COMMISSIONER OF INCOME-TAX, CALCUTTA, NOW WEST BENGAL III versus IMPERIAL CHEMICAL INDUSTRIES (INDIA) PRIVATE LTD.

Citation: [1969] 3 S.C.R. 804 · Decided: 20-02-1969 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Appeal(s) allowed

Judgment (excerpt)

COMMISSIONER OF INCOME·TAX, CALCUTTA, NOW 
A 
WEST BENGAL m 
v. 
IMPERIAL CHEMICAL INDUSTRIES (INDIA) PRIVATE 
LTD. 
February 20, 1969 
(J. C. SHAH, V. RAMASWAMI AND A. N. GROVER; JJ.] 
Indian Income-tax Act, 1922, ss. 3, 10(2) (xv) and 66(1)-Assessee 
appointed sole selling agent of principal-Compensation paid to former 
selling agents through accounts of assessee--Compensation paid through 
assessee's accounts whether deductible expenditure-Payment whether 
expenditure IG'id out for purposes of business-Payment whether urtdtr 
overriding title-Tribunal's finding of fact that compensation was not paid 
by assessee under any agreement with principal cannot be interfered with 
by High Court when question not referred to it. 
The Imperial Chemical Industries (Export) Glasgow was a subsidiary 
of Imperial Chemical ~dustries London. With effect from 1st April 1948 
the former terminated the services of four selling agents in India and in 
their 'pface ·appointed the. respondent company (another subsidiary of the 
Im pert al Chemiclll Industries, London) as their sole selling agents. The 
four former selling agents were to be paid compensation fo~ the termina-
tion of their services and this was done through the accounts of the res-
pondent. In its income returns for the years 1949-50, 1950..51, 1951-52 
and 1952-53 the respondent showed as its income the net amount of com-
mission arrived at after deducting from the gross commission the compen· 
sation paid to the former selling agents. The Income-tax Officer in his 
order for the year 1951-52 held that the said deductions were not permis-
sible. His order was confirmed by the Appellate Assistant Commissioner 
and the Income-tax Appellate Tribunal. The Tribunal held that there was 
no agreement between the Imperial Chemical Industries (Export) Glasgow 
and the respondent company casting on the latter the liability to pay the 
compensation to the former selling agents out of the commission earned 
by it; the Tribunal further said that even if there was an agreement it was 
not acted upon. In reference under s. 66( I) of the Indian Income-tax 
Act, 1922 the lligh Court took the opposite view and held that the claim 
made by the respondent company was allowable. The revenue appealed 
to this Court. The questions that fell for consideration were : (i) whether 
the High Court was justified in interferin2 with the Tribunal's finding of 
fact on a question not referred to it; 
(ii) whether the compensation 
amounts paid by the resPond.ent to the former selling agent• were expendi-
ture laid out wholly and exclusively for the purpose of business; 
(iii) 
whether the income in question was diverted before it reached the respon-
dent by virtue of an overriding title. 
HELD : (i) It is well-established that the High Court is not a Court 
of Appeal in a reference under s. 66( I) of the Act and it is not open 
to the High Court in such a reference to embark upon a reappraisal of 
the evidence and to arrive at findings of fact contrary to those of the 
Appellate' Tribunal. It is the duty of the High Court while hearing the 
reference to confine itself to the facts as foand by the Appellate Tribunal 
and to answer the question of law in the context of those facts. 
It is 
true that the finding of fact will be defective in law if there is no evidence 
8 
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F 
G 
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A 
B 
c 
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C.I.T. V. IMPERIAL CHEMICAL LTD. 
805 
to support it or if the finding is perverse. 
But in the hearing of a re-
ference under s. 66(1) Of the Act it is not open to the assessee. to 
challenge such a finding of fact unless he has applied for the reference 
of the speoific question under s. 66( 1). [809 B-D] 
In the present case the assessee bad in its applications under s. 66(1) 
expressly raised the question about the validity of the finding of the 
Appellate Tribunal as regards the agreement but the question 
was 
not 
referred by the Appellate Tribunal to the High Court and the contention 
of the assessee with regard to the question must be deemed to have been 
.rejected. The assessee did not thereafter move the High Court under s. 
66(2) of the Act requiring it to call for a statement of the case on that 
specific question. 
The High Court was therefore in error in embarking 
upon a reappraisal of the evidence before the Appellate Tribunal and 
setting aside the finding of the Appellate Tribunal that there was no 
agreement as claimed by the assessee for the payment of compensation to 
the f

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