Judgment

KAPUR, J. : This is an appeal against the judgment and order of the High Court of Bombay in a reference wider S, 8(5) of the Taxation on Income (Investigation Commission) Act (Act XXX of 1947), hereinafter termed the Act . The assessee company was the applicant before High Court and is the appellant before us and the Commissioner of income-tax Bombay City, was the respondent in the High Court and is the respondent here also. Being a reference under S. 8(5) of the Act, it was heard and decided by three judges of the High Court.

2. The assessee company is a private limited company which was incorporated on May 6, 1943, with a paid up capital of Rs. 20 lacs. It was promoted by two group of persons who for sake of convenience may be called the Morarka Group and the Bubna Group . The Apollo Mills Co., Ltd. of Bombay with a capital of Rs. 50 lacs divided into 25 lacs shares of Rs. 2 each, had as its Managing Agents M/s. E. D. Sassoon & Co. Ltd., who for the sake of brevity will be referred to in this judgment as the Sassoons . They held 19,76,000 shares out of the 25 lacs. The promoters of the assessee company entered into an agreement with the sasoons on April 27, 1943, by