Commissioner of Income-tax Vs. Gillanders Arbuthnot and Co. Ltd. - Court Judgment

Sabyasachi Mukharji, J.

1. The assessee is a company. The proceedings out of which this reference arises relate to the assessment year 1961-62. Therelevant previous year ended on March 31, 1961. During the previous year, the assessee sold 20,870 shares of Salimbong Tea Co. Ltd. to Seeyok Tea Co. Ltd. at a profit of Rs. 3,14,519. The assessee had held 20,870 shares out of 30,000 shares of the company and was the managing agent of the said company. There is no dispute that simultaneously with the sale of the shares, the assessee relinquished its managing agency of Salimbong Tea Co. Ltd. It appears from the further facts found by the Tribunal as well as the appropriate authorities that these shares were purchased by the assessee-company in the year 1937 and had been continuously held by the assessee-company, which will appear from para. 2 of the Tribunal's order at page 44 of the paper book. These shares, as we have mentioned before, were sold on February 20, 1961, which would appear from page 46 of the Tribunal's order. The managing agency was relinquished on March 31, 1961, and that also will appear from the order of the Tribunal. It would be relevant to refer to the fact that there was certain unexpired period of this managing agency. The contract in respect of this managing agency was fixed for a certain term but we do not get as to what the actual terms were on which the managing agency was subsisting. It was claimed before the ITO that the surplus realised was capital gains as distinct from revenue gains. The ITO was, however, unable to accept this position, because he was of the opinion that the particular block of shares were given because the block of shares carried with it the managing agency right. The ITO, in his order, at page 11 of the paper book, stated that the shares were included not in the trade investment but in the shares of the subsidiary companies and the explanation of the company was that the shares were acquired to obtain the managing agency of the company. In the earlier years losses on the sale of the shares and securities had always been claimed to be revenue losses but were treated as of capital nature. The particulars of losses disallowed in the past have been mentioned. The ITO had referred to the memorandum of association which permitted the assessee to carry on various businesses including the business of managing agency. The ITO was of the opinion that these entire shares were sold in one block by the assessee-company on relinquishing the managing agency although there was an unexpired period still to run. It was, however, held by the ITO that no compensation was received by the assessee for the loss of the managing agency. The ITO was of the view that the shares were sold at a value which was higher than the market price, there being really no market price, as these shares were valued much higher in the break-up of the shares. The ITO, in this background, was of the view that the assessee's case was not a simple one and he had acquired these shares to procure the managing agency and the assessee had, in fact, carried on multifarious activities in various lines including banking, financing of variouscompanies as well as the managing agency. The ITO referred in this connection to the different clauses of the assessee-company's memorandum of association. In this background, the ITO held that the entire profit on the sale represented business profit and he proceeded on that basis.

2. There was an appeal before the AAC. The AAC agreed with the views of the ITO that a major portion of the sale proceeds was relatable to the assessee's right to the managing agency which passed along with the shares. In view of the principles enunciated in the case of the assessee itself, as reiterated by the Supreme Court in Gillanders Arbuthnot & Co. Ltd. v. Commissioner of Income-tax [1964] 53 ITR 283, the AAC held that the surplus of Rs. 3,14,519 made in the transaction involved the giving up of the managing agency and was, therefore, revenue income. The AAC, however, noted that in the previous year the shares sold by the assessee-com-pany including the shares of this very company itself were treated as of capital nature. The assessee had given before the ITO certain distinguishing features which distinguished the assessee's case from the other case referred to on behalf of the Revenue before the AAC. It was asserted by the assessee before the AAC that the shares were acquired by the assessee-company from the partnership concerns and had been held by the partnership since 1937. The shares were held by the assessee-company as capital investment in almost all wholly owned subsidiary companies of which the assessee was also the managing agent. The investment was clearly not, therefore, of a speculative nature. The assessee-company was also empowered to hold shares. But after considering all these contentions, the AAC stated that in view of the decision in the case of the assessee in : [1964]53ITR283(SC) , and in view of the innumerable agencies, according to the AAC, which the assessee carried on, the transaction involving the giving up of the managing agency was of a revenue nature. In that view of the matter, he upheld the order of the ITO on this aspect of the matter.

