1980 PLP (Trib (PTD)

MIAN ABDUL KHALIQ (MEMBER)‑[16-2‑1980].‑‑This is a departmental appeal assailing the order of the Appellate Assistant Commissioner of Income‑tax Range, pertaining to assessment year 1973‑

74. The Office of the Tribunal has raised a preliminary objection regarding laches. It is reported that the appeal is belated by 18 days. In the relevant column of date of communication of the order of Appellate Assistant Commissioner narration is "as per record". On the objection of the office, the appellate Income‑tax Officer noted the date of communication of the Appellate Assistant Commissioner order as 29‑8‑1978. The Departmental Representative contended' that the impugned order of the Appellate Commissioner was served on the Income‑tax Officer on 29‑8‑2978 whereas the Commissioner of Income‑tax received the same on 14‑9‑1978 and as against that the appeal filed on 15‑11‑1978 was clearly in time. This submission of the Departments Representative is well‑founded. Lender the Income‑tax Act the date of communication of the order of the Appellate Assistant Commissioner to they Commissioner of Income‑tax, is relevant for the purposes of determining limitation. Taking into consideration the date of communication of the impugned order to the Commissioner of Income‑tax, the appeal is in time. The preliminary objection raised by the office stands overruled.

2. The Department is aggrieved of the treatment meted out to export business only. The assessee did not declare any income from export business. The Income‑tax Officer received an information from Torkham Custom Check Post that the assessee had exported 203 Trucks of Citrus fruit and Bananas to Kabul (Afghanistan). As per Custom Authorities report value of exported goods was at Rs. 6,24,

720. The Income‑tax Officer issued notice under section 23(3) of the Income‑tax Act calling for the assessee's explanation regarding non‑disclosure of any income from exports. In reply, the assessee stated that no exports were undertaken by the firm and one Mr. J. Proprietor J. Custom Clearing Agency had mis-utilized the firm's name by undertaking exports to Kabul. The Income‑tax Officer discarded the assessee's explanation. The said Clearing Agent was also summoned and thereafter it was found that he happened to be a nearest relative of the partners of the assessee‑firm. The Income‑ tax Officer asked for certain information on various points but the assessee failed to submit, the same. The Clearing Agent admitted that he had utilized the name of the assessee‑firm but he was unable two point out name of the party, on whose behalf exports were made. Net Profit rate of 10% was applied to the reported valuation of export goods .at Rs. 6,22,

720. In appeal the Appellate Assistant Commissioner accepted the assessee's contention that export business was conducted by the Clearing Agent in his individual capacity utilising the name of the assessee‑firm. Income assessed at the assessee's hands in export account was deleted in toto.

3. The Departmental Representative contended that the Appellate Assistant Commissioner fell in error in accepting the assessee's denial of exports despite the fact that the assessee was registered as n exporter and the exports were made against the licence granted to the assessee‑firm. The assessee‑respondent's Representative, in his turn, contended that exports by Clearing Agents in the name of different firm being common phenomena in this Zone, the Appellate Assistant Commissioner was perfectly justified in taking the exports to be that of the Clearing Agent. It was further submitted by the assessee's Authorised Representative that the Clearing Agent having admitted that exported goods were not of the assessee‑firm, the same could not be taken as to be the assessee's business.

4. After hearing the parties, we do not find any justification for the, impugned order of the Appellate Assistant Commissioner. Mere admission of the Clearing Agent that he had exported some goods in his individual capacity in the name of the assessee‑firm does not absolve the assessee from responsibility of exports made in the firm's name. Exports are made after undergoing various formalities in the form of registration of the firm' opening of letter of Credit and issuance of export permit etc. The Clearing, Agent failed to furnish the information regarding the parties whose goods; were exported by him. The Clearing Agent being a nearest relative of the partners of assessee‑firm, the arrangement was collusive. The analogy of levy of more Income‑tax by assuming the exports to be that of the Clearing, Agent is totally extraneous consideration for deciding the issue. The hard fact is that exports were made in the name of the assessee‑firm and income therefrom was rightly taxed, by the Assessing Officer at the assessee's hands. The Appellate Assistant Commissioner erred in attributing that' income to be that of the Clearing Agent. If the views of the Appellate Assistant Commissioner are accepted then there will be total confusion in the export business. Every exporter will come out with the plea that only his name was misused whereas the goods actually belonged to some other party. This will result in encouraging collusive arrangements. In this view of the matter, we vacate the impugned order of the Appellate Assistant Commissioner on this issue and restore that of the Assessing Officer. As a result of the above discussion the impugned order of the Appellate assistant Commissioner is vacated and that of the income‑tax Officer stands restored. The Departmental appeal succeeds accordingly. M. KARIM (MEMBER)‑[ 16‑2‑1980].‑I have gone through the order passed by my learned brother but with utmost respect, I am unable to agree with views expressed by him and the conclusion arrived at. In exporting goods an exporter does not have to open a letter of credit therefore, there was no question of opening a letter of credit. An exporter is registered as much as an importer but that does not mean that he had to open a letter of credit for exports; A letter of credit is opened by persons importing the goods. The shipping papers are the only papers which are prepared for clearance of goods for export. The Income‑tax Officer has not been able to prove that the shipping papers were signed by the assessee. On the other hand, the assessee had been able to prove that the Clearing Agent used the assessee's named without the assessee's permission. The learned Appellate Assistant Commissioner found no collusion between the exporter‑assessee and the clearing Agent. The two persons my have been relatives and yet they have been dealing at arms length. It was for the department to prove that the customs paper obtained from the Customs Authorities contained the signature of a partner of the firm or of an attorney of the firm. As the Department failed to prove collusion, in my opinion, the Appellate Assistant Commissioner was right in upholding the assessee's appeal. In this view of the matter I dismiss the departmental appeal. MUHAMMAD MAZHAR ALI (PRESIDENT)‑[31‑5‑1980].‑This appeal has come up before me under section 5‑A(7) of the Income‑tax Act, 1922, for decision on a point on which the two learned Members, who originally heard this appeal, have differed. The point of difference has been formu lated by the learned members in the following form;‑ "Whether in the facts and circumstances of the case the A. A. C. was right in deleting the addition made in the goods account allegedly exported by the assessee ?"

