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TMI Blog2017 (8) TMI 1612X X X X Extracts X X X X X X X X Extracts X X X X ..... rokerage & Commission" as against claim of Rs. 6,35,61,976/- made in the preceding year . The Assessing Officer required the assessee to furnish details of expenses. In reply, assessee furnished the copy of bills raised by the commission agents. The Assessing Officer made correspondence with the commission agents and required them to furnish name and address of buyers for whom they have executed commissioning work alongwith nature of services rendered and the basis of claim of commission. In some of the cases, commission agents in reply only furnished the name of the buyer without the address. In some other cases, letters issued to commission agents u/s. 133(6) of IT.Act, 1961 were returned unserved by the postal authorities with remark "not known/left/addressee refused." In some cases, commission agents did not mention anything about the agents and only pleaded that they have executed work only for Indrani Patnaik. Thereafter, the Assessing Officer observed that it is seen that while making payment towards commission, assessee has deducted tax at source as required u/s.194H of the Act. He observed that mere deduction of tax at source does not establish that the claim of expenses i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see had engaged the agents to look after its interest with a view to smoothen the whole process of supply of materials to various parties. On the other hand, the buyers had not appointed the agents, nor they paid to them, as such their denial as regards involvement of agents, without any financial involvement on their part, it is humbly submitted, can't negate the expenditure incurred by the assessee. b. Rs. 55,56,819/- have been disallowed on the ground that some letters issued by the department were returned unserved. The assessee had provided addresses of the agents and buyers, as available with it. It also provided copies of the acknowledgements of returns submitted by the agents, which carry their addresses, PAN., details of Jurisdictional assessing officers etc. If due to some reason, the letters were returned unserved, it is submitted, the appellant was not at fault. c. Rs. 69,14,054/- have been disallowed on the ground that the department didn't receive any communication from the agents/buyers. The assessee reiterates its stand that it provided all necessary details of the agents and buyers and it may not be treated to be at fault for their failure to respond to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r his/her/its incomes on his/her, Its principals and the sales that he/she/it helps facilitate for the latter. A commission agent derives compensation from actual sales, usually expressed as a percentage of sales. In many cases, they may facilitate in locating buyers for goods/services, providing information about the product, making the actual sale, and ensuring delivery and follow-up service. However, the precise nature and details of the facilitations engaged in by the agents depends upon the facts and circumstances of the arrangement/agreement entered into with the principal, the nature of the products/goods sold, relevant business factors, etc. Benefits from the agency arrangement accrue to both the principal and agent. Principals can extend market reach without incurring major fixed personnel costs, and agents can earn compensation based on their productivity. Some agents may represent more than one principal. All of the above mean that the agent is more reactively dependent on the principal being part of a direct arrangement than with the clients/buyers/customer which relationship is more proactive and hence independent. While, commission agents depend on customers in genera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... list buyers for the Appellant. Their range of duties was limited to facilitating smooth supply of goods to the buyers.' This would mean that they were in most cases interacting with buyers who were in direct transactional and interactive relationship with the Appellant. The buyers therefore had no cause to regard the agents as purchase intermediaries (they being supply facilitators temporarily visible at a given point in time in respect of the transactions operational at that time) and the agents had no reasons to prepare iron-clad lists and details of the buyers. Therefore, there was little reason for the buyers to make enquiries about the agents and certify the genuineness or veracity of the latter in the matter of supplies of materials. I All the buyers were concerned with was the timely delivery of quality-tested goods/products as specified by them. All the Appellant expected from the agents was total adherence to the terms of the agreement/arrangement between them. f) Therefore, the express non-remembrance of the agents in the creative-proactive awarenesses of the buyers alone will not negate the fact of the impugned transactions and the truth and character of the Commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed is whether the agents are creating economic value for the Appellant through the functions carried out, risks absorbed and assets being time and effort invested in by it, and is therefore entitled to be compensated for the same in the form of receipts of Commissions. Compensation can be denied or disallowed only if it is proved that the apparent arrangement is not germane or related to the business and/or is non-genuine and no economic value is being generated by the agent for the principal. The Appellant is free to enter into agreements with and appoint as many agents, as it seeks to, in line with its business needs and commercial practices. If the agreements and appointments are wholly and exclusively for the purpose of business, and the payments made in the said regard are fully billed/vouched, accounted for and audited, then there is little scope for Revenue to take a prejudicial view. j) The AO has not been able to show that the payments have not been made to the purported agents and that these payments are not relatable to the carrying out the business and for other business purposes. The AO has merely leaped to conclusions (in the cases of Categories II, III and IV) that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not take away the character of the payments made being that of commissions or the truth and genuineness of the principalagent transactions. The part of the order that deals with the enhancements of Commission payments appears to have framed on suspicion and presumption, and as held by the Hon'ble Supreme Court in the case of State of Kerala vs. M.M. Mathew 42 STC (1978), however strong such suspicion or presumption it could not replace legal proof. l) In the matter of the disallowance of the Commission amounts paid to the HUFs totaling Rs. 47,17,304/- (Category V), the simple issue was whether the payments were made to the HUFs concerned. Whether the payments were assessable as incomes in the hands of the kartas or in the hands of the HUFs themselves is a separate matter. The AO's ground that an HUF could not seemingly 'physically' receive the commission amounts is not one that automatically disallows the expense in the hands of the payer. Separately, the conclusion of the AO that HUFs are not "physical entities" display a lack of understanding/appreciation of the plain meanings of the word "physical" which inclusively connotes a corporeal, material, phenomenal and temporal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his life's needs and objectives. HUFs exist in physical form as manifested through. their Kartas and in such form, and as, defined "persons" under the Income-tax Act u/s 2(15) are / perfectly capable of carrying out business and/or commercial transactions. There are no physical/legal infirmities in this regard. In the case of Ram Laxman Sugar Mills-v-CIT 66 ITR 613 SC, it has been held that A Hindu undivided family is undoubtedly a "person" within the meaning of the Indian Income-tax Act. In various cases that indicate that the Honourable Courts have upheld that HUFs can earn commission income, the following may be considered. Where the karta is a partner representing the HUF in a firm and salary or commission is paid to such partner, the issue arises whether such salary or commission should be assessed in the hands of HUF or as personal income of the karta. The test laid down by the Honourable Supreme Court in Kumar Singh Hukam Singhji 78 ITR 33 (1970) (SC) is whether such payment has been made because of investment in the firm or as a compensation for the services rendered. In case of the former, it will be assessed as income of the HUF while in case of the latter, it will be as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant. r) The inverse argument of the AO that the TDS deductions were part of a grand income- concealment-tax-evasion-or-escapement scam operated by the Appellant in a manner that the latter was enabled to legally decamp with 90% of unaccounted money diversions at a cost of 10% of the same towards TDS, is not borne out by factual evidences or the diligent results of rigorous inquiry. The statement of the AO that the Commission agents were proved to have rendered no services to the Appellant too is seen to be one that calls for a conclusion without due foundation. Recording sworn statements from the buyers and not obtaining these from the Commission agents themselves is an asymmetric exercise, and the latter would have revealed the k- true picture to the AO. s) The enhancement made of Rs. 7,09,10,967/- on the said count is consequently deleted and the Appeal allowed." 8. Ld D.R. could not point out any specific error in the findings of the CIT(A) that at times commission agent when approaches the purchasers, he does not identify himself as an agent of the seller and merely identifying himself as representative of the seller, in such circumstances, the buyer cannot be aware th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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