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2015 (3) TMI 368 - SUPREME COURT

2015 (3) TMI 368 - SUPREME COURT - [2015] 372 ITR 180 (SC) - Disallowance of commission purportedly paid to commission agents for procurement of order for supply of liquor - deduction under Section 37 - questions reframed by the High Court have been answered against the appellant-assessee and in favour of the revenue - whether the High Court could have reframed the questions after the conclusion of the arguments and that too without giving an opportunity to the assessee? - Held that:- A reading .....

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appellant assessee to deduction/disallowance by accepting the agreements executed by the assessee with the commission agents; the affidavits filed by C. Janakiraman and Shri A.N. Ramachandra Nayar, husbands of the two lady partners of RJ Associates and also the payments made by the assessee to RJ Associates as well as to Golden Enterprises. The question that was posed by the High Court was whether acceptance of the agreements, affidavits and proof of payment would debar the assessing authority t .....

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ent between the assessee and its selling agents or payment of certain amounts as commission, assuming there was such payment, does not bind the Income Tax Officer to hold that the payment was made exclusively and wholly for the purpose of the assessee's business. Although there might be such an agreement in existence and the payments might have been made. It is still open to the Income tax Officer to consider the relevant facts and determine for himself whether the commission said to have be .....

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oration Ltd. (TASMAC Ltd.), to whom summons were issued under Section 131 of the Act, to the effect that M/s. Golden Enterprises had not done any liaisoning work with TASMAC Ltd. was also taken into account. The basis of the doubts regarding the very existence of R.J. Associates, as entertained by the Assessing Officer, was also weighed by the High Court to determine the entitlement of the assessee for deduction under Section 37 of the Act. In performing the said exercise the High Court did not .....

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f 2014 - Dated:- 10-3-2015 - Ranjan Gogoi And Prafulla C. Pant,JJ. JUDGMENT Prafulla C Pant,J. 1. Civil Appeal No. 1569 of 2007 is directed against the judgment and order dated 31.03.2005 of the High Court of Kerala by which in exercise of jurisdiction under Section 256(2) of the Income Tax Act, 1961 (as it then existed) (hereinafter for short 'the Act') the questions reframed by the High Court have been answered against the appellant-assessee and in favour of the revenue. The question d .....

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assessee and in favour of the revenue. Aggrieved by the aforesaid orders of the High Court of Karnataka which pertains to different assessment years, Civil Appeal No. 3214 of 2011 and Special Leave Petition (C) No. 10080 of 2014 have been filed by the assessee. In view of the fact that the decision of the Karnataka High Court in I.T.A. No. 12 of 1999 had followed the decision of the Kerala High Court impugned in Civil Appeal No. 1569 of 2007 and the decision of the Karnataka High Court in the su .....

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s like Kerala and Tamil Nadu had established marketing corporations which were the exclusive wholesalers of alcoholic beverages for the concerned State whereby all manufacturers had to compulsorily sell their products to the State Corporations which, in turn, would sell the liquor so purchased, to the retailers. It is pleaded by the appellants that manufacturers of beverages containing alcohol have to engage services of agents who would co-ordinate with the retailers and State Corporations to en .....

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t the aforesaid orders. The learned Tribunal took the view that the assessee was entitled to claim for deduction. The said view of the learned Tribunal has been reversed by the High Court in the Reference made to it under Section 256 (2) of the Act. 4. We have noticed that in the Reference made to the High Court by the learned Tribunal under Section 256(2) as many as 12 different questions were framed and referred. The High Court reframed the questions in the following manner. "(i) Whether, .....

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for business purpose or and was in business interest?" The questions reframed by the High Court were in respect of the payments made to M/s. R.J. Associates and one Golden Enterprises who, the assessee claimed, had rendered services as commission agents. 5. Though one item of claim for deduction pertained to the corporate management charges paid by the assessee to U.B. Limited and an issue pertaining to the said claim was one of the twelve questions initially framed in the Reference, in the .....

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ers" set aside the order of the Tribunal and upheld the order of the Commissioner (Appeals) and answered the questions in favour of the revenue by holding that the assessee had not discharged the burden so as to entitle it to deduction under Section 37 of the Act. Aggrieved, this appeal has been filed by the assessee. 6. Three propositions have been advanced before us on behalf of the contesting parties. The first is whether the High Court could have reframed the questions after the conclus .....