3. The assessee thereafter preferred an appeal before the Appellate Tribunal. The Tribunal found, and it is important to refer to certain aspects of the findings of the Tribunal, that in this case, the assessee had parted with an asset of enduring nature.. This finding of the Tribunal appears at page 48 of the paper book. It also had parted with its investments, being the shares in question, which resulted ordinarily in capital gains. The Tribunal noted that the assessee-corapany, as reiterated by the Supreme Court in its decision, which we shall presently discuss, that the acquisition of shares in that case was in the normal course of its business and the amount received by the assessee for cancelling certain agency, therefore, represented income of revenue nature. The Tribunal further observed : 'In this case before us and on the facts of it nothing has been received by the assessee-company as a price for its forgoing managing agency rights. What it has legally received is the value of the shares though it cannot be denied that it received a higher value because the shares carried with it the managing agency rights.' There is a slight mistake in the cyclostyled paper book and we have taken the actual words used by the Tribunal in its order which was produced at the time of hearing of this case. In that view of the matter, the Tribunal was of the view that it was concerned with the true and legal realisation resulting from the transaction. The transaction, according to the Tribunal, appeared to be the sale of shares and the shares were not the assessee's stock-in-trade. The Tribunal, therefore, held that the surplus was liable to tax as capital gains and not as revenue gain. In that view of the matter, the Tribunal allowed the assessee's claim on this account.

4. Upon these, under Section 66(1) of the Indian I.T. Act, 1922, the following question has been referred to this court :

'Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the surplus arising out of the transaction of sale of shares was capital gains as distinct from revenue gain ?'

In order to complete the narration of facts, it may not be inappropriate to refer to the questions proposed by the Revenue in its application to the Tribunal. Those questions were as follows :

'1. Whether, on the facts and in the circumstances of the case, and having regard to the fact that the block of shares of Salimbong Tea Co. Ltd. carried with it the right of managing agency of the said company, the Tribunal is right in ignoring the true substance of the transaction in the sale of those shares ?

2. If the answer to the above question is in the negative, then whether, on the facts and in the circumstances of the case, the surplus realised by the assessee-company from the sale of the shares was wholly or partly in consideration of the resignation by the assessee-company of the managing agency right of Salimbong Tea Co. Ltd., and whether such surplus was a revenue profit in the hands of the assessee-company ?'

The Tribunal, however, did not refer the questions as proposed but referred the questions as reframed in the manner indicated above. There was no further application under Section 66(2) of the Indian I.T. Act, 1922, to this court.

5. The question is, in the background of these facts, whether the Tribunal was right in holding that the surplus arising out of the transaction of sale of shares was capital gains as distinct from revenue gains. The indisputable facts are, as we have mentioned, that these shares were treated as investment and were held to be as capital assets. In the past, these shares were so treated and so taxed. These shares were held in subsidiary companies in which the assessee was acting as the managing agent. It was further to be noted that the price of these shares was considerably higher than their break-up value, there being no market price or value. These were unquoted shares. If a certain commodity or stock-in-trade which is held as investment is sold and a price other than the normal price is obtained because of its certain special advantage or special attraction, does the sale become a sale not of that commodity or of investment but of something else. That is really the question which arises for consideration in this case. As we have noted before, there is no finding that the transaction in question was a colourable one in the sense that though the transaction was shown apparently to be a transaction of sale of the shares, it was really something else or that the consideration for the transaction was something else. These two questions would arise for consideration whether the sale or purchase was a dealing in the managing agency or was a regular business of the assessee or, in other words, the managing agencies of the different companies which the assessee-company held were really held as stock-in-trade or the managing agencies were really part of the operational structure or the source of earning profit of the assessee-company.

