1972 (9) TMI 4 - SC - Income Tax

Whether the commission said to have been paid to the selling agents or any part thereof is properly deductible under section, 37 - Tribunal was justified in not stating a case for the opinion of the High Court under section 256(1) of the Act and the High Court was justified in not calling for a statement of case under sub-section (2) of section 256

Issues Involved:

1. Whether any question of law arose from the order of the Tribunal requiring the Tribunal to state the case for the opinion of the High Court.
2. Whether the selling agency commission paid by the assessee-firm to Messrs. Eastern Sales Corpn. was deductible under section 37 of the Income-tax Act, 1961.
3. Whether the Tribunal's findings were based on relevant and admissible evidence.
4. Whether the Tribunal ignored oral evidence, thereby vitiating its conclusions.
5. Whether the Tribunal's order was prima facie perverse.

Issue-wise Detailed Analysis:

1. Question of Law Arising from the Tribunal's Order:

The primary question for decision was whether any question of law arose from the order of the Tribunal that required the Tribunal to state the case for the opinion of the High Court. The Supreme Court held that the Tribunal was justified in not stating a case for the opinion of the High Court under section 256(1) of the Income-tax Act, 1961, and the High Court was justified in not calling for a statement of case under sub-section (2) of section 256.

2. Deductibility of Selling Agency Commission:

The assessee, a registered firm, claimed a deduction of Rs. 31,684 paid to Messrs. Eastern Sales Corpn. as selling agency commission under section 37 of the Income-tax Act, 1961. The Income-tax Officer rejected this claim, but the Appellate Assistant Commissioner allowed it. The Tribunal reversed the Appellate Assistant Commissioner's decision, concluding that the selling agency agreement was a make-believe arrangement and not a genuine business arrangement, aimed at minimizing the tax liability of the assessee-firm.

3. Tribunal's Findings Based on Evidence:

The Tribunal's conclusion that the selling agency agreement was a make-believe arrangement was based on several facts, including the relationship between the partners of the assessee-firm and the selling agency firm, the timing of the partnership agreement, and the lack of business infrastructure of the selling agency firm. The Supreme Court found that these were findings of fact and were not open to challenge.

4. Ignoring Oral Evidence:

Mr. Setalvad, representing the assessee, contended that the Tribunal ignored oral evidence, thereby vitiating its conclusions. The Supreme Court disagreed, noting that while the Tribunal did not elaborate on the oral evidence, it did consider it and chose not to rely on it due to the surrounding circumstances. The Tribunal was within its rights to reject the oral evidence in light of these circumstances.

5. Tribunal's Order as Prima Facie Perverse:

Mr. Setalvad argued that the Tribunal's order was prima facie perverse. He cited several decisions to support this contention, including Dhirajlal Girdharilal v. Commissioner of Income-tax and Commissioner of Income-tax v. Rajasthan Mines Ltd. However, the Supreme Court did not find any part of the evidence relied on by the Tribunal to be irrelevant or inadmissible. The Tribunal's findings were supported by legal evidence, and its conclusions were rationally possible.

The Supreme Court also referenced the case of Commissioner of Income-tax v. A. Raman & Co., noting that while tax avoidance is not prohibited, the Tribunal found that the income, which belonged to the assessee, was made to appear as if earned by another entity. This justified the Tribunal's decision.

Conclusion:

The Supreme Court concluded that the Tribunal's decision was justified and that no question of law arose warranting a reference to the High Court. The appeal was dismissed with costs.

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