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TMI Blog1975 (11) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... ard for purposes of constructing 2,136 tenements at Bapunagar, Ahmedabad, in February, 1955. The contract was entered into with the Housing Board in the name of Pravin Construction Company. This contract is known as " P " group contract. Before the Income-tax Officer, it was contended on behalf of Shri Thobhandas J. Gajjar that he had assigned the said contract to one Shri Vasantlal who was the proprietor of M/s. Vasant & Company for a consideration of payment of commission of 2 1/2% to the said Shri Gajjar. This Vasantlal happened to be the brother-in-law of the assessee, Popatlal Panachand Shah of Income-tax Reference No. 208 of 1974. The controversy with which we are concerned in these two references is pertaining to the income arising from the works of " P " group contract entered into with the Bombay Housing Board by the said Shri Gajjar. In the course of the assessment of both the assessees, viz., Popatlal Panachand Shah of Income-tax Reference No. 208 of 1974 and Thobhandas J. Gajjar of Income-tax Reference No. 45 of 1974, for assessment years 1957-58 and 1958-59, it was contended by Shri Gajjar that he had not executed the contract since it was assigned to the aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dgment and decree of 30th June, 1961, on re-appreciation of the entire evidence upheld the findings of the civil judge and dismissed the appeals. It was, therefore, urged on behalf of the assessee, Popatlal Panachand Shah, that in view of these questions being concluded in civil courts, the Income-tax Officer should not go behind the judgment and decree of the civil courts and must hold that it was Thobhandas who was, for all intents and purposes, the owner of the income earned under " P " group contract works. This contention did not impress the Income-tax Officer as in his view there were certain additional facts which were brought on record before him in the course of the inquiry in assessments of the said two assessees, which established that all the income in respect of " P " group contract works were firstly received by Shri Gajjar, who credited to his bank account in the name of Pravin Contruction Company, and, he on his part transferred identical amounts to the bank account of Vasant & Company out of which substantial amounts were transferred from M/s. Vasant & Company to the said assessee, Popatlal Panachand Shah. In other words, it was found by the Income-tax Officer on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal which held that the Income-tax Officer was entitled to go behind the civil court's decision in view of the additional evidence which had been brought on record before him and in view of the significant fact that ultimately the income earned under the said contract reached the assessee, Popatlal, he should be held to be the owner of the said income and liable to be assessed on it. The Tribunal, therefore, dismissed the appeal of the assessee, Popatlal. The Tribunal accordingly upheld the order of the Appellate Assistant Commissioner in the appeal of Thobhandas against the protective assessment and dismissed the appeal of the Income-tax Officer from the said order of the Appellate Assistant Commissioner. At the instance of the assessee, Popatlal Panachand Shah, the following question has been referred to us in Income-tax Reference No. 208 of 1974 : " Whether, on the facts and in the circumstances of the case, and also keeping in view the judgments of the joint civil judge and extra assistant judge referred to in the statement, the Tribunal was right in law in holding that it was Shri Popatlal P. Shah and not Thobhandas J. Gajjar, who was taxable in respect of the inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Officer is a Tribunal of exclusive jurisdiction for purposes of assessment and under the Income-tax Act, he has to decide, whether a particular receipt is " income " or not and who is the real owner of that income. The decision of the Income-tax Officer may be challenged in proceedings before the superior Tribunals established under the Income-tax Act. But the statutory authority, namely, the Income-tax Officer, cannot be prevented from determing a question which is purely within his jurisdiction for purposes of assessment on the principle of res judicata for the obvious reason that the statutory authority, viz., the Income-tax Officer, was not a party to the proceedings or the suits between two private persons. What the Income-tax Officer has done in the present case is to determine, whether the income belonged to the assessee, Thobhandas, or to Vasantlal of M/s. Vasant & Company, who was the benamidar, for the assessee, Popatlal, and the finding that Vasantlal was the benamidar of the assessee, Popatlal, is a pure question of fact, which cannot be gone into by this court in a reference made under the Income-tax Act. Before we deal with the respective contentions of the parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h. On behalf of Shri Shah it is explained that as he had to incur expenses and even to provide loans to Shri Gajjar, some funds which came to him were utilised for these purposes. " It would also be profitable at this stage to advert shortly to the facts and circumstances which led to the litigations between the labour contractors and both the assessees and