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TMI Blog1977 (5) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... being the Buland Sugar Co. Ltd., Rampur. Each of the assessees carried on the business of manufacture of sugar and sale thereof. During the accounting year under consideration, the Govt. of India controlled the sale of sugar and a quantity of 11,809 bags of sugar was released to be sold as free sale quota by the two assessee-companies which had a pooling arrangement for the sale of sugar. During the assessment proceedings, the ITO found from the accounts, that the full sale price of the sugar had not been recorded in the accounts of the assessees. After examining certain transactions, he refused to accept the explanation of the assessees that the sugar was sold through their sole selling agent, M/s. Beopar Sahayak Ltd., and that so far as the assessee-companies were concerned, the price realised was shown correctly in the books. He found that the sole selling agent of the assessee-companies was a private limited company, which was controlled by the common managing agent of the assessee-companies, and that in certain instances the assessee-companies had issued sale memos at amounts between Rs, 60 and Rs. 61 per maund while actually, according to the purchasers the sugar was p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompanies then preferred appeals to the Income-tax Appellate Tribunal. The Tribunal, by the respective impugned orders, agreed with the views taken by the ITO and the AAC, and dismissed the appeals. The assessees thereupon filed applications before the Tribunal under s. 66(1) of the Indian I.T. Act, 1922, praying that the questions proposed by them may be referred to this court. In the case of Raza Sugar Co. Ltd. (I.T.R. No. 9 of 1969), the Tribunal referred the following four questions to this High Court: " (i) Whether, on the facts and in the circumstances of the case, the computation of depreciation in regard to extra shift allowance has properly been made? (ii) Whether, on the facts and in the circumstances of the case, the estimated addition of Rs. 75,000 is justified ? (iii) Whether, on the facts and in the circumstances of the case, disallowance of Rs. 2,000 out of medical expenses pertaining to the affairs of M/s. Agricultural Company is valid? and (iv) Whether, on the facts and in the circumstances of the case, the disallowance of Rs. 18,330 out of legal expenses is valid in law? " In the case of Buland Sugar Co. Ltd. (I.T.R. No. 31 of 1969), the Tribunal ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry and plant had been in use throughout the period even when, in fact, the factory did not work for the entire year, and that on the same analogy the extra shift allowance should also be computed in the same proportion. This contention is without any force. Rule 8 of the Indian I.T. Rules, 1922, provides as under: " ........ the allowance under s. 10(2)(vi) of the Act in respect of depreciation of building machinery, plant or furniture shall be at percentage of the written down value or original cost, as the case may be, equal to one twelfth the number shown in the corresponding entry in the second column of the following statement : Provided that if the buildings, machinery, plant or furniture have been used by the assessee in his business for not less than two months during the previous year, the percentage shall be increased proportionately according to the number of complete months of use by the assessee : Provided further that in the case of a seasonal factory worked by the assessee during all the working seasons of the previous year, the percentage shall be increased as if the buildings, machinery, plant or furniture had been in use throughout the period the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... --------------------------------------------------------------------------------------------------------------------- The effect of the above provisions was considered by a Division Bench of the High Court of Allahabad in Raza Sugar Co. v. CIT [1970] 76 ITR 541. The learned judges explained at page 550 as follows: " The rule read along with what is stated in the remarks column in the statement leads to the conclusion that for purposes of granting the extra allowance for the double shift, the normal number of working days throughout the year will be taken as 300 days. As for example if a concern has worked only double shift for 100 days, the extra allowance for double shift will be 1/3rd of 50 percent. of the normal allowance for the whole year. The rule and the statement do not support the claim of the assessee that it is entitled to just 50 per cent. of the normal depreciation for the second shift." This view was reiterated by another Division Bench of the same High Court in Kundan Sugar Mills v. CIT [1977] 106 ITR 704. We respectfully agree with the above view of the Division Bench. It is quite clear from the provisions in the remarks column that the assessee-companies were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcantile