TMI Blog2008 (3) TMI 690X X X X Extracts X X X X X X X X Extracts X X X X ..... and sale of veneers and trading in taurus black board, plywood, etc. The assessee returned an income of ₹ 11,25,466 in the return for the assessment year 1992-93. The assessee had paid ₹ 5,96,280 by way of service charges to the consultant firm M/s. Team Paarel. It is on the ground that the firm offered consultancy in the areas of general administration, marketing, production, finance and management system. The Assessing Officer, on a perusal of the agreement dated 10-3-1991 executed by the assessee with M/s. Team Paarel, found that the partners of the firm include the managing director and a director of the company and their close relatives. The Assessing Officer, after making a comparative study of the affairs of the immediat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l for the revenue contended that the Commissioner of Income-tax (Appeals) and the Tribunal have not assessed the facts and evidence in the correct perspective and there is no rationale for the conclusions drawn by them. It was argued that the Assessing Officer had considered all the aspects in the correct perspective. Learned Standing Counsel pointed out that the company actually consisted of four shareholders and going by the agreement executed with M/s. Team Paarel, it shows that the four partners are : the managing director of the company, viz., Shri Thomas Elias Paarel, another director Shri Kuriakose Elias Paarel, another partner viz., Shri Punnoose Elias Paarel is an employee of the company as well as the brother of the Managing Direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e following terms :- 40A(2)(a) : Where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in clause (b) of this sub-section, and the Assessing Officer is of opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him therefrom, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction :- (b )The persons referred to in clause (a ) are the following, namely :- (i )****** (ii )where the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hri Punnoose Elias Paarel who is the brother of the managing director and employee of the company, has been paid salary of ₹ 71,090 and commission of ₹ 12,331 by the company during the relevant period. During the period relevant for the assessment year 1991-92 the assessee had not incurred any expenditure on account of service charges. During the year ended on 31-3-1991 the total sales stood at ₹ 2,57,72,289, whereas for the year which ended on 31-3-1992 the total sales stood at ₹ 3,24,60,746. It was noticed by the Assessing Officer that during the year 1992-93 the percentage of discount was 3.81 per cent, whereas during the year which ended on 31-3-1991 the percentage of discount was 1.88 per cent and therefore the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etc. Therefore, the service charges have already been met by the company which are reflected in their accounts wherein the firm Team Paarel does not come into the picture at all. 9. Thus, it is a case where the real nature of the payment shows that the very same persons who are managing the company, have been shown as in receipt of remuneration being the partners of the firm. While considering this question, the dictum laid down in McDowell Co. Ltd. s case (supra) is relevant. Chinnappa Reddy, J. in the concurring judgment, reiterated that in our view, the proper way to construe a taxing statute, while considering a device to avoid tax, is not to ask whether the provisions should be construed literally or liberally, nor whether the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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