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Issues Involved:
1. Disallowance of commission paid to Messrs. Textile Processing Agency. 2. Disallowance of director's fee amounting to Rs. 6,800. Issue-wise Detailed Analysis: 1. Disallowance of Commission Paid to Messrs. Textile Processing Agency: The Tribunal sustained the disallowance of commission paid to Messrs. Textile Processing Agency. The assessee-company, engaged in textile processing, claimed brokerage and commission, including Rs. 69,228 paid to Messrs. Textile Processing Agency. This firm, formed on April 1, 1960, was appointed as the company's agent via an agreement dated March 31, 1960. The Income-tax Officer (ITO) found this agreement void ab initio since the firm did not exist on the agreement date. Additionally, the partners of the firm were either directors or closely related to directors of the assessee-company. The ITO concluded the appointment was illegal under Section 314 of the Companies Act, 1956, as no special resolution was passed. The ITO also determined that the primary functions outlined in the agreement were not performed by the agency, and the commission was a device to divert profits to the directors or their relatives. The Appellate Assistant Commissioner allowed partial deduction but upheld the disallowance, which the Tribunal affirmed. The Tribunal found the agreement and partnership deed were executed to evade proper taxation. The High Court referenced Aluminium Corporation of India Ltd. v. Commissioner of Income-tax and Lachminarayan Madan Lal v. Commissioner of Income-tax, concluding that the Tribunal's findings were factual and unassailable. The court rejected the assessee's contention that previous allowances of commission to other agents established res judicata, noting no prior decisions regarding Messrs. Textile Processing Agency. Thus, the Tribunal's decision to disallow the commission was upheld. 2. Disallowance of Director's Fee Amounting to Rs. 6,800: The assessee-company claimed a director's fee of Rs. 6,800, which the ITO disallowed. The ITO held that Messrs. Textile Processing Agency, in which the directors were partners, held an office of profit under the company in contravention of Section 314(1) of the Companies Act, 1956. Consequently, under Section 314(2), the directors were deemed to have vacated their offices from April 1, 1960, making the director's fee inadmissible. The Tribunal affirmed this disallowance, and the High Court agreed, stating that the director's fee was rightly disallowed as a deduction. The court referenced Aluminium Corporation of India Ltd. v. Commissioner of Income-tax, emphasizing that the High Court's jurisdiction is advisory, not appellate, and it cannot challenge the Tribunal's factual findings. The court concluded that the Tribunal's findings regarding the agreement being a device to divert profits were correct. Conclusion: Both questions referred by the Tribunal were answered in the affirmative, in favor of the department and against the assessee. The disallowance of the commission paid to Messrs. Textile Processing Agency and the director's fee amounting to Rs. 6,800 was upheld. There was no order as to costs.
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