6. In the context of these facts, it will be necessary now to consider some of the decisions to which our attention was drawn. Reliance may first of all be placed in the case of Kishan Prasad Co. Ltd. v. CIT : [1955]27ITR49(SC) , where the assessee-company was formed in 1917 with the objects, inter alia, of carrying on a general business and trade of commission agents and bankers, undertaking the management of commercial undertakings and dealing in bills, hundis and other securities. In 1933, K, the managing director of the assessee-company, entered into an agreement with a sugar syndicate then incorporated under which in lieu of the assessee subscribing for shares worth Rs. 3 lakhs in the sugar syndicate and undertaking to sell shares of the syndicate worth Rs. 2 lakhs, the assessee was to be given the managing agency of a mill of the sugar syndicate when such mill was erected. The agreement further provided that if the mill was not erected, the assessee was to be paid a commission on the shares invested by them, K was appointed a director of the syndicate. The mill was not erected and the agreement about acquiring the managing agency fell through. K died in 1940 and the assessee sold the shares in the syndicate in 1941 and 1943. The sale brought an amount to the assessee which was in excess of what they had paid for the shares, by about Rs. 2 lakhs. The question was whether the receipt of Rs. 2 lakhs was a receipt from business and not a mere appreciation of capital. It was held that the purchase of shares to the tune of Rs. 3 lakhs was an investment and not an adventure in the nature of business and the sum of Rs. 2 lakhs received by the assessee was not in the nature of income from business and was, therefore, not liable to tax. The Supreme Court was of the view that the circumstances whether the transaction was or was not within company's powers had no bearing on the nature of the transaction or on the question whether the profits arising therefrom were capital accretion or revenue income. At page 52 of the report, the Supreme Court emphasised that the exact nature of the business which the assessee-company was doing was important and it was observed, after conceding, that the taking up of the shares by the assessee-company in the sugar company was essentially a part of the arrangement arrived at, and the only reasonable conclusion, according to the Supreme Court, to which the High Court should have come, was that the investment of the money in the purchase of shares was capital in nature and the profits arising out of the sale of the shares in the circumstances of the case were accretions to capital and were not liable to tax. This question again came up for consideration before the Supreme Court in the case of Ramnarain Sons (P.) Ltd. v. CIT : [1961]41ITR534(SC) , where the question was whether it was a capital loss or revenue loss in the context of purchase of shares in the company for acquiring its managing agency, as well as the loss on resale of shares. There, the appellant company was dealing in shares and securities and also carried on the business as managing agents of other companies. In order to acquire the managing agency of a textile mill, the assessee-company purchased from Sassoon David & Co., who were the managing agents thereof, 1,507 shares of the mill at Rs. 2,321-8-0 per share at the time when the market price was Rs. 1,610. The remaining 1,000 shares of the mill held by Sassoon David & Co. were acquired by the directors of the assessee-company. Two months later, the assessee-company sold 400 of those shares at a loss of Rs. 1,78,438 and those losses were claimed as trading loss. It was held that by purchasing the shares (at a price), far in excess of their market price, to facilitate the acquisition of the managing agency, a capital asset was acquired by the assessee-company. The intention in purchasing the. shares was not to acquire them as part of the stock-in-trade of its business in shares. The loss incurred by the sale of 400 shares was, therefore, loss of a capital nature. Neither the circumstance that the appellant company borrowed money at interest to purchase the shares nor the fact that the assessee dealt in shares and was authorised by its memorandum of association to deal in shares was of any effect. Nor could the assessee-company by entering the shareholding in the mills, in its statement of shares in which the trading transactions were carried on, alter the real character of the acquisition. The subsequent disposal of the same out of the shares held by the assessee-company could not also convert what was a capital acquisition into an acquisition in the nature of a trade. In considering whether the transaction was or was not an adventure in the nature of trade, the problem, the Supreme Court emphasised, must be approached in the light of the intention of the assessee having regard to the legal requirements which were associated with the concept of trade or business. The inference on this question raised by the Tribunal on the facts found was a mixed question of law and fact and was open to challenge before the High Court on a reference under Section 66 of the Indian I.T. Act. The question whether the assessee's transaction amounted to a dealing in shares and properties or an investment was a mixed question of law and fact and the legal effect of the facts found by the Tribunal on which the assessee could be treated as a dealer or an investor was a question of law. Therefore, the question raised was whether the acquisition of the managing agency of the Dawn Mills Co. Ltd. was in the naturg of a business carried on by the assessee-conipany and the subsequent question was that if the answer to the question was in the affirmative, what would be the consequences. In the instant case before us, the question whether the assessee was a dealer in managing agency in the sense that this purchasing or selling of the managing agency agreement as such was giving up the managing agency, was not raised. Indeed, the memorandum of association of the assessee-company permitted the assessee-company to carry on the business of managing agency of different subsidiary companies but whether the assessee was considered to be a dealer in managing agency, that question was not raised and there was no finding to that effect.

