COMMISSIONER OF INCOME TAX Vs. BHUMRADDI T M

JUDGEMENT

(1.) TWO questions have been referred to us on this reference and they are : '(1) Whether on the facts and circumstances of the case there was a business connection in British India between the appellant firm and Messrs. B.V. Bhumraddi and Company of Bombay ? (2) Whether the Tribunal was justified in law in refusing to consider the contention of the Commissioner that the income of the assessee, or part of the income thereof, was received in British India (as it then was) ?'

(2.) THE assessees are T.M. Bhumraddi and B.M. Bhumraddi, two brothers, who were the proprietors of Shivanand Oil Mills. They had three oil mills in the Hyderabad State at Gulbarga, Yadgiri, and Zahirabad. The oil manufactured at Zahirabad was wholly sold in the Hyderabad State, but the oil manufactured at Gulbarga an Yadgiri was sold in British India; and it is in respect of these sales that the two questions have arisen. The relevant assessment years are 1940 -41, 1941 -42, 1942 -43 and 1943 -44. It appears that prior to the 7th of April, 1940, which fell within Samvat year 1996 being the previous year to the assessment year 1941 -42, one Purshottam Surchand was acting as an agent of the assessees in British India for the purpose of sale; and it was held that there was a business connection in British India for the assessment year 1940 -41 and this finding was accepted by the assessees and has not been made the subject -matter of the reference. Subsequent to the 7th of April, 1940, the assessees sold oil manufactured in the mills at Gulbarga and Yadgiri to B.V. Bhumraddi and Co., the proprietor of which was their uncle, B.V. Bhumraddi. The facts found by the Tribunal in the statement of the case are that B.V. Bhumraddi was doing his own business in Bombay, he kept no stock of oil and what he did was that he entered into contracts for sale of oil in Bombay and thereafter purchased the oil himself mainly from the assessees, but also from others in some cases. The oil was sent direct by the assessees to the customers. It was weighed at the factory of the customers and any rebate that was payable in respect of weight or quality was ultimately borne by the assessees. The Tribunal also finds as a fact - and this is by far the most important finding for the purpose of the questions that we have to answer - that the transactions between the assessees and B.V. Bhumraddi were as between principal and principal. The goods were despatched f.o.r. Gulbarga or Yadgiri stations and the freight was borne by B.V. Bhumraddi and not by the assessees. The assessees drew hundis on B.V. Bhumraddi for the price of the oil purchased by him and some of these hundis were discounted by the assessees through Purshottam Surchand, who was in Bombay, that is, some of the hundis were discounted in British India. The Tribunal also considered in what respect there was any difference between the position that obtained prior to the 7th of April, 1940, and the position that obtained after the 7th of April, 1940; but that is an approach which appears to us to be irrelevant for the purpose of determining the question before us. Whether it was rightly or wrongly held that there was a business connection prior to the 7th of April, 1940, is not a question that arises before us for determination; and all that we are concerned with on this reference, so far as question No. (1) is concerned, is whether on the facts found it could have been held that there was any business connection in British India within the meaning of section 42, sub -section (1), of the Income -tax Act. In our opinion, there is nothing whatever in those facts to warrant any finding of a business connection. The moment the Tribunal found as it did that the transactions were between principal and principal, there would have to be other strong and independent facts to establish some business connection. Mr. Amin for the Department has attempted to persuade us to look into the record and to hold that this finding of the Tribunal is not justified and that Mr. B.V. Bhumraddi was in fact an agent of the assessees. It is not open to this court upon this reference to do so. The facts as found by the Tribunal bind us and they could only have been challenged before this court by asking for a reference as to whether there was any evidence to justify that finding. No such question has been raised on the present reference and we did not, therefore. allow Mr. Amin to draw our attention to the record to show that Mr. B.V. Bhumraddi was in fact an agent, although the Tribunal found that the relationship between the assessees and B. V. Bhumraddi was that of principal and principal.

(3.) WE must confess our inability to understand what the Appellate Assistant Commissioner wishes to convey when he refers to the assessees bearing losses or receiving profits. There are no losses or profits involved when an adjustment is made in the price either by way of a rebate or an addition in respect of weight or quality, and, therefore, there is no question of the assessees bearing any loss or profit. If a rebate was rightly claimable by a person who purchased the goods from B.V. Bhumraddi, undoubtedly, he would have had the right to claim it in his turn from the assessees; and, therefore, if the rebate was ascertained in this particular case on a weightment made at the factory of the customers of B.V. Bhumradd, it does not alter the rights of B.V. Bhumraddi as against the assessees and he would still be entitled to this rebate which he was bound to give to his own customers by reason of either weight or quality. The fact, therefore, on which reliance is sought to be placed by Mr. Amin for establishing a business connection, namely, that there were some profits or losses in the sale made in India by B.V. Bhumraddi, which were borne by the assessees, does not survive for considerations. The fact that some of the hundis which were drawn on B.V. Bhumraddi in Bombay were cashed in Bombay also does not, in our opinion, by itself establish any business connection whatsoever. We are, therefore, of opinion that there is an entire absence of any business connection in this case and there was absolutely no material on which it would have been held that there was a business connection.