ORDER <NAME>, J.

1. This appeal by the defendant is directed against the judgment and decree of eviction passed by the Additional District Judge, <ORG>, Ali-pore, affirming the judgment and decree of the trial Court in a suit for eviction of the defendant on revocation of his licence as a licensee,

2. The case of the plaintiff/respondent, in short, was that he was a monthly tenant in respect of entire premises No. 19, Gopal Chandra Chatterjee Road at a monthly rental of Rs. 70/- under <NAME> and his brothers. On being approached by the defendant, in need of accommodation in September, 1979, the plaintiff/respondent allowed the defendant/appellant to live in one room of the suit premises for a period of four months from September 1979. On compassionate ground as a licensee, without any licence fee or consideration whatsoever, and on his refusal to vacate it after the expiry of the said period of four months, the respondent revoked his licence and brought this suit.

3. The defendant contested the suit by filing a written statement. His defence, in short, was that he was a tenant or for the matter of that, a sub-tenant under the plaintiff who was a tenant at a monthly rental of Rs. 20/- payable according to English calendar month and not a licensee at all. It was alleged that the father of the defendant was also a tenant in the suit premises and that the plaintiff accepted the defendant as a tenant in respect of the said room only after taking a sum of Rs. 2,000/- as advance subject to adjustment against the rent payable by the defendant/appellant. It was alleged that as because the defendant/appellant demanded rent receipt the plaintiff started harassment and also demanded higher rate of rent which the appellant refused to pay.

4. The trial Court, on a consideration of the materials on record, held that the defendant was a licence under the plaintiff and decreed the suit. Being aggrieved the defendant/appellant preferred an appeal before the lower appellate Court and the judgment and decree of the trial <ORG> were also affirmed by such Court. Defendant/ appellant has thereafter preferred this second appeal on, among other grounds, that finding of both the <ORG> below is manifestly unjust and illegal as both the <ORG> below mis-directed themselves in not taking into account important evidence bearing on the disputed issue and that the same is also perverse.

5. Judgment of the lower appellate Court has been assailed before this Court on several grounds. Firstly, it has been urged that both the Courts below misplaced the onus of initially proving that the burden lies on the plaintiff to show prima facie that the defendant was a licensee. Secondly, it has been urged that both the Courts below mis-directed themselves by not taking into account very important and material evidence bearing on the status of the defendant as to whether he was a licensee or a tenant and thereby came to a wrong finding regarding the status of the defendant. Thirdly, it has been urged that such finding regarding the status of the defendant/appellant as a licensee is unjust also as the "essential ingredients" necessary for finding of such fact have not been found by both the Courts below.

6. As against this, Mr. <NAME>, appearing on behalf of the plaintiff/respondent, contended that findings of both the courts below regarding the status of the defendant as a licensee is a concurrent finding of fact and should not be ordinarily interfered with in this second appeal, as the scope of this appeal in terms of the provisions of Section 100 of the Code of Civil Procedure, is to be confined only to substantial question of law. It is, therefore, urged that as because the defendant-appellant has been found by both the courts below to be a licensee, the same should not be ordinarily interfered with by this Court as it does not involve substantial question of law.

7. Before we enter into the merits of this case on the questions as addressed by the learned Advocates of both sides, let Us Iook into the admitted facts of this case. Un-disputably, the plaintiff was a tenant In respect of the entire suit premises, i.e.. 19, Gopal Chandra Chatterjee Road, at a monthly rental of Rs. 70/-. It is also an undisputed fact that the defendant/appellant is actualy occupying a room of such premises having the facility of a kitchen together with the further facility of joint user of toilet of such premises. Undisputedly also, the status of the plaintiff/ respondent was that of a tenant at the time the defendant was allegedly inducted as a licensee in September, 1979. It is further undisputed that the plaintiff/respondent became the owner of this premises by virtue of his purchase by a registered deed dated 22nd April, 1985, from the previous landlord. So the fact remains, that the plaintiff/respondent was still a tenant and not the owner of the suit premises at the time the suit was instituted in the year 1981.

8. Be it stated here at the very outset that in a case of concurrent findings of fact by both the courts below, the scope of interference by <ORG> is very limited and <ORG> should not interfere with the concurrent findings of facts of the Courts below on the ground of perversity unless the court concerned misdirected itself In coming to its finding on the question of fact. Such concurrent finding of fact, however, as observed by <ORG> can be interfered with only where it is manifestly unjust or where the essential ingredients for such a finding of fact have not been found by the Courts below. It is true, in an ejectment suit a finding on the question whether the defendant is a tenant or a licensee, the finding of the lower appellate Court on a consideration of the evidence is a finding of fact. Reference may be made in this connection to the decision of <ORG> . However, it has also been observed by <ORG> in another decision reported in AIR 1989 SC 1 that the question whether there is a tenancy or sub-tenancy or licence or parting with possession in any particular case, must depend upon the quality of occupation given to the licensee or the transferee. Of course, in the case referred to, dispute arose regarding the occupation of a holder to dis-

play his holding and as such the vital question in that case was whether occupation itself will amount to a question of tenancy or that of a licence. Mere occupation is not sufficient to infer either sub-tenancy or parting with the possession. Facts of the instant case are somewhat different from the one referred to, as because parting of possession in favour of the defendant/appellant is an undisputed fact, though it is claimed on behalf of the plaintiff/ respondent that the respondent was in actual legal possession of the suit property. In other words it is sought to be urged and emphasised that the possession of the defendant/appellant was not exclusive possession in this case. It is, therefore, urged that although the defendant/appellant was permitted to occupy a room, it was the possession of a licensee.

9. In view of the contentions of the learned Advocate for the defendant/appellant, it will be necessary to see as to whether the possession which was given to the defendant/appellant was that of a licensee or that of a tenant. Further, in view of the points raised by the learned Advocate for the defendant/appellant, the entire relevant evidence on record is to be considered to see that the <ORG> below considered all such important evidence having direct bearing on the disputed issue. If, on such examination we find that the courts' below made such a mistake, then in that case this Court is fully authorised to set aside such finding. To make it clear once again, it is true that <ORG>, while hearing second appeal under Sec. 100, C.P. Code, has not the jurisdiction to examine the evidence and reverse or reject the conclusion reached by the first appellate Court. But we should also bear in mind that it has the power to interfere with such finding, when the lower appellate Court made a mistake of the nature as stated, and can decide the issue, treating such finding as unwarranted and then it can be looked into as a substantial question of law. If any authority is needed on this point even after the amendment of 1976, we may refer to the decision , <CITATION> and also the decision of <ORG> , <CITATION> .

10.In the case of this nature where the plaintiff alleges that the defendant/appellant is a licensee and where the defendant/appellant asserts that he is a tenant, the initial onus is upon the plaintiff/landlord to prove that the defendant was inducted as a licensee. The question of onus, however, loses its importance once the parties enter into the evidence. Once the plaintiff/respondent tenders evidence showing that the defendant was inducted as a licensee, onus shifted upon the defendant to show that his status is that of a tenant and not a licensee as claimed by him.