what the civil courts have decided in these litigations. Three suits were filed in the Court of Joint Civil Judge (J.D.) at Ahmedabad, being Civil Suits Nos. 1766 of 1957, 1873 of 1957 and 18 of 1958 by the labour contractors for recovery of their dues. Civil Suit No. 1766 of 1957 was filed by labour contractor, Mistry Ramjibhai Bhimjibhai, for recovery of Rs. 3,085 being the amount of carpenting work in the execution of " P " group contract works against the assessee, Thobhandas Gajjar. The second Suit No. 1873 of 1957 was filed by Lallubhai Kunverji for recovery of Rs. 2,075 being the amount due for his work of supplying hardware and entering materials against Pravin Construction Company and both the assessees, Thobhandas J. Gajjar and Popatlal Shah. The third Suit No. 18 of 1958 was filed by Karsandas Hamirbhai for recovery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ective plaintiffs as well as of both the assessees, namely, Thobhandas and Popatlal. At the hearing the three suits were consolidated and the learned civil judge by his common judgment and order held in effect that the assessee, Popatlal, was merely a manager of Pravin Construction Company in whose name the assessee, Thobhandas, had taken the contract for execution of 2,136 tenements at Bapunagar in Ahmedabad from the Bombay Housing Board, which was known as " P " group contract ; and that the assessee, Thobhandas, had not assigned the contract to Vasant & Company. In Civil Suit No. 1873 of 1957 where the assessee, Popatlal, was a party numbered as defendant No. 3 and Pravin Construction Company and the assessee, Thobhandas, were numbered as defendants Nos. 1 and 2, the learned civil judge raised the following pertinent issues Nos. 3 and 4 : " 3. Whether the plaintiff proves the suit claim against all or any of the defendants ? 4. If so, from whom ? " While dealing with these issues, the learned civil judge has observed as under : " It is a fact that the defendant, Thobhandas, had kept the contract of ' P ' group tenements in the name of his company, Pravin Construction Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vasantlal who says that defendant, Thobhandas, had opened khata in his name in Punjab National Bank and that he used to sign blank cheque, of the clear work which were remaining with the defendant, Thobhandas,....... If Vasantlal had really given these cheques, exhibits 120 to 123, he would have drawn them as cross cheques in order to prove that he had made payments to Lallubhai Ramji. It is also argued that Popatlal has passed surety bond for Vasantlal, exhibit 83, and that shows that the sub-contract was given to Vasant & Company but we have to note that defendant has to make a show of real contract and so he has made Popatlal to sign it as Popatlal was his servant, i.e., manager. It is also argued by the defendant's learned advocate that Vasantlal had never given orders for timbers and the order shows that it was for " P " group work. These orders are exhibits 117 and 119. These orders are to one Gajjar and Shah and we have to note that defendant is a partner of Gajjar and Shah. As I stated before, the defendant his to make a show that the sub-contract was given to Vasant & Company and so he has made Vasantlal while these orders (sic) as Vasantlal was serving under him...... Mor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... These contracts are at exhibits 73, 127 and 80. Now, all these three contracts are signed by Popatlal Panachand Shah as the manager of the appellant and for and on behalf of Pravin Construction Company, as the manager thereof. Mr. Sheth urged that Popatlal was not the manager either of the appellant or of Pravin Construction Company. It was also urged that even if Popatlal is proved to be the manager of the appellant or Pravin Construction Company he had no authority to bind his principal, viz., the appellant, by entering into the contract with the plaintiffs. It is an admitted position that the appellant himself has not entered into contract with any of the plaintiffs. All the contracts are entered into by the plaintiffs with Popatlal as the manager of the appellant now. Before I consider this position further I would like to see as to who has actually carried out the contract given by the Bombay Housing Board. It is beyond dispute that the contract was given to the appellant. The whole of the contract work was carried out and it is admitted at the hearing of the appeals that the payment has been made to the appellant by the Bombay Housing Board. But, according to the appellant, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mes also evident from another document, exhibit 82. It is dated November 9, 1954. It is clearly established in evidence that the tender form was filed somewhere in December, 1955. Yet by exhibit 82 the appellant purported to assign the entire contract between him and the Bombay Housing Board to Popatlal Panachand Shah. This Popatlal Panachand Shah is the same person whom the plaintiff suggests as the manager of the appellant. Exhibit 82 would show that at one or the other stage the appellant tried to bring into existence some document to show that after he was given contract by the Bombay Housing Board he had assigned the same to some other person after taking an overriding ommission of 2 1/2 per cent. and that he is not liable to account for the profits arising out of the performance of the contract. Therefore, I