TMI Blog1978 (8) TMI 66X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee without interest during the subsistence of the agreement. (c) The sole selling agent would not during his appointment purchase or receive for sale any commodity similar to those manufactured by the assessee from any third party in his own name or account or in the name or on account of any other person or persons. (d) During the subsistence of the agreement the assessee would not appoint any other sole selling agent to sell any of its produce but this would be without prejudice to the rights of the assessee to appoint agents, distributors or sub-distributors. (e) On all sales of the products of the assessee, through any agent or distributor or sub-distributor or direct to dealers or consumers, the sole selling agent would be paid a commission of 4% on the listed price. (f) The agreement would in the first instance be for a period of three years from the 1st February, 1959, to the 31st January, 1962, unless determined earlier otherwise. (g) The sole selling agent would bear all expenses of establishment, publicity, godown rent, etc., that might have to be incurred in connection with the promotion and sale of the goods of the assessee. 2. Agreement dated the 8t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per running foot and at the rate of Rs. 1.81 per piece of collar. The terms and conditions of the said agreement were, inter alia, as follows : (a) The said manufacturing supervisor would attend and arrange for acceptance of the said tender by the authority concerned. (b) The manufacturing supervisor would be held responsible for the acceptance of the said tender without any change or alteration by the authorities concerned. (c) After acceptance of the said tender the manufacturing supervisor would be responsible for intimating the correct specification of the pipes and collars to the staff of the assessee at its factory and for supervising the manufacture of the goods tendered. (d) Any deviation or defect in the goods tendered detected later on inspection by the authority would be on the account of the manufacturing supervisor and any consequential loss or damage for which the assessee might be held liable would be recoverable from the manufacturing supervisor entirely. (e) The manufacturing supervisor would be responsible for delivery and transport of the goods manufactured under their supervision and in the event of any breakage or damage in transit or otherwise t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show that Sampat Mall Sethia had been responsible for acceptance of the tender of the assessee by the authority concerned. He noted that the tender of the assessee was submitted pursuant to a public notice and that there was also no evidence to establish any special knowledge of the manufacturing supervisor for supervision of the manufacture of the goods. The indemnity clauses in the agreement was found to be a dead letter as no claim had ever been preferred by the assessee against the manufacturing supervisor. The remuneration paid to Sampat Co. was, therefore, disallowed by the ITO. The ITO also summoned Mangilal Sethia, the sole selling agent of the assessee for spun R.C.C. pipes and collars. Mangilal appeared and stated that the business had been looked after by his brother and constituted attorney, Bhikamchand Sethia, and that he could adduce no evidence to show the nature of the services rendered to enable him earn the commission. The ITO also noted that the goods in respect of which commission had been paid to Sampat Mall Sethia and Mangilal Sethia had all been sold to Government departments. The ITO concluded that the sole selling agent had rendered no service whatsoev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1960, the agreement had been executed on the 8th December, 1959, with Mangilal Bhikamchand in respect of Konark Cement and, even after the imposition of control, the agent continued to canvass for the sale of Konark cement. The Tribunal found that neither the assessee nor Sampat Co. could adduce any evidence to show the nature of the services rendered by Sampat Co. or to establish that Sampat Co. was in fact responsible for having the said tender accepted. Bhikamchand Sethia admitted that there was no correspondence between Sampat Co. and the Government in this regard. He was unable to give the names of the officers who accepted the tender. He admitted that there was no direct evidence in writing to show that Sampat Co. acted in the matter or that they had attended to the loading or unloading of the goods. The Tribunal held that mere entering into an agreement and payment of commission would not satisfy the requirement of law. In respect of the commission paid to the sole selling agent, Mangilal Sethia, the Tribunal found that the supply of spun R.C.C. pipes were mainly to the Government departments. Mangilal Sethia could not state or explain the procedure which he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture under section 37(1) of the Income-tax Act, 1961 ? 4. Whether, in the facts and circumstances of the case, the Tribunal was right in holding that the sum of Rs. 74,080 paid to Messrs. Sampat Co. as manufacturing supervisor's remuneration on the supply of R.C.C. spun pipes and collars to the Government of West Bengal was not deductible as business expenditure under section 37(1) of the Income-tax Act, 1961 ? 