TMI Blog1989 (8) TMI 107X X X X Extracts X X X X X X X X Extracts X X X X ..... T. (A) and allowed the same rate of 2% for the assessment year 1979-80. This point is involved for the assessment years 1978-79 and 1979-80. (iii) Maintenance of buildings and cars provided to managers of Tea Estates and cash allowances paid to them disallowed by the C.I.T. (A) u/s 40A(5) at Rs. 46,792 for the assessment year 1978-79 and Rs. 87,474 for the assessment year 1979-80. (iv) Disallowance u/s 35B. This ground is raised for all the assessment years under consideration. (v) Cash compensatory support claimed by the assessee. This ground is raised the assessee for all the assessment years. (vi) Commission paid to M/s Bhansali Brothers disallowed by the I.T.O. and confirmed by the C.I.T. (Appeals) for the assessment year 1979-80. (vii) Replanting expenses and upkeep of the new clearings disallowed by the C.I.T. (A) for the assessment year 1979-80. (viii) Maintenance of bungalow at Prospect Estate disallowed by the I.T.O. and confirmed by the C.I.T. (A) for the assessment year 1981-82. 3. The following grounds are raised by the revenue in its appeals, namely, on the facts and in the circumstances of the case, the C.I.T. (Appeals) erred in --- (i) allowing paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 979] 118 ITR 613 (Bom.). On appeal before the C.I.T. (Appeals) the learned counsel for the assessee contended that this is an allowable deduction in view of the decision of the Supreme Court in India Cements Ltd. v. CIT [1966] 60 ITR 52. The C.I.T. (Appeals) disallowed the contention of the assessee on the ground that this expenditure is not for raising capital and it has been incurred only for guaranteeing compliance of the terms of contract relating to the purchase of the estate by making the payments due under the contract. He, therefore, confirmed the order of the Income-tax Officer. 4.2 Before us, the learned counsel for the assessee relied upon the decision of the Andhra Pradesh High Court in Addl. CIT v. Akkamba Textiles Ltd. [1979] 117 ITR 294. He contended that since the ratio laid down in the aforesaid case is squarely applicable to the facts of this case, the bank guarantee commission paid by the assessee is an allowable deduction. 4.3 The learned departmental representative, on the other hand, relied upon the decision of the Bombay High Court in Ballarpur Paper Straw Board Mills' case and the Calcutta High Court decision in Foil Gloster Industries Ltd.'s case. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer found to be sketchy, the I.T.O. asked for a descriptive note on the mechanism and set up that the firm had to render the necessary services. He also wanted to know the expenditure incurred by the firm in rendering the services so as to earn a fabulous commission of Rs. 16 lakhs. Not being satisfied with the reply given by the assessee company, the I.T.O. came to the conclusion that the firm did not have any specific set up for rendering any services so as to earn a fabulous commission from the company. In fact, the I.T.O. considered that the services rendered by the firm could not fetch more than 2% by way of commission if the particular relationship between the company and the firm is kept out of the picture. He accordingly allowed 2% commission for the assessment year 1978-70 and 1% for the assessment year 1979-80 and disallowed the balance by invoking the provisions of sec. 40A(2)(a). 5.2 On appeal before the C.I.T. (Appeals), the succeeding I.T.O. made a request for curtailing even the allowance of 2% granted by his predecessor. It was his case that the services said to have been rendered by the firm to the assessee company were rather meagre and would not in any case ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 78-79, wherein the break-up of details of sales of each estate is separately given. He then drew our attention to the copy of the agreement dated 9-7-1976 which is at pages 63 to 65 of the Paper Book, Volume 1, for the assessment year 1978-79 in evidence of the fact that M/s. Tara Agencies shall manage and look after the sales of tea not only through the Cochin auction but also sales to other merchants and shall also keep advised the company of all matters including the prevailing conditions in the market. He further relied upon the assessment orders of M/s Tara Agencies for the assessment years 1978-79 and 1979-80 to show that M/s Tara Agencies had returned the income earned by it by way of commission and it was assessed to tax. The counsel further contended that the firm M/s Tara Agencies is in existence from the year 1970 and deals in tea. Therefore, it has the necessary experience for marketing the tea, According to him, this is the technical service which can be acquired by experience in trade. The work involved the tasting and testing tea and fixing the rates while sending it for sales for the auction. Another important work carried on by the firm according to the counsel was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only 1% as pleaded by the successor I.T.O. before the C.I.T. (Appeals). 