am not prepared to believe that the appellant had given the sub-contract to Vasant & Company, and it was Vasant & Company who had performed the entire contract. It is an undisputed fact that the contract is performed. The only question is that who performed the contract and the only irresistible inference would be that it must be the appellant who must have performed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter he dismissed all the three appeals. The extracts set out above from judgments of the trial courts as well as the appellate court establish the following points : 1. The contract for execution of " P " group tenements was entered into with the Bombay Housing Board by the assessee, Thobhandas, in the name of Pravin Construction Co. 2. No assignment of the contract was made in favour of Vasant & Company. 3. No such assignment could have been made in law under the said contract. 4. The contract was wholly performed by the assessee, Thobhandas. 5. Vasantlal, the proprietor of Vasant & Company, was admittedly an employee of the assessee, Thobhandas. 6. Assessee, Popatlal Panachand Shah, was admittedly a manager of Pravin Construction Company in whose name the assessee, Thobhandas, had taken the contract. 7. Assessee, Thobhandas, had purported to assign the work of " P " group tenements to the assessee, Popatlal Panachand Shah, even before his tender was accepted by the Housing Board. 8. Both the alleged contracts of assignment were not signed by the assessee, Thobhandas. 9. No entries from the books of accounts of the assessee, Thobhandas, were produced or pointed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money. The Tribunal also noted that it was not shown that after the assessee, Thobhandas, transferred the moneys from the account of Pravin Construction Company to Vasant & Company, it was returned to him. The Tribunal, therefore, held that the assessee, Thobhandas Gajjar, actually got 2 1/2 per cent. of commission and actual execution and profits of the contract remained with the assessee, Popatlal Shah. In the above context, we have to deal with the contentions which have been urged. It cannot be disputed that the judgments of civil courts are always binding inter partes unless they are judgments in rem. The judgments inter partes would be final and binding in subsequent proceedings on the principles of res judicata. They may be binding as precedent as well. It is an established position of law, as stated by the Supreme Court in Chhatrasinhji Kesarisinhji Thakore v. Commissioner of Income-tax [1966] 59 ITR 562 (SC), that the Income-tax Officer is, within the limits assigned to him under the Act, a Tribunal of exclusive jurisdiction for purposes of assessment and he has, under the Act, to decide whether a particular receipt is " income " and it is not necessary that he must make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opatlal, and not the assessee, Thobhandas, who was taxable in respect of the income earned from the execution of " P " group contract works for the relevant assessment years. We have set out the findings made by the civil courts and in spite of these findings what additional evidence weighed with the Tribunal in reaching the conclusion that it was the assessee, Popatlal, who was taxable in respect of such income ? We have not been able to appreciate how the Tribunal could have reached the conclusion when it has not been found as a matter of fact by the fact-finding authorities in the course of the assessments out of which these references arise, that the contract in question was in fact assigned to Vasant & Company, which was claimed by the assessee, Thobhandas, to be benamidar of the assessee, Popatlal. Assuming that the finding that Vasant & Co. was benamidar for Popatlal is a question of fact, which could not be disturbed in the facts and circumstances of this case in these references, even then the three broad facts which have been lost sight of by the Tribunal are : (1) that the " P " group contract was not in fact assigned to Vasant & Company since the relevant deed was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in favour of the disponees to get the amounts direct from the firm, of which he was a partner. The tenor of the documents shows that the profits were first to accrue to him and were then applied for payments to the disponees. Learned counsel for the appellants contended that what had been assigned was an actionable claim, to wit, the right to profits, and, therefore, the profits were diverted, before they accrued to the disponer. This, in our opinion, is neither in accordance with the law of partnership nor with the facts as we have found on the record. Under the law of partnership, it is the partner and the partner alone who is entitled to the profits. A stranger, even if he were an assignee, has and can have no direct claim to the profits. By the deeds in question, the assessee merely allowed a payment to his wife and daughters to constitute a valid discharge in favour of the firm ; but what was paid was, in law, a portion of his profits, or, in other words, his income. A glance at the account books of the firm, Messrs. Chari and Ram, clearly shows that the amounts were first credited in the khata of Rangachari and then under his directions were transferred from his khata to thos ..... X X X X Extracts X X X X X X X X Extracts X X X X
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