B.S.Dhillon, J.

1. This judgment will dispose of Income-tax References Nos. 110 of 1977 and 56 of 1979. Since the facts on the basis of which the questions of law arise in both these references are common, the same are being disposed of by a common judgment.

2. The facts as given in I.T. Ref. No. 110 of 1977, which pertains to the assessment year 1972-73, may be stated. The assessee is a private limited company and carries on the business of manufacture and sale of cycles. The previous year for the assessment year 1972-73 ended on 31st March, 1972. By an agreement dated 1st April, 1960, the assessee had appointed M/s. Hans Raj Pahwa and Brothers, Ludhiana, as its sole distributors for the sale of all its products for a period of five years from 1st April, 1960, to 31st March, 1965, and the commission was fixed at 4% on all the sales made by the company direct or through the efforts of the sole distributors. The firm of M/s. Hans Raj Pahwa and Brothers was constituted by a partnership deed dated 26th March, 1960, comprising the following partners, who agreed to share the profits and losses of the firm in equal proportion :

(1) Shri Hans Raj representing his HUF.

(2)