1991 (3) TMI 22 - HC - Income Tax

Summary

Issues involved: The issue in consideration is whether there was an accrual of liability for payment of commission for the assessment year 1977-78 under the provisions of the Income-tax Act, 1961.

Summary:
The High Court of Karnataka deliberated on the question of the accrual of liability for commission payment for the assessment year 1977-78. The assessee-company had historically paid commission to a Bombay company for services rendered, including diverting tourists to the company's hotels and assisting in securing supplies. A resolution in September 1977 indicated no provision for turnover commission due to changes in shareholding. Subsequently, a resolution in September 1978 confirmed the commission payment for the previous year. The assessing authority allowed this deduction, but the Commissioner revised the decision under section 263, stating that the decision to pay commission was taken after the relevant assessment year. The Appellate Tribunal upheld this decision, emphasizing the lack of a written agreement for the commission payment. However, the Tribunal acknowledged the customary practice of commission payment since 1974. The High Court disagreed with the Tribunal, emphasizing the genuineness of the payments and the understanding between the parties. The Court noted that the resolution in 1977 was not binding on the Bombay company, and the subsequent resolution in 1978 rectified the earlier mistake. The Court held that the burden was on the Revenue to prove that no services were rendered, which was not established. The Court concluded that the commission should have been paid, and the question was answered against the Revenue.

In conclusion, the High Court ruled in favor of the assessee, highlighting the genuine nature of the commission payments and the understanding between the parties. The Court emphasized the burden on the Revenue to prove the lack of services rendered, which was not met in this case. The decision to pay the commission was deemed valid, and the question was answered against the Revenue.