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Issues:
1. Refusal to rectify earlier order regarding deduction of commission paid to an employee under Income-tax Act, 1961. 2. Justification for refusal to rectify earlier order based on business expenditure under section 37 of Income-tax Act, 1961. Analysis: The High Court of Rajasthan addressed two income-tax reference applications for the assessment years 1971-72 and 1972-73. The primary issue revolved around the refusal of the Income-tax Appellate Tribunal to rectify its earlier order concerning the deduction of commission paid to an employee, Gopal Das. The Tribunal had based its decision on the lack of evidence showing that Gopal Das rendered extra services justifying the commission payment. The Appellate Assistant Commissioner had found the commission payment genuine, contrary to the Income-tax Officer's view. However, the Tribunal concluded that without evidence of additional services by Gopal Das, the commission payment lacked legal significance, citing the decision in Shazada Nand and Sons v. CIT [1973] 90 ITR 91 (P & H). The High Court considered the case in light of the Supreme Court's ruling in Shahzada Nand and Sons v. CIT [1977] 108 ITR 358, emphasizing the factors determining the reasonableness of commission payments to employees. The Court highlighted that commercial expediency, not subjective standards, should guide such assessments. The Supreme Court clarified that extra services by employees were not a prerequisite for commission payments under section 36(1)(ii) of the Income-tax Act, 1961. The Court emphasized the importance of fair profit-sharing with employees for business success and social justice. In this context, the High Court found the Tribunal's decision not in line with the law due to its reliance on the Punjab and Haryana High Court's decision, subsequently overturned by the apex court. Consequently, the High Court directed the Tribunal to reconsider the matter in light of the provisions of section 36(1)(ii) and section 37, along with the Supreme Court's decision in Shahzada Nand and Sons case. The Court returned the reference unanswered, instructing the Tribunal to evaluate the case afresh based on the legal principles outlined by the Supreme Court. This detailed analysis underscores the importance of commercial expediency, fair profit-sharing, and legal precedents in determining the deductibility of commission payments under the Income-tax Act, 1961.
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