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TMI Blog2010 (10) TMI 641X X X X Extracts X X X X X X X X Extracts X X X X ..... rned Assessing Officer, the assessee is an individual engaged in the business of export and import of art silk cloth and colour chemicals. In the course of assessment proceedings, the AO sought to verify the export invoices issued by the assessee and the bank realization certificates obtained by him to see the correctness of the export sales account filed by the assessee. On verification of the invoices and bank certificates, the AO found that the assessee has paid commission to the foreign agent @ 12% amounting to Rs. 42,07,936/- in respect of exports made during the year in the respective invoice itself. To the queries raised by the AO, the reply of the assessee was that the commission was paid to the buyers/importers himself, as deduction directly from the export sales invoice. The assessee submitted that it is customary in this line of export trade to allow commission to the buyer/importer himself directly from the sale invoice. He stated that the rate of deduction on account of commission used to be decided at the time of entering into sales contract itself. The letters of credit issued by the bank were obtained for the sale proceeds net of commission as commission to the buye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icle or thing, not being securities. In commercial law, commission is the compensation to a factor or other agent for services to be rendered in making a sale or otherwise. It is an allowance or recompense or a reward made to agents, brokers or others for effecting sales for carrying out business transactions. It is generally calculated as a certain percentage on the amount of transactions of the profits to the principal (The Law Lexicon by Ramanatha Iyer and edited by Justice Y.V. Chandrachud). According to Webster's New International International Dictionary it is the percentage or allowance made to a factor or agent for transacting business for another. In the case of Ahmedabad Stamp Vendors Association vs. Unionof India (2002) 257 ITR 202, the Hon'ble Gujarat High Court explained what could be treated as commission: "The definition of "commission or brokerage" as contained in the Explanation to section 194H is not so wide that it would include any payment receivable, directly or indirectly, for services in the course of buying or selling of goods. In other to fall within the aforesaid Explanation, the payment received or receivable directly or indirectly, is by a person acting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn property but as the property of the principal or the seller/transferor. 7.2. If such principles as enunciated by the Hon'ble Courts are to be applied in the case of the assessee, it will be seen that all the elements/ingredients which are requisite for any transaction involving payment of commission, were present. Firstly, each of the transactions between the assessee as the seller and the buyers was mediated by the agent, Al Ghazi Al Saqlian Trading LLC of Jumma Masjid Road, Bor Dubai, UAE. In fact, the assessee has furnished a purchase order dated 15.6.2003 from the said concern which clearly shows that the agent had indeed rendered significant services not only to the buyer but also to the assessee. It mentions the rate of commission payable at 12%. In fact, the export documents, copies of which have been submitted by the Learned Authorised Representative, and which include the export invoices, the BRCs, the shipping bills, the customs documents as also the remittance certificates issued by the bank, all clearly establish the role played by the said agent. The invoices show the agent as the 'buyer' and the actual buyer as the 'consignee'. The BRCs clearly indicate the commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction from the gross invoice values was a much simpler method than to go in for direct remittances which would have involved the deduction of tax at source, and the consequent interaction with the I.T. Department. Most importantly, when the basic evidence regarding the rendering of services and the payment of commission had been clearly established, such objections involving procedures and practices become completely irrelevant. 7.4. Thus, once the genuineness of the commission payments as well as its justification of having been wholly and exclusively incurred for the purpose of assessee's business is established, the same becomes admissible as deduction under section 37(1) of the I. T. Act. However, in this particular case, and in many similar cases, since the commission had been deducted from the gross invoice values, no separate recognition was given in the books of account to such payments and consequently, no expenditure was claimed under such a head in the P & L A/c. Therefore, the Assessing Officer's observation regarding the incorrect accounting treatment given by the assessee to such transactions was without any basis. The Assessing Officer has reproduced the contents of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 583, the Hon'ble Supreme Court observed that the concept of real income cannot be employed so as to defeat the provisions of the Act and the Rules. The Hon'ble Court thus laid down the following principles: "1. It is the income which has really accrued or arisen to the assessee that is taxable. Whether the income has really accrued or arisen to the assessee must be judged in the light of the reality of the situation. 2. The concept of real income would apply where there has been a surrender of income which in theory may have accrued but in the reality of the situation, no income had resulted because the income did not really accrue. 3. Where a debt has become bad, deduction in compliance with the provisions of the Act should be claimed and allowed. 4. Where the Act applies, the concept of real income should not be so read as to defeat the provisions of the Act. 5. If there is any diversion of income at source under any statute or by overriding title, then there is no income to the assessee. 6. The conduct of the parties in treating under any statute particular manner is material evidence of the fact whether income has accrued or not. 7. Mere improbability of recovery, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmission' and the invoices show that after mentioned the gross price of the goods calculated at the rates specified therein the amount of commission is deducted and the resultant balance is shown as the not price actually payable by the buyers. In the circumstances such a deduction allowed to the buyers by a manufacturer or a wholesales, by whatever name it may be described, is clearly in the nature of a trade discount. Where a trade discount has been bona fide granted the consideration for the sale is only the amount which is actually paid or payable after the discount is deducted and that, hence, amounts, allowed by the assessee to the buyers by way of trade commission or discount were not a liable to be added to or included. In the turn-over for the purposes of assessment to CST. Accordingly it is held that the Tribunal was right in directing that the amount of Rs. 2,60,327.72 representing commissions deducted by the assessee in the various invoices of sales should be excluded from the taxable turnover of the assessee-company for the year 1961-62. 11. He also relied on the decision of Colour Chem Ltd. Vs. CIT (1997) 225 ITR 164 (Bom.) wherein it was held that relationship betwe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he relevant rules and regulations. Therefore, this difference reflected in the net invoice value and the gross invoice value for the purpose of accounting of export sale turnover and claiming DEPB benefits cannot be taken as a ground to reject the contentions of the assessee. Therefore, the issue has to be examined devoid of the above technicality pointed out by the learned Commissioner of Income-tax. 15. There is no dispute regarding the fact that the assessee has given commission/discount in the export invoices itself in favour of the foreign buyer. The foreign buyer has stated that this discount/commission would be distributed by him to the intending agents abroad. They have stated that the commissions are to be paid by them directly to the agents in the countries of import. It is also a fact on record that the assessee has received the net amount only as export proceeds by way of convertible foreign exchange. All these matters have been certified by the bankers of the assessee. All the matters are well within the law regulated by the RBI for the purpose of export of goods outside India. In such circumstances, the simple fact that emerges out of the maze of arguments is that as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , have been made unfortunately in a wrong direction. 18. When the factum of actual receipt of sale proceeds to the extent of net invoice amount is established beyond any doubt, there is no justification in overlooking upon those speaking facts on the technical ground that the assessee has claimed the DEPB benefit on the gross amount of the invoice. The DEPB claim was made by the assessee on the basis of permission granted by the RBI and that has nothing to do with the actual amount of export sales proceeds received by the assessee in the form of convertible foreign exchange. 19. Therefore, it is quite obvious without much discussion and deliberation that the Revenue has no case to hold the assessee responsible for an additional income of Rs. 42,07,936/-. The said addition was rightly deleted by the C.I.T.(A). Our above view also finds support from the decision of this Tribunal in the case of Shri Sanjay Jain Vs. DCIT in ITA No.1533/Ahd/2008 for Assessment Year 2004-05 order dated 16.12.2009. Therefore, this ground of appeal of the Revenue is dismissed. 20. Ground No.1 of the Cross Objection is as follows:- "1. That the Learned Commissioner of Income Tax (Appeals) is erred in up ..... X X X X Extracts X X X X X X X X Extracts X X X X
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