TMI Blog1955 (4) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... econd of the questions had really to be dealt with under section 10(2)(x) of the Income-tax Act and not under section 10(2)(xv). The scope of the two sub-sections and that of rule 12 of Schedule I of the Excess Profits Tax Act was explained by the Court in that judgment. It should, however, be convenient to set out the relevant facts over again before we answer the questions. The Tribunal submitted the statement called for by this Court. The statement was renumbered as R.C. 4 of 1955, though the original references themselves remained to be answered in full. The assessee was one of the distributors of the products of the Imperial Chemical Industries (hereinafter referred to as the I.C.I.). That business the assessee carried on under the name of Colours Trading Company . The assessee had a number of branches, each in charge of a manager. The number of assistant managers and other employees in a branch depended on the turnover of that branch. The heaviest turnover was in the Madurai and Madras branches. Mahadevan (the son of one of the partners of the assessee firm) was the superintendent of all the branches. The manager and other employees in the branches were in receipt of sala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the I.C.I. The details of the total additional commission received from the I.C.I., the sums paid out to the several employees and the turnover of each branch were furnished in the statements submitted by the Tribunal and marked Annexure C series to its original statement. A tabulated summary was furnished by the Tribunal in paragraph 6 of its further statement. The maxima and the minima and the percentages allowed to each employee were also shown in the tabulated summary. If however each branch was considered as a unit, the maxima were in some cases higher than those recorded by the Tribunal in this summary. In 1944-45, the assessee received an additional 5% commission and it passed on 4 of this to the managers at Madurai and Madras, with two employees each to share that 4 %. The managers of the other branches each got 4%. The minimum recommended, it should be remembered, was only 1%. In 1945-46, the assessee received 15%. The minimum recommended was 6%. The assessee actually paid out 10% to the managers at Madurai and Madras; four employees in each of these two branches shared that 10%. The managers of the other branches were each paid 7 %. They were all paid at the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dditional commission was shared with managers and assistant managers of branches, who could not strictly be called sub-dealers, did not affect the validity of the assessee's claim either under section 10(2)(x) of the Income-tax Act or under rule 12 of Schedule I of the Excess Profits Tax Act. The Tribunal also kept in view what was pointed out by this Court, that the object of the I.C.I. was that the additional commission should not be retained in full by the assessee. The other factors they had to consider were : (1) the reasonableness of the commission had to be judged in the light of the conditions laid down in section 10(2)(x) of the Income-tax Act; (2) whether the percentage allowed, which was above the minimum suggested by the I.C.I. was reasonable or not in the circumstances; and (3) the need for maintaining the good reputation of the I.C.I. and the distributor in the conditions that prevailed during that period when blackmarketing in such products was rampant. We are constrained to observe that the Tribunal made no real attempt to analyse the evidence before it or justify its conclusion, that only the minima recommended by the I.C.I. satisfied the requirements under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal appeared to abandon that subjective standard along with the decision based on that when it submitted the further statement. But it appears to have surrendered its judgment to that of the I.C.I., apparently overlooking the fact, that what the I.C.I. recommended was only the minimum that they expected their distributors to pass on to the persons who actually sold the goods. One of the questions the Tribunal set itself out to consider was whether payments in excess of the minima were reasonable. But on what basis the Tribunal considered them unreasonable we were really unable to gather even from the further statement of the case submitted by the Tribunal. If it was again only a subjective satisfaction, that the excess over the minimum was not reasonable, there was no room for the adoption of any such standard. We have considered the details furnished in Annexure C series, and we are unable to see anything per se unreasonable in the percentages actually adopted by the assessee for payment to the managers and assistant managers in the branches, though they were in excess of the minima recommended by the I.C.I. As we have pointed out, the payments were made and the payments were not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gest turnover among the branches of the assessee firm. The other feature on which the Tribunal commented was that, while the assessee told its managers in advance that only those with turnover of over a lakh in a year would be eligible for the commission which the assessee was prepared to pay from out of the emergency commission it received from the I.C.I., the assessee ultimately paid commission even at those branches which showed a turnover of less than a lakh. The Tribunal apparently declined to allow any discretion to the assessee in running its own business. Though of course, it was for the assessee to show that it was entitled to the deductions claimed under section 10(2)(x) of the Income-tax Act and rule 12 of Schedule I of the Excess Profits Tax Act, there was really no basis on record to show that, judged from the point of view of a businessman, payments in excess of the minima recommended by the I.C.I. were not reasonable. We are of opinion that the entire claim should have been allowed both under section 10(2)(x) of the Income-tax Act and under rule 12 of Schedule I of the Excess Profits Tax Act on the ground that the statutory requirements were satisfied by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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