1997 (10) TMI 59 - HC - Income Tax

Summary

Issues:
1. Allowability of commission paid to Giri Raj Fertilisers and Chemicals (P) Ltd. under section 37 of the IT Act.
2. Allowability of commission paid to Anand Pratyabhut Vit Nigam without proof of services rendered.
3. Allowability of commission paid to APVN without proving it was incurred wholly and exclusively for business purposes.
4. Allegation of commission payments being an arranged affair to reduce tax liability.
5. Tribunal's decision on the commission payments ignoring relevant facts.

Analysis:

Issue 1: The Revenue sought a mandamus to the Tribunal under section 256(2) of the IT Act regarding the commission paid to Giri Raj Fertilisers and Chemicals (P) Ltd. The AO and CIT(A) considered the expenditure as capital in nature, but the Tribunal upheld the plea that the payment was revenue in nature under section 37 of the IT Act. The Tribunal applied the test of enduring benefit to differentiate between capital and revenue expenditure. The Tribunal's finding was based on the understanding that the commission payment did not eliminate competition but only related to individual transactions, thus qualifying as revenue expenditure. The High Court concluded that the Tribunal's finding was factual and did not raise any legal question.

Issue 2: The second question concerned the commission paid to Anand Pratyabhut Vit Nigam (APVN) without concrete evidence of services rendered. The AO rejected the claim due to lack of proof, but the Tribunal overturned this decision. The Tribunal noted regular correspondence between the assessee and APVN, confirmed payments through bank transactions, and emphasized APVN's independent existence and filing of returns. The Tribunal found the claim valid based on these facts, leading to the High Court's determination that no legal question arose from the Tribunal's factual findings.

Conclusion: The High Court rejected the Revenue's application under section 256(2) of the IT Act, stating that the questions raised were factual and not referable to the High Court. The Tribunal's detailed factual analysis and findings regarding the commission payments to Giri Raj Fertilisers and Chemicals and Anand Pratyabhut Vit Nigam were upheld as valid interpretations of revenue expenditure under the IT Act.