9911796707
TMI Blog1960 (4) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... wo accounting years, the assessee firm ran a cotton pressing factory at Kosamba in Surat District. The five partners of the firm are: (i) Motiram Raghavji. ... 0 2 0 (ii) The Cotton Growers Co-operative Cotton Ginning & Pressing Society Ltd. ... 0 4 0 (iii) The Hansot Group Co-operative Cotton Sales & Seeds Supply Society Ltd. ... 0 1 0 (iv) Shri Shenthi Sahakari Kapas Mandali Ltd. 0 1 0 (v) The Hansot Group Co-operative Ginning & Pressing Society Ltd. ... 0 4 0 0 12 0 Each partner contributed capital at the rate of ₹ 7,500 per one unit of share, the total capital being ₹ 90,000 Partner No. (i) used to deal in cotton. Partners mentioned at Nos. (ii), (iii) and (iv) also used to sell cotton of their respective members. The last partner had no operation either of sale or of purchase whatever during the relevant account years. During either of the two accounting years, the assessee firm pressed no cotton bales for any one except the first four partners. These four partners got their bales pressed in varying quantities and became thus liable to pay pressing charges to the assessee at certain specified rate. For the two seasons under consideration, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c" and also to the general advance account for the benefit of Motiram Raghavji. "Pressing Bandhiyari Account" is thus credited with a reduced amount of pressing charges and is debited with incidental expenses. The surplus of ₹ 11,575 shown by this account at the end of the year S.Y. 2008 is credited to "Upaja Kharch Account", i.e., income and expenditure account. This account is credited with other income receipts and debited with overhead expenses such as stationery, postage, travelling expenses, interest, office staff salary etc. The net balance of 7,200 is the profit shown and it is this amount that is divided amount the five partners in accordance with their shares, each partner's share being credited to his advance account for his benefit. ₹ 7,200 is also credited to the general advance account. In this manner, the general advance account was credited with ₹ 9,689 in the first year and ₹ 40,388 in the second year, the credits being at the rate of ₹ 1-8-0 per bale and ₹ 3-6-0 per bale respectively and simultaneously appropriate credits were also given to individual partners' advance accounts. The reason for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment by way of...commission.....made by a firm to any partner of the firm." If such a rebate was allowed by the assessee firm to a person other than a partner it would have been an admissible deduction under section 10(2)(xv) but in view of the provisions of section 10(4)(b) the point that the Tribunal had to consider was whether when such a rebate was granted to a partner, it continued to be an admissible deduction under section 10(2)(xv) notwithstanding the provisions of section 10(4)(b) and it decided the above point against the assessee. In doing this, the Tribunal relied upon a decision of the Madras High Court given by it in Goodsir and Co. v. Commissioner of Excess Profits Tax*. In that case, the said High Court laid down that the prohibition contained in clause 10(4)(b) was absolute and made no distinction between a payment mentioned therein made to a partner as a partner and such payment made to him in a different character. 6. On these facts, the question of law that arises is: "Whether the sum of ₹ 9,689/Rs. 40,388 representing rebate granted to four out of five partners of the assessee firm is an admissible deduction in computing the profits for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ptember 19, 1957.] N. A. Palkhivala with B. A. Palkhivala, for the assessee M. P. Amin with G. N. Joshi, for the Commissioner JUDGMENT The judgment of the court was delivered by S.T. DESAI, J.--This reference raises a question of some importance and interest relating to the meaning and import of the expression "commission" in section 10(4)(b) of the Income-tax Act. The reference came up for hearing before Mr. Justice Tendolkar and myself on September 19, 1957, and as we felt that the Tribunal had not applied its mind to one aspect of the case and dealt with the question whether the rebate in question had been paid for any commercial consideration, we directed that it should submit a supplementary statement of the case setting out the facts on which it had reached its conclusion. The material facts may be briefly stated. The assessee is a partnership firm and runs a cotton pressing factory at Kosamba in Surat District. Four of its five partners are co-operative societies. The two assessment years are 1953-54 and 1954-55. During the relevant accounting years, the assessee-firm pressed no cotton for anyone except four of its partners and no bales were pressed on behalf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted to ₹ 19,679 and ₹ 2,683-8-0 was the rebate or discount given to Motiram. The position as regards the others partners in both the years is similar in the books of account maintained by the assessee-firm. The amount of rebate aggregated in the first year to ₹ 11,575 in respect of the four partners and was taken to the "Upaja Kharch Account", i.e., Income & Expenditure Account. The amounts of rebates, which were ultimately entered in the "advance account" in respect of all the partners aggregated to ₹ 9,689 in the first year and ₹ 40,383 in the second year. The rebates were calculated at Re. 1-8-0 per bale in the first year and ₹ 3-6-0 per bale in the second year. It was some time towards the end of the year that the partners passed a resolution agreeing to give rebate to persons, who got their bales pressed and the rebates were at the rate of Re. 1-8-0 and ₹ 3-6-0 per bale respectively and it is these amounts of ₹ 9,689 and ₹ 40,388 which formed the subject-matter of dispute between the Revenue and the assessee firm and it is these sums which are the subject-matter of this reference. On these facts, the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur out of five partners of the assessee firm, is an admissible deduction in computing the profits for the assessment year 1953-54/1954-55 having regard to the provisions of section 10(2)(xv) read with section 10(4)(b) of the Indian Income-tax Act, 1922? 