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Issues:
Interpretation of the expression 'promoters' for payment of commission. Justification of holding that certain individuals rendered services to the assessee-company. Analysis: The case involved income-tax assessments for the years 1971-72, 1972-73, and 1973-74 of a private limited company that received assistance from the Andhra Pradesh Industrial Development Corporation. Initially, four individuals were promoters of the company, and later, four more individuals subscribed to the shares. A resolution was passed to pay commission to promoters based on their shareholdings. The Income-tax Officer disallowed commission payment to all eight individuals, citing lack of evidence of services rendered and questioning the status of some as promoters. The Appellate Assistant Commissioner allowed commission payment to some individuals but disallowed it for others. Both the Revenue and the assessee appealed to the Tribunal, leading to a decision allowing commission only to the managing director. The assessee then sought a reference under section 256(1) of the Income-tax Act for two questions of law related to the interpretation of 'promoters' and evidence of services rendered. The Tribunal rejected the reference, prompting the assessee to petition the High Court under section 256(2), resulting in the two questions being referred to the court for consideration. The assessee argued that all eight individuals should be considered promoters entitled to commission and presented evidence of services rendered. The Revenue supported the Tribunal's decision, emphasizing it as a factual finding. The High Court found it unnecessary to determine if all eight were promoters. It focused on whether commission paid to three individuals (directors or their relatives) satisfied the requirements of section 40(c) of the Income-tax Act, irrespective of their promoter status. The court noted the Tribunal's oversight of evidence on services rendered by the three individuals, suggesting a flawed finding. The court returned the reference to the Tribunal for rehearing, emphasizing a thorough examination of evidence and consideration of relevant provisions. In conclusion, the High Court directed the Tribunal to reevaluate the allowability of commission paid to the three individuals, ensuring proper consideration of evidence and adherence to legal provisions. The parties were to be given opportunities to present their cases, and costs were to be borne by each party.
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