11.On a perusal of the judgments of both the courts below, unfortunately we find that both the Courts below, misplaced the onus on the defendant/ appellant to prove his case that he was a tenant and not a licensee. Admittedly, there is no document of lease or agreement of tenancy between the parties. Sub-letting has not been defined in the Rent Act or in other words, in the Premises Tenancy Act. There is no paper showing payment of rent by the defendant/appellant to the plaintiff in respect of the suit room. Nor there is any paper whatsoever showing payment of a sum of Rs. 2,000/- by the defendant/appellant either as advance or as security money. But at the same time, there is also no good evidence adduced on the part of the plaintiff/respondent showing that the defendant/appellant was inducted as a licensee in September, 1979. Admittedly, nobody was present at the time of such induction of the defendant/ appellant as a licensee. Barring the uncorroborated testimony of the plaintiff/ respondent there is no evidence whatsoever of induction of the defendant/appellant as a licensee for a period of four months in the disputed room of the suit premises. A proper scrutiny of the evidence on record in this case would be necessary in view of the manner of approach made by both the courts below with regard to the evidence to determine the status of the defendant/appellant. We find from the admitted evidence of the plaintiff/respondent (P. W. 1) that he did not know the father of the defendant. There is no evidence that the parties are related to each other or that they had any previous acquintance. Plaintiffs case in this regard is short and simple that he allowed the defendant/appellant to say in, though for a specific period as the defendant/appellant was in need of such accommodation. It seems unlikely when the parties are not related to each other or there is not even any acquintance with each other, one party would go to the extent of accommodating the other by way of granting gratuitous licence to have exclusive possession of the particular premises without any consideration whatsoever. This is against normal human conduct or experience, unless of course the plaintiff/respondent can show it otherwise. It is true that the plaintiff/res-pondent has led evidence, both oral and documentary, to show that the defendant/ appellant came into the premises only in September, 1979 and not before that as it is the case of the defendant/ appellant. We have already seen that it is the specific defence case that his father was there in that house for a long time and that after demise of his father in 1970, he was accepted as a tenant at a monthly rental of Rs. 20/-and further on a payment of Rs. 2.000/ - as advance. So, the viital question for determination of the status of the defendant/appellant would be whether he was there in the suit premises since before the alleged induction in September, 1979. If we find positive evidence on record that he was there since before that time, it would demolish the case of the plaintiff/respondent that the defendant was inducted as a licensee only in September, 1979 and not before.

12. <ORG> started with this question on an analysis of the evidence led by the defendant and that too from a wrong angle; or in other words, he mis-directed himself in assessing the oral evidence led by the defendant/appellant on an assumption that no case of prior occupation before 1979, either by the defendant or by his father was made out in the written statement. We have already seen that the defendant made a specific case that his father <NAME> was occupying the suit premises as a tenant and after his death the defendant continued to occupy the same. Both the Courts below con-

sidered the same as a case not made out in the pleading itself. All the four witnesses examined by the defendant including the defendant/appellant himself were disbelieved and their eidence brushed aside on this sweeping assumption that no such case made out in the written statement, though there is such a case in the written statement, itself. According to <ORG>, <NAME> and <NAME> were the witnesses who saw payment of rent to the plaintiff/respondent by the defendant. <ORG> observed that none of these two witnesses was examined by the defendant although they were alive. As a matter of fact <NAME> was examined by the defendant as D.W. 3 who was a private tutor in the family of <NAME>, father of the defendant/appellant in the same house 20/25 years before ago, and he stated that he saw payment of rent by the father of the defendant to the plaintiff/ respondent. D. Ws. examined by the defendant are also the neighbours living in close proximity to the disputed premises and as such they are expected to know and to be acquinted with the inmates of that house and to witness any payment of rent or otherwise or the relationship between the parties in dispute. On a careful perusal of the judgment of <ORG> it will appear that he placed no reliance upon the testimony of the witnesses examined by the defendant or the credibility of such witnesses in the context of their making statement that the defendant's father was also there in the suit premises and the court below assumed it to be a case not made out in the written statement itself. In other words, he disbelieved the testimony of such witnesses, as if the same was contrary to the case made out in the written statement.

13. I have gone through the written statement very carefully to find that there is actually such a case in the written statement. Both the courts below made this apparent error in not looking properly into the written statement and, therefore, mis-directed themselves in assessing the oral evidence adduced by the parties. Therefore, it can be said that both the courts below, while recording their finding regarding the status of the defendant/ appellant, acted on an assumption not sup-

ported by evidence and failed to consider the oral and also the documentary evidence in coming such finding.

14. Coming to the evidence of the witnesses examined by the plaintiff, we have already seen that the plaintiff admitted that he did not know the father of the defendant/ appellant and he could not say if the defendant's father was the tenant in the suit premises. He did not enquire admittedly about the antecedents of the defendant when he was inducting him as a licensee. Admittedly, the defendant was given not only a room, but also a kitchen and the facility to use the toilet and the common tap water. Thereby, exclusive possession of the portion of the suit premises was given to the defendant. There is nothing to show that the plaintiff/landlord retained legal possession of the same in the sense allowing the defendant/tenant to occupy it only as a licensee or an invitee for a period of four months. The other witness (P.W. 2) was examined by the plaintiff to prove that the defendant/appellant was a tenant in their house, i.e., in the house of P.W. 2, since before his occupation of the suit premises as a licensee. In other words, P.W. 2 was examined to prove that the defendant/ appellant was living as a tenant in their house, and, was therefore, living elsewhere than in the suit premises before September, 1979. If there is convincing evidence on record to show that really the defendant was living elsewhere, then in that case the defendant will have no case as a tenant in the suit premises. On a scrutiny of the evidence of P.W. 2 we find that he is completely an interested witness and admitted to have come to the dock at the request of the plaintiff, as his father's friend and thereby brought the rent counterfoils which he was requested so to do. He did not know the defendant's father or where he lived. P.W. 2 cannot say when the defendant was inducted as a tenant in their house in 5, Sashibhusan Basak Lane. He cannot say in his evidence how old he was when the defendant was inducted as a tenant in their house, although he says he used to collect rent when the defendant was inducted as a tenant.

15.P.W. 3 is apparently an interested witnesses as admittedly he is a friend of the plaintiff/ respondent. It is true, he was once a tenant in this house, but he left it long ago and purchased a house site and built a house in the name of his wife away from this place, although he claims that he shifted from this house in 1966. As a matter of fact we find that he purchased the house site in which, he says, he built a house long before.

