9911796707
TMI Blog1997 (3) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... allow deduction of the payment made by the assessee to the Karnataka State Lawn Tennis Association that the expenditure was wholly and exclusively for the purpose of the business allowable under section 37(1) of the Income-tax Act? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in directing the Assessing Officer to allow deduction of service charges amounting to Rs. 3,29,17,500? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in basing its conclusion on the papers that had not been produced before the Assessing Officer before he completed the assessment in spite of reasonable opportunity and whether that vitiated the findings of the Tribunal?" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer, therefore, held that there is no evidence to prove that those persons had rendered services and, hence, the payment of Rs. 3,29,17,500 was held to be made for extra commercial consideration. The assessee preferred an appeal before the Commissioner of Income-tax (Appeals). The Commissioner (Appeals) held that the payment to the Karnataka State Lawn Tennis Association was made in connection with the tournaments conducted by the said association during the course of which there was a display of banners showing the products dealt with by the assessee. The Commissioner (Appeals), therefore, held that the display could be regarded as publicity of the assessee's products and the expenditure incurred in connection with the same cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ked the orders by sending its own representatives, collected the demand drafts from the purchasers of the assessee's products and forwarded them to the assessee and suggested various incentive schemes to push up the sales, etc. The Appellate Tribunal also noticed that there was an agreement dated January 10, 1985, between Balaji Traders and McDowell and Co. Ltd., and Balaji Traders had a licence for the whole-sale distribution of IMFL in the State of Karnataka and due to misunderstanding between McDowell and Co. Ltd., and Balaji Traders, McDowell and Co. Ltd. directed Balaji Traders to transfer 69,000 cases to the assessee and the marketing of the cases was the responsibility of the assessee and the assessee had to pay service charges to Mc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, we are of the opinion that the Tribunal has come to the correct conclusion in holding that the payment to the said association is an allowable business expenditure. We, therefore, hold that the first question sought for by the Revenue is not a referable question of law and we reject the same. In so far as questions Nos. 2 and 3 are concerned, they relate to the allowability of payment of servicer charges to McDowell and Co. Ltd. Mr. C. V. Rajan, learned counsel for the Revenue, has submitted that in the case of another assessee, this court has called for a statement of case and directed to refer a similar question of law in T. C. P. No. 56 of 1995 by order dated September 7, 1996, and in T. C. P. No. 437 of 1996, by order dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, submitted that this court should reject both the questions as well. We have carefully considered the rival submissions of the parties. The question whether the payment is allowable as business expenditure is a mixed question of law and fact. We are not expressing any opinion on merits of the case as it will prejudice the rights of the parties, at the time of final hearing in the tax case. The Supreme Court in CIT v. Gannon Dunkerley and Co. Ltd. [1987] 167 ITR 637, held that the question whether the expenditure incurred by the assessee by way of secret commission is deductible or not under section 37(1) of the Income-tax Act, 1961, in computing the business income of the assessee is a question of law. Similarly, the Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X
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