1971 (9) TMI 24 - SC - Income Tax

Whether the disallowance of commission paid to sole selling agent is justified when there is a finding that the selling agent did not render any service - question of fact - High Court was justified in declining to give direction to the Appellate Tribunal to state a case and refer those questions

Summary

Issues Involved:
1. Whether the Tribunal was justified in holding that no services were rendered by M/s. Gokul Nagar Sugar Mills Co. Ltd. to the appellants.
2. Whether the Tribunal erred in not considering certain evidence.
3. Whether Dr. G. C. Narang acted in a capacity he did not hold.
4. Whether the invocation of section 34(1)(a) of the Income-tax Act, 1922 was justified.

Issue-wise Detailed Analysis:

1. Justification of Tribunal's Finding on Services Rendered:
The Tribunal held that M/s. Gokul Nagar Sugar Mills Co. Ltd. rendered no services as a selling agent, thus disallowing the commission claimed as a business expenditure. The Tribunal's decision was based on the finding that the appellants directly dealt with sub-agents, and there was no privity of contract between the appellants and M/s. Gokul Nagar Sugar Mills Co. Ltd. This conclusion was supported by the evidence, including a telegram indicating direct dealings between the appellants and M/s. Ramdev and Co., bypassing M/s. Gokul Nagar Sugar Mills Co. Ltd.

2. Consideration of Evidence by the Tribunal:
The appellants argued that the Tribunal did not consider the evidence of witnesses Ram Sahai Dhir and Shiv Nand Verma, and certain receipts showing commission payments. The Tribunal did refer to the relationship with M/s. Ramdev and Co., of which Ram Sahai Dhir was the proprietor. The evidence of Shiv Nand Verma was found to be contradictory and unreliable, as he claimed to be a sub-agent before M/s. Gokul Nagar Sugar Mills Co. Ltd. was appointed as a selling agent. The Tribunal did not specifically mention two receipts, but this omission did not vitiate the conclusion, given the overall evidence against the appellants.

3. Dr. G. C. Narang's Capacity:
The Tribunal concluded that Dr. G. C. Narang signed letters as the chairman of the Nawabganj Sugar Mills Co. Ltd., a capacity he did not hold. This finding was based on the evidence that M/s. Gokul Nagar Sugar Mills Co. Ltd. did not act as a selling agent, and the appellants directly dealt with sub-agents. The High Court agreed with this conclusion, noting that the Tribunal had considered the relevant evidence.

4. Invocation of Section 34(1)(a):
The Tribunal and the High Court found that the invocation of section 34(1)(a) of the Income-tax Act, 1922, was justified. The Tribunal held that the appellants failed to disclose fully and truly all material facts necessary for the assessment, warranting the reopening of assessments under section 34. This finding was based on the evidence that the commission payments to M/s. Gokul Nagar Sugar Mills Co. Ltd. were not genuine business expenditures.

Conclusion:
The Supreme Court agreed with the High Court's decision that no point of law arose from questions Nos. 1 to 3, as they were purely questions of fact. The Tribunal had considered all material evidence, and its findings were supported by the evidence on record. The appeals were dismissed, and the judgment and order of the High Court were confirmed.