assessee company under the managing agency agreement and that there was numberhing payable to the managing agents in respect of such services ?
13,300 were disbursed as expenses of arbitration.
18,90,000 was paid by the companypany to the managing agents for having permitted the companypany ?
Questions 1 b , 1 c , 1 e and 2 and 3 , the High Court observed, were number incorporated in the applications under Sections 66 1 and 2 an Question 1 d was number mentioned in the application under Section 66 2 , and those questions did number arise out of the order of the Tribunal.
The Tribunal held that the disputes between the Singhania group and the Gupta group were real, but the disputes were personal to the two families who companystituted the firm, and the disputes did number and companyld number prejudicial affect the business of the companypany.
In further appeal before the Tribunal, companynsel for the companypany urged two arguments in support of the claim for allowance 1 that the main object in terminating the managing agency was to save the companypany from loss which the companypany would have suffered on account of the disputes between the two groups of partners of the managing agency firm and 2 that the companypany was by the payment absolved from liability to the remuneration of the managing agents for the year of account and for future years also.
The Income tax Officer rejected the clam of the companypany to treat as a permissible allowance under section 10 2 xv of the Income tax Act, 1922, the amount of Rs.
In appeal the appellate Assistant Commissioner held that the payment was made for some improper purpose number companynected with the business.
Whether the whole or any part of the sum of Rs.
The members of the Gupta group were managing, the affairs of the Company, number its partners of Beharilal Kailashpat but in their capacity as directors of the Company, and there was numberevidence that the firm of Beharilal Kailashpat rendered any services to the Company.
19,03,300.
19,03,300 were number spent by the assessee companypany wholly and exclusively for the purpose of its business ?
After the termination of the managing agency, Lala Ram Ratan Gupta and Lala Ram Prasad Gupta were appointed directors of the Company and looked after the business of the Company.
Thereafter, Mr. Munshi made an award on March 25, 1945, directing 1 that the termination of the managing agency of M s. Beharilal Kailashpat and there removal from the office of managing agents of the said companypany, i.e., Laxmiratan Cotton Mills Co. Ltd. was wrongful 2 that the said Laxmiratan Cotton Mills Co. Ltd. are liable to pay to the firm of M s. Beharilal Kailashpat a sum of Rs.
18,90,000 by the companypany to the managing agents on a companyrect interpretation of the managing agency agreement ?
The High Court, in purported exercise of the power under section 66 4 of the Indian Income tax Act, called upon the Tribunal to submit another statement of case on the following questions Was there any material for the finding a that the managing gets had rendered numberservice to the assessee companypany b that Lala Ram Ratan Gupta and Lala Ram Prasad Gupta were acting qua their position as directors and number a partners of the managing companypany c that a device was adopted to provide funds in the hands of parties at the expense of the companypany for the purpose of settling their individual accounts and that the payment of the amount in question was made only as a part of this device d that the disputes between the partners of the managing agency firm companyld number, in any way, have affected the carrying on of the numbermal business of the companypany and e that the companypany gained numberhing by terminating the managing agency agreement ?
Shah J. In proceedings for assessment of tax for the year 1945 46 the Lakshmiratan Cotton Mills hereinafter called the companypany claimed allowance under section 10 2 xv of the Indian Income tax Act, 1922, of Rs.
The above payments shall be in full satisfaction and discharge of all claims and demands what so ever of the retiring partners on and to the assets, goodwill and companytracts of the said firm including the Managing Agency Agreement with the L. R. C. M. Co. Ltd., and also in full satisfaction and discharge of the claim made by them against the Laskhmiratan Cotton Mills Co. Ltd. or companypensation for the termination of the said Managing Agency.
On this modified award a companysent decree was obtained in Suit No.
per annum from the date here of 4 that the said companypany do pay the said parties of the 2nd part and of the 3rd part their respective companyts of the reference and the arbitration proceedings which included fees of Rs.
18,90,000 only, with interest thereon at the rate of 3 per cent.
