1979 (2) TMI 83 - HC - Income Tax

Summary

Issues:
1. Disallowance of commission by the Income Tax Officer (ITO) for assessment years 1968-69 and 1969-70.
2. Appeal filed by the assessee against the ITO's order, subsequent decisions by the Appellate Assistant Commissioner (AAC) and the Tribunal.
3. Refusal by the Tribunal to refer questions of law to the High Court.
4. Arguments presented by the counsel for the assessee and the revenue.
5. Determination of questions of law by the High Court.

Analysis:
1. The judgment concerns Income-tax Cases for the assessment years 1968-69 and 1969-70. The assessee, a private limited concern engaged in the manufacture of nuts and bolts, appointed Bharat Sales Corporation as its sole selling agents. The commission paid by the assessee to Bharat Sales Corporation was under scrutiny by the tax authorities.
2. The ITO disallowed a portion of the commission paid by the assessee for both assessment years. The AAC upheld the disallowance partially for 1968-69 and entirely for 1969-70. Subsequently, the assessee appealed to the Tribunal challenging these decisions.
3. The Tribunal declined to refer questions of law to the High Court, leading the assessee to file petitions under section 256(2) of the Income Tax Act seeking direction for the reference of specific legal questions.
4. The counsel for the assessee argued that the disallowance lacked a rational basis and was arbitrary, emphasizing the lack of material supporting the estimation of expenses. In contrast, the revenue's counsel contended that the disallowance was a factual matter without any legal question involved.
5. Upon review, the High Court found that legal questions did arise in the case. The court directed the Tribunal to refer the identified questions of law for the court's opinion, ultimately disposing of the cases with no costs awarded.

This judgment highlights the intricacies of assessing and disputing commission payments in the context of legitimate business needs. It underscores the importance of legal reasoning in tax matters and the role of higher courts in resolving disputes between taxpayers and tax authorities.