5.5 We have carefully considered the facts and circumstances of the case, the material on record and the arguments advanced by both the sides. On a perusal of the order of the I.T.O. and the order of the C.I.T.(A) it is seen that the only factory which weighed with them in restricting the commission to be allowed in the hands of the assessee at 2% is by equating M/s. Tara Agencies with that of the auctioneers who are charging only 1%. From the facts as appearing in the records which are not disputed by the revenue, M/s. Tara Agencies has been rendering various services other than merely taking part in the auction. When once it is accepted that M/s Tara Agencies is in existence from 1970 and is dealing in tea, it should be taken for granted that it has necessary experience for marketing the tea. From the nature of the services rendered by M/s Tara Agencies it cannot be compared with that of the auctioneers who are charging only 1% commission as the services rendered by M/s Tara Agencies involved tasting and testing of tea and fixing the timing of the marketing of the tea produced for sales in the auction and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re fully satisfied and since the agreement is genuine and the payment is bonafidely made and the object is not avoidance of tax liability the commission @ 5% paid by the assessee company to M/s Tara Agencies should be allowed as a deduction in the hands of the assessee and the appeal filed by the assessee on this count is allowed. 6.1 The third ground of the assessee relates to disallowance of Rs. 46,792 for the assessment year 1978-79 and Rs. 87,474 for the assessment year 1979-80 under section 40A(5). The I.T.O. disallowed Rs. 70,000 for the assessment year 1978-79 and the like amount for the assessment year 1979-80 u/s 40A(5) on estimate in the absence of relevant details. Before the C.I.T. (Appeals) the assessee's counsel furnished the details of the payments made to the employees to which sec.40A(5) could be applied. The C.I.T.(A) following the decision of the Kerala High Court in the case of CIT v. Forbes Ewart Figgis (P.) Ltd. [1982] 138 ITR 1, restricted the addition to Rs.46,792 for the assessment year 1978-79 and enhanced the disallowance to Rs.87,474 for the assessment year 1979-80. Against these orders of the C.I.T.(A) the assessee is in appeal before us. 6.2 The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80 and the figure is found at page 126 of the Paper Book, Vol. II for the year 1979-80 and the amount to be disallowed would be Rs. 28,446. Since the decision reported in 145 ITR 563 being the latter decision of the Kerala High Court, we prefer to follow the ratio laid down in that decision and the amount to be disallowed u/s 40A(5) would be Rs. 2,351 for the assessment year 1978-79 and Rs. 28,446 for the assessment year 1979-80. This view of the Kerala High Court is subsequently affirmed by the same High Court in the case of Travancore Tea Estates Co. Ltd. v. CIT [1985] 153 ITR 444, wherein car supplied and car allowance paid to the employee and cash paid to employees by way of marriage allowance was treated as not a perquisite and not to be taken into account in computing disallowance u/s 40A(5) of the I.T. Act. 7.1 The 4th ground taken by the assessee relates to weighted deduction u/s 35B of the I.T. Act. The assessee has claimed weighted deduction in respect of freight for the assessment years 1978-79 to 1980-81. The I.T.O. disallowed the same and the C.I.T.(A) confirmed the order of the I.T.O. The claim made by the assessee in respect of freight is disallowable u/s 35B(1)(b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .6 The assessee claimed weighted deduction on packing material, cartons, Polythene bags amounting to Rs. 1,66,773 Rs. 4,59,820 for the assessment year 1978-79, Rs. 9,41,492 Rs. 2,55,185 for the assessment year 1979-80, Rs. 13,09,213 for the assessment year 1980-81 and Rs. 7,14,506 for the assessment year 1981-82. The I.T.O. disallowed the same and the C.I.T.(A) confirmed the order of the I.T.O. The learned counsel for the assessee relied upon the decision of the Cochin Bench in the case of Kesatia Tea Co. Ltd. [I.T. Appeal No. 444 (Coch.) of 1981 dated 3-4-19831. He further contended that since printing has to be made on some material for giving publicity value, the weighted deduction should be allowed not only on the cost of printing as held by the Cochin Bench in the aforesaid decision but also on the cost of packing material on which printing is done. The learned departmental representative, on the other hand, contended that the cost of material cannot be considered for the purpose of weighted deduction as the main purpose is packing and the use of that material for printing is merely incidental. We have carefully considered the rival submissions. In the decision relied upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction and the appeal riled by the assessee on this count is dismissed. 