7. Our attention was drawn to the decision of the Supreme Court in the case of CIT, v. National Finance Ltd. : [1962]44ITR788(SC) . This was an appeal from the decision of the I.T. Appellate Tribunal, Delhi Bench. There, what happened was, six companies including A & Co., B & Co. and C & Co. belonged to the same group of individuals, the Y. R. B. group. A & Co, were financiers and dealers in shares. A person, who by reason of his holdings, was in a position to influence the decisions of the board of directors of those six companies, arranged for the purchase of a large block of shares held by the managing agents of M. S. & Co., another prosperous company, at the price of Rs. 400 per share, while the market price was only Rs. 252. The shares were purchased by B & Co. in July, 1948, out of the moneys advanced as loan by A & Co. Soon after the purchase, the old managing agency of M. S. & Co. was terminated and a new board of directors from the Y. R. B. Group was appointed to that company. A & Co. were appointed as the purchasing and selling agents of M. S. & Co. from the date of the purchase of the shares by B & Co. A & Co. made good profits from the agency. In October, 1948, A & Co. purchased the shares from B & Co. at Rs. 400 per share. On June 1, 1949, A & Co. sold 3,000 shares to C & Co. at Rs. 180 per share and in the assessment year 1951-52, A & Co. claimed to set off the sum of Rs. 5,86,312 odd as loss incurred by the sale of the 3,000 shares against the profits of the year. The ITO and the AAC had held that the shares in question were purchased for the purpose of acquiring the purchasing and selling agencies of M. S. & Co., a capital asset, and not as an act of trade speculation, and the loss in question was, therefore, a capital loss. The Appellate Tribunal reversed this decision, mainly on the ground that, as limited companies were separate entities, whatever the intention of B & Co. or the persons controlling the six companies in acquiring the shares might have been, such intention could not be imputed to A & Co.

8. It was held by the Supreme Court that though it might be true that the intention of one company could not be attributed to another company even though the proprietorship of the companies might be the same, in cases like the present one, the court was not concerned with a theoretical question as to the assessee-company being a separate legal entity, but with the question whether a particular loss made by the company was a capital or a revenue loss. On the facts, it was found, that the controlling interest in M. S. & Co. was acquired by the persons controlling the six companies for the benefit of A & Co., and it was an acquisition of an interest of an enduring nature. The transaction would be regarded as one on the capital side as the shares were also never treated as part of the stock-in-trade and were not sold in the market. The sale at a loss to another company belonging to the same group, with the obvious intention of setting off the losses against the profits, was only a device to cancel the profits and save them from taxation.

9. While it is true that the Supreme Court in that case emphasized the nature of approach, it has to be borne in mind that whether a particular transaction was collusive or not or really represent the real transaction is within the domain of a fact-finding body, and, the Tribunal, in an appropriate case, if the facts were so presented before the Tribunal, was required to find such a fact. If the Tribunal refuses to find such a fact or misdirects itself to find such a fact then an appellate authority, hearing an appeal, as the Supreme Court, was not the body to find a fact about the reality of the transaction. We must bear in mind that, in the instant case, the Income-tax Appellate Tribunal had not found as a fact as to whether the assessee-company was dealing in managing agency, though it was found that the assessee company was the managing agent of several companies ; secondly, that there was a sale of the assessee's shares and that sale was not a collusive one was also not disputed before the appropriate authorities and was not found by the fact-finding body,

10. A good deal of reliance was placed on two decisions which we would presently note. The first decision is the decision in the case of Kettlewell Bullen & Co. Ltd. v. CIT : [1964]53ITR261(SC) . There, the assessee-company,formed with the object, inter alia, of carrying on the business of managing agencies, was the managing agent of six companies including the Fort William Jute Co. Pursuant to an arrangement with Mugneeram Bangur & Co., whereby the latter agreed to purchase the entire holding of shares by the assessee in the Fort William Jute Co., the managed company, to procure repayment of all loans made by the assessee to that managed company, and to procure that, the managed company would compensate the assessee for loss of office by the payment of the sum of Rs. 3,50,000 after the assessee resigned its managing agency and reimbursed that amount to the managed company, the assessee-company tendered resignation of the managing agency and received the sum of Rs. 3,50,000 from the managed company. Under the terms of the managing agency agreement, the managed company was not obliged to pay any compensation to the assessee for a voluntary resignation of the managing agency. The question was whether the amount received by the assessee to relinquish the managing agency was a revenue receipt liable to tax.

