JUDGMENT

MANCHANDA J. - This is a case stated u/s 66 (1) of the Income Tax Act of 1922 (hereinafter referred to as the Act). The question referred is :

"Whether, on the facts and in the circumstances of the case, the sum of Rs. 26,000 was tax able income ?"

The material facts are these : The assessee, Ram Sarup, is the son of Lala Roshan Lal. Roshan Lal is the assessee in the connected I. T. Reference No. 245 of 1963. These two constitute one group representing one family. The other group is represented by Lala Purshottam Das and L. Jugul Kishore, who are brothers. The aforesaid four persons were the only shareholders of a private limited company, M/s. Ram Chand and Sons Sugar Mills Ltd. (hereinafter referred to as the mills company). This was, therefore, a family company. The aforesaid four persons had almost equal shareholdings of 25% each. In order to avoid friction between the two families of shareholders, it was agreed between them that the control and management of the mill company should be for a period of one year each by rotation. During the relevant assessment year of 1954-55, it was the turn of Lala Pushottam Das of the second group and he was the direction in charge. It appears that there was large accumulated stock of sugar with the mills for lack of buyers and the prices were falling. The Government was contemplating to give the sugar mills some subsidy in the matter of stocks of sugar lying with them. Lala Purshottam Das, however, did not know about any such move by the Government and he, therefore, considered it advisable to ask the Government to release some of the stocks of sugar lying with the mills so that it could be sold in the open market. This request was repeated two or three times and the Government ultimately agreed to release stock of sugar totalling 850 tons. However, just before the company received the Governments release order, it came to know from an unofficial source that the Government of India was planning to give a subsidy to the sugar mills and the same would be computed with reference to the unreleased stock of sugar lying with different mills. L. Purshottam Das, therefore, immediately wrote to the Government praying that the release order, if issued, be cancelled. The government, however, did not withdraw the release order, with result that the company was deprived of the subsidy which it might have otherwise received from the Government of India. The company thus did not receive any subsidy whatsoever and there was no alternative but to sell the released stocks of sugar in the open market. The sale proceeds so received were credited to the company's sale account. The assessee, Ram Sarup, and his father, Roshan Lal, claimed that a subsidy of Rs. 1,04,000 was lost as a result of Lala Purshottam Dass action in asking the Government to release stocks of sugar and threatened Lala Purshottam Das and L. Jugul Kishore that they would apply for the liquidation of the company. The latter, thereupon, it appears, agreed to make good the loss and entered into an agreement dated 29th March, 1954, with the members of the first group, i.e., the assessee, Lala Ram Sarup and his father, Lala Roshan Lal. The material portion of this agreement reads :

"That a sum of Rs. 52,000 (rupees fifty-two thousand only) paid to the first party (Roshan Lal and Ram Sarup) by the second party (Purshottam Das and Jugul Kishore) on account of 50% loss of the total losses sustained in getting released a sugar quota of 850 tons from the Government of India..... by the 2nd party without obtaining the necessary prior acceptance from the 1st party to the 2nd party, if and when the total amount of Rs. 1,04,000 is received by the company from the Central Government, as compensation under claim.

The sum of Rs. 52,000, which was received by the first party, was shared by the assessee and his father half and half according to their shareholding