7.10 The assessee has claimed weighted deduction in respect of licence fees for the assessment year 1979-80 and rates and taxes for the assessment year 1980-81. The I.T.O. disallowed the same and the C.I.T.(A) confirmed the orders of the I.T.O. Since the expenditure is incurred in India, we are of the opinion that the C.I.T.(A) has rightly disallowed the same and the appeals filed by the assessee on this count for both the years are dismissed. 7.11 The assessee has claimed weighted deduction in respect of godown rent for the assessment years 1979-80 1980-81. The I.T.O. disallowed the same and the CIT(A) confirmed the order of the I.T.O. Following the order of the Special Bench of the Tribunal in J.H. Co.'s case we hold that the assessee is entitled to 50% of the rent as deduction. 7.12 The assessee has claimed weighted deduction on wages for the assessment year 1980-81. The I.T.O. disallowed the same and the C.I.T.(A) confirmed the order of the I.T.O. Since this has been paid in India, we are of the opinion that the C.I.T.(A) has rightly confirmed the order of the I.T.O. and we do not find any reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commission paid by it abroad. Further we may say that the amendment to section 35B with effect from 1-4-81 will have no bearing in allowing the aforesaid deduction. The appeal filed on this count is, therefore, allowed. 7.15 The assessee has claimed weighted deduction in respect of certain items relating to Prospect estate which is at page 201D(ii) of the Paper Book, Volume IV for the assessment year 1978-79. The I.T.O. and the C.I.T.(A) have not considered the claim of the assessee. In the light of the guidelines given above, the I.T.O. is directed to verify the details and allow the claim of the assessee. In doing so, warehousing charges may be treated as rent. However, no weighted deduction is allowable on transit insurance. 8.1 The next ground raised by the assessee in its appeals is regarding the claim of the assessee in respect of cash compensatory support paid by the Government. This point is involved for all the assessment years and it should be also noted that this ground is raised by the assessee for the first time before us. 8.2 The learned counsel for the assessee contended that since this ground being a legal ground and does not require fresh facts to be investi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal for the first time and decided the issue in favour of the assessee holding that the C.C.S. is not taxable. Referring to the decision of the Cochin Bench of the Tribunal in the case of Kesaria Tea Co. Ltd. , the learned counsel contended that the facts of the aforesaid case are distinguishable to the facts of the case under consideration. The counsel then read several pages from the order of the Delhi B Bench to show that the facts of the case decided by the Delhi B Bench of the Tribunal are identical to the facts of the case under consideration. 8.3 The learned departmental representative, on the other hand, relied upon the decision of the Delhi A Bench in the case of Reliance International Corpn. Ltd. v. ITO [1986] 16 ITD 43 which is in favour of the revenue. He also relied upon the decision of the Calcutta High Court in Jeewanal (1929) Ltd. v. CIT [1983] 142 ITR 448 which is followed by the Delhi A Bench in the case decided by it. 8.4 We have carefully considered the facts and circumstances of the case, the material on record and the decisions cited on behalf of the assessee as wen as the revenue. In the case relied upon by the assessee and decided by the Andhra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbay High Court in the case of Mehboob Productions (P.) Ltd. v. CIT [1977]106 ITR 758 and Dhrangadhra Chemical Works Ltd. v. CIT [1977] 106 ITR 473. In the case of Mehboob Productions (P.) Ltd. the facts are entirely different to the facts of this case. The facts of that case are that the claim was in respect of entertainment tax exempted by the State Government in respect of a Motion picture. The assessee's main contention was that the entertainment tax was not liable to be included in its total income because it was not a trading receipt but only an amount received byway of personal testimonial and that at any rate it was a casual and non-recurring receipt and was, therefore, exempt u/s 4(3)(vii) of the I.I.T Act, 1922, whereas the question that has come