1979 (7) TMI 78 - HC - Income Tax

Assessment Year, Business Expenditure, Deduction In Respect, Previous Year, Retrospective Effect

Summary

Issues:
- Deduction of commission pertaining to assessment year 1958-59 from the total income for the assessment year 1959-60.

Analysis:
The case involved a dispute regarding the deduction of commission by an assessee-firm acting as bankers for a company. The firm received commission at a rate of 1% as collection charges, which was later reduced to 1/4% through an agreement. The key question was whether the deduction of commission for the assessment year 1958-59 could be allowed from the total income for the assessment year 1959-60. The Income-tax Officer initially rejected the claim made by the assessee, leading to an appeal. The Appellate Assistant Commissioner (AAC) allowed the claim for the assessment year 1959-60 based on the agreement but did not accept the claim for the previous year. The Tribunal upheld the deduction for the subsequent year under section 10(2)(xv) but disallowed it for the earlier year. The department contended that the deduction should have been allowed for the assessment year 1958-59 as per the retrospective agreement and questioned the commercial expediency of the adjustment.

Moving to the second contention, the court analyzed the genuineness of the agreement reducing the commission rate and its retrospective nature. It was established that the agreement was entered into for business expediency to maintain the relationship with the company. The adjustment of commission was deemed necessary as per the terms of the agreement, reflecting commercial expediency. The court noted that the Tribunal had considered this aspect and found the agreement to be in the best interest of the business, contradicting the AAC's decision. Consequently, the second contention raised by the department was dismissed.

Addressing the first contention, the court clarified that although the agreement was retrospective, the liability to make the adjustment arose only when the firm received the debit notes from the company. As the claim for the specific amount in question was made by the company during the relevant accounting period for the assessment year 1959-60, the court ruled that the deduction did not arise in the accounting period relevant for the assessment year 1958-59. Therefore, the court answered the question in favor of the assessee, allowing the deduction for the assessment year 1959-60 and rejecting it for the previous year. The assessee was awarded costs, and the counsel's fee was assessed accordingly.