16. Nextly, turning to the documentary evidence on record, the plaintiff has placed much reliance on the rent counterfoils produced by P.W. 2. Genuineness of such rent counterfoils and also the factum of such alleged tenancy right in the said house, have been challenged on behalf of the defendant/ appellant. We have already seen that P.W. 2 as the son of the friend of the plaintiff/ respondent was requested to bring those rent counterfoils and he admittedly produced the same on such request. Allegedly, such rent counterfoils, at least two of the rent counterfoils are said to bear the initial of the defendant/appellant showing payment of rent when he was supposed to be occupying the said premises. <ORG> compared the said initials with the admitted signature of the defendant put in the deposition sheet. The defendant has already categorically denied that either he was a tenant in the said premises or that he ever paid rent to the father of the P.W. 2 or that the rent counterfoils (Exts. 7 and 7(a)) bear his initial or signature. 1 am at a loss to understand as to how <ORG> could come to the conclusion that the signatures are identical or of the same person. A casual look at the initials contained in Exts, 7 and 7(a) will show that they are completely distinct and different from those admitted signatures of the defendant/appellant in the deposition sheet. Forming an opinion even by the court as to the nature of such signature, made on the basis of the comparison between the admitted signature and the disputed one is extremely hazardous as has been held by this <ORG> as well as by the Supreme <ORG>. It is with utmost caution that such comparison is to be made and a finding is to be arried at on that basis. In the context of unreliable nature of the oral evidence of P.W. 2, it will be all the more risky to rely upon such rent counterfoils containing suspicious initials, far less proving convincingly that the defendant;appellant was a tenant in that building, namely, 5, Sashibhushan Basak Lane before September, (979. It is true, the plaintiff has produced the certified copy of the death certificate showing that in 1970, the defendant's father <NAME>'s address, as given therein, is other than the disputed premises. But such noting of address as appearing in the death certificate has been said to be incorrect one by the defendant (<NAME>) in his evidence. No doubt, this entry in the death certificate goes to show that the defendant's father was at least living in a different place at the time of his death. But there is overwhelming evidence on record to show that the defendant was living with his family in the suit premises even long before his induction as licensee in 1979. <ORG> has placed no reliance on the documentary evidence adduced by the defendant showing his residential address in the suit premises. Even, if we disbelieve the other documents, (Exts. B series) the postal receipts, (Ext. C series), postcards (Ext. D), inland letter (Ext. E). the transfer certificate, cannot be lighly brushed aside in the manner as <ORG> has done and dittoed by the court of appeal below. There will be no manner of doubt that at least some of these were addressed to the defendant or his mother before 1979 showing thereby that they were living in this house before the alleged induction as a licensee by the plaintiff. Postal marks clearly show the years before 1979 and even in spite of the alleged interpolations the name of the defendant and the address are discernible. So also the original school leaving certificate by the defendant (Ext. E) showing that his address as long back as 1965 was given in this disputed premises and showing thereby that the defendant/appellant was living in this house since before 1979. All these volumes of oral and documentary evidence are distinct pointer to the fact that the defendant/appellant was occupying such premises with the members ot his family since before 1979. This can only be done not as a licensee, but in the capacity other than that as a licensee. If this prior occupation of the defendant is believed, it fits with the case of the defendant that no rent receipt was granted to him because the plaintiff/ respondent was himself a tenant and that he would be liable to eviction for creating sub-tenancy. This is the specific case of the defendant and is borne out as such by the facts and circumstances of the case.

17. As already stated, the first court of appeal, also approached the whole case from a wrong angle misdirecting itself as that of <ORG>, in a way prejudicial to the interest of the defendant/appellant. In short, <ORG> judgment is also based on surmise and conjectures, as that of <ORG>. He simply brushed aside the documentary evidence adduced by the defendant/ appellant as suspicious in nature and placed no reliance on the same without carefully examining the same and trying to arrive at a finding based on his independent judgment and reasoning. He simply dittoed and endorsed the finding of <ORG> that such documents were created for the purpose of this suit, without trying to weigh and assess the evidentiary value of the same. In that view of the matter, I am constrained to observe that the court of appeal below failed altogether to comply with the statutory provisions of Order 41, Rule 31 of the Code of Civil Procedure. The judgment of the appeal Court should not be the mere endorsement of the findings of <ORG>, not containing the reasons for the decisions arrived at by him independently of that of <ORG>.

18. So, in view of what has been discussed above, it is clear from the volume of oral and documentary evidence on record that the defendant/appellant was there in the suit premises long before his alleged induction in such premises by the plaintiff/respondent in September, 1979. When this fact is established convincingly, it fits in with the case of the defendant/appellant that he was there obviously in the capacity not attributed to him by the plaintiff/respondent. In other words, this fits in with the case of the defendant/appellant that he was there as a tenant and that this fact was not given a stamp of legality or authority as because the plain-

tiff/ respondent's status was that of a tenant. No sub-tenancy was sought to be created, presumably to avert a suit for eviction to be filed by the landlord against the tenant. I find, therefore, that the plaintiff has failed singularly to prove his case of induction of defendant/ appellant as licensee and the finding of the lower appellate Court based on that of <ORG> should be set aside as stated above.

19. The result is, the appeal is allowed. The judgment and decree of the court of appeal below are set aside and the plaintiffs suit is dismissed.

20.Theie will be no order as to costs.

21. Appeal allowed.


JUDGMENT Venkataramaiah, J.

1. These two appeals are filed against the common order passed in Writ Petitions Nos. 7496 and 7497 of 1978 by <NAME> dismissing the petitions. The appellant (hereinafter referred to as "the assessee") was the petitioner in the said petitions and the ITO, Company Circle III, Bangalore, was the respondent. In the writ petitions the assessee prayed for the issue of an appropriate writ, order or direction quashing the two notices dated March 25, 1978, issued by the respondent under s. 148 of the I.T. Act, 1961 (hereinafter referred to as "the Act"), proposing to reassess the income of the assessee for the assessment years 1973-74 and 1974-75 on the ground that he had reason to believe that certain income of the assessee had escaped assessment in each of the above assessment years and for a writ in the nature of prohibition restraining the respondent from taking any steps pursuant to the said notices.