up for decision in this case was whether cash compensatory support given to the assessee is capital or revenue receipt. The other decision relied upon by the Tribunal is the decision of the Bombay High Court in Dhrangadhra Chemical Works Ltd.'s case . The facts of this case are also entirely different inasmuch as the decision was in respect of subsidy granted by the Government to two companies on their representation about the gl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to the Calcutta High Court decision, the Delhi B Bench of the Tribunal in the case of Gadore Tools (India) Ltd. has stated the reasons which forced their Lordships to give the decision in favour of the revenue. According to the Delhi Bench B certain material difference between the nature of import entitlement, duty draw backs on the one hand and the C.C.S. on the other hand were not brought out before their Lordships of the Calcutta High Court. They further observed that there was no statutory sanction for the grant of C.C.S. as in the case of import entitlements and duty draw backs and hence it is granted by the administrative decision of Govt. of India. It was further held by the Bench that C.C.S. has been granted for the fulfilment of the policy objective of the Government and not for enriching the profits of the assessee. On appreciation of facts and the material on record, the following aspects are worth mentioning to show that C.C.S. received by the assessee is not taxable: (i) that the payment made by the Government is voluntary in nature and on a unilateral decision of the Government, (ii) the payment is purely by way of a donation or gift or a bounty, (iii) there i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h T. Bhansali, one of the aforesaid partners of the firm is known for his skill and competence in the tea business and he is also a Member of the Tea Board. This made the assessee to readily enter into an agreement with M/s Bhansali Brothers to control and supervise the marketing of the tea grown in High Forest estate since Shri Sailesh T.Bhansali who has got sufficient experience in tea trade is also partner of that firm. The counsel further contended before us that the I.T.O. has not cared to even examine the set up of M/s Bhansali Brothers as he has done in the case of M/s Tara Agencies. He has also filed a copy of the market report dated 12-7-78 which contains the break-up of sales which is at pages 93 to 97 of the Paper Book, Volume II, for the assessment year 1979-80. The counsel next contended that since the assessee company is formed just a year ago and since it landed itself in an enormous task of producing and marketing tea, it had to necessarily depend upon some agency to control and supervise the marketing of tea and to perform other services. As the assessee company did not find any difference between M/s Tara Agencies and M/s. Bhansali Brothers as regards expertise in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to by the assessee company with M/s Bhansali Brothers is genuine and the payment is bonafidely made and the object is not avoidance of tax liability the tests laid down by the Punjab and Haryana High Court in the case in Ishwar Prakash Bros.' case will apply to the facts of this case and the commission paid by the assessee company to M/s Bhansali Brothers should be allowed as a deduction. In the result, the appeal filed by the assessee on this count is allowed. 10.1 The next ground raised by the assessee relates to expenses incurred in replanting the upkeep of new clearings for the assessment year 1979-80. This ground is raised as an additional ground before the C.I.T. (Appeals). The CIT(A) dismissed the appeal of the assessee on the ground that no details and no facts have been made available to the I.T.O. at any stage. Before us the learned counsel for the assessee relied upon the Circular of the Board at page 46 of the Paper Book, Volume I, for the assessment year 1980-81, according to which he contended that the assessee is entitled to claim deduction in respect of expenses incurred in replanting and upkeep of new clearings. He contended before us that the C.I.T.