Judgment

HEGDE, J. :- Aggrieved by order of the High Court, declining to call upon the Income-tax Appellate Tribunal A Bench, Calcutta to state a case as desired by it, the assessee has brought this appeal by special leave. The question for decision is whether any question of law arose from the order of the Tribunal which required the Tribunal to state the case for the opinion of the High Court.

2. The assessee is a registered firm o£ three partners Madanlal Bagaria, Bajranglal Bagaria and Sohanlal Bagaria each having a 1/3 rd share in the partnership. The partner are brothers. Its business is the o£ manufacture and sale of aluminium utensils. Upto the assess ment year 1962-63, the firm was making its sales direct to the customers. In the assessment year 1963-64 (the relevant previous year being 2012 R. N. 13-4-1963 to 1-4-1964) the assessee claimed to have paid Rupees 31,684/- to Messrs. Eastern Sales Corpn. as selling agency commission and claimed deduction of the same under Section 37 of the Indian Income-tax Act l961 (to be hereinafter referred to as the Act) as an item of expenditure laid out or expended wholly and exclusively for the purpose of the business. The Income-tax Officer rejected that claim. But the Appellate Assistant Commissioner in appeal allowed the same. The A. A. C. after summarising the conclusions reached by the I. T. O. and setting out the arguments advanced on either side, concluded by observing:

"On a careful consideration of the facts and circumstances, I am inclined to take the view that the discount should be allowed as a deduction, as having been laid out wholly and exclusively for the purpose of the appellant s business. The facts narrated above, clearly indicate that there has been a phenomenal increase in the sales of the appellant, after the appointment of the selling agents. The mere fact of the partners of the selling agents being closely related to the partners of the appellant firm is of little consequence, in the absence of proof of collusion between the two concerns. Instead of the payment being made to total strangers, the discount in the present case has been paid to a firm constituted by the near relations of the partners of the appellant and what is more, the payment was against actual service rendered. The depositions recorded by the I. T. O. referred to above, clearly bring out that the selling agency firm contacted the customers and thereby improved sales of the appellant".

3. Aggrieved by the decisions of the A. A. C., the Department took up the matter in appeal to the Incometax Appellate Tribunal. The Tribunal reversed the order of the A. A. C. and restored that of the I. T. O. It came to the conclusion that the so-called selling agency agreement between the assessee firm and the selling agency firm was only a make-believe arrangement. It was merely a device to minimise the tax liability of the assessee firm and it was not a genuine business arrangement. It arrived at that conclusion on the basis of the following facts :

4. The selling agency firm had four major partners. Two minors were also entitled to share in the benefits of that partnership. One of the major partner was Shiva Kumari Bagaria wife of Madan Lal Bagaria, one of the partners in the assessee firm. She had a 1/3rd share in the profits of the selling agency firm. Another partner of that firm was Triveni Devi Bagaria wife of Bajranglal Bagaria, a partner in the assessee firm. She had l/9th share in the profits of the selling agency firm. Bajranglal s major son Kanti Prasad Bagaria was another partner in the selling agency firm. He had l/9th share in the profits of that firm. Nandlal Bagaria, the minor son of Bajranglal Bagaria was entitled to get 1/9th share in the profits of the selling agency firm. In effect the wife and the children of Bajranglal were entitled to l/3rd share in the profits of the selling agency firm. Another partner of the selling agency firm was Benarshi Devi Bagaria, wife of Sohan Lal Bagaria, on