11. There, it was held by the Supreme Court, on the facts, that the arrangement with Mugneeram Bangur & Co. was not in the nature of a trading transaction, but was one in which the assessee parted with an asset of an enduring value. What the assessee was paid was to compensate it for the loss of a capital asset and was not, therefore, in the nature of a receipt on the cancellation of a contract of agency or office or the extinction or compulsory cessation of the agency or office. There, the payment was made to compensate a person for the cancellation of a contract which did not affect the trading structure of his business or deprive him of what in substance was his source of income.

12. The termination of the contract being a normal incident of the business, and as such cancellation left him free to carry on his trade (freed from the contract terminated), the receipt was revenue, and where, by the cancellation of an agency, the trading structure of the assessee was impaired, or such cancellation resulted in loss of what might be regarded as the source of the assessee's income, the payment made to compensate for the cancellation of the agency agreement was normally a capital receipt.

13. The important significance of this decision, in the facts and circumstances of the instant case, is that there was a good deal of doubt as to whether the carrying on of business of managing agency, in the instant case before us, was a source of income of the assessee-company and the termination of it affected its trading structure and as such was a part of its capital structure. The Supreme Court emphasized that whether a particular receipt was capital or income from business, has frequently engaged the attention of the courts. It might be broadly stated that what was received for the loss of capital was a capital receipt ; what was received asprofit in a trading transaction was taxable income. Even assuming for a moment in the instant case before us, that the transaction in reality, as it was sought to be canvassed on behalf of the Revenue before us that we should go behind the substance and examine the reality was a payment for the relinquishment of the managing agency, even if it be so, then the next question arises whether there was a dealing in managing agency or the managing agency was held as a stock-in-trade by the assessee-company, the transaction in respect of which can result in Revenue income. There is, as we have mentioned before, no examination and no finding on this aspect by the fact-finding body and no question has been directed to this court to revalue or. re-examine this aspect. The Supreme Court, in the said decision, referred to various decisions, which we need not recapitulate, and concluded at page 282 of the report as follows :

'On an analysis of these cases which fall on two sides of the dividing line, a satisfactory measure of consistency in principle is disclosed. Where on a consideration of the circumstances, payment is made to compensate a person for cancellation of a contract which does not affect the trading structure of his business, nor deprive him of what in substance is his spurce of income, termination of the contract being a normal incident of the business, and such cancellation leaves him free to carry on his trade (freed from the contract terminated) the receipt is revenue. Where by the cancellation of an agency the trading structure of the assessee is impaired, or such cancellation results in loss of what may be regarded as the source of the assessee's income, the payment made to compensate for cancellation of the agency agreement is normally a capital receipt.'

The very next decision reported in the said volume is the decision in the case of the assessee in Gillanders Arbuthnot & Co. Ltd. v. CIT : [1964]53ITR283(SC) . There, the Supreme Court found that the assessee had carried on business in diverse lines: besides acting as managing agents, shipping agents, purchasing agents and secretaries, the company also had acted as importers and distributors on behalf of foreign principals and bought and sold on its own account. Under an unwritten agreement, which was terminable at will, the assessee-company had acted as the sole agents and distributors of explosives manufactured by the Imperial Chemical Industries (Export) Ltd. That agency was terminated and by way of compensation, ICI (Export) Ltd. had paid for the first three years after the termination of the agency two-fifths of the commission accrued on its sales in the territory of the assessee-company's agency computed at the rates at which the assessee-company had formerly been paid and in addition in the third year full commission for the sales effected in that year at the same rates. The Imperial Chemical Industries (Export) Ltd. had intended to take a formal undertaking from the assessee-company to refrain from selling oraccepting any agency for explosives or other competitive commodities, but no such agreement in writing was taken or insisted upon. The question was whether the amounts received by the assessee for those three years were of the nature of capital or revenue.

14. There, the Supreme Court held that, having regard to the vast array of business done by the assessee as agents, the acquisition of agencies was in the normal course of business and the determination of the individual agencies, a normal incident not affecting or impairing its trading structure. The amounts received by the assessee for the cancellation of the explosives agency, therefore, did not represent the price paid for the loss of a capital asset ; they were of the nature of income. The Supreme Court reiterated that there was no immutable principle that compensation received on cancellation of an agency must always be regarded as capital. Compensation paid for agreeing to refrain from carrying on competitive business in the commodities in respect of the agency terminated, or for loss of goodwill, was prima facie of the nature of a capital receipt.

