BADRIDAS BANSIDHAR Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) IN this case the assessee, M/s Badridas Bansidhar of Muzaffarpur, is an HUF which derives income from house property, shares in various firms, trade in cloth and salt business. The accounting year for the salt business was from the 28th Oct., 1943 to the 15th Oct., 1944. It appears that the assessee had acquired the sole right of distributing salt in Muzaffarpur district. He organised seven distributing centres in the district, and one Kedarntah Jhunjhunwala was employed as the chief manager on behalf of the assessee to look after the various centres. There was an agreement between the assessee, on the one hand, and Kedarnath Jhunjhunwala on the other, to the effect that Kedarnath Jhunjhunwala would get remuneration at Rs. 75 per month and a commission calculated at the rate of 2a, 6p. on the total amount of profits earned in the salt business. For the period in question, the assessee showed in his return a net profit of Rs. 46,533 in the salt business, after making deduction of Rs. 8,649, which was the share of profits payable to Kedarnath Jhunjhunwala, and also a sum of Rs. 900, which was paid to Kedarnath Jhunjhunwala as salary for the whole year. It should be noticed that the commission was actually paid to Kedarnath Jhunjhunwala on the 19th Nov., 1944, after the close of the accounting year. Before the ITO, the assessee produced a receipt given by Kedarnath Jhunjhunwala for the share of profits paid to him. Kedarnath Jhunjhunwala was also examined by the ITO under S. 37 of the IT Act, but the ITO formed the opinion that the claim for deduction of the sums of Rs. 8,649 and Rs. 900 paid to Kedarnath Jhunjhunwala was fictitious and could not be allowed. The assessee preferred an appeal to the AAC, who reversed the order of the ITO and directed that both the sums of Rs. 8,649 and Rs. 900 paid to Kedarnath Jhunjhunwala should be allowed as deductions. The IT Department preferred appeals to the Tribunal from the order of the AAC. After hearing these appeals the Tribunal decided that there was no proof of the payment of Rs. 8,649 which was the share of profits alleged to have been paid to Kedarnath Jhunjhunwala. The claim of deduction with respect to this amount was, therefore, disallowed by the Tribunal, but the payment of the salary of Rs. 900 was held to be a genuine payment and the Tribunal held that this amount should be deducted as business expenses.

(2.) THE following question of law has been stated by the Tribunal for the opinion of the High Court :

(3.) ON behalf of the IT Department, Mr. R. J. Bahadur stressed the argument that even if the payment was made to Kedarnath Jhunjhunwala, the allowance could not be lawfully granted to the assessee under any of the provisions of the IT Act. The submission of counsel was that, even if the fact of payment to Kedarnath Jhunjhunwala was accepted as true, the assessee would not be entitled to the deduction of that amount unless that deduction is admissible under any of the heads mentioned in S. 10 of the IT Act. Mr. Datta said that the question of law does not arise out of the order of the Tribunal, but we do not think that this submission is right. We think, the question referred to the High Court cannot be satisfactorily answered unless we hold that, as a matter of law, the assessee is entitled to the deduction he has claimed. It is not sufficient for us merely to say that the payment of the alleged amount was actually made to Kedarnath Jhunjhunwala. We proceed, therefore, to examine the question whether the assessee is entitled to deduct the amount as a matter of law.