9911796707
TMI Blog1974 (5) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... ent year is 1961-62 for which the accounting year is financial year 1960-61. During the assessment year, the following were the directors of the company : (1) Shri Jugal Kishore Mehra ; (2) Shri Rishi Ram Aggarwal ; (3) Shri Madan Mohan Aggarwal ; (4) Shri Jai Gopal Mehra ; (5) Shri Het Ram Aggarwal . In the profit and loss account, the assessee claimed brokerage and commission amounting to Rs. 96,080 and this sum included an amount of Rs. 69,228 paid to Messrs. Textile Processing Agency, Amritsar. The commission to this firm was stated to have been paid in pursuance of an agreement dated March 31, 1960, whereby this firm was appointed as agent of the assessee. The firm, Messrs. Textile Processing Agency, Amritsar, came into existence on April 1, 1960, under a partnership agreement, which was executed on the same day. The Income-tax Officer found that on March 31, 1960, when the agreement between the assessee and Messrs. Textile Processing Agency was executed, the firm, Messrs. Textile Processing Agency, was not in existence. Since the firm had not come into existence on that date there was no question of Dr. Het Ram Aggarwal entering into an agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng functions : " (i) The agents were to advance or cause to be advanced on their behalf to the company on a request being made in writing by the company, a sum of Rs. 4 lakhs, on which the company was to pay interest at 7 1/2%. (ii) They were to collect on behalf of the company realisations from customers and to be liable to the company for non-recoveries except in the case of insolvency of any of the customers or non-settlement of a dispute of a claim by the company with the customers. (iii) They were to introduce customers to the company. " During the assessment year, the assessee-company did not receive any advance from/or through the Textile Processing Agency to meet its financial requirements. It had to take a temporary overdraft of Rs. 1,08,168 from Messrs. National and Grindlays Bank Ltd., and it also raised loans from the market inasmuch as the amount of unsecured loans increased from Rs. 1,22,961 on March 31, 1961, to Rs. 2,23,299 at the end of the accounting year 1960-61. Thus, according to the Income-tax Officer, the primary function was not actually performed by the agency and it was not meant to be performed. He also found that the two important functions m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... down that except with the previous consent of the company accorded by a special resolution, no director of a company, no partner or relative of such a director, no firm in which such a director or relative is a partner, no private company of which such a director is a director or member, etc., shall hold any office or place of profit except that of managing director, etc. Section 314(2) of that Act runs as follows : " If any office or place of profit under the company or a subsidiary thereof is held in contravention of the provisions of sub-section (1), the director concerned shall be deemed to have vacated his office as director with effect from the first day on which the contravention occurs ; and shall also be liable to refund to the company any remuneration received, or the monetary equivalent of any perquisites or advantage enjoyed by him, in respect of such office or place of profit. " Messrs. Textile Processing Agency was appointed as agent of the the assessee-firm, vide agreement dated March 31, 1960, whose copy is annexure " A ". This agreement was executed on behalf of Messrs. Textile Processing Agency with the assessee-firm by Dr. Het Ram Aggarwal, who was its p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tnership. The shares in the selling agency firm of the respective wife and son of each partner in the assessee-firm were equal to one-third. The Tribunal found : (i) that on the day the selling agency agreement was executed, viz., March 26, 1962, the selling agency firm had not even come into existence ; it had come into existence later, on April 13, 1962 ; (ii) that the ladies had no prior business experience ; (iii) that the only male adult partner in that firm was a partner in another manufacturing concern situated at a place quite distant from the place where the selling agency business was said to have been carried on ; (iv) that the business address of the selling agency firm was the same as that of the assessee ; (v) that the selling agency firm had no godown of its own nor any transport vehicles. On these findings the Tribunal reached the conclusion that the selling agency firm was not genuine and the agreement was only a make-believe arrangement and that it was merely a device to minimise the assessee's tax liability. On these facts, it was held as under : " That the finding of the Tribunal were finding of fact and no question of law arose out of the Tribunal's order. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been executed merely to evade proper taxation on income which the company is earning. While the avoidance of taxation is the right of the assessee, the purported reduction in tax in the manner attempted amounts to hoodwinking the revenue which is beyond law. In the desire to reduce the tax liabilities the assessee should not and cannot be permitted to resort to measures which are neither legal nor moral. It is a social evil to evade tax and evasion of tax cannot be allowed. The assessee has attempted at evasion of tax and attempted it consciously, deliberately with the sole motive of not paying the tax liabilities legally due from it. Such attempts have to be nipped in the bud. Lest they spread over because if they spread over they can undermine the whole social fabric and bring on the surface tendencies which are harmful to the society itself and the assessees themselves in the ultimate. The instant case cannot have sympathy of any one because it is a patent case of evasion of tax purported to be achieved through the instrumentality of an agreement and a partnership deed which has but only a thin veneer of legality. The relationship of the partners of the firm with the direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the partners of this firm, namely, Dr. Het Ram, was a director of the assessee-company and the other partners of the firm are closely related to the directors of the assessee-company and the findings of the Tribunal that this agreement by the assessee-company with this firm was only a device to divert the profits of the company to the directors or their close relatives are unassailable. It was next contended by Mr. Kapur, the learned counsel for the assessee, that the company had been appointing agents for the last several years and the commission paid to various agents had been allowed during the last so many years and that decision operated as res judicata and the Tribunal had no right to disallow the commission paid to Messrs. Textile Processing Agency. In support of this contention, he relied on a judgment of this court reported as Commissioner of Income-tax v. Dalmia Dadri Cement Ltd., wherein it was held as under : " ...... That though as a general rule the principle of res judicata is not applicable to decisions of income-tax authorities and an assessment for a particular year is final and conclusive between the parties only in relation to the assessment for that year ..... X X X X Extracts X X X X X X X X Extracts X X X X
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