ETHYL SAXENA Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS income -tax reference arises out of the assessment for 1961 - 62 (previous year being the financial year 1960 -61) of Jagdish Narain Saxena (hereinafter referred to as "the assessee"), who has since died. The question of law referred to this Court under S. 66(1) of the Indian IT Act, 1922, is :

(2.) THE question arises for consideration in the following circumstances. The assessee was an exporter of hides and skins. During the financial years relevant to the asst. yrs. 1957 -58 to 1959 -60, the relationship between the assessee and the National Grindlays Bank Ltd. (hereinafter referred to as "the bankers") became strained. The assessee had been having an overdraft account with the bank right from 1952. On 18th July, 1955, he executed a letter of hypothecation in favour of the bank for an overdraft up to a limit of Rs. 1 lakh pledging therefor the stocks in the assessee's godown at Delhi. Earlier, a deed of lien had been executed in favour of the bankers in respect of the goods lying in Bombay with the bankers and, on this arrangement, the assessee was entitled to overdraft to the extent of Rs. 1 -1/2 lakhs. Thus, the total overdraft facility available to the assessee was to the extent of Rs. 2 -1/2 lakhs. According to the assessee, however, the banker never confirmed the letter of hypothecation or insisted upon periodical statement of stocks in the godown at Delhi because the stocks in their possession in their godown at Bombay were more than sufficient to meet the overdrafts. The assessee alleged that due to the carelessness of the bankers while giving inspection, the goods lying at Bombay had been damaged. The bank sent to Delhi all the goods and returned them to the assessee in a damaged condition, except for 1,300 pieces. The assessee claimed compensation for loss but the bank was not prepared to accept the same. According to a letter written by the assessee's representatives to the ITO :

(3.) SHRI Dutta, appearing for the assessee, contended that the payment was received by the assessee as compensation for agreeing not to pursue the prosecution of the bank officials and cannot be treated as compensation for loss of stock -in -trade. We cannot accept this contention. A perusal of the letter of the auditors (portions of which have been extracted earlier), of the order of the Magistrate framing the charges, of the revisional order of the Addl. Sessions Judge and of the order of Falshaw J., make it clear that the dispute between the parties was of an "eminently civil nature" and that the attempt of the assessee as well as the banker was only to reach a settlement in respect of the loss or damage to the goods. This finding of the Tribunal was, therefore, based on material and cannot be interfered with.