2. The relevant facts giving rise to this issue, briefly stated are these. In the assessment year 1973‑74, for which the relevant accounting period ended on 31‑3‑1973, the assessee did not disclose any income from export business. The Income‑tax Officer however, got information from the office of T. Custom Check post to the effect that the assessee has exported 203 trucks of Maltas; Kinoes, Oranges and bananas etc., to K (A. . . .) of the value of Rs. 6,24,

720. The assessee's books of accounts did not bear any entry pertaining this business. The Income‑tax Officer therefore issued a specific notice under section 23(3) of the Income‑tax Act, 1922, calling for the assessee's explanation the income derived from this business should not be included in its declared income. In reply, the assessee denied to have carried on any export business of fruits to A . . . . during the assessment year 1973‑

74. The assessee further stated that it was one Mr. J. . . . proprietor of J. , . . . Custom Agency who has exported goods in question to A by misusing to take an action against him. The Income‑tax Officer summoned the said gentleman and examined him in the presence of the assessee's representative. Mr. J. . . . in his statement admitted that he had exported the goods as a clearing agent in the name of the assessee as he was their duly authorised clearing agent. He however stated that he had only utilized the name of the assessee otherwise the fruits were exported on behalf of some other parties, but whom he did not name. The assessee did not dispute the correctness of the statement of Mr. J .to the effect that he was their clearing agent at T and had the authority to do export business on its behalf. Mr.J ..was also admittedly a near relative of the partners of the assessee‑firm. The Income‑tax Officer called upon him (Mr. J . . , .) to furnish full particulars of the parties on whose behalf the goods were allegedly exported as well as the full particulars ref file commission agent in Pakistan from whom the purchases the fruits it, question were made, but he failed to comply therewith. Mr. J. . . further admitted that he had earned some commission on the said transactions. The Income‑tax Officer disbelieved the statement of Mr. J. . . . as well as discarded the case as set up by the assessee and held that the business was actually done by the assessee in its own account. Consequently, in the absence of any reliable evidence to the contrary, he accepted the value of the exported goods as notified by the Customs authorities, i.e. at Rs. 6,24,720, and subjected them to 10% net profit rate thereby making an addition of Rs. 62,473 to the declared income of the assessee. Tire assessee went in appeal against the order of tire Income‑tax Officer, assailing inter alia the said addition, before the learned Appellate Assistant Commissioner R. A. P. . . . who held that the Income‑tax Officer had failed to prove that the export business was carried on by the appellant‑firm during the relevant accounting year 1973‑74 and consequently he deleted said addition. He further expressed the opinion that had this income been taxed in the hands of the Clearing Agent the tax would have been more than what it could be received if it was taken to be the income of the assessee.

3. Aggrieved by the order of the learned Appellate Assistant Commissioner in this behalf the Income‑tax Officer, P Circle, P brought the above‑noted second appeal before the Appellate Tribunal. This appeal came up for hearing before a Division Bench on 16th February, 1980. The learned Judicial Member held that the income from export business was rightly taxed by the Assessing Officer in the hands of the assessee and he allowed the departmental appeal thereby restoring the order of the Income‑tax Officer. The learned Accountant Member, however, took a contrary view and dismissed the departmental appeal. He held that it was for the Department to prove that the customs papers obtained from the Customs Authorities contained the signature of a partner of the firm or of an attorney of the firm. And as the Department failed to prove the collusion the Appellate Assistant Commissioner was right in upholding the assessee's Appeal.

