Judgment

Kania, C.J.I. :- This is an appeal from the judgment of the High Court at Calcutta (Harries C. J. and Chatterjea J.) pronounced on a reference made to it by the Income-tax Appellate Tribunal under S. 66 (1), Income-tax Act. The relevant facts are these. The respondents are a private limited company which was brought into existence to float various companies including cotton mills. In November 1932 the Basanti Cotton Mills Co., Ltd. was incorporated and the respondents were appointed the managing agents. Their remuneration was fixed at a monthly allowance of Rs. 500 and a commission of 3 per cent. on all gross sales of goods manufactured by the Mills Company. The fixed monthly allowance was liable to be increased in the event of the capital of the company being increased. The details are immaterial. It appears that certain hundis were drawn by one of the directors of the respondent company, acting in the capacity of the managing agents of the Mill Company, in the name of the Mill Company and the same were negotiated to others. The Nath Bank, Ltd., claimed payment of these hundis. The Mill Company repudiated its liability as it appeared from the books of the Mill Company tha