2008 (7) TMI 395 - HC - Income Tax

Payment of Commission - Whether the Tribunal was right in holding that the payment of commission by the assessee to a private limited company where its partners were directors is valid in law, when there is no evidence to show that the company had in fact rendered any service held that - From the particulars available on record, it is seen also that the turnover of the appellant-company has steadily risen and the sales commission paid represents two per cent, of the turnover for the year 1999-2000 and 1.50 per cent. for the period under appeal on a turnover of Rs. 9,93,51,290 and Rs. 13,00,97,698 respectively - it is clear that both the authorities have given concurrent finding that commission is paid for rendering service. It is not a perverse order. It is a question of fact. Hence, we do not find any error or infirmity in the order of the Tribunal warranting interference and the same is in accordance with law and accordingly, it is confirmed. deduction allowed

Summary

Issues:
Validity of commission payment to a private limited company where partners were directors without evidence of service rendered.

Analysis:
The case involves an appeal by the Revenue against the order of the Income-tax Appellate Tribunal regarding the validity of commission payment made by a partnership firm to a private limited company where its partners were directors. The substantial question of law raised was whether the Tribunal was correct in holding the payment valid without evidence of services rendered. The assessee, a partnership firm engaged in the purchase and sale of paper and boards, filed its return for the assessment year 2001-02, admitting total income. The Assessing Officer disallowed a commission payment made to the private limited company, stating lack of evidence of services rendered and the involvement of one partner as a director. The Commissioner of Income-tax (Appeals) allowed the appeal, which was further confirmed by the Tribunal, leading to the Revenue's appeal.

The Revenue contended that the private limited company, a sister concern of the assessee, was not involved in sales, and thus, the commission payment was rightly rejected. However, the assessee provided evidence of an agreement with the company for marketing services, highlighting the increase in business turnover and profitability due to the company's services. The Commissioner of Income-tax (Appeals) analyzed the agreement and turnover data, concluding that the commission payment was valid based on mutual consent and the increase in turnover. Similarly, the Tribunal upheld this decision, citing the necessity of the commission for business and the considerable increase in turnover and profit due to the agreement.

Both the Commissioner of Income-tax (Appeals) and the Tribunal found that the commission payment was made for services rendered, leading to the dismissal of the Revenue's appeal. The Tribunal emphasized the reasonableness and necessity of the commission for promoting sales, as evidenced by the increase in turnover and profit. The order was deemed not perverse but a factual determination, warranting no interference. Consequently, no substantial question of law arose, and the Tribunal's decision was confirmed as lawful, resulting in the dismissal of the tax case (appeal).