4. After hearing the arguments of the learned counsel of both the parties at length and upon perusal of the dissenting orders passed by my learned brothers. I feel inclined to agree with the view adopted and the order proposed to be passed by the learned Judicial Member. The Departmental Representative submitted that the assessee respondent had admitted that Mr. J. . . . . was their agent but he had allegedly cheated the assessee‑firm. The evidence on record, the Departmental Representative emphasized, was sufficient to hold that the fruit was exported by the assessee‑firm and that the income derived therefrom was rightly taxed in the hands of the assessee respondent, The learned authorised Representative‑of the assessee respondent on the other hand submitted that in the N.‑W. F. P. registration of exporter and importer is done with the customs Authorities. He submitted that no doubt Mr. J .was a duly appointed Clearing Agent of the assessee and that he had full authority to do export business of fruits on its behalf, but in view of the clear admission of Mr .J. . . . .in his statement made before the Income‑tax Ofcer that the goods in question were consigned by him on behalf of certain other parties and that he had wrongfully and un authorisedly used the name of the assessee firm as an exporter, there was no justification for holding that the goods were really exported by the assessee The counsel further contended that Mr. J. . . , . is doing the agency, business under the name and Style of J. . . Custom A He is an Income‑tax assessee vide G.I.R. No 3198/A, Explaining the manner in which the export-import business was done with A .the counsel stated that for every transaction by road the Chamber of Commerce issued a certificate which is known as A.R. This document is invariably applied for and is obtained for and on behalf of his principal by the Clearing Agent. This document authorise the clearing agent appointed by a party to do each and every sort of transactions for and on behalf of the principals. He also placed before me for my perusal a document which is styled as "Shipping Bill" which in his submission, is an Export Document issued under section 30 of the Sea Customs Act. He emphasised that the Income‑tax Officer was wrong in taxing the income derived from disputed exports transactions at the hands of the assessee‑respondent instead of in the hands of the said agent as he had actually exported the goods fraudulently in the name of assessee.

5. I do not find any force in the contention of the learned counsel for the respondent. It is evidently borne out from the evidence available on record and so also it was candidly admitted before me at the hearing of this appeal that the assessee-respondent is a duly registered exporter and that Mr.J of J .Customs Agency was its duly authorised agent Af .ptes. It is also proved on record that the citrus fruits were exported in the name of the assessee firm by its duly authorised agent. What is, however, alleged on behalf of the assessee is that its duly appointed agent had in fact played a fraud upon it. He had according to the assessee s counsel, misused his position as an agent and had exported the goods of certain other person or parties in the name of the assessee-firm. Therefore, I have not the least hesitation in holding on the basis of evidence that had come on record coupled with the admissions made by and on behalf of the assessee firm that Mr.J was a duly authorised agent of the assessee for exporting inter alia. The citurs fruits to A ..There is nothing on record to show not it has been alleged before me that the assessee as the principal had revoked the authority given to agent above named at any time before the authority had been exercised by him in exporting the citurs fruits Now therefore the simple question that remains to be decided is that what consequences are to follow if a duly appointed agent acts in excess of his authority or does something determental to the interest of principal/ there is no doubt that section 211 of the contract Act clearly provides that and agent is bound to conduct the business of his principal according to the directions given by the principal but it is also at the same time lays down that if any loss is sustained by the principal on account of an authorised act done by him, then he had to make it good to the principal and if any profit is earned by him then too he must account for it to his principal. Here the agent has without knowledge of the principal allegedly dealt in the business of the exporting fruits on the own account or on the account of some other than the principal but he still remains liable for the consequences of the transactions so dealt by him to his principal. A reference to section 216 of the Contract Act makes it absolutely clear that in such cases the principal becomes entitled to claim from the agent any benefit which may have resulted to him front the transactions. Therefore, in terms of section 216 of the Contract Act, the agent is accountable to all profit,: and advantages made by him in the business allegedly done by him without the knowledge of the assessee‑appellant, his principal. From whatever angle the question is judged one has to reach the conclusion that the principal cannot avoid his responsibility for payment of tax on the profits, if any earned on the transactions or business conducted by its agent. The benefits derived by the appellants agent are to be treated as the benefits of the principal, and for tax purposes it is the principal who is to be made responsible toy payment of tax on such profits. Whatever losses, if any are thus sustained by the principal it is his right to recover them from the agent, if it so chooses. The question of their being collusion or not between the principal and the agent is of no consequence so far as the liability of assessee to tax is concerned. And an obliging statement made by the agent in favour of his principal cannot exonerate the assessee of its legal responsibility under the Income‑tax Act.

6. For the reasons mentioned above I am, clearly of the view that the departmental appeal should succeed on this issue and is allowed as mentioned in the order of the learned Judicial Member. Appeal allowed.