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 given by way of commission or that there was any material leading to that conclusion. In para. 2 of his order, he observed :

"......... However, although the probability of the impugned amount representing commission cannot be ruled out, it is not necessary for us to decide whether the amount is really commission on sales. The issue is whether the assessee has proved that the amount really represented a loan."

Immediately thereafter, he stated :

"We any mention in this connection our reason for stating that the probability of the impugned amount representing commission cannot be ruled out."

But the para. ended as follows :

"....... But, as we have stated earlier, it is really not necessary for us to decide whether the amount actually represented commission paid by Parson to the assessee."

Thus, it is seen that there is no specific finding that the amount was a commission paid by M/s. Parsons and Whittemore Commerce Ltd. to the assessee. There is no specific documentary evidence in support of such a finding.

8. The broad facts considered by all the authorities are these :

(i) The amount of Rs. 32,58,500 was advanced by way of loan and was evidenced by an agreement dated Novembers 15, 1958. The Reserve Bank of India has accorded permission for obtaining the Loan.

(ii) Earlier to this there was also a letter under the signature of Anupsingh Bedi as well as the representative of the foreign collaborator dated July 10, 1957, which records the seeking of a loan proposal and to grant it and further mentions that such a loan would be granted simultaneously or along with the implementation of other agreements to be entered into with Mandya National Paper Mills Ltd.

9. The sequence of events shows that this has been implemented and an agreement in regard to the grant of loan itself has been executed dated November 15, 1958. The agreement provided that the amount would have to be utilised for the purpose of purchasing shares in Mandya National Paper Mills. It is also on record that these shares were according purchased. It is further on record that these shares were treated as belonging to the assesses -company and where pledged in order to raise funds for other purposes. The other factors are that no interest was paid no installment of repayment was implemented and there was no security taken by the foreign collaborator in regard to repayment of the loan amount. The foreign collaborator, in terms of the agreement, had filed a dispute before the International Chamber of Commerce, Paris, and subsequently terminated it. There was corresponds in this behalf between the ITO and the foreign collaborator. The Tribunal refers to the reply given by the foreign collaborator dated November 9, 1970, in which it was stated that no action to prevent the alienation or transfer of shares was taken as chances of recovery of the loan was deemed to be remote already and the arbitration before the International Chamber of Commerce had been terminated. It is, therefore, seen even as late as in November, 1970, the foreign collaborator maintained that the transaction was one of a loan. The factors above mentioned do not when taken singly or cumulatively lead to justify any conclusion that the amount was not indeed a loan as is purported to be but was anything in the nature of commission or any receipt from business. The letter of the foreign collaborator which has been written to the ITO in reply to his query was categorical and in fact confirmed the assertion that was all along being made by the assessee that the transaction was one of loan and there was no suspicion about it. It appears to us that it is on account of inadequacy of the material that the Tribunal had refrained from recording any specific finding that there was any commission received by the assessee. The apparent state of affairs was not the real one was very heavy on the Department and apart from circumstances which by themselves can be said to be neutral, there was no other material to doubt the the nature of the transaction and to hold that is was income. Every loan granted without security or in regard to which no repayment has been made cannot automatically be termed as a payment either towards commission or as a receipt from business. Without tangible material to suspect that the receipt was by way of commission and without recording such a finding, the conclusion of the Tribunal that the amount was assessable as income is wholly untenable. The Conclusion to treat the amount as income has been reached without any tangible material at all on record and is, therefore, untenable. The question is accordingly answered in the negative and in favour of the assessee.