(A) himself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not reached maturity is an item of revenue expenditure and as such is allowable. Following the aforesaid circular the expenditure incurred by the assessee for the upkeep, in our opinion, is allowable. The next item of expenditure is replanting expenditure. Though in the clarification issued by the Board, the Board gave specific directions that the replanting expenditure should be treated as capital expenditure, Rule 8(2) of the I.T. Rules specifically provides that in computing income from manufacture of tea, allowance shall be made in respect of the cost of planting bushes in replacement of bushes that had died or become permanently useless in an area already planted, if such area has not previously been abandoned. Since the assessee is entitled to claim deduction in respect of replanting expenditure in view of Rule 8(2) of the I.T. Rules, 1962, we are of the opinion that the assessee is entitled for deduction. Since the matter has not been looked into by the I.T.O., the matter is remitted back to the file of the I.T.O. with a direction to consider the matter afresh according to law. 11.1 The next ground raised by the assessee is in respect of the claim with reference to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t M/s Nonsuch Tea Estate was paying tax on the entire amount as revenue receipt and had it been a part of purchase consideration the entire receipt would have been a capital receipt which would not have attracted capital gains-tax also. Yet another objection raised by the assessee is that the amount had been allowed as a deduction by the I.T.O. after full appreciation of the facts on proper directions by the Inspecting Assistant Commissioner u/s 144B. After hearing the learned counsel for the assessee the CIT(A) confirmed the order of the I.T.O. and rejected the request for enhancement made by the successor I.T.O. As against this order of the CIT(A) the revenue is in appeal before us. 12.2 The learned departmental representative contended before us that there is no mention by the assessee of the nature of service rendered by M/s Nonsuch Tea Estate. He contended that the services rendered by M/s Nonsuch Tea Estate are routine and non-technical and could be offered by any other person who has at least a year experience in the tea producing factory. He, therefore, contended that the consultancy fees paid to M/s Nonsuch Tea Estate is nothing but sale consideration. 12.3 The learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o years from the earlier transaction it cannot be said that the market rate of the four estates is more than Rs. 1,45,00,000 as contended by the I.T.O. He further contended that in the same matter in acquisition proceedings initiated by the department the sale consideration of Rs. 145 lakhs has been accepted by the department and the proceedings initiated were dropped after due consideration by an authority higher than that of the I.T.O. He, therefore, supported the order of the C.I.T.(A) in allowing deduction of the consultancy fees paid by the assessee company to M/s Nonsuch Tea Estate. 12.4 We have carefully considered the facts and circumstances of the case, the material on record and the arguments advanced by both the sides. As seen from the facts, the assessee company was incorporated in the year 1976. The assessee company for the first time landed itself in the enormous task of producing and marketing of the tea produced. As the company is new to this business it naturally requires the assistance of some agency to look after the affairs in the estate. The company immediately after its incorporation, therefore, entered into an agreement with M/s. Nonsuch Tea Estate for mana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per Book, Volume IV of 1978-79. Since the consultancy fees was paid by the assessee in pursuance of an agreement for the various services rendered by M/s. Nonsuch Tea Estate for the upkeep of the four estates, we are of the opinion that the sum paid by the assessee to M/s. Nonsuch Tea Estate should be allowed as deduction and we fully agree with the C.I.T.(A). Therefore, the appeal filed by the revenue on this count is dismissed. 13.1 The second ground raised by the revenue relates to the payment of commission to M/s. Tara Agencies for the assessment years 1978-79 and 1979-80. Since this point has already been decided by us in the second ground raised by the assessee in favour of the assessee in its appeal, the appeal filed by the department on this count is dismissed. 14. The third ground raised by the revenue relates to the claim allowed by the C.I.T.(A) under sec. 40A(5) for the assessment year 1980-81. Since this point has already been dealt with and decided by us; n ground No. 3 raised by the assessee in its appeal, the appeal filed by the revenue on this count is dismissed. 15. The fourth ground raised by the revenue is with regard to weighted deduction u/s. 35B allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other items of expenditure are found by the C.I.T.(A) as incurred for the purpose of business the C.I.T.(A) has disallowed only Rs. 2,088 from out of Rs. 28,097 claimed by the assessee. We, therefore, fully agree with the order of the C.I.T.(A) and the appeal filed by the revenue on this count is dismissed, for both the years 1979-80 and 1980-81. 17.1 The next ground raised by the revenue is that the C.I.T.