COMMISSIONER OF INCOME TAX Vs. LAHOTY BROTHERS LTD

JUDGEMENT

(1.) This is a reference under Section 66(1), Income-Tax Act & the question on which we are to express our opinion is as follows:

(2.) The assessee is a private limited company consisting of four shareholders. It has its registered office at 161/1, Harrison Road, Calcutta & carried on business as dealers in Petroleum & Mobile Oil in the Jorhat area in the District of Sibsagar in Assam. On 15-8-1944 it was the sole agent of the Standard Vacuum Company for sale of kerosene oil. On 15-8-1944, the assessee entered into an agreement with a joint family consisting of two members Chotey Lal Lahoty & Bhagwan Prosad Lahoty (the latter, a minor, being represented by the karta of the family his father, Chotey Lal) & carrying on a joint family business at 10, Murlidhar Sen Lane, Calcutta in the name & style of Chunilal Bhagwan Prosad whereby the joint family agreed to apply to the Oil company for transfer of the agency for kerosene oil standing in its name to the assessee or for the termination of the agency in its favour & for creation of a new agency for kerosene oil in favour of the assessee. The agreement provided that if the oil company agreed to either, & actually appointed the assessee as its agent for sale of kerosene oil in the Jorhat Sibsagar area the agreement would come into operation. The assessee during the continuance of its agency in kerosene oil agreed to pay to tine joint family a net sum of Rs. 600/- only every year according to instalments which are mentioned in the agreement. This sum was duly paid. There are two important clauses in the agreement:

(3.) There was also another provision in the agreement whereby for the upkeep & furtherance of the kerosene business, the joint family agreed to deposit & did deposit a sum of Rs. 7,400.00 with the assessee carrying interest at the rate of six per cent. to be paid to the joint family by the assessee. It was further agreed that during the continuance of the agreement this sum would not, be demanded back nor would it be paid back. In terms of the agreement Rs. 518 being the interest was duly paid. But no question arises in this reference in respect of the said sums of Rs. 600.00 & Rs. 518.00. The only question is whether the sum of Rs. 2100.00 can be properly allowed as allowance under the section I have already set out.