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TMI Blog2006 (12) TMI 113X X X X Extracts X X X X X X X X Extracts X X X X ..... ster concern, namely, M/s. Accumulator Fabrics. It was noticed that in the earlier years the payment of commission made by the assessee-company to its sister concern has been held to be highly excessive and unreasonable when compared to the meagre services rendered by the said sister concern. Taking into consideration all these aspects, the assessing authority passed the assessment order by disallowing the payment in excess of 6 per cent. Aggrieved by the said order, the assessee filed an appeal before the Assistant Commissioner. He confirmed the assessment order by his order dated November 10, 1998. The assessee thereafter filed an appeal before the Tribunal. The Tribunal by its order allowed the appeal by holding that it cannot be said that the payment of the commission by the appellant-company would attract the provisions of section 40A(2) of the Act. It is further held that the disallowance of 4 per cent. is not proper and justified and the commission as claimed at 10 per cent. requires to be allowed. The Revenue in these circumstances is before us in I. T. A. No. 63 of 2000 raising the following two questions of law : "1. Whether, on the facts and circumstances of the case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the commission paid by the assessee to its sister concern ?" I. T. A. No. 64 of 2000 5. This appeal is again at the instance of the Revenue. The assessing authority took up the assessment proceedings for the assessment years 1993-94 and 1994-95. Commission was made over by the assessee. The assessee-company paid commission at 10 per cent. According to the Assessing Officer, the said payment is excessive. He allowed the commission at 5 per cent. Appeals were filed before the Commissioner. The Commissioner increased the commission to 6 per cent. but disallowed 4 per cent. The second appeal was filed before the Tribunal. The Tribunal accepted the case of the assessee. The Revenue in these circumstances is before us. The following questions of law are raised before us : "1. Whether, on the facts and circumstances of the case, there is material and evidence for the Tribunal to hold that the commission paid by the respondent-assessee-company to its sister concern at 10 per cent. on its sales turnover is reasonable? 2. Whether, on the facts and circumstances of the case, the Tribunal is correct in law in reversing the assessment and appellate order as passed in the respondent-a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elling and canvassing agent for marketing their product throughout India in terms of an agreement dated July 1, 1985. Thereafter, in the light of the expiry of the earlier agreement, they were desirous of renewing the appointment of the aforesaid agent, for a further period of five years on certain conditions. In the terms and conditions of the agreement it is mentioned that the principals will manufacture/produce and supply PVC separators under the brand name " Microtex" according to the specifications and order issued by the sole selling agent at such prices as may be fixed by the principals in consultation with the agent from time to time. They would also say in terms of clause 8 that in consideration of the services to be rendered by the agent, the agent will be paid a commission of 10 per cent. on the sales turnover of the battery separators. The term " sales turnover" will mean the sales turnover after deduction of the turnover of rate contracts, trade discounts, sales returns, sales tax, and central excise duty, if any, included therein. The commission, if any, payable to the sub-agents/distributors will be paid by the agent out of their commission received from the principa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aim for deduction of remuneration so provided, the Income-tax Officer is justified in refusing the same. 14. The Madras High Court has considered in K. R. Motilal v. CIT [1999] 240 ITR 810 with regard to commission paid to relatives. The Madras High Court has held that the records disclosed that M was a psychology graduate with no technical qualification or training. Though it was claimed that M had been employed in the Bendweld Industries and acquired some training no certificate had been produced to prove it. V had passed only SSLC and had been doing commission business for the past three years. The turnover of the assessee during 1975-76 was Rs. 4,28,170 as against Rs. 3,90,530 the turnover of the previous assessment year. The Tribunal had considered the three conditions specified in section 40A(2)(a) of the Act while confirming the order of the Assistant Commissioner regarding the excessiveness or unreasonableness of the remuneration and commission alleged to have been paid by the assessee to his brothers, M and V. Hence, the Tribunal was justified in disallowing partly the remuneration paid by the assessee to his two brothers. 15. The Madras High Court again in V. S. T. Moto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been or is to be made to any person referred to in clause (b) of this sub-section, and the Assessing Officer is of the opinion that such expenditure is unreasonable or excessive having regard to the fair market value of the goods, services and the 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. 22. As mentioned earlier, disallowance is only 4 per cent. 10 per cent. commission in terms of clause 8 as mentioned earlier is not absolute. It provides for various discounts. In these circumstances, we are of the view that there cannot be any microscopic consideration and a broader view has to be taken, taking into consideration the business intention and business consideration. So long as there is no intention to evade tax and so long as the commission is not shocking, the said commission has to be accepted particularly in the light of the wordings of section 40A(2) of the Act. It is not the quantum alone that governs in such cases. Fair market value ..... X X X X Extracts X X X X X X X X Extracts X X X X
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