Judgement

Patanjali Sastri, C.J.I. : This appeal arises out of a reference made by the Income-tax Appellate Tribunal, Madras Bench under S.21, Excess Profits Tax Act, 1940 (hereinafter referred as to the Act.)

2. The appellants are merchants carrying on business in yarn in Madura and are the sole-selling, agents for yarn manufactured by the Madura Mills Co., Ltd., distributing yarn to several constituents under forward contracts in respect of which they obtained advances of moneys from their constituents. During the chargeable accounting period (18-5-1944 to 12-4-1945) the appellants received from their customers sums amounting to Rs. 7,69,569 and they claimed before the Excess Profits Tax Officer that the said sum should be treated as "borrowed money" within the meaning of R. 2-A of the Rules in the Second Schedule to the Act and, on that footing, no excess profits-tax was payable by them for the chargeable accounting period.

The Excess Profits Tax Officer rejected the claim and assessed them to excess profits-tax of Rs. 25,404, holding that, having regard the terms of the agreement under which the amounts were received, they could not in law be regarded as "borrowed money" within th