2. Briefly stated the facts are these : The assessee is a private limited company incorporated under the Companies Act and is carrying on business of manufacture of pressure cookers and allied products at Bangalore. The sale of these products is being effected by the assessee through its selling agents, <ORG>, which is a firm carrying on business at Madras, with whom the assessee has entered into an agreement. The assessee has been making payments to the said firm for the services rendered in connection with the sale of its products. The question whether the said payments could be treated as revenue expenditure and if so to what extent arose for consideration before the income-tax authorities in the earlier assessment years, i.e., 1968-69, 1969-70, 1970-71 and 1971-72, having regard to s. 40A(2)(a) of the Act and the relationship that existed between the directors of the assessee-company and the partners of the firm of <ORG>. Ultimately, by a common order dated October 30, 1976, the said question was settled by <ORG>, Madras Bench 'C', Madras, in I.T.A. Nos. 366 to 369 (Bang)/1975-76. After perusing the tripartite agreement dated December 20, 1956, entered into between the assessee, the selling agents and <ORG> and on the basis of the material available on record, the <ORG> concluded that the selling agents, <ORG>, had been rendering various services and providing various facilities to the assessee such as, (i) giving guidelines to the assessee in the matter of manufacture of various models and range of pressure cookers in the light of their own market research; (ii) giving advice to the assessee in the matter of selection and appointment of distributors for the sale of cookers and fixing the terms and conditions thereof and also advising termination of services of distributors as and when required; (iii) making reports to the assessee on the activities of the competitors; (iv) participation in the finalisation of advertisement and sales promotional campaigns; (v) supervising the activities of the distributors; (vi) attending to complaints of consumers; (vii) helping the assessee in the matter of collection from distributors; (viii) helping the assessee in liaison work with Government authorities; (ix) helping the assessee in procuring raw materials; and (x) helping the assessee in the matter of excise duty, etc. The <ORG> also perused the resolution dated October 17, 1960, passed by the assessee-company in its extraordinary general meeting appointing <ORG> as sole selling agents on a commission of 7 1/3% on cookers and 15% on spare parts and considered that with the passage of time, as and when the assessee came to undertake the after-sale service, the quantum of commission had to be reduced gradually to 5% and 2 1/2%, respectively. The departmental stand that there was no specific agreement entered into by the assessee with <ORG> was rejected by the <ORG> which held that the various resolutions passed by the assessee-company and the tripartite agreement earlier referred to constituted the agreement. Thus, the <ORG> in its elaborate order dated October 30, 1976, held that the payment in question was reasonable in the light of various factors and thus the same was not liable to be disallowed under s. 40A(2)(a) of the Act. The <ORG>, following the said order, dismissed the departmental appeal in respect of the assessment for the subsequent assessment year 1972-73 also. These orders of the <ORG> became final, the department having accepted the same.

3. When the assessment of the income of the assessee arose during the assessment year 1973-74, the <ORG> disallowed by his order dated August 6, 1976, the claim made by the assessee regarding payments made to the selling agents as the decision of the <ORG> had not yet been rendered on the appeals referred to above. The assessee filed an appeal against the said order of assessment before the <ORG>. The appeal was allowed on March 5, 1977, and the allowance claimed by the assessee was granted in the light of the appellate orders of the <ORG> regarding earlier assessment years passed on October 30, 1976. The order passed by the <ORG> was allowed to become final.

4. In the assessment order dated January 31, 1977, passed in respect of the assessment year 1974-75, the ITO himself granted the allowance claimed in respect of payments made to the selling agents as by then the appellate orders of the <ORG> in respect of the earlier years had been pronounced.

5. It would appear that the internal audit party raised an objection regarding allowance having been made in respect of payments made to the selling agents under s. 40A(2)(a) of the Act as according to them the case had to be dealt with under s. 40(c)(i) of the Act. In view of the observations made by the audit party the <ORG> decided to issue the impugned notices under s. 148 of the Act proposing to reopen the assessments for the assessment years 1973-74 and 1974-75 and to make a reassessment. Aggrieved by the said notices the assessee filed the two writ petitions. The petitions were dismissed at the stage of preliminary hearing by the learned single judge observing that since it was open to the assessee to appear before the <ORG> and to urge that there was no case for reopening the assessment proceedings already completed, they were not fit cases for interference at this stage. These appeals are filed against the orders of the learned single judge.

6. After the respondent was served with the notices in these appeals, he has filed a statement of objections to the relief claimed by the assessee. The relevant part of the statement of objections reads :

"4. The Internal Audit party of the department in the course of their inspection for the assessment year 1974-75 raised an objection that the allowance of payment of commission to <ORG> was not permissible under the Act. They also pointed out that the provisions of section 40(c)(i) of the Act were applicable to the assessee's case.

5. The Income-tax Officer accordingly took action under section 148 and initiated proceedings by issue of notice under section 148 for both the assessment years. The appellant has challenged these notices in the writ appeals on various grounds. The grounds on which the notices are challenged are :

(i) that it was not open to the department to reopen the assessments for the two years, having accepted the <ORG>'s order on the same point for the assessment year 1972-73;

(ii) the notices were issued only on a change of opinion;

(iii) that section 40(c) of the Act has no application to the assessee's case and the only section which has application is section 40A ;

(iv) neither section 147(a) nor (b) is applicable to the assessee's case.

6. It is submitted that none of the grounds referred to above is available to the assessee to urge in the writ appeals for the following reasons :

(i) that for the assessment year 1972-73 the order of the <ORG> is accepted by the department is not relevant for initiating action under section 148 for the subsequent assessment years;

(ii) the notices are not issued only on account of mere change of opinion on the part of the Income-tax Officer, but were issued as a consequence of audit objections raised by the internal audit party;

(iii) whether the provisions of section 40A or of section 40(c) are applicable to the facts of the case is a matter exclusively within the jurisdiction of the Income-tax Officer to adjudicate under the Act, and this is not a matter for interference by this hon'ble court under art. 226;

(iv) the notices are issued under section 147(b) and the records of assessment contain the information in support of the action and the notices are validly issued."

7. During the period under consideration, the relevant parts of s. 40 and s. 40A of the Act stood as follows :

"40. Amounts not deductible. - Notwithstanding anything to the contrary in sections 30 to 39 , the following amounts shall not be deducted in computing the income chargeable under the head 'Profits and gains of business or profession' - ...

(c) in the case of any company -

(i) any expenditure which results directly or indirectly in the provision of any remuneration or benefit or amenity to a director or to a person who has a substantial interest in the company or to a relative of the director or of such person, as the case may be,

(ii) any expenditure or allowance in respect of any assets of the company used by any person referred to in sub-clause (i) either wholly or partly for his own purposes or benefit, if in the opinion of the Income-tax Officer any such expenditure or allowance as is mentioned in sub-clauses (i) and (ii) is excessive or unreasonable having regard to the legitimate business needs of the company and the benefit derived by or accruing to it therefrom, so, however, that the deduction in respect of the aggregate of such expenditure and allowance in respect of any one person referred to in sub-clause (i) shall, in no case, exceed -

(A) where such expenditure or allowance relates to a period exceeding eleven months comprised in the previous year, the amount of seventy-two thousand rupees;

(B) where such expenditure or allowance relates to a period not exceeding eleven months comprised in the previous year, an amount calculated at the rate of six thousand rupees for each month or part thereof comprised in that period :

Provided that in a case where such person is also an employee of the company for any period comprised in the previous year, expenditure of the nature referred to in clauses (i), (ii), (iii) and (iv) of the second proviso to clause (a) of sub-section (5) of section 40A shall not be taken into account for the purposes of sub-clause (A) or sub-clause (B), as the case may be....."