system, took into account only those sales which were duly effected during the period of accounting under consideration and found that only 23,873 maunds of the free sale sugar was sold up to October, 1951. The sale price realised stood on that basis at Rs. 14,38,459 which gave the average rate of Rs. 60.2 per maund. The ITO also found that the sugar of Raza Sugar Co. Ltd. and Buland Sugar Co. Ltd. was much superior to the best sugar available in the market, and its selling rate in the market was always much higher than the normal rates in the market. He further found that in four instances the company had not recorded the full sale price in its books inasmuch as the company had shown the sales at rates lower than those at which its sugar was saleable in the market and in fact was sold in the market. Thus, in the case of a transaction with Vrij Lal R. Shah of Kanpur, the actual sale rate of sugar shown as sold at Rs. 65 was in fact Rs. 68-4-0. In the case of a transaction with Ramanlal Baldeo Dass of Kanpur, the actual sale rate was Rs. 66-8-0 though the bill was prepared only at Rs. 62 per maund. In the case of a transaction covered by Bill No. 782, dated 11th June, 1951, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was, therefore, evident that the company, the managing agents, and the selling agents at Kanpur, were all one. He observed that taking advantage of this position, the sales were arranged in such a manner that the company should record the sales at rates lower than those at which sugar was sold, the difference having been realised over and above the recorded sale rates, and that he was, therefore, convinced that the sale rates shown by the company for the free sale sugar was much lower than those which were actually prevailing in the market and at which sugar was actually sold. He called upon the company to prove the sales and explain why the sales by them be not enhanced to figures which would correspond to the actual sale price realised. But the company failed to give any satisfactory explanation. The ITO, therefore, felt satisfied that the company had not recorded the full sale price of the sales of sugar, and that the sales shown should be increased to a figure which would correspond to the normal selling rates in the market. As the instances mentioned above showed that under-recording of sales was in many instances by Rs. 8 and Rs. 9 per maund, he, after giving all possible m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpect any direct evidence regarding such " on money " and to prove conclusively that any such " on money " went to the assessee-companies. The view taken by the income-tax authorities and the Tribunal was not a mere conjecture, but was an inference drawn from the facts and circumstances of the, case. It was pointed out by the Tribunal that both the selling agents of the assessee-companies, M/s. Beopar Sahayak Ltd. and Bharat Traders, were private limited companies which were managed and controlled by the managing agents of the assessee-companies, and that the shareholders were closely related to them. The Tribunal also pointed out that in the case of the chief selling agent, M/s. Beopar Sahayak Ltd., the directors were employees of Dalmias having nominal share-holding and, in fact, most of the shares were subsequently transferred to this very group. The instances relied upon by the I.T. authorities did show that the rates at which the sales were stated to have been made in its accounts by the mill were very much lower than those at which the sugar was saleable in the market and in fact was sold in the market. The Tribunal was justified in taking the view that it was inconceivable t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AAC agreed with the view taken by the ITO. On further appeal, the Income-tax Appellate Tribunal also agreed with the aforesaid view doing so, the Tribunal relied upon its order in Income-tax Appeal No. 7682 of 19.58-59, in the case of this very assessee, namely, Buland Sugar Co. Ltd. The question considered in that decision was whether a share of loss from an unregistered firm could be allowed as a deduction in the case of a partner of that unregistered firm. Following the decisions in CIT v. Jadavji Narsidas Co. [1963] 48 ITR 41 (SC) and CIT v. Gangadhar Nathmal [1966] 60 ITR 790 (Pat), the Tribunal held that the loss incurred by an unregistered firm could be set off only against the income, profits and gains of that unregistered firm and not against the income, profits and gains of any of the partners of that firm. The question thus stands answered by the aforesaid decisions. We, therefore, answer the question under consideration in the negative. Question (iii) in I T. R. No. 9 of 1969 and question (iv) in I T. R. No. 31 of 1969. The two assessee-companies maintained a hospital jointly. The total expenses incurred over the maintenance of the hospital in the relevant ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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