1993 (2) TMI 6 - SC - Income Tax

Tribunal recorded the finding that the assessee has failed to establish that the said expenditure was in fact incurred. In view of this finding the questions of law sought to be raised by the assessee do not arise - it cannot be said that the High Court was not justified in dismissing the application under section 256(2).

Summary

Issues:
- Refusal of Bombay High Court to direct Tribunal to state questions of law under section 256(2) of the Income-tax Act, 1961.
- Deduction claim under section 37 for payment of commission to dyeing masters, purchase officers, and others working in textile mills.
- Tribunal's finding that the assessee failed to establish the expenditure was incurred.
- Rejection of application under section 256(2) by the High Court.

Analysis:
The appeal in this case was filed by the assessee against the Bombay High Court's decision not to direct the Tribunal to state questions of law under section 256(2) of the Income-tax Act, 1961. The primary issue revolved around the deduction claim made by the assessee under section 37 for a payment of commission to dyeing masters, purchase officers, and other workers in textile mills. The assessee, a private company manufacturing chemicals and dyes, claimed a deduction of Rs. 16,831 as a secret commission paid to these individuals. However, the Income-tax Officer, Appellate Assistant Commissioner, and Tribunal all rejected this claim, leading to the appeal before the Supreme Court.

The Tribunal's judgment highlighted that the assessee failed to substantiate the expenditure claimed. The Tribunal noted several discrepancies, including the lack of disclosure of recipients' names, variations in commission rates, and absence of evidence regarding the actual payment process. The Tribunal emphasized that the mere availability of funds to the director was insufficient proof of payment, especially when the amounts were allegedly disbursed through other employees without clear documentation. Additionally, the identities of individuals allegedly making payments to dyeing masters were not disclosed. Consequently, the Tribunal concluded that the assessee did not establish the actual incurring of the claimed expenditure, rendering the questions of law proposed by the assessee irrelevant.

Given the Tribunal's factual findings and the failure of the assessee to challenge these findings directly, the High Court's refusal to direct the Tribunal to state questions of law under section 256(2) was deemed justified. The Supreme Court ultimately dismissed the appeal, emphasizing that the questions raised by the assessee were based on unproven assumptions and did not contest the Tribunal's factual determinations. As a result, the application under section 256(2) was rejected, and the appeal was dismissed without costs.

In conclusion, the judgment underscores the importance of substantiating claimed expenditures with concrete evidence and the implications of failing to establish the factual basis for deductions under the Income-tax Act. The decision highlights the significance of factual findings by tax authorities and tribunals in determining the validity of deduction claims and the subsequent legal recourse available to taxpayers.