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Issues involved: The judgment involves questions regarding the taxation of commission received by the assessee, the allowance of deductions for secret commissions, and the commercial expediency of such payments.
Issue 1 - Taxation of Commission: The Income-tax Appellate Tribunal considered whether the commission received by the assessee was exempt under section 10(14) and/or 16(v) of the Income-tax Act, 1961. The Tribunal rejected the claim of the assessee that the entire commission was exempt and upheld a partial disallowance of one per cent. The Tribunal based its decision on the expenses necessary for the sale of goods and the payment of secret commissions to textile mills' employees. Issue 2 - Allowance of Deductions for Secret Commissions: The Tribunal also examined whether the assessee should be allowed a deduction of 1 1/2 per cent. of sales as secret commission under section 10 or section 16 of the Income-tax Act. The Tribunal held that such payments were necessary expenses for the smooth running of sales canvassed by the assessee, despite the lack of positive evidence or receipts for the amounts paid. The Tribunal considered the commercial expediency of these payments in the context of the trade practices in the industry. Commercial Expediency and Established Trade Practice: The judgment cited previous decisions and trade practices in the dye-stuffs and colour chemicals trade, where paying secret commissions was common to secure orders and increase sales. The court emphasized the importance of commercial expediency in justifying such expenses and held that the payments made by the assessee were reasonable and necessary for the business. The court also referenced a similar view taken by the Bombay High Court regarding the necessity to establish the prevailing practice, provide evidence of payments, and demonstrate the business purpose of such expenditures. Conclusion: The High Court upheld the Tribunal's findings and answered all questions in the affirmative, in favor of the assessee and against the Revenue. The judgment highlighted the importance of commercial expediency and established trade practices in determining the allowability of deductions for secret commissions, emphasizing that such decisions are based on factual findings and should not be interfered with unless unreasonable or perverse. Judgment Outcome: All questions referred to the court were answered in favor of the assessee, and the reference was disposed of with no order as to costs.
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