15. There, the Supreme Court, after analysing the nature of the business of the assessee, observed at page 289 as follows :

' The appellant was conducting business as selling or distributing agent of numerous principals. The agency which was terminated was one of many such agencies in which the appellant functioned as distributing agent of a foreign principal. There is not even a suggestion, that by the determination of the agency held by the appellant in explosives from the principal company, the trading structure of the assessee's business was impaired. It is manifest that the agencies of the companies conducted by the appellant must have been obtained at different times. There is no evidence that these agencies were of any fixed duration. It would be reasonable to infer that some of the agencies may be cancelled and fresh agencies obtained. The list furnished by the appellant before the Tribunal analysing the different classes of business carried on by it, disclosed that the business was done in many lines. The appellant acted as managing agent of some concerns, distributing agent of others, and as secretary of still other class of concerns. Again it dealt as an exporter and importer, shipping agent, and as a buyer and dealer in diverse commodities. A large amount of business was done by the appellant as an agent of foreign companies. The appellant had obtained agencies for paints, varnishes, petroleum, kerosene oil, medicines and toilet preparations, cement, timber, stationery, metals, tea, engineering goods, air conditioning equipment and a large number of other commodities. It may reasonably be held, having regard to the vast array of business done by the appellant as agents, that the acquisition of agencies, a normal incident, not affecting or impairing the trading structure of the appellant. The appellant was compensated by payment to itfor the loss of profit it suffered by the cancellation of its agency, leaving it free to conduct its remaining business.'

There, it was argued that the assessee-company had employed expert officers who were accustomed to handle explosives which were a specialised commodity and the cancellation of that agency seriously affected the organisation of its trading operations. But the assessee was undoubtedly dealing in several kinds of inflammable substances, such as, petroleum, kerosene oil, timber and similar other commodities. The explosives, though they require great care in handling, these officers could be employed in respect of those agencies. It would further appear that eighty per cent. of the staff, attached to the magazine section, was maintained not at the expense of the assessee, but at the expense of the principal company. Out of these officers, who were attached to the explosives business, services of five officers were taken over by the principal company and six others were retained by the assessee and absorbed in other branches. It was, therefore, held that the termination of the agency did not result in an impairment of the trading organisation of the assessee-company. It has to be borne in mind that regarding the termination, though the Supreme Court held that the assessee-company had acted as managing agents of some of the companies, the Supreme Court did not find that dealing in managing agency was the regular business of the assessee though the assessee-company was a managing agent of several companies, and further, the assessee-company had done distributing agency of a fairly large number of companies. Unlike the facts in the instant case, there was a finding that there was an expiry of the period of the agency agreement. The Supreme Court reiterated the principle that the Supreme Court had enunciated in the judgment in the case of Kettlewell Bullen & Co. : [1964]53ITR261(SC) , which we have referred to hereinbefore, and thereafter coming to the conclusion on a careful consideration of all the circumstances of the case, they were of the opinion that the cancellation of the contract of agency did not affect the profit-making structure of the assessee-company, nor did it involve a loss of any enduring trading asset. Here, of course, the Tribunal has found that these assets were held by the managing agency as an enduring trading asset of the managing agency.

16. Reliance was also placed on the case CIT v. B. M. Karwar : [1969]72ITR603(SC) , There, the Supreme Court reiterated that it was well-settled that the taxing authorities were not entitled, in determining whether a receipt was liable to be taxed, to ignore the legal character of the transaction which was the source of the receipt and to proceed on what they regarded as 'the substance of the matter'. The taxing authority was entitled, and was indeed bound, to determine ,the true legal relation resulting from a transaction. If the parties had chosen to conceal by a devicethe legal relation, it was open to the taxing authorities to unravel the device and to determine the true character of the relationship. But the legal effect of a transaction could not be displaced by probing into the 'substance of the transaction'. The Supreme Court reiterated that this principle applied alike to cases in which the legal relation was recorded in a formal document, and to cases where it had to be gathered from evidence --oral and documentary--and conduct of the parties to the transaction.

