TMI Blog2013 (10) TMI 839X X X X Extracts X X X X X X X X Extracts X X X X ..... the authority has to bifurcate the two components of the impost and give deduction of that component which is compensatory in nature and refuse to give deduction of that component which is penal in nature – In the present case, appellant has failed to show as to how this amount of commission is compensatory in nature, which would entitle the appellant to avail the benefit of this decision – Decided against the Assessee. Allowance of expenditure amounting ₹ 1,65,172/- for sending mangoes to one Narayan V. Thosar through Air Wings – Held that:- Reliance has been placed upon the judgment in the case of Sayaji Iron & Engineering Company v. CIT, reported in [2001 (7) TMI 70 - GUJARAT High Court], wherein it had permitted expenditure in maintenance of vehicles used by the Directors for personal purposes. The Directors’ remuneration includes any expenditure incurred in providing benefit free of charges. The Court reversed the decision of the Tribunal on the ground that the Directors of the assessee company, who are entitled to use the vehicles for their personal use in accordance with the terms and conditions on which they were appointed and the perquisites given to the directors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncern and it did not believe that the commission was paid for transfer of contractual liability for importing the furnace oil from Singapore based company. On not having found satisfactory explanation, such claim of commission was held to be bogus and the same was disallowed. 2.5 The Assessing Officer also disallowed promotional expenditure of Rs. 1,65,172/- incurred by the assessee for sending mangoes to one of its supplier companies at Singapore. 2.6 Both these disallowances were challenged before the Commissioner of Income Tax [Appeals], which passed an extensive order and allowed the said amount. 2.7 The Revenue, therefore, challenged such decision of CIT [A] before the Tribunal. The Tribunal, on detailed examination of the issues, reversed the order of CIT [A] and restored the order of Assessing Officer. 2.8 The Tribunal noted the contents of Notification of the Government of India in the ministry of Petroleum Natural Gases, issued in exercise of powers conferred in Section 3 of the Essential Commodities Act, 1955 which prohibits acquisition, storage and sale of solvents without a licence issued by the State Government or the District Magistrate or any other officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tantial questions of law for our consideration: {A} "Whether on facts and in law, Tribunal has substantially erred in interpretation of Section 28 Section 37 of the Income Tax Act, 1961 for confirming disallowance of commission of Rs. 28,37,500/- for honouring a contract and business promotion expenses of Rs. 1,65,172/- in case of appellant Company ?" {B} "Whether on facts and in law, the Tribunal s finding and conclusion for confirming disallowance of commission of Rs.28,37,500/- and business promotion expenses of Rs. 1,65,172/- for the year under consideration is in ignorance of relevant material on record and taking aid of irrelevant factors not germane to subject matter of appeal with the result that the finding and conclusion of the Tribunal is vitiated on facts and in law ?" 4. We have heard at length learned advocates Shri R.K Patel with Shri Bhargav Karia and also perused thoroughly, entire materials and additional documents brought on the record and also the judgments of all the revenue authorities. 5. Although, both the issues are raised in both the questions of law proposed in this Tax Appeal, the issue of disallowance of the claim of commission to the tu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat during the assessment year 2004-05, the assessee had entered into a contract with SSOE for purchase of furnace oil of a specified quantity and in the event of any failure in performing the contract, the same would attract penal and civil liability of compensation. The assessee on having realized that any import in absence of a valid licence, would attract criminal/penal proceedings, it approached its sister concern M/s. BGM Exim Limited. On consent having been obtained from the sister concern, it approached SSOE and insisted to transfer the contract of import of 12500 MT of furnace oil in the name of its sister concern on the ground that there was some problem of discharge of cargo in the name of the assessee at Kandla Port. After much persuasion, SSOE agreed and allowed such contractual obligation to be transferred to its sister concern, of course; subject to assessee undertaking the responsibility of payment and materials. In the correspondence dated 1st August 2003, SSOE wrote thus - "With reference to the above, we would like to inform you that we have no general practice for transfer of the contract in other name. We have discussed with our Management and they have al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es would have been to the tune of Rs. 55 lacs and odd - which is a sum equivalent to 5% of the contract, if it would have failed in performing the contract. 11. Even assuming that the sister concern since had a licence for importing the furnace oil, the assessee diverted its contractual obligation for averting the payment of damages, nothing comes on the record to explain as to how the sum termed as "commission" for performing the contract obligation was needed to be paid to the sister concern. 12. It also emerges from record that not only the assessee got the contract executed through its sister concern even by a valid licence held by the sister concern, the subsequent purchases from the sister concern of the very furnace oil, its storage and consequent sale to IFFCO appear to be in complete breach of the Solvent, Raffinate Slop [Acquisition, Sale, Storage Prevention of Use in Automobiles] Order, 2000 which explicitly prohibits any of these acts without a valid licence. 13. Even the nomenclature used as "Commission" is not taken into consideration and the character of payment in substance if it is to be looked at, nowhere it emerges that there was any valid claim for all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y material on record to establish business expediency for sending the mangoes to one particular person, this ground was disallowed. 15.2 This Court in case of Sayaji Iron Engineering Company v. CIT, reported in 253 ITR 749 had permitted expenditure in maintenance of vehicles used by the Directors for personal purposes. The Directors remuneration includes any expenditure incurred in providing benefit free of charges. The Court reversed the decision of the Tribunal on the ground that the Directors of the assessee company, who are entitled to use the vehicles for their personal use in accordance with the terms and conditions on which they were appointed and the perquisites given to the directors formed part of their remuneration under the Explanation to section 198 of the Companies Act, 1956 for the purpose of determining their remuneration under section 309 of that Act. It further held that once such remuneration was fixed as provided under section 309, it was not possible to state that the assessee incurred the expenditure for the personal use of the Directors. Since it was as per the terms and conditions of service, it must be held as a business expenditure. As no ground comes ..... X X X X Extracts X X X X X X X X Extracts X X X X
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