TMI Blog1969 (12) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... selling agent. The assessee wrote a letter to this effect on December 20, 1947. An agreement of selling agency was executed on October 1, 1948. The agreement provided for payment of commission to the selling agent at the rate of 21 per cent. The Government introduced control on the sale of sugar in August, 1949. The assessee-company had to supply sugar to dealers in accordance with the directions of the Government. The assessee-company paid full commission to the selling agent in spite of the fact that the Government had introduced control on the sale of sugar. When the Income-tax Officer took up assessment for the three assessment years, he took the view that it was not necessary to pay commission for the sale of controlled sugar. He, therefore, disallowed the expenditure to the extent of commission paid on the sale of controlled sugar. He also fixed the rate of commission on the sale of free sugar at the rate of 1 1/4 per cent. instead of the rate of 2 1/2 per cent. under the agreement. When the assessee took up the matter in appeal before the Appellate Assistant Commissioner, he raised the rate of commission on the sale of free sugar from 1 1/4 per cent. to 2 per cent. But he a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a half per cent. calculated at the net value of the product supplied after deducting all expenses ............" It is true that commission was payable for services rendered by the selling agent. But commission had to be calculated at the net value of the product supplied. The amount of commission did not depend upon the amount of work done by the agent. Nor did clause 12 require that a particular product must have passed through the hands of the agent in order to enable it to earn the commission. The basis of the commission was the net value of the product supplied by the manufacturer. Clause 16 of the agreement dealt with the duration of the agreement. Clause 16 stated : "This agreement shall remain and continue in force and govern all transactions between the parties hereto for a period of one year or until cancelled or terminated in the manner hereafter expressed. This agreement may be terminated by either party by giving to the other party three months' notice to that effect ........." Annexure "E" to the statement of the case is a copy of the Tribunal's judgment, dated August 31, 1963, relating to the assessment year 1951-52. In Paragraph 3 of its judgment the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner of Income-tax it was held by the Supreme Court that in applying the test of commercial expediency for determining whether an expenditure was wholly and exclusively laid out for the purpose of the assessee's business, reasonableness of the expenditure has to be judged from the point of view of the businessman and not of the income-tax department. The learned Advocate-General, appearing for the department, contended that the finding of the Tribunal that the expenditure, in question was not wholly and exclusively for purposes of the business of the company is binding on this court. For this contention, reliance was placed upon the decision of the Supreme Court in Commissioner of Income-tax v. Chandulal Keshavlal Co. In that case Kapur J. observed on page 610 : "... it is a question of fact in each case whether the amount which is claimed as a deductible allowance under section 10(2)(xv) of the Income-tax Act was laid out wholly and exclusively for the purpose of such business and if the fact-finding Tribunal comes to the conclusion on evidence which would justify that conclusion, it being for them to find the evidence and to give the finding, then it will become an admissib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Calcutta High Court that disallowance of part of the remuneration to the technical adviser was justified. In Swadeshi Cotton Mills Co. Ltd. v. Commissioner of Income-tax, their Lordships of the Supreme Court explained on page 60 : "It is an erroneous proposition to contend that as soon as an assessee has established two facts, viz., the existence of an agreement between the employer and the employee and the fact of actual payment, no discretion is left to the Income-tax Officer except to hold that the payment was made wholly and exclusively for the purposes of the business. Although the payment might have been made and although there might be an agreement in existence, it would still be open to the Income-tax Officer to take into consideration all, the relevant factors which will go to show whether the amount was paid as required by section 10(2)(xv)." In Commissioner of Income-tax v. Royal Calcutta Turf Club, the facts were these : The Royal Calcutta Turf Club was an association of persons whose business it was to hold race meetings on a commercial basis. The turf club itself did not own any horse or employ jockeys. As it was of opinion that there was a risk of jockeys be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. In paragraph 4 of its judgment dated August 31, 1963, the Tribunal observed : "There is no question of going behind a trading agreement unless something flimsy is seen in it. Here is a plain sole selling agency agreement and it appears the selling agents had an office establishment in respect of the work to be carried out by them." In paragraph 3 of the judgment the Tribunal referred to the fact that there was close connection between the constitution of the assessee-firm and the constitution of the National Finance Ltd., which was its selling agent. The Tribunal, however, does not appear to have attached much significance to this fact. After referring to the close connection between the two companies, the Tribunal observed : "Whatever it is, there is a clause in the agency agreement which the assessee-mills should have used in the present circumstances when it found that the selling agents would be of no use to the assessee." The Tribunal emphasized the fact that under clause 16 of the agreement it was possible to terminate the selling agency agreement. The Tribunal did not hold that the assessee was actuated by some oblique motive in keeping the selling agency ..... X X X X Extracts X X X X X X X X Extracts X X X X
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