"40A. Expenses or payments not deductible in certain circumstances. - (1) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provision of this Act relating to the computation of income under the head 'Profits and gains of business or profession'.

(2) (a) Where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in clause (b) of this sub-section, and the Income-tax Officer is of opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services of facilities for which the payment is made or the legitimate needs of business or profession of the assessee or the benefit derived by or accruing to him therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction :

Provided that the provisions of this sub-section shall not apply in the case of an assessee being a company in respect of any expenditure to which sub-clause (i) of clause (c) of section 40 applies....."

8. There is no dispute in this case that if s. 40(c)(i) is applicable to the case then the challenge to the impugned notices has to fail. There is also no dispute about the nature of services and facilities that were provided by the selling agents for which payments have been made. Both parties have depended upon the appellate order of the <ORG>. The questions raised in these appeals have, therefore, to be decided on the above basis. They are :

"(i) Whether it is open to this court under article 226 of the Constitution to quash the impugned notices and to issue an order restraining the Income-tax Officer from taking further steps ?

(ii) Whether the observations made by the internal audit party amounts to 'information' within the meaning of that expression in section 147(b) of the Act ? and

(iii) Whether, on the facts and circumstances of the case, the Income-tax Officer had in consequence of such information reason to believe that income chargeable to tax had escaped assessment for the assessment years in question ?"

9. The first question arises out of the contention urged on behalf of the department that the petitions are barred under art. 226(3) of the Constitution, which provides that no petition for the redress of any injury referred to in sub-clause (b) or sub-clause (c) of clause (1) of art. 226 shall be entertained if any other remedy for such redress is provided for by or under any other law for the time being in force. The prayers made in the writ petitions are that the notices issued under s. 148 of the Act in contravention of law, which are likely to result in injury of a substantial natural may be quashed and a writ in the nature of prohibition may be issued to the respondent restraining him from taking any further step pursuant to the impugned notices. The question is whether the law provides any alternative machinery through which the assessee can secure the reliefs prayed for in the petitions. It may be possible for a party to a proceeding before an inferior court or <ORG> to urge all his contentions against the jurisdiction assumed by it and challenge its decision on that question either before a higher court or tribunal to which an appeal or revision petition may lie against such decision or by applying for a writ in the nature of certiorari under art. 226 of the Constitution. But we are not on that point now. We are concerned with the question whether the petition for issue of a writ in the nature of prohibition referred to in clause (1) of art. 226 of the Constitution is barred only because after the decision of the inferior court or tribunal, an appeal or a revision or a petition for the issue of a writ of certiorari can be filed. The distinction between a writ in the nature of prohibition and a writ in the nature of certiorari and the stages at which they can be issued are well settled. Rejecting the contention based on Rex v. Electricity Commissioners  1 KB 171 (CA) that there was no difference in law between a writ of prohibition and a writ of certiorari, <ORG> observed in <CITATION> , as follows :

"What is stated there is that both writs of prohibition and 'certiorari' have for their object the restraining of inferior courts from exceeding their jurisdiction, and they could be issued not merely to courts but to all authorities exercising judicial or quasi-judicial functions. But there is one fundamental distinction between the two writs, and that is what is material for the present purpose. They are issued at different stages of the proceedings. When an inferior court takes up for hearing a matter over which it has no jurisdiction, the person against whom the proceedings are taken can move the superior court for a writ of prohibition, and on that, an order will issue forbidding the inferior court from continuing the proceedings. On the other hand, if the court hears that cause or matter and gives a decision, the party aggrieved would have to move the superior court for a writ of 'certiorari', and on that, an order will be made quashing the decision on the ground of want of jurisdiction.

It might happen that in a proceeding before the inferior court a decision might have been passed, which does not completely dispose of the matter, in which case it might be necessary to apply both for certiorari and prohibition - 'certiorari' for quashing what had been decided, and prohibition for arresting the further continuance of the proceeding. Authorities have gone to this extent that in such cases when an application is made for a writ of prohibition and there is no prayer for 'certiorari', it would be open to the court to stop further proceedings which are consequential on the decision. But if the proceedings have terminated then, it is too late to issue prohibition and 'certiorari' for quashing is the proper remedy to resort to. Broadly speaking and apart from the cases of the kind referred to above, a writ of prohibition will lie when the proceedings are to any extent pending and a writ of 'certiorari' for quashing after they have terminated in a final decision."

10. <CITATION> , , <ORG> further explained the nature of jurisdiction exercised by a superior court while issuing a writ in the nature of prohibition thus (P. 1277) :

"The jurisdiction for grant of a writ of prohibition is primarily supervisory and the object of that writ is to restrain courts of inferior tribunals from exercising a jurisdiction which they do not possess at all or else to prevent them from exceeding the limits of their jurisdiction. In other words, the object is to confine courts or tribunal of inferior or limited jurisdiction within their bounds. It is well settled that the writ of prohibition lies not only for excess of jurisdiction or for absence of jurisdiction but the writ also lies in case of departure from the rules of natural justice (See Halsbury's Laws of England, 3rd edn., Vol. 11, P. 114). It was held for instance by <ORG> in King v. <NAME> [1927] 1 KB 491, that as the order of the judge of <ORG> of July 24, 1925, was made without giving the vicar an opportunity of being heard in his defence, the order was made in violation of the principles of natural justice and was, therefore, an order made without jurisdiction and the writ of prohibition ought to issue. But the writ does not lie to correct the course, practice or procedure of an inferior tribunal, or a wrong decision on the merits of the proceedings. It is also well established that a writ of prohibition cannot be issued to a court or an inferior tribunal for an error of law unless the error makes it go outside its jurisdiction (See <NAME> v. Comptroller-General of Patents and Designs [1953] 2 WLR 760 at p. 765 (QB) and <ORG> v. <NAME>, 59 CLR 369. A clear distinction must, therefore, be maintained between want of jurisdiction and the manner in which it is exercised. If there is want of jurisdiction then the matter is coram non judice and a writ of prohibition will lie to the court or inferior tribunal forbidding it to continue proceedings therein in excess of its jurisdiction."