17. The Supreme Court referred to the observation in Sir Kikabhai Premchand v. CIT : [1953]24ITR506(SC) , to the effect that in revenue cases regard must be had to the substance of the transaction rather than its mere form could not be read as throwing any doubt on the principle that the true legal relation arising from a transaction alone determines the taxability of a receipt arising from the transaction. The Supreme Court observed that the said observation in Sir Kikabhai Premchand was casual and was not necessary for the purpose of the present case. The two correct principles are that (i) it is open in an appropriate case for the Revenue to find out the true legal position and substance of a transaction and (ii) it is open for a Tribunal or a fact-rinding body to find that a document is a device or a transaction is a device to conceal the true legal relationship. But once that position is negatived it is accepted that the transaction is what it represents, in other words, this simply gives out the consideration for that real transaction so paid, and whether out of advantage or special advantage does not, in our opinion, affect the legal consequences flowing from that transaction. A man or an assessee may be a dealer in certain commodities, contracts for which might have been entered into, and the sale and purchase of those commodities might give him some special advantages or special price, but that does not detract from the actual realities of these transactions.

18. Reliance was also placed on behalf of the assessee on certain observations in the case of Karam Chand Thapar & Bros, P. Ltd. v. CIT : [1971]80ITR167(SC) , where the Supreme Court reiterated that though the assessee-company had acted as the managing agents of 27 companies, the termination would be for the one managing agency and the compensation paid of Rs. 18 lakhs was received as capital. The counsel on behalf of the assessee, relied on the observations of the Supreme Court at page 170, but as we have mentioned before, this question will depend on whether the assessee is a dealer in managing agency.

19. On behalf of the revenue, reliance was placed on certain observations in the case of Juggilal Kamlapat v. CIT : [1969]73ITR702(SC) , in aid of the proposition that within the ambit of the question before us we can embark upon the facts, whether the payment was really a payment for the surrender of managing agency and not shares which were held as investments.

20. Learned advocate drew our attention to the findings at page 710 where the finding was that the transaction was of a collusive nature and there was no such managing agency of the assessee. Even assuming for a moment that the payment was for the surrender of the managing agency, unless there is a finding that the assessee was a dealer in managing agency, this aspect would not mainly support the assessee's contention.

21. Our attention was also drawn to the observation, of the Supreme Court in the case of CIT v. S. P. Jain : [1973]87ITR370(SC) , where the Supreme Court found certain facts in respect of a transaction between the parties. There, in the reference application, the Revenue had asked for a reference as to whether the finding of the Tribunal was perverse. There, the questions referred to were as follows :

'1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in declining to consider the documents which were already on record and which the department wanted to adduce as evidence ?

2. Whether, on the facts and in the circumstances of the case, theTribunal's finding that the purchase of the shares by the Rana was not abenami transaction was legally valid

3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the sum of Rs. 10,80,000 from the total income of the assessee by holding that the Rana was not the benamidar of the assessee ?'

There, the Supreme Court observed as follows (p. 381) :

'In our view, the High Court and this court have always the jurisdiction to intervene if it appears that either the Tribunal has misunderstood the statutory language, because the proper construction of the statutory language is a matter of law, or it has arrived at a finding based on no evidence or where the finding is inconsistent with the evidence or contradictory of it, or it has acted on material partly relevant and partly irrelevant or where the Tribunal draws upon its own imagination, imports facts and circumstances not apparent from the record, or bases its conclusions on mere conjectures or surmises, or where no person judicially acting and properly instructed as to the relevant law could have come to the determination reached. In all such cases the findings arrived at are vitiated '.

The facts of that case were entirely different. The Revenue wanted to raise a question as to perversity. The Tribunal reframed the question by stating whether the finding as to benami transaction was legally valid or not. The Supreme Court held that the questions as framed were thought by the Supreme Court to be wide enough to include the questions raised before the Tribunal. Further, the Supreme Court observed that the High Court had jurisdiction to intervene if it appeared thatthe Tribunal had misunderstood the statutory language. In the instant case before us, there is no such term before us.

22. In that view of the matter and in view of the findings that have been arrived at by the Tribunal and which are not disputed or challenged, the question must be answered in the affirmative and in favour of the assessee.

23. In the facts and circumstances of the case, however, there will be noorder as to costs.

Sudhindra Mohan Guha, J.

24. I agree.