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2023 Supreme(Bom) 1131
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
G.S. KULKARNI, JITENDRA JAIN, JJ.
The Indian Hume Pipe Co. Ltd. – Appellant
Versus
Commissioner of Income Tax – Respondent
Income Tax Appeal No.744 of 2002
Decided on : 31-08-2023
Advocate Appeared:
For the Appellant : Mr.S.Sriram a/w Mr.B.V. Jhaveri & Ms.Bhargavi Raval
For the Respondent: Mr.Suresh Kumar
Headnote:
Income Tax Act, 1961 - Section 268A, 44AB, 143(2), (3) - Assessment years - Payment of commission - Whether on facts and in circumstances of case, Appellate Tribunal’s conclusion that commission agents had not rendered services to Appellant company to warrant payment of commission is based on relevant and valid material and is sustainable in law – There cannot be a contradictory course of action as Revenue needs to be consistent - Para 21.
Finding of the Court: It is true that it is for Assessing Officer to decide, whether, any commission paid by Appellant-Assessee to his agents are wholly or exclusively for purpose of his business and mere fact that Appellant-Assessee establishes existence of an agreement between him and his agent and fact of actual payment, discretion of an officer to consider, whether such expenditure was made exclusively for purpose of business is not taken away - Expenditure incurred must be for commercial expediency - However, in applying test of commercial expediency for determining whether an expenditure was wholly and exclusively laid out for purpose of business, reasonableness of expenditure has to be adjudged from businessman's point of view and not from Revenue’s perspective – Court is of view that Assessing Officer and Tribunal were not justified in disallowing part of commission payment for assessment years.
Result: Appeal is allowed.
JUDGMENT :
Jitendra Jain, J.
This consolidated appeal is filed by the Appellant Assessee for assessment years 1986-87, 1987-88 and 1988-89 against common order passed for these three years by the Income Tax Appellate Tribunal (for short “Tribunal”) dated 18th January 2002. The present appeal was admitted under Section 268A of the Income Tax Act, 1961, for short (the Act”) by this Court on 10th September 2004 on the following substantial question of law :-
Substantial question of law
“Whether on the facts and in the circumstances of the case, the Appellate Tribunal’s conclusion that the commission agents had not rendered services to the Appellant company to warrant payment of commission is based on relevant and valid material and is sustainable in law ?”
2. The facts for the assessment year 1986-87, being the lead year, are taken as the basis for deciding the present appeal.
Brief facts are as under :-
3. The Appellant is a limited company listed on the stock exchange and is engaged mainly in the business of manufacturing and sale of R.C.C. Pipes, Steel Pipes etc. which are required for water supply and drainage system.
4. On 30th June 1986, the Appellant filed its return of income declaring income of Rs. 1,89,85,950/-. The said return was supported by audited financial as per the Companies Act and tax audit report as per Section 44AB of the Act. The said return was selected for scrutiny assessment by issuing a notice under Section 143(2) of the Act.
5. In the course of the assessment proceedings, the Appellant filed details of commission paid amounting to Rs. 26,90,104/-, which are as under:-
| 1. | M/s. J.R.D. Legal Metal Industries Pvt. Ltd. Udaipur | 11,44,920/- |
| 2. | Metson Metal & Chemicals | 3,13,460/- |
| 3. | M/s. Chintambi & Swaminathan, Hyderabad | 2,80,000/- |
| 4. | A. Mohan Menon | 1,82,807/- |
| 5. | M/s. Manyam Engg. Enterprises, Hyderabad | 4,50,000/- |
| 6. | M/s. Dhanashree Textiles | 1,93,437/- |
| 7. | M/s. Middle East Construction Co. | 79,577/- |
| 8. | M/s. Universal Supply Corp., Jaipur | 45,903/- |
|
|
| 26,90,104/- |
6. The Appellant Assessee also filed copies of the agreements with the aforesaid parties and justified the allowability of the commission payment as business expenditure incurred in course of its business.
7. On 30th June, 1985, an assessment order under Section 143(3) of the Act was passed assessing income at Rs. 2,89,64,500/-. In the said assessment order, various additions/disallowances were made. The Assessing Officer disallowed a sum of Rs. 22,89,941/- on account of commission payment claimed as deduction by the Appellant Assessee.
8. Insofar as commission paid to M/s. Chintambi & Swaminathan, Hyderabad, A. Mohan Menon and M/s. Manyam Engg. Enterprises, Hyderabad is concerned, the Assessing Officer disallowed whole of the amount and with respect to balance parties, the Assessing Officer allowed only 1/3rd as deductible expenditure and disallowed balance 2/3rd on the ground that the entire payment cannot be considered as laid out wholly and exclusively for the purpose of the business because neither the Appellant Assessee nor the recipients of commission could show that orders were procured with their assistance. Therefore, the role of commission agent is only in respect of follow up enquiries and therefore, only 1/3rd was considered as deductible expenditure.
9. Being aggrieved by the aforesaid assessment order, the Appellant Assessee preferred an appeal to the Commissioner of the Income Tax (Appeals)-II, Bombay. On 31st January, 1992, the Commissioner (Appeals) disposed of the said appeal. With respect to ground relating to disallowance of commission payment, the Commissioner (Appeals) followed his own order for assessment year 1985-86 and allowed the whole of the amount which was disallowed by the Assessing Officer, that is, Rs.22,89,941/-. Insofar as other grounds are concerned, t