5. Whether, in the facts and circumstances of the case, the Tribunal's finding that the agreements with the 3 parties are nominal and make-believe ones is based on any material and evidence on record ? " Assessment year 1964-65 : " (1) Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the sum of Rs. 30,437 paid to Sri Mangilal Sethia as sole selling agency commission on sale of R.C.C. pipes and collars was not deductible as business expenditure under section 37(1) of the Income-tax Act, 1961 ? 2. Whether, in the facts and circumstances of the case, the Tribunal's conclusion that the said expenditure was not incurred wholly and exclusively for the purpose of the assessee's business is vitiated by reason of misdirecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id firm had attended the loading and unloading of the goods. It was admitted that the manufacturing supervisor would be responsible for damages if the goods were rejected. Mr. Roy stated that the Tribunal had ignored such evidence. He submitted further that apart from getting the tender accepted by the authority concerned the manufacturing supervisor under the agreement with the assessee had to carry out various functions and duties and undertook risk and responsibility for a number of eventualities. Even if such eventualities did not occur, undertaking the responsibility to compensate for such risks was certainly valid and the consideration, being the remuneration at the modest rates of Rs. 0.25 per running foot of pipe and Rs. 0.20 per piece of collar, which was meant to cover all expenses of the manufacturing supervisor and would be payable only after completion of delivery of at least 60,000 running feet was bona fide and commercial. Mr. Roy submitted that the Tribunal has ignored material terms of the agreement, confining their attention only to the services to be performed in having the tender accepted. In respect of the sole selling agent, Mangilal Sethia, Mr. Roy cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed the commission paid was that during the accounting year all the sales were effected directly by the assessee and no sales were effected by the selling agents. But those authorities failed to take note of the fact that apart from the fact that the selling agents were entitled to discount even in respect of the sales directly made by the assessee, the agents were responsible for the payment of the price due from the purchasers immediately after the goods left the principal's works or godown. Such payment had to be made on presentation of necessary papers or documents by the assessee, not later than a fortnight after the date the goods were despatched. In default of payment as aforesaid, the assessee was entitled to charge interest until realisation at the rate of six per cent. per annum on the balance for the time being outstanding. Under clause (9) of the agreement, the agents were also responsible for due fulfilment of all contracts made by them whether for ready or forward sales and also for the consequences of any breach of contract by any customer and for all losses and damages arising therefrom to the assessee provided there was no default on the part of the assessee in m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is concerned the assessee could not establish that he rendered any service to the assessee as a sole selling agent. It is not in evidence that Mangilal deposited the stipulated sum of Rs. 10,000 to the assessee in terms of the agreement or that he secured any order for the assessee for sale of the stipulated products. It was not established that he incurred any expenses on behalf of the assessee on account of establishment or publicity or godown rent or similar items in connection with his agency. Before the ITO, Mangilal stated that the business has been looked after by his brother, Bhikamchand, and that he himself could not state anything as to the services rendered in connection with the agency. The ITO, the AAC and the Tribunal all have come to the conclusion that no services had been shown to have been Tendered by the sole selling agent. It does not appear to us that any relevant evidence in this connection was omitted to be considered by the Tribunal or that irrelevant material was taken into account in coming to the aforesaid findings. In our view the assessee has not been able to establish that the commission paid to the sole selling agent was wholly or exclusively for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove, we hold that the finding of the Tribunal for the assessment years 1963-64 and 1964-65 that the remuneration paid to Sampat Co. as manufacturing supervisor was not deductible as business expenditure under s. 37(1) of the I.T. Act, 1961, is vitiated by non-consideration of the aforesaid material facts and evidence on record which were relevant for arriving at such finding. We, therefore, send the matter back to the Tribunal with a direction to consider the claim of the assessee in the light of the observations made above and determine the question in accordance with law. The Tribunal will give further opportunity to the parties for making submissions on the point and, if necessary, may take fresh evidence. Accordingly questions Nos. 4 and 5 in the assessment year 1963-64 and questions Nos. 4 and 5 in the assessment year 1964-65 are answered in the negative and in favour of the assessee to the extent as indicated above. The other questions are answered as follows : Assessment year 1963-64 : Question No. 1 is answered in the affirmative and in favour of the revenue. Question No. 2 is answered in the negative and in favour of the revenue. Question No. 3 is answered ..... 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