1978 (8) TMI 66 - HC - Income Tax

Summary

Issues Involved:
1. Deductibility of commission paid to Mangilal Sethia as business expenditure under Section 37(1) of the Income-tax Act, 1961.
2. Tribunal's conclusion on expenditure not being incurred wholly and exclusively for business purposes.
3. Deductibility of commission paid to Messrs. Mangilal Bhikamchand as business expenditure.
4. Deductibility of remuneration paid to Messrs. Sampat & Co. as business expenditure.
5. Tribunal's finding on the agreements being nominal and make-believe.

Issue-wise Detailed Analysis:

1. Deductibility of Commission Paid to Mangilal Sethia:
The Tribunal found that the assessee could not establish that Mangilal Sethia rendered any service as a sole selling agent. There was no evidence of the stipulated Rs. 10,000 deposit or any expenses incurred on establishment, publicity, or godown rent. Mangilal Sethia admitted that his brother managed the business and he could not provide details of services rendered. The Tribunal, ITO, and AAC concluded that no services were rendered, and thus, the commission was not deductible as it was not wholly and exclusively for business purposes. The court affirmed this finding, answering in favor of the revenue.

2. Tribunal's Conclusion on Expenditure Not Being Incurred Wholly and Exclusively for Business Purposes:
The Tribunal's conclusion that the expenditure was not incurred wholly and exclusively for business purposes was based on the lack of evidence showing services rendered by the agents. The court found no misdirection or omission of relevant evidence by the Tribunal and upheld the decision, answering in favor of the revenue.

3. Deductibility of Commission Paid to Messrs. Mangilal Bhikamchand:
The Tribunal found that Mangilal Bhikamchand did not provide evidence of securing orders and admitted that after the imposition of cement control, no further orders were booked. The Tribunal concluded that no services were rendered, and the commission was not deductible. The court upheld this finding, answering in favor of the revenue.

4. Deductibility of Remuneration Paid to Messrs. Sampat & Co.:
The Tribunal focused only on the stipulation that Sampat & Co. would arrange for the acceptance of the tender by the Government of West Bengal. However, Sampat & Co. also agreed to furnish specifications, supervise transport and delivery, and undertake responsibility for losses and damages. The Tribunal did not consider oral evidence and other responsibilities undertaken by Sampat & Co. The court found that the Tribunal's finding was vitiated by non-consideration of material facts and evidence. The matter was remanded back to the Tribunal for reconsideration, answering in favor of the assessee for the assessment years 1963-64 and 1964-65.

5. Tribunal's Finding on Agreements Being Nominal and Make-Believe:
The Tribunal concluded that the agreements with the agents were nominal and make-believe, based on the lack of evidence of services rendered. The court upheld this finding for Mangilal Sethia and Mangilal Bhikamchand, answering in favor of the revenue.

Judgment Summary:
For the assessment years 1963-64 and 1964-65, the court remanded the matter regarding the remuneration paid to Sampat & Co. back to the Tribunal for reconsideration. The other questions were answered in favor of the revenue, affirming the Tribunal's findings that the commissions paid to Mangilal Sethia and Mangilal Bhikamchand were not deductible as business expenditure. The reference was disposed of with no order as to costs.