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ntext of Section 260- A of the Act, it is urged that the same principles would apply to the exercise of jurisdiction under Section 256 of the Act (as it then existed) particularly as the jurisdiction under Section 256 is more constricted than under Section 260-A of the Act. 7. The second issue raised is the jurisdiction of the High Court to set aside the order of the Tribunal in the exercise of its Reference Jurisdiction. The point is no longer res integra having been settled in C.P. Sarathy Mud .....

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e order of the Tribunal even if it is of the view that the conclusion recorded by the Tribunal is not correct. 8. The third question that has been posed for an answer before us is with regard to the correctness of the manner of exercise of jurisdiction by the High Court in the present case. Learned counsel for the assessee has elaborately taken us through the judgment of the High Court to contend that the evidence on record has been re- appreciated with a view to ascertain if the conclusions rec .....

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ther the Tribunal was right in upholding the findings of the CIT (Appeals) in canceling the penalty levied under Section 271(1)(c). Question as to perversity of the findings recorded by the Tribunal on facts was neither raised nor referred to the High Court for its opinion. The Tribunal is the final court of fact. The decision of the Tribunal on the facts can be gone into by the High Court in the reference jurisdiction only if a question has been referred to it which says that the finding arrive .....

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he High Court was precluded from entering into any discussion regarding the perversity of the finding of fact recorded by the Tribunal." 9. In the present case, the High Court while hearing the Reference made under Section 256 (2) of the Act had set aside the order of the Tribunal. Undoubtedly, in the exercise of its Reference Jurisdiction the High Court was not right in setting aside the order of the Tribunal. However, reading the ultimate paragraph of the order of the High Court we find t .....

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on behalf of the appellant-assessee on Sudarshan Silks & Sarees (supra) therefore is of no effect. 10. The twelve questions referred to the High Court under Section 256(2) of the Act may now be set out below: 1) Whether, on the facts and in the circumstances of the case and also in view of the prohibition of outside service by KSBC, was the Tribunal right in law and fact in allowing the expenditure of ₹ 7,75,602/- by/and/ deleting the addition of ₹ 7,75,602/-? 2) Whether, on the .....

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of ₹ 22,72,192/- by/and/deleting the addition of ₹ 22,72,192/-? 5) Whether, on the facts and in the circumstances of the case, did the Tribunal have any materials to show that the above expenditure of ₹ 22,72,192/- was wholly and exclusively for the assessee's business? 6) Whether, on the facts and in the circumstances of the case, did the assessee discharge the burden of proof that lay on it in support of claim for ₹ 22,72,192/-? 7) Whether, on the facts and in the c .....

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s and in the circumstances of the case is the increase in sales noted in paragraph 10 (page 18) of the order of the Tribunal based on the increase in the quantum or increases in price and if the increase in sales is based on an increase in price is not the same an irrelevant consideration and the order vitiated? 9) Whether, on the facts and in the circumstances of the case, should not the Tribunal have considered the contention of the Revenue that "ultimately Golden Enterprises has in turn .....

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ee? 10) Whether, on the facts and in the circumstances of the case and reason behind entrustment by the assessee with Golden Enterprises being for lack of infrastructure with the assessee, will such an assessee entrust the job to the one who lacks infrastructure and to the one who in turn entrust to another agency and are not the order and the findings, without adverting to the above aspects, wrong and hence vitiated? 11) Whether, on the facts and in the circumstances of the case, the Tribunal i .....

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d management charges? ii) Should not the Tribunal have disallowed the entire claim for ₹ 14,36,200/- 11. A reading of the questions initially framed and subsequently reframed show that what was done by the High Court is to retain three out of twelve questions, as initially framed, while discarding the rest. Some of the questions discarded by the High Court were actually more proximate to the question of perversity of the findings of fact recorded by the learned Tribunal, than the questions .....

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igh Court was whether acceptance of the agreements, affidavits and proof of payment would debar the assessing authority to go into the question whether the expenses claimed would still be allowable under Section 37 of the Act. This is a question which the High Court held was required to be answered in the facts of each case in the light of the decision of this Court in Swadeshi Cotton Mills Co. Ltd. Vs. Commissioner of Income Tax 1967 (63) ITR 57 and Lachminarayan Madan Lal vs. Commissioner of I .....

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the payments might have been made. It is still open to the Income tax Officer to consider the relevant facts and determine for himself whether the commission said to have been paid to the selling agents or any part thereof is properly deductible under Section 37 of the Act." 12. There were certain Government Circulars which regulated, if not prohibited, liaisoning with the government corporations by the manufacturers for the purpose of obtaining supply orders. The true effect of the Govern .....

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