TMI Blog1962 (8) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... cotton. In the calendar year 1953, the previous year for the assessment year 1954-55, an agreement was entered into by the assessee with one Keshavlal Talakchand, said to be a yarn dealer of Bombay. On foot of this agreement, the assessee obtained a loan of two lakhs of rupees from the Bombay dealer. Over and above the interest of nine per cent. per annum on the loan, the assessee agreed in effect that he would pay a sum representing two per cent. on the mill's prices of the yarn produced and sold by the assessee mill. The agreement made it appear as if all the production of the assessee mill to the extent of rupees three lakhs per month should be supplied to the lender. The assessee was to furnish details of the count, the number of b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discharging certain debenture loans which were held by one Krishnan, who was a partner of the managing agency firm which was managing the business of the assessee company. The view thus was that the expenditure represented by this sum of ₹ 23,200 was not of a revenue nature. In appeal, the Appellate Assistant Commissioner was also of opinion that there was no real selling agency and that the payment made to Keshavlal Talakchand could only be described as a payment made for the purpose of obtaining capital. It was conceded before the appellate authority that the reasonableness of the expenditure incurred could be looked into by the department. The appellate authority felt that when interest on the borrowed capital was given accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was necessary to enter into an agreement of this kind, it was finally conceded that all the manufactured product of the assessee company was sold only locally, and that the services of Talakchand were not utilised on even a single occasion for functioning as a selling agent. In the appellate order of the Tribunal it is stated: With the above deposit of rupees two lakhs it is admitted that one of the partners of the managing agency firm who was retiring was paid off. The Income-tax Officer also noticed that the sum of rupees two lakhs had been utilised ultimately for clearing debenture loans. It is not denied by the learned counsel for the assessee that Krishnan, one of the partners of the agency firm, held debenture loans of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in difficulties in disposing of its product is wholly unconvincing because we find that the sales during the nine months of the calendar year 1961 came to ₹ 17,89,957; for the calendar year the sales were ₹ 40,09,445. Up to September 4, 1953, the date before the agreement was entered into, the sale came to ₹ 23,53,853. During the remaining part of the calendar year 1953, that is, between September 5, 1953, the date of the agreement, and December 31, 1953, the sales came to ₹ 13,45,373. The sales during the calendar year 1953 as compared with the calendar year 1952 do not show any appreciable increase and the claim that this agreement was necessary to be entered into in order to push sales totally fails to carry con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of the commission to a third person can be regarded as expenditure incurred solely for the purpose of earning that commission is a question which must be answered on the facts of each case and on a commercial basis. Now, it is to my mind clear in this case that the assessees were bound either to lose the commission which they were getting from the Tata Iron and Steel Co. Ltd. or to arrange for financing that company, and we must assume that the arrangement which they made as to finance was the wisest which could be made in the circumstances. The agreement to share their commission with the lender was part of the terms on which they managed to obtain finance, and, in my opinion, therefore, in a commercial sense, the payment of this sha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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