1997 (12) TMI 24 - HC - Income Tax

Business Expenditure, Disallowance Of Expenditure, Commission Paid To Employee, Shipping Agent

Summary

Issues:
1. Disallowance of commission paid to employees.
2. Applicability of Rule 6D of the Income-tax Rules to directors.

Detailed Analysis:

Issue 1: Disallowance of Commission Paid to Employees
The case involved a non-industrial domestic trading company where the Revenue disputed the disallowance of commission paid by the assessee to its employees. The Assessing Officer disallowed the entire commission/service charges paid to employees, except for a specific deduction. The Appellate Assistant Commissioner upheld a partial disallowance of Rs. 40,000, which was further sustained by the Appellate Tribunal. The Revenue challenged this decision, arguing that the disallowance should not be reduced. The court noted that similar disputes had arisen in previous assessment years, and a Division Bench had upheld the Tribunal's decision. As there were no new circumstances presented by the Revenue, the court upheld the Tribunal's decision to sustain the disallowance of Rs. 40,000.

Issue 2: Applicability of Rule 6D to Directors
The second issue revolved around the applicability of Rule 6D of the Income-tax Rules to directors. The Revenue contended that the rule did not apply to directors, while the assessee argued for the deduction under the rule. Citing a precedent from the Andhra Pradesh High Court, the court held that Rule 6D(2) applies to any person, including directors, and places a ceiling on allowable expenses. Therefore, the deduction of Rs. 12,791 for directors under Rule 6D was deemed valid. The court distinguished a previous case cited by the Revenue, stating it was not applicable to the present circumstances. Consequently, the court reframed the second question and ruled in favor of the Revenue regarding the applicability of Rule 6D to directors.

In conclusion, the court upheld the disallowance of Rs. 40,000 in commission paid to employees while allowing the deduction of Rs. 12,791 under Rule 6D for directors. The judgment provided clarity on the application of rules and deductions in similar cases, emphasizing consistency in decision-making based on relevant legal provisions and precedents.