1983 (3) TMI 8 - HC - Income Tax

Issues Involved:
1. Allowability of deduction of Rs. 30,000 paid to Mrs. Sarada Rajam.
2. Justification of allowing only a portion of the finance commission paid to Smt. Sujatha Ramakrishnan.
3. Justification of disallowance of Rs. 7,500 paid as retrenchment compensation.
4. Justification of disallowance of rebates and allowances relating to the service department.

Summary:

Issue 1: Allowability of deduction of Rs. 30,000 paid to Mrs. Sarada Rajam
The court held that the payment of Rs. 30,000 to Mrs. Sarada Rajam as agency commission was not for business purposes but was a device to divide the assessee's profits. This decision was based on a previous judgment in T.C. Nos. 1082 to 1085 of 1977, where it was determined that such payments were made for extra business considerations. Therefore, the disallowance of the agency commission was upheld, and question No. 1 was answered in the affirmative and against the assessee.

Issue 2: Justification of allowing only a portion of the finance commission paid to Smt. Sujatha Ramakrishnan
The assessee claimed a deduction of Rs. 24,000 paid to Smt. Sujatha Ramakrishnan as finance commission. The ITO allowed only Rs. 9,000 (12% interest on Rs. 75,000 borrowed) and disallowed the balance Rs. 15,000 as spent for extra-commercial considerations. The Tribunal upheld this disallowance, and the court agreed, stating that the Tribunal's finding that part of the finance commission was paid for non-business considerations was factual. Thus, question No. 2 was answered in the affirmative and against the assessee.

Issue 3: Justification of disallowance of Rs. 7,500 paid as retrenchment compensation
The assessee claimed Rs. 7,500 as retrenchment compensation paid to employees of the service department upon its closure. The ITO disallowed this, stating it was paid after the business closure. The Tribunal upheld this disallowance, and the court agreed, noting that the assessee failed to prove that the service department was an integral part of the main business. The court referenced the Supreme Court's rulings in L. M. Chhabda and Sons v. CIT and CIT v. Gemini Cashew Sales Corporation, emphasizing that retrenchment compensation for a closed independent business cannot be claimed against income from another business. Thus, question No. 3 was answered in the affirmative and against the assessee.

Issue 4: Justification of disallowance of rebates and allowances relating to the service department
The assessee claimed Rs. 13,703 as rebates and allowances pertaining to the service department. The Tribunal found no evidence to support this claim and upheld the ITO's disallowance. The court agreed, stating that without evidence, the claim could not be allowed. Thus, question No. 4 was answered in the affirmative and against the assessee.

Conclusion:
All four questions were answered in the affirmative and against the assessee. The Revenue was awarded costs from the assessee, with counsel's fee set at Rs. 500.

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