TMI Blog1976 (6) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... rporated on the 13th October, 1953, and by a resolution dated the 13th November, 1953, it appointed one J. K. Alloys Ltd. as its sole selling agent for a term of five years. In the assessment years involved in this reference the said J. K. Alloys Ltd. ceased to be the sole selling agent and another concern known as M/s. Nav Bharat Vanijya Ltd. was appointed as the sole selling agent for all the products of the assessee. The aggreement entered into by and between the assessee and the said Nav Bharat Vanijya Ltd., on the 1st July, 1958, has been annexed to the statement of the case and forms part thereof. The material clauses of the said agreement dated 1st July, 1958, are as follows : " 1. That the agents shall act as the sole selling agent of all the products of the principal. 2. That this agreement shall commence from the 1st day of July, 1958, and shall continue unless otherwise determined earlier by mutual consent of the parties, till the 30th day of June, 1963. ............ 5. That the agents shall sell the goods of the principal at such price as may be prescribed by the principal from time to time. 6. That the principal will allow the agents commission at the rate of 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the assessee appealed to the Appellate Assistant Commissioner who upheld the orders of the Income-tax Officer. The Appellate Assistant Commissioner found that there was no evidence that any service was rendered by the selling agents who had neither the staff nor the capacity to carry out their obligations. He also held that there was evidence to show that the sales had been looked after by the assessee itself. The Appellate Assistant Commissioner concluded that payment of the commission to the selling agents was not motivated by commercial considerations as no services were rendered by the agents. The assessee went up in further appeal before the Tribunal. It was contended before the Tribunal for the assessee that the agreement between the assessee and its agent was a genuine agreement and the same had been acted upon. It was also contended that services were in fact rendered by the agent under such agreement. The Tribunal held that the particular features of the case which were considered by the authorities below were not sufficient to warrant the conclusion that the agreement itself was a collusive one. Such a conclusion was based on surmise. The Tribunal noted that the agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is desirable that the matter should be looked into by the A.A.C. for the purpose of apportioning the commission allowable in the light of our findings stated above. We therefore remit the matter to the A.A.C. for the aforesaid purpose. " Dr. Debi Pal, learned counsel appearing for the assessee, has contended before us that the question involved is covered by a decision of the Supreme Court in the case of Aluminium Corporation of India Ltd. v. Commissioner of Income-tax [1972] 86 ITR 11. The parties before the Supreme Court belonged to the same group who are parties to the present reference. The facts were that by an agreement dated the 30th December, 1949, the assessee in that case appointed sole selling agents for selling its products. The relevant clauses of the said agreement were as follows : " 1. That the agents shall act as the selling agents of all aluminium ingots, sheets, circles, expanded metal, shots, utensils and anodised and alloy goods manufactured by the principal. 2. That this agreement shall commence from the 1st day of April, 1950, and shall continue, unless otherwise determined by mutual consent of the parties, till the 31st day of March, 1955...... 6. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffected directly by the asseseee and no sales were effected by the selling agents, that the agents were responsible for payment of the price due from the purchaser immediately after the goods left the principal's works or godown, and that under clause 9 of the agreement, the agents were also responsible for due fulfilment of all contracts made by them and also for consequences of any breach of contract by any customer and for all losses and damages arising therefrom to the assessee. On the above facts, the Supreme Court held that under section 10(2)(xv) it was for the Income-tax Officer to decide whether any remuneration paid by an assessee to his selling agents was wholly or exclusively spent for the purpose of the assessee's business. The Supreme Court held further that merely because the assessee established the existence of an agreement between him and his agents and actual payment thereunder would not take away the jurisdiction or the discretion of the Income-tax Officer to consider whether the expenditure was made exclusively for the purpose of the business. It had to be determined whether the expenditure incurred was commercially expedient. The Supreme Court noted its earl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt case, the facts were otherwise and the Tribunal has found that the entire commission was not paid for such purpose. No doubt in the present case it has also been found that the agreement is not collusive but the Tribunal having found that no services were rendered by the selling agents it cannot be said that the agreement was fully acted upon. He also contended that the Tribunal had not negatived wholly the findings of the authorities below that the payment of the commission was for extra-commercial consideration. In support of his contentions, Mr. Sen cited a number of decisions. The principle which he sought to cull out from these decisions was that apportionment of payments claimed to be deductible under section 10(2)(xv) was lawful. This has all along been laid down by the courts. The decisions cited are dealt with in their chronological order. Stott and Ingham v. Trehearne [1924] 9 TC 69 (KB) was cited. In this case, the facts were that a person took into partnership his two sons and allowed them one-third share of the profits of the business. Prior to their being partners the sons had been employed in the business. They had received salaries initially but thereafter they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he directors was wholly and exclusively spent for the purpose of the business within the meaning of section 10(2)(xv) of the Income-tax Act. It is an erroneous proposition to contend that as soon as an assessee has established two facts, viz., the existence of an agreement between the employer and the employee and the fact of actual payment, no discretion is left to the Income-tax Officer except to hold that the payment was made wholly and exclusively for the purposes of the business. Although the payment might have been made and although there might be an agreement in existence, it would still be open to the Income-tax Officer to take into consideration all the relevant factors which will go to show whether the amount was paid as required by section 10(2)(xv). The question as to whether an amount claimed as expenditure was laid out or expended wholly and exclusively for the purpose of such business, profession or vocation has to be decided on the facts and in the light of the circumstances of each case. But, as observed by this court in Eastern Investments Ltd. v. Commissioner of Income-tax [1951] 20 ITR 1 (SC), the final conclusion on the admissibility of an allowance claimed is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eed to be paid was influenced by extra-commercial consideration and was, therefore, held to be excessive. On such facts disallowance of part of the remuneration was sustained by the Supreme Court. The next decision is Commissioner of Income-tax v. Dhanrajgirji Raja Narasingirji [1973] 91 ITR 544 (SC). In this case substantial sums of money were spent over a criminal litigation and such expenditure was claimed to be spent for the purpose of the business of the assessee. It was found by the Tribunal that in the facts and circumstances the criminal prosecutions ultimately resulted in a compromise. The Tribunal found further that the expenditure in question had been incurred ; it was a bona fide expenditure and was in fact incurred for the purpose of the business. On such findings the Tribunal held that only 1/3rd of the expenditure should be considered as having been expended wholly and exclusively for the purpose of the business. This decision of the Tribunal was not challenged by the assessee. But the part of the expenditure which was allowed was challenged by the revenue. The High Court while accepting the findings of the Tribunal opined that the entire expenditure incurred sho ..... X X X X Extracts X X X X X X X X Extracts X X X X
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