(A) erred in deleting the disallowance of bonus made by the I.T.O. since these payments were in excess of the limits specified in sec. 36(1)(ii) for the assessment years 1980-81 and 1981-82. For the assessment year 1980-81 the I.T.O. has disallowed a part of the provision for bonus amounting to Rs. 6,83,850 being the excess of the maximum bonus payable under the Bonus Act. The I.T.O. has also disallowed certain cash payments made during the year by way of bonus for the assessment year 1979-80. This comes to Rs. 3,81,591. Besides, the bonus included in the estate expenditure amounting to Rs. 34,357 and bonus relating to Cochin office amounting to Rs. 13,184 have also been disallowed by the I.T.O. on the ground that they are in excess of the limits specified under the Bonus Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the payment of Bonus Act since its inception. He also drew our attention to a letter dated 5-3-1982 to the I.T.O. while replying to the draft assessment order for the assessment year 1979-80 to show the circumstances under which it had to pay bonus in excess of the prescribed limits. 17.5 We have carefully considered the facts and circumstances of the case, the material on record and the arguments advanced by both the sides. On a perusal of the director's report of the assessee company and the assessment order of the I.T.O. it is seen that the assessee company had been making payment of bonus in excess of the limits specified under the payment of Bonus Act from its inception. On a perusal of the letter dated 5-3-82 addressed to the I.T.O. in reply to the draft assessment order for the assessment year 1979-80 vide page 66 of the Paper Book, Volume I, for the assessment year 1979-80 it is evident that the company has decided to pay 20% bonus to avoid unrest in the plantation. It is further stated in the letter that during the financial year ending in June 1980, the assessee company declared minimum bonus for which there was a great agitation in the plantation was the longest s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to him, Sailesh T. Bhansali is a member of the Tea Board, Calcutta, and also a Member of Regional Board of State Bank of India and Samresh T. Bhansali, the other director, is holding the position of a Committee Member in Tea Trade Association of Cochin. Considering their experience in the tea trade, the salary paid to them, according to him, is very reasonable. He further contended that at the relevant point of time there was only one person drawing a salary of more than Rs. 36,000, and naturally the work load was more and the directors were looking after the work both at Cochin and the estates. He, therefore, contended that the salary paid to them is very reasonable. 18.2 We have carefully considered the facts and circumstances of the case, the material on record and the arguments advanced by both the sides. The fact that Sailesh T. Bhansali, a Member of the Tea Board, Calcutta, is also a Member of the Regional Board of State Bank of India and Samresh T. Bhansali, the other director, is holding the position of Committee Member in the Tea Trade Association of Cochin, clearly goes to show that the aforesaid persons have got lot of experience in tea trade. The other factor that at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his circular read with a subsequent clarification issued by the Board will go to show that replanting expenditure should be treated as capital expenditure. But as per sub-clause (2) of Rule 8 it is clear that deduction should be given in respect of the cost of planting bushes in replacement of bushes that have died or become permanently useless in an area already planted if such an area has not previously been abandoned. Following the aforesaid rule, we agree with the conclusion arrived at by the C.I.T.(A) that the expenditure claimed by the assessee for replanting should be allowed as a revenue expenditure but not on the basis of the circular as held by the C.I.T.(A). The appeal filed by the revenue on this count is, therefore, dismissed. 21. The next ground is regarding grant of investment allowance to the machinery installed by the assessee in the Cochin office for the assessment year 1981-82. Since in the earlier ground we have held that the activities of Cochin office is industrial activity, we hold that the assessee is entitled to investment allowance. The appeal filed by the revenue on this count is dismissed. 