TMI Blog1989 (9) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... is running a sugar mill. It follows the accounting year ending on 31st August. The assessee-company paid to the Yamuna Syndicate Ltd. sole selling agency commission of Rs. 16,97,870 in the assessment year 1975-76 and Rs. 20,30,659 in the assessment year 1976-77. The Income-tax Officer, vide para 1 of the assessment order for 1975-76 after detailed discussion in para 15 of the assessment order for the assessment year 1976-77, noted that Yamuna Syndicate Ltd. was appointed by the assessee-company as its sole selling agent up to July, 1975, and thereafter was only a selling agent for sale of sugar, The Income-tax Officer noted that the said Yamuna Syndicate Ltd. held more than 20% of the equity shares of the assessee-company and, therefore, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ieved against the order of the Commissioner went in appeals. Both these appeals were dismissed by the Appellate Tribunal in view of the ratio of the decision of this High Court in CIT v. Avon Cycles (P) Ltd., [1980] 126 ITR 448 and of the Karnataka High Court in T T. Pvt. Ltd.'s case [1980] 121 ITR 551. The Revenue then filed an application before the Tribunal for making a reference to the High Court, mainly on the ground that in Avon Cycles' case [1980] 126 ITR 448 (P H), the selling agent was a partnership firm and it was held that the payment by the manufacturing company to the sole selling agency partnership did not amount to direct or indirect remuneration or benefit to directors and relatives of directors as there was no nexus betwe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10% depreciation only. The Income-tax Officer also disallowed Rs. 44,251 out of the staff welfare expenditure on account of refreshments in office work by treating the same as entertainment expenditure. The Commissioner of Income-tax disallowed Rs. 39,751 out of the same but upheld the disallowance of Rs. 4,500 in the absence of details. Both the Revenue and the assessee came up in appeals before the Appellate Tribunal. The Appellate Tribunal allowed Rs. 7,119 as expenditure spent on providing refreshments in the meetings of the company's board of directors and general body meetings. On both these counts, the following two questions were referred at the instance of the assessee for the opinion of this court: " 1, Whether, on the facts an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial interest in the assessee-company, it cannot be said that the benefit which they got from the assessee-company would fall under section 40(c)(i) of the Act, because such commission paid to the selling agency company by the assessee-company is in lieu of the services rendered by the former in the business activities after incurring some expense and would not amount to payment of remuneration. Under these circumstances, it will make no difference whether the sole selling agency is a firm or a company. Thus, the present case is fully covered by the decision of a Division Bench judgment of this court in Avon Cycles' case [1980] 126 ITR 448 (P H). In that case, the controversy regarding the application of section 40(c) of the Income-tax Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm in its business activity cannot be said to be payment of reward, recompense, pay, wages or salary for the services rendered by a director or a relative of his. The payment of commission cannot also fall within the ambit of the word 'benefit' used in section 40(c). The speech of the Finance Minister and the note to section 40(c) on its amendment in 1972 show that the provision was amended to discourage the payment of high salaries and remuneration to the persons mentioned in the section. There is no indication that the payment of commission made to a firm by a company in discharge of the contractual obligations for the services rendered by the firm in its business activity is to be covered under section 40(c). The provisions of section 40 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de to the High Court "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the words "corrosive chemicals" employed in entry (ii)B(7) of Para. III of Part I of Appendix I to the Income-tax Rules, 1962, contemplate not only free chemicals but also non-free chemicals of corrosive effect ?", the Division Bench held as under (at p. 760) : "As noticed above, the Tribunal allowed depreciation at the rate of 15 per cent. because it was of the view that the term 'corrosive chemicals' would cover not only free chemicals but also non-free chemicals. To elucidate this view, learned counsel for the assessee argued that sugarcane juice, which comes into contact with the machinery, contains lime and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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