11. The reason for interfering at this stage in cases of this nature are to be found in <CITATION> . In that case, the petitioner was asked by a sales tax authority to apply for registration and to submit returns under the provisions of the Bihar Sales Tax Act, 1947. The petitioner who questioned the jurisdiction of the authority to issue such a notice applied under art. 226 of the Constitution. <ORG> of Patna took the view that the Bihar Sales Tax Act undoubtedly conferred jurisdiction on the STO to investigate the question of liability of a dealer to sales tax and accordingly he was well within his jurisdiction in issuing the impugned notice and dismissed the petition observing that if on assessment it was found that the order was erroneous the matter could be agitated in appeal under that Act. On appeal, <ORG> repelled the contention that the petition was not maintainable in view of the existence of an alternative remedy in the following terms (p. 457) :

"It has been argued that the application was premature, for there has, so far, been no investigation or finding on facts and no assessment under section 13 of the Act. The appellant-company, contending, as it does, that the Act is ultra vires and void, should have ignored the notice served on it and should not have rushed into court at this stage. This line of argument appears to us to be utterly untenable. In the first place, it ignores the plain fact that this notice, calling upon the appellant-company to forthwith get itself registered as a dealer, and to submit a return and to deposit the tax in a treasury in Bihar, places upon it considerable hardship, harassment and liability which, if the Act is void under article 265 read with article 286 constitute, in praesenti, an encroachment on and an infringement of its right which entitles it to immediately appeal to the appropriate court for redress. In the next place, as was said by this court in <CITATION> , , when an order or notice emanates from <ORG> or any of its responsible officers directing a person to do something, then, although the order or notice may eventually transpire to be ultra vires and bad in law, it is obviously one which prima facie compels obedience as a matter of prudence and precaution. It is, therefore, not reasonable to expect the person served with such an order or notice to ignore it on the ground that it is illegal, for he can only do so at his own risk and peril. This court has said in the last mentioned case that a person placed in such a situation has the right to be told definitely by the proper legal authority exactly where he stands and what he may or may not do.

Another plea advanced by the respondent <ORG> is that the appellant-company is not entitled to take proceedings praying for the issue of prerogative writs under article 226 as it has adequate alternative remedy under the impugned Act by way of appeal or revision. The answer to this plea is short and simple. The remedy under the Act cannot be said to be adequate and is, indeed, nugatory or useless if the Act which provides for such remedy is itself ultra vires and void and the principle relied upon can, therefore, have no application where a party comes to court with an allegation that his right has been or is being threatened to be infringed by a law which is ultra vires the powers of the legislature which enacted it and as such void and prays for appropriate relief under article 226. As said by this court in <CITATION>  5 STC 115 (SC) this plea of the <ORG> stands negatived by the decision of this court in <CITATION> .  4 STC 113 (SC). We are, therefore, of the opinion, for reasons stated above, that <ORG> was not right in holding that the petition under article 226 was misconceived or was not maintainable. It will, therefore, have to be examined and decided on merits."

12. <CITATION> , where a notice issued under s. 34 of the Indian I.T. Act, 1922, corresponding to s. 148 of the Act was questioned, <ORG> observed (p. 207) :

"Mr. <NAME> mentioned more than once the fact that the company would have sufficient opportunity to raise this question, viz., whether the Income-tax Officer had reason to believe that under-assessment had resulted from non-disclosure of material facts, before the Income-tax Officer himself in the assessment proceedings and, if unsuccessful there, before the Appellate Officer or <ORG> or in <ORG> under section 66(2) of the India Income-tax Act. The existence of such alternative remedy is not however always a sufficient reason for refusing a party quick relief by a writ or order prohibiting an authority acting without jurisdiction from continuing such action."

13. It is no doubt true that the above decisions relate to the period prior to the amendment of art. 226 of the Constitution by the Constitution (42nd Amend.) Act, 1976. But we are of the view that art. 226(3) as it now stands also does not preclude <ORG> from exercising the power in appropriate cases to issue a writ, order or direction prohibiting an illegal or unauthorised act. We agree with the view expressed in <CITATION> 1977 Guj 113 [FB] that clause (3) of art. 226 of the Constitution which restricts the scope of power of <ORG> under art. 226 should be construed strictly and if <ORG> is of opinion that the alternative remedy does not provide adequate relief, jurisdiction under art. 226 has to be exercised in an appropriate case.

14. <CITATION> , <ORG> held that art. 226(3) was no bar to entertain petition in which the validity of a notice under s. 148 of the Act was challenged holding that there was no provision in the Act providing for any remedy for the redress of any injury that might be caused to the assessee if the assessment was allowed to be reopened and that a suit in which the validity of such notice could be questioned could not be considered as an alternative remedy barring the jurisdiction of <ORG> under art. 226. <ORG> also expressed the same view in <CITATION>  111 ITR 900 in which a notice issued under s. 148 of the Act was quashed under art. 226.

15. It is true that in <CITATION> , a Full Bench of <ORG> has held that art. 226(3) of the Constitution precluded an assessee from challenging a notice issued under s. 148 of the Act relying upon the observations made by <ORG> in the case of <ORG> and holding that <ORG> had recognised the existence of an alternative remedy. We are of the view that the case has to be examined in the light of the amended art. 226 which imposes a restriction on the power of <ORG> and the nature of the alternative remedy available. In that case, <ORG> qualified the words "alternative remedy" with the word "such" as referring to the remedy by way of an appeal and reference under s. 66 to <ORG> which were referred to by the counsel for the department. But it cannot be assumed that <ORG> held in that case that the appeal and reference referred to therein did really amount to remedies "alternative" to a writ or direction that could be issued under art. 226 restraining the continuance of a proceeding which had been commenced without jurisdiction. We respectfully disagree with the above decision of <ORG> of <ORG> of Punjab and Haryana.

16. We respectfully agree with the views expressed in the above decisions of the <ORG> of Gujarat, Calcutta and Orissa in so far as the question of issue of a writ in the nature of prohibition is concerned and hold that the writ petitions out of which these appeals arise are not barred by art. 226(3) of the Constitution. There will not be any difference even if it is held that while issuing a notice under s. 148 the <ORG> acts as an administrative authority to whom a writ of prohibition may not be issued as it is open to <ORG> to issue under art. 226 any appropriate order or direction restraining the continuance of an illegal proceeding if on merits the case requires <ORG> to do so. Hence, we reject the first contention.

17. On the second question it has to be held that the opinion expressed by the audit party amounts to information within the meaning of that expression in s. 147(b) of the Act and can form the basis of exercise of power thereunder (vide the decision of <ORG> in <CITATION> ).