22.1 The next ground is regarding the bonus claim amounting t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned that all dues (including any bonus and other benefits or additional benefits) that may be determined after the date of sale to be payable to the labour or staff whether in respect of services under the vendor or under the purchaser shall be paid by the purchaser. He, therefore, contended that since the amount became payable to the workers after the Award of the Labour Court, which falls within the accounting year relevant to the assessment year the C.I.T. (A) is fully justified in allowing the same. 22.3 We have carefully considered the rival submissions. The award is passed by the Industrial Tribunal, Madras dated 29-1-1979 which falls in the accounting year relevant to the assessment year in question. Further on a perusal of the sale deed 24-9-76 it is seen that all dues (including any bonus and other benefits or additional benefits) that may be determined after the date of sale to be payable to the labour or staff whether in respect of services under the vendor or the purchaser shall be paid by the purchaser. Therefore, the assessee company was forced to make the payment, though it is an earlier year's liability, in pursuance of the aforesaid condition laid down in the sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o treated as a deemed dividend in his hands. It is, therefore, contended that the amount due from Shri T.A. Bhansali was not from any borrowed funds for which the interest can be allowed. It is further contended that, in any case, bulk of the borrowings were not during the year as is evident from the debit balance on the formation of the company. It is also stated that the amount which is considered as dividend and taxed in the hands of the person should not again be treated as loan for disallowance of interest After hearing the learned counsel for the assessee, the C.I.T. (A) deleted the disallowance made by the I.T.O. for the reasons stated by him in his order. As against this order of the C.I.T.(A) the revenue is in appeal before us. 24.3 The learned departmental representative relied upon the order of the I.T.O. whereas the learned counsel for the assessee reiterated the contentions raised before the C.I.T. (Appeals). 24.4 We have carefully considered the rival submissions. The sum of Rs. 12,85,523 which was due from one of the directors Shri T.A. Bhansali is made up of two amounts, namely, Rs. 8,34,646 and Rs. 4,78,100. The C.I.T.(A) found that the sum of Rs. 8,34,646 was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hnicians to the estates of their clients for advising them on the quality of tea and method of improvement thereon and for these services the said company was not charging anything extra over the 1% commission. So the I.T.O. came to the conclusion that the commission payment to M/s Tara Agencies was very much on the high side. He, therefore, allowed deduction in respect of commission payments only at 1% of the direct sales and 'nil' on auction sales as the firm was not entitled to conduct auction. It will be seen that the assessee claimed commission in these two years to M/s Tara Agencies at the rate of 5% on the total sales effected through the Cochin auction as per the agreement dated 9-7-1976. 28. Before the Tribunal, the assessee explained the services rendered by M/s Tara Agencies as "testing and tasting of tea and fixing the rates while sending tea for sale in the auction, timing of the marketing of the tea produced, monitoring the sales done by the brokers J. Thomas Co. Pvt. Ltd. and advising on the market side and the grades to be produced and mode of packing etc." In my opinion, these services by M/s Tara Agencies to the assessee-company cannot be said to be more exhau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter back to the I.T.O. to investigate and verify the correctness of the assessee's claim that there is no tax avoidance by paying 5% commission to M/s. Tara Agencies. If the I.T.O. finds on verification that there is no tax avoidance by the assessee-company, then this 5% commission is to be allowed in full. Otherwise the assessee is to be allowed commission only at the rate of 2% as already allowed by the CIT(A) and confirmed by me earlier. 29. As regards the commission paid to M/s. Bhansali Brothers of Rs. 3,12,609 in the assessment year 1979-80, the I.T.O. disallowed the same on the ground that the assessee had not produced any evidence regarding the assessee's eligibility for deduction of the said amount and the CIT(A) confirmed the same. The agreement with M/s. Bhansali Brothers dated 1-7-1977 was only in respect of one estate, namely, High Forest Estate. The services rendered by this firm and the services rendered by M/s Tara Agencies were similar. The arguments of the assessee regarding this claim are also identical to the arguments regarding the claim for deduction of the commission paid to M/s. Tara Agencies. Following my reasonings in paragraph 28 above, I hold that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying on of the trade. The latter are in the nature of gifts or voluntary payments motivated by personal relationship and not stemming from any business considerations." The later decision