2. Whether the amount of ₹ 9,689/Rs. 40,388 can at all fall under section 10(2)(xv) particularly because it is paid out of income already earned and is not paid in order to earn it?" When the reference came up before Mr. Justice Tendolkar and myself, we felt that a supplemental statement of the case was necessary. That was not in respect of the argument relating to the applicability of section 10(4)(b) but to the argument relating to section 10(2)(xv). Obviously, if the rebate did not fall within section 10(2)(xv), it was unnecessary to determine whether the right to the allowance as a business expense was taken away by section 10(4)(b). The first question raised on the reference at the instance of the assessee was whether certain rebate granted to four out of five partners of the assessee firm was an admissible deduction in computing the profits of the assessee having regard to the provisions of section 10(2)(xv) read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v) of the Act." They have also stated that the Tribunal had relied upon its own experience of such cases and had no doubt that it was the normal practice to give such rebates. It has been argued before us by Mr. G.N. Joshi, learned counsel for the Revenue, that although there is a finding that there was a normal practice of giving rebates that practice did not embrace partners in a firm. There is, in our opinion, little substance in this argument. A general practice of the nature before us found by the Tribunal can touch partners as well as any outside customer of a pressing factory. Mr. Joshi has taken though certain facts which the Tribunal has reached its conclusion in the matter of the general practice and that for the purpose of showing that the rebates could not be paid to a customer partner on the ground of commercial expediency. It would be travelling beyond our advisory jurisdiction if we were to sit in appeal over the finding of fact recorded in the judgment of the Tribunal. Therefore, the answer to the second question must be in the affirmative as, in our opinion, the two amounts of ₹ 9,689 and ₹ 40,388 can fall under section 10(2)(xv). We agree with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich have already been executed. In case of what is described as rebates if given in circumstances which raise real doubt there can be nothing to present the Income-tax Officer or the Appellate Assistant Commissioner from holding that the rebates given are not established in fact or that the rebates are not genuine or bona fide. But that would be on totally different considerations. In the instant case, we rate dealing with rebates the genuineness and bona fides of which has not been questioned by the Department. It has also been urged before us by Mr. Joshi that the Tribunal has rightly held that the amounts could be considered as "commission" for work secured by a partner for the firm. It will be convenient to set our the material part of the order of the Tribunal, which, in our opinion, records the requisite findings of fact. It is as under: "The point is whether when such a rebate is granted to a partner, it contains to be an admissible deduction under section 10(2)(xv) notwithstanding the provisions of section 10(4)(b). That section specifically provides the nothing in clause 10(2)(xv) shall be deemed to authorise 'any allowance in respect of any payment b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in case of persons who have continuous dealings with one another it is nothing unusual to do so. In the case before us, we are concerned with charges for pressing bales of cotton by a cotton presser to a constituent who is also a partner and repayment to him of a part of those charges as a rebate and as now found by the Tribunal on grounds of commercial expediency. In our judgment, those deductions are nothing more than rebates, which can be given in case of a sale or any other transaction of the nature before us. One practicable test, which may perhaps apply to a like transaction can be this; If the amounts in dispute were commission, they would certainly be income of the constituent partners. It seems extremely difficult for us to view their payments received by the constituent partners as income earned by them. The correct position seems to us to be that the disputed amounts touch and directly touch the amount of charges payable for pressing cotton bales and cannot be regarded as anything apart from those pressing charges. They rate rebates in both the legal and commercial signification of that expressing and cannot be treated as "commission". For all these reason ..... X X X X Extracts X X X X X X X X Extracts X X X X
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