18. The third question relates to the jurisdiction of the <ORG> to issue the impugned notices on the facts and in the circumstances of the case. It is argued by Sri <NAME>, learned counsel for the revenue, that the question whether the information he had was sufficient to issue the impugned notices was a matter for the decision of the <ORG> and cannot be canvassed before this court in a petition under art. 226. This question is no longer res integra. In the case of <ORG> , <ORG> rejected a similar contention while considering the validity of a notice issued under s. 34 of the Indian I.T. Act, 1922, which correspond to ss. 147 and 148 of the Act in the following terms (p. 206) :

"Mr. <NAME> argued that the question whether the Income-tax Officer had reason to believe that under-assessment had occurred 'by reason of non-disclosure of material facts' should not be investigated by the courts in an application under article 226. Learned counsel seems to suggest that as soon as the Income-tax Officer has reason to believe that there has been under-assessment in any year he has jurisdiction to start proceedings under section 34 by issuing a notice provided 8 years have not elapsed from the end of the year in question, but whether the notices should have been issued within a period of 4 years or not is only a question of limitation which could and should properly be raised in the assessment proceedings. It is wholly incorrect however to suppose that this is a question of limitation only not touching the question of jurisdiction. The scheme of the law clearly is that where the Income-tax Officer has reason to believe that an under-assessment has resulted from non-disclosure he shall have jurisdiction to start proceedings for reassessment within a period of 8 years : and where he has reason to believe that an under-assessment has resulted from other causes he shall have jurisdiction to start proceedings for reassessment within 4 years. Both the conditions, (i) the Income-tax Officer having reason to believe that there has been under-assessment, and (ii) his having reason to believe that such under-assessment has resulted from non-disclosure of material facts, must co-exist before the Income-tax Officer has jurisdiction to start proceedings after the expiry of 4 years. The argument that the court ought not to investigate the existence of one of these conditions, viz., that the Income-tax Officer has reason to believe that under-assessment has resulted from non-disclosure of material facts, cannot therefore be accepted."

19. The above view is reiterated by <ORG> in <CITATION> . in which s. 147(b) of the Act arose for consideration in the following terms :

"<ORG> may, therefore, issue a high prerogative writ prohibiting the Income-tax Officer from proceeding with reassessment when it appears that the Income-tax Officer had no jurisdiction to commence the proceeding.

The condition which invests the Income-tax Officer with jurisdiction has two branches : (i) that the Income-tax Officer has reason to believe that income chargeable to tax has escaped assessment; and (ii) that it is in consequence of information which he has in his possession that he has reason so to believe. Since the learned judges of <ORG> have concentrated their attention upon the second branch of the condition and have reached their conclusion in favour of the assessees on that branch, it would be appropriate to deal with the correctness of that approach. The expression 'information' in the context in which it occurs must, in our judgment, mean instruction or knowledge derived from an external source concerning facts or particulars, or as to law relating to a matter bearing on the assessment. If, as a result of information in his possession, the Income-tax Officer has reason to believe that income chargeable to tax had escaped assessment, the Income-tax Officer has jurisdiction to assess or reassess income under section 147(b) of the Income-tax Act, 1961. Information in his possession that income chargeable to tax has escaped assessment furnishes a starting point for assessing or reassessing income. If he has that information, the Income-tax Officer may commence proceedings for assessment or reassessment. To commence the proceeding for reassessment it is not necessary that on the materials which came to the notice of the Income-tax Officer, the previous order of assessment was vitiated by some error of fact or law.

<ORG> exercising jurisdiction under article 226 of the Constitution has power to set aside a notice issued under section 147 of the Income-tax Act, 1961, if the condition precedent to the exercise of the jurisdiction does not exist. The court may, in exercise of its powers, ascertain whether the Income-tax Officer had in his possession any information; the court may also determine whether from that information the Income-tax Officer may have reason to believe that income chargeable to tax had escaped assessment. But the jurisdiction of the court extends no further."

20. It is thus clear that it is open to this court to examine whether the information was such that prima facie it may be said that the <ORG> had reason to believe that income chargeable to tax had escaped assessment. This leads us on to the facts of these cases.

21. As mentioned earlier the <ORG> had after an elaborate investigation came to the conclusion that the payments made by the assessee to its selling agents were not either excessive or unreasonable having regard to the services and facilities provided by the selling agents by applying s. 40A(2) of the Act. Even though the non-obstante clause in s. 40A(1) gives the provisions of that section an overriding effect over the other provisions of the Act, the proviso to that section excludes the application of that section to any expenditure to which sub-clause (i) of clause (c) of s. 40 of the Act applies. Since the facts are not in dispute, we shall examine whether sub-clause (i) of clause (c) of s. 40 applies at all to the present case. That sub-clause refers to any expenditure incurred by a company which results directly or indirectly in the provision of any remuneration or benefit or amenity to a director or to a person who has a substantial interest in the company or to a relative of the director or of such person, as the case may be. Section 40(c) provides that it is open to the ITO to determine whether the remuneration, benefit or amenity is excessive or unreasonable having regard to the legitimate business needs of the company and the benefit derived by or accruing to it therefrom and also places a maximum limit on the deduction that may be claimed in respect of the aggregate of such expenditure and allowance in respect of any one person by declaring that in no case it shall exceed Rs. 72,000 and where such expenditure or allowance relates to a period not exceeding eleven months comprised in the previous year, an amount calculated at the rate of Rs. 6,000 for each month or part thereof comprised in that period. It further provides that where such person is also an employee at the company during the relevant period expenditure of the nature referred to in cls. (i) to (iv) of the second proviso to s. 40A(5)(a) shall not be taken into account for the purpose of determining the above-said maximum limit of Rs. 72,000 or Rs. 6,000 per month, as the case may be. A close reading of the above provision shows that s. 40(c) refers to an expenditure incurred by making periodical payments to a person mentioned in that clause apparently for any personal service that may be rendered by him. It cannot have any reference to payments made by the assessee for all kinds of "services or facilities" referred to in s. 40A(2)(a) . It is argued that the proviso thereto suggests that any expenditure incurred for any kind of service which is referred to in the main part of s. 40A(2)(a) and the expenditure referred to in s. 40(c) belong to the same category. This contention is not correct. The expression "services" in s. 40A(2)(a) is an expression of wider import. We should not forget that as observed by <ORG> in <CITATION> .  32 Comp Cas 604 (SC) provisos are sometimes introduced to "allay fears" or to remove misapprehensions. A proviso or an exception cannot be interpreted as to destroy the main provision. The proper rule of construction of a proviso is explained by <ORG> in <CITATION> ., as follows :

"The cardinal rule of construction of the provisions of a section with a proviso is succinctly stated in Maxwell's Interpretation of Statutes, 10th edn., at p. 162 thus :

"The proper course is to apply the broad general rule of construction, which is that a section or enactment must be construed as a whole, each portion throwing light if need be on the rest.

The true principle undoubtedly is, that the sound interpretation and meaning of the statute, on a view of the enacting clause, saving clause, and proviso, taken and construed together is to prevail.

Unless the words are clear, the court should not so construe the proviso as to attribute an intention to the legislature to give with one hand and take away with another. To put it in other words, a sincere attempt should be made to reconcile the enacting clause and the proviso and to avoid repugnancy between the two."