of the Court of Sessions (First Division) in IRC v. Falkirk Ice Rink Ltd. 51 TC 42/[1986] 24 Taxman 334 (Tax Mag.) is also a pointer to the above view. I am unable to subscribe to the view taken by the Delhi 'B' Bench and I would prefer to follow the decision of the Delhi 'A' Bench of the Tribunal and the decision of the Delhi High Court 1, therefore, hold that the amounts received as cash compensatory support are taxable in the hands of the assessee for all the years under consideration. ORDER (THIRD MEMBER) Per Shri Ch. G. Krishnamurthy, President --- In this case, the points of difference referred as Third Member to me are :--- 1. Whether, on the facts and in the circumstances of the case, the assessee is entitled to claim deduction of commission payment of 5% to M/s. Tara Agencies? 2. Whether, on the facts and in the circumstances of the case, the assessee is entitled to claim deduction of commission payment of 5% to M/s. Bhansali Brothers? 3. Whether, on the facts and in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons. 6. It was not the case of the Revenue at any stage of the proceedings that the arrangement for payment of commission to M/s. Tara Agencies was either fictitious, or the payment was not at all made or services were not rendered at all. The point canvassed for was whether having regard to the nature and services rendered by M/s. Tara Agencies, the payment of commission of 5% was unreasonable, excessive or not. 7. The learned Judicial Member in the operative portion of his order has observed as under : "From the orders of both the I.T.O. and the C.I.T.(A) it is seen that they have not disputed the genuineness of the agreement and rendering of services by M/s. Tara Agencies to the assessee company. When once the aforesaid two facts are not disputed and the object of entering into an agreement by the assessee company with M/s. Tara Agencies is not for avoidance of tax, the tests laid down by their Lordships of the Punjab and Haryana High Court reported in 159 ITR 843 are fully satisfied and since the agreement is genuine and the payment is bonafidely made and the object is not avoidance of tax liability the commission @ 5% paid by the assessee company to M/s Tara Agencies sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and only after satisfying that there was no tax avoidance the full amount of commission of 5% must be allowed. That is to say, there was no difference of opinion between the two Members on the allowance of quantum of commission of 5% provided there was no tax avoidance. According to the learned Accountant Member, as I said before, if on investigation it is found that there was no tax avoidance the entire amount of 5% commission must be allowed or else only 2% of commission must be allowed. Since the Judicial Member proceeded on the basis that the figures furnished were correct and, therefore, there was no tax avoidance, to my mind it appears that the point of difference between the two Members was on the aspect as to whether the assessee is entitled to the deduction of commission at 5% to M/s. Tara Agencies. This refers to a stage which has not yet been arrived at and which would only arise in the event of a further analysis of the facts showing that there was no tax avoidance. 8. Now, therefore, the real difference of opinion embedded in the question is whether any investigation into the tax avoidance aspect with reference to the tax incidence in the hands of the assessee-compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i Brothers dated 1-7-1977 was only in respect of one estate, namely, High Forest Estate. The services rendered by this firm and the services rendered by M/s. Tara Agencies were similar. The arguments of the assessee regarding this claim are also identical to the arguments regarding the claim for deduction of the commission paid to M/s. Tara Agencies. Following my reasonings in paragraph 28 above, I hold that the assessee is entitled to deduction of 2% only as commission paid to M/s. Bhansali Brothers. However, as in the case of M/s. Tara Agencies, the matter is remitted back to the I.T.O. to investigate and verify the correctness of the assessee's contention that there is no tax avoidance by the assessee inasmuch as the tax liability of the recipient firm and its partners was much more than the reduction obtained by the assessee by paying commission at the rate of 5%. If it is found that there is no tax avoidance then the entire 5% is to be allowed. Otherwise the assessee would be entitled to deduction of only 2%." My answer to the second question will be the same as the answer to the first question. This will dispose of the first two points of difference of opinion. 10. As reg ..... X X X X Extracts X X X X X X X X Extracts X X X X
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