Judgement

A. K. SARKAR J.: This is an appeal brought by special leave against the judgment of the High Court at Nagpur, delivered on a reference under S. 66 (1) of the Income-tax Act. The appeal is by the Commissioner of Income-tax, Madhya Pradesh and Bhopal. The respondents are the assessees Vyas and Dhotiwala. The respondents have not appeared in this appeal. We shall presently set out the facts but before we do that, we wish to state that the assessment years concerned were 1945-46 and 1946-47. Though there were two separate assessment orders in respect of these years, ultimately when they came up before the Appellate Tribunal they were consolidated into one appeal. The appeal before us likewise concerns both these assessment years.

2. It appears that in or about July 1943 when considerable difficulty was being felt about cloth, the Deputy Commissioner, Amraoti, evolved a scheme to solve that difficulty. Under that scheme Kisanlal Vyas and a firm called Edulji Framji Dhotiwala who have in these proceedings been referred to as Dhotiwala, undertook to finance the scheme without charging any interest or profit and were appointed as financiers and also distributors of a variety of clo