22. The crucial words in s. 40A(2)(a) are 'fair market value of the goods, services or facilities'. If the remuneration, benefit or amenity referred to in s. 40(c) is treated as the same as what is paid in return for "the goods, services or facilities" then irrespective of the fair market value of the goods, services and facilities provided by a person who may be a director or who has a substantial interest in the company or a relative of the director or of such person, as the case may be, only a maximum of Rs. 72,000 can be allowed to be deducted in computing the income of the company in any one year. We do not think that <ORG> even intended that such a result should follow. The goods, services and facilities referred to in s. 40A(2)(a) are those which have a market value and which are commercial in character. Many of the services and facilities referred to above are those which are nowadays provided by independent organisations. They take diverse forms, such as packing and forwarding, transport service, advertisement service, warehousing facilities, processing, collection of price, insurance of goods, etc., which involve investment of large finance and employment of number of persons. The cost of post-manufacture operations in some cases will be in the order of 30% of the price paid by the customer. Marketing and distribution of goods have become important branches of modern industrial and commercial operations, which have not become highly standardised. Their importance in the scheme of the free market system is dealt with by <NAME> in the Chapter entitled "Services and the Market System" in his book Economics and Public Purpose  as follows :

"Services are rightly assumed to be the domain of the small firm and thus of the market system. In recent times there has been much talk in the United States and other industrial countries of the rise of the so-called service economy. This, in turn, has been taken by determined defenders of the market to prove that the market controlled economy is not only surviving but resurgent. Economics, as it is taught, is being saved from the depredations of the great corporation by the growing demand for services.

On examination this development turns out to be a good deal more complex. Numerous service enterprises are the by-product of the rise of the large firm. They are, in effect, a subsidiary and supporting development of the planning system. This is especially the case with that part of the service sector which, from outward evidence, is expanding most rapidly.

Services, nonetheless, are the favoured domain of the small firm. As mentioned in the last chapter, the growth of the firm is arrested where the task is geographically dispersed and where, accordingly, the activity at any one point is limited and where the task involved is unstandardized. This means that one or a few people work in isolation, i.e., without supervision. Under such circumstances they adopt their preferred pace, which is normally slow. They enhance their input of mental and physical energy only if, in their earning, they reap the rewards and suffer the penalties of the individual entrepreneur.

Geographical dispersion, it may be observed, is not an absolute barrier to organization. If the task is relatively standardized, performance norms can be established for dispersed workers to which they can then be required to conform. Or payment can be according to product or revenue produced. On such dispersed functions can be associated with the capital and technical support of a larger organization as in the case of a local unit of a retail or restaurant chain. In recent times there has also been a great exfoliation of hybrid arrangements, commonly denoted franchises, by which an individual is made responsible for a local enterprise and is thus subject to the comprehensive incentive system, that is, associated with individual entrepreneurship. Ordinarily he is required to put some of his own capital at risk. As the proprietor he is then rewarded for any and all energy and intelligence he expends and punished for failure in this regard, as well as for such errors of optimism and gullibility as he may have made and such other misfortune as he may endure..."

23. Now, in the case of a selling agent who carries on marketing operations it is seen that he has to perform several functions such as, (i) providing godown facilities for the goods of the principal; (ii) providing watch and ward; (iii) arranging collection of price; (iv) providing workshop facilities in the locality in the case of automobiles and machinery; (v) processing of goods; (vi) packing and forwarding; (vii) advertising; (viii) collection of market information; (ix) depositing money with the principal without any interest; (x) insurance of goods, and several other functions. Without the services of a competent selling agent it may not be possible to a big manufacturer to push his goods in the market. We do not think that, in these circumstances, payment made to such a selling agent can be treated as an expenditure referred to in s. 40(c) of the Act. It is also relevant to bear in mind s. 40(c) is a successor to s. 10(4A) of the 1922 Act. But s. 40A was introduced in the year 1968 in the Act apparently for the purpose of preventing the abuse of excessive or unreasonable payments being made by assessee to persons referred to therein in lieu of goods, services and facilities. If the payments represent a fair market value then there is no limitation on the total amount payable during any period. We are of the view that expenditure incurred by way of commission paid to a selling agent who acts as an independent entrepreneur with an independent organization which is not subject to the control and supervision of the assessee, for the services and facilities provided by him, cannot, therefore, be considered as equivalent to remuneration or benefit or amenity referred to in s. 40(c) of the Act.

24. In the instant case it is not disputed that <ORG> & Company, the selling agents, have been providing the services and facilities under the agreement as independent entrepreneurs and it has been held that the commission paid to them was not excessive. At this stage, it is appropriate to set out a part of the order of the <ORG> dated October 30, 1976, in respect of the assessment years 1968-69 to 1971-72, It reads :

"On a careful consideration of the facts of the case on record, we are of the opinion that the commission paid to the selling agents in this case is neither excessive nor unreasonable having regard to the tests set forth in section 40A(2)(a) . The assessee-company did not have any establishment in the form of premises, staff, telephone and other facilities in any of the major cities of India, Bombay, Calcutta, Delhi and Madras, which are the principal distribution centers. If the assessee-company had these facilities, it would have incurred costs, which the assessee had estimated at about Rs. 7.39 lakhs per year. As regards the legitimate business reeds, we have already set out the background in which the tripartite agreement was entered into between the assessee-company, the foreign company and <ORG> and Company. We have also referred to in great detail the various services rendered by <ORG> and Company in the matter of promoting sales of '<ORG>' pressure Cookers, appointment of distributors, collection distributors, infringement of trade marks, attending to consumer complaints, etc. The assessee-company had also derived benefit by the services rendered by the sole selling agents, <ORG> and Company, in proof of which the assessee has furnished the following chart of performance :

Year Sales Profit before Commission Profit ending charging before commission tax ---------------------------------------------------------------------- Rs. Rs. Rs. Rs. 31-10-1967 1,06,37,997 18,64,590 6,44,555 12,20,035 31-10-1968 1,37,60,859 34,32,080 7,82,597 26,49,483 31-10-1969 1,13,66,749 23,36,303 5,56,155 18,30,148 31-10-1970 1,57,02 532 42,24,041 4,34,585 37,89,456 ------------------------------------------------------------------------ Having carefully considered all the aspects of the caes, we have no hesitation in upholding the findings of the <ORG> arrived at on the facts of the case. The orders of the <ORG> setting aside the disallowance of commission payment is accordingly upheld."

25. The total payment made to the selling agents may be in excess of Rs. 72,000 per year. But as long as the case does fall under s. 40(c) , there is no justification for the <ORG> to issue the impugned notices even though the audit party may have said so. We hold that the present case does not at all fall under s. 40(c) of the Act. We are of the opinion that on the face of it the case did not attract s. 147(b) of the Act. We, therefore, held that the <ORG> had no jurisdiction to issue the impugned notices under s. 148 of the Act as he could not reasonably entertain any doubt that any part of the assessee's income had escaped assessment by reason of not applying s. 40(c) to the case.

26. In the result, we allow these appeals, reverse the common order passed by the learned single judge and quash the notices issued under s. 148 of the Act which are impugned in these cases. We also direct the respondent in each of these cases not to take any further proceedings pursuant to the impugned notices.

27. Parties shall bear their own costs.