TMI Blog1989 (3) TMI 64X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,833 for the assessment years 1977-78, 1978-79 and 1979-80 were allowable under section 37 or 57 of the Income-tax Act, 1961 ? 2. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that the commission paid to the managing director for the assessment years 1978-79 and 1979-80 was not covered by section 40(c) of the Income-tax Act, 1961 ? 3. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in confirming the order of the Commissioner of Income-tax (Appeals) relating to the assessment years 1978-79 and 1979-80 holding that interest of Rs. 2,12,158 is not hit by the mischief of section 40A (8) of the Income -t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and claimed the amounts as revenue expenditure under section 37 or 57 of the Income-tax Act, 1961 (hereinafter called "the Act"). On these facts, we have to answer question No. 1 and we proceed to do so. As per the agreement, the Corporation had agreed to return the additional shares of Rs. 18.80 lakhs and undertook to underwrite them but later on backed out of it. The litigation expenses incurred by the assessee in doing so clearly fell within the ambit of section. 37 or section 57 of the Act. The litigation expenses cannot be added to the value of the shares ; rather the expenses were incurred in the assessee's effort to protect the shares worth Rs. 18.80 lakhs. On behalf of the Revenue, reliance was sought to be placed on Rajasthan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r came to the conclusion that payment of bonus, commission, honorarium or any share in the profits of the assessee-company to the managing director constituted remuneration and was covered by section 40(c) of the Act and the whole of it could not be allowed under that provision read with section 40A(5) of the Act if it exceeded Rs. 72,000. However, when the matter came before the Tribunal, it took a contrary view and granted relief to the assessee. Question No. 2 deserves to be decided in favour of the Revenue in view of the decision of this court in CIT v. Patiala Flour Mills Co. (P.) Ltd. [1980] 123 ITR 7, in the case of the same assessee for the assessment years 1972-73 to 1974-75, wherein also the point arose as to whether the commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d payment made to the managing director beyond Rs. 72,000 per annum, whether as salary or commission, is not a permissible deduction and the question is answered in favour of the Revenue, in the negative. For answering question No. 3, the following facts need consideration. Seth Chiranji Lal Multanimal Rai Bahadur were the buying agents of the goods manufactured by the assessee for Patiala. The Company Law Board approved the buying agency agreement under section 314 of the Companies Act, up to January 31, 1976. Beyond January 31, 1976, extension of commission agency was not granted and that is why the assessee did not pay any commission to the sole buying agents after January 31, 1976. This is an admitted fact noticed by the Tribunal in i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this case, according to learned counsel, there was no contract to the contrary although the buying agency was not being considered legal after January 31, 1976, as the Company Law Board did not grant extension or approval beyond that date. We are not impressed with the argument. It is true that when the deposit was made, the depositor was the buying agent and till the buying agency continued by virtue of clause (b)(vii) of the Explanation to section 40A(8), such a deposit would not be a "deposit" within the meaning of sub-section (8) of section 40A and the cut of 15 per cent., in the interest paid, could not be made. The moment the buying agency came to an end, whether by contract or by operation of law, the nature of the deposit would ..... X X X X Extracts X X X X X X X X Extracts X X X X
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