The main legal point established in the judgment is that the conclusion to treat an amount as income must be supported by tangible material and specific findings, and without such evidence, the conclusion is untenable.

Srinivasa Iyengar, J.—The Income Tax Appellate Tribunal, Bangalore Bench, has referred the following question for the opinion of the court :

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in uphold the assessment of the sum of Rs. 32,58,500 as the income of the assessee for the assessment year 1960-61?"

2. An assessment has been, made on the assessee for the assessment year 1960-61 on December 5, 1961, which resulted in a loss of Rs. 12,599 being computed., Subsequently proceedings were started under s. 147(a) of the I. T. Act, 1961, on the grounds that a sum of Rs. 32,58,500 has been received by the assessee purporting to be a loan from M/s. Parsons & Whittemore Commerce Ltd. Of Canada, but really it was not a loan but some commission paid to 6the assessee and, therefore, must be treated as business income. The assessee resisted the claim, but the ITO took note of certain circumstances and came to the conclusion that the amount should be treated as income received from business and concluded the assessment.

3. The reasons given by him to reach that conclusion were-

(i) No correspondence has been produced before him to show that prior to the obtaining of the loan there were negotiations in that behalf.

(ii) The loan has not been repaid and no interest also has been paid for a long number of years.

(iii) The amount has been given without taking any security.

(iv) This agreement to loan had been executed contemporaneously with two other agreements to supply machine and for purposes of construction of buildings for Mandya National Paper Mills Ltd., in regard to which the assessee was the managing agent.

4. The fact that the foreign collaborator has not taken any other step to recover the loan except initiating proceedings before the International Chamber of Commerce, Paris, for purposes of arbitration pursuant to a terms to that effect in the agreement was also considered as a circumstance against the assessee.

5. The appeal preferred by the assessee to the AAC failed. ONe other circumstance noticed by him was that the amount has been invested in the purchase of shares of the Mandya National Paper Mills Ltd. and those shares has been pledged with the bank and moneys raised and diverted for other companies in which Anupsing Bedi, one of the members of the assesses -company, was interested. The AAC observed that the alleged creditor not insisting upon the payment of interest and the principal amount and also not insisting upon non-transfer or non-encumbering of the shares was also a circumstance against the assessee. He also observed that the proceedings before the arbitration has been allowed to be terminated and observed that the circumstances would lead to the conclusion that the amount was never expected to be repaid. He thus confirmed the conclusion reached by the ITO. The assessee preferred a second appeal to the Tribunal which dismissed the appeal.

6. The judicial Member of the Tribunal wrote a separate order but agreed with the conclusion of the Accountant Member that the appeal should be dismissed. He considered several circumstances noticed by the ITO as well as by the AAC. In regard to most of the circumstances, he was of the opinion that they were neutral and in regard to a few of the circumstances that they may throw suspicion against the assessee. He agreed for the dismissal of the appeal, observing that the assessee has suffered an assessment under s. 144 and there was paucity of material. The Accountant Member considered the very reasons that has been given by the ITO as well as the AAC and was of the opinion that in view of those circumstances the amount cannot be considered to be a loan as such, but, so far as the question whether the amount was an income, the conclusion appears to have been that it must have been a sort of commission paid to the assessee as the foreign collaboration intended to have business relation in India. There is no finding that the amount was g