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TMI Blog1989 (1) TMI 157X X X X Extracts X X X X X X X X Extracts X X X X ..... n 143(3) read with section 144B of the Act. In this assessment he determined the total income of the assessee at Rs. 34,95,840 as against the loss return of Rs. 7,53,740 filed on 30th June, 1981. Apparently, in the process of assessment, the ITO considered various facets of the assessment including an issue relating to payment of commission by the assessee to the parties, which we would refer to in this order subsequently. In this appeal, we are only concerned with the payment of commission by the assessee amounting to Rs. 3,69,824 to M/s. Niki Tasha (India) Pvt. Ltd. The ITO has recorded the reasons for not allowing this commission at page 6 of the impugned asst. order under the title " Commission paid ". We do not intend to burden this order with the reasons that he has given as we will be dealing with them while considering the submissions of the parties made before us. Suffice to say that for the reasons given in the asst. order, he added back this amount. The asst. as framed by the ITO included various other disallowances which we would not advert to in this order in view of the context of only ground of appeal taken before us here. 3. When that assessment was challenged in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iki Tasha had rendered services to the assessee not only in obtaining this contract but also had helped the assessee to obtain further contracts which were not allotted to the assessee at the time when the original tenders were opened. 6. The ld. counsel for the assessee made a point that the contracts entered into by the assessee-company were with the Govt. of Iran and the Govt. being a body consisting of various organisations and individuals, it could not be said that a contract taken earlier could give to the assessee the advantage of the type that normally flows from contracts with individuals. Therefore, the arguments raised in the impugned orders by the learned authorities below, he submitted, could not be applied to this case of the assessee. He emphasised that the agreement between the assessee and M/s. Niki Tasha (India) Pvt. Ltd, was a bona fide one and proceeded to emphasise this by showing that the assessee could not gain anything by transferring the said commission from it to the commission agent because in the case of the assessee, the returned figure was of loss and in the case of the commission agent, there was positive income. It was emphasised that both being Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 6 per cent commission to the foreign agents for getting the services in obtaining contracts from the Iranian Govt. and the extra payment of 3 per cent commission was really for extracommercial consideration in view of the close relationship between the shareholders of the two companies. In any case, it was argued that there is no service rendered during the year under appeal to the assessee-company by the so-called agents. A point was made by the ld. DR with reference to the evidence available at pages 19, 20 and 22 of paper book-II filed by the assessee, wherein there is correspondence between the assessee and M/s. Niki Tasha (India) Pvt. Ltd., to project that this type of evidence does not pinpoint either the services rendered or the point of time when any services were rendered which could or should oblige the assessee to make the impugned payments. The ld. DR particularly invited our attention to page 21 of the Paper Book No. II of the assessee which indicates that the payment earlier agreed to by the assessee as commission was at the rate of 4 per cent to foreign agents of M/s. Niki Tasha but, in fact, the payment has been at the rate of 6 per cent and has been allowed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prorata basis on execution of the contract. Coming to the rate of commission and as pointed out in reply by the ld. DR it was clarified by the learned counsel for the assessee that the assessee was having Asar Co. as their agents at the rate of 2 per cent commission but in view of the fact that they were not rendering adequate services to the assessee, the assessee obtained the services of M/s. Sardar Sawhney Co. to whom commission of 4 per cent was agreed to be paid. Thus, the total payment of commission to these two parties came to 6 per cent. This of course was approved by the Reserve Bank of India. The payment of the commission to M/s. Niki Tasha was at 3 per cent in addition to the above payments of commission to Asar Co. (2 per cent) and M/s. Sardar Sawhney Co. at 4 per cent. 13. We have carefully considered the submissions made by the rival parties, before us. We find that in a way the genesis of the issue before us for the year under appeal is embedded in the assessment for the assessment year 1979-80. When the CIT(A) disposed of this issue in para 3.3 of his impugned order, he clearly, supported the ITO, on the premise that, " it cannot be said that any expedienc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the next railway contract, no commission was received because Harprashad went directly." (Emphasis added). The Tribunal relying upon her statement and other evidence produced before it, gave a finding of fact, that " for such a trivial contribution made by Smt. Ritu Nanda, who was at the relevant time a director of the assessee-company, we do not understand as to how the large payment of commission at Rs. 2,74,617 can be justified on grounds of commercial expediency ". The Tribunal observed further that Smt. Ritu Nanda was the daughter-in-law of the Managing Director of the assessee-company and that she may not fall within the definition of the word relative, for the purpose of disallowance of expenditure under the provisions of section 40A of the IT Act, yet the fact remains that she was intimately connected with the management of M/s. Harprashad Co. Ltd. and she was one of its directors at the material time. According to the Tribunal, in her capacity as a director, she owed certain duty towards the assessee-company and when she gave the piece of information on the basis of which Iranian Govt's contract was obtained, she was merely discharging the duties as a director of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut for the purpose of the business. We, therefore, turn to, what has been put before us something like a trump card in support of the claim made by the assessee in the form of special resolution passed on 12th October, 1978 at the office of the assessee-company. We find that u/s. 173(2) of the Companies Act, 1956 where any items of business to be transacted at the meeting are deemed to be special as aforesaid, there shall be annexed to the notice of the meeting a statement setting out all material facts concerning each such item of business, including in particular, the nature of the concern or interest, if any, therein of every director and the manager, if any. The proviso to this sub-section incorporates that where any item of special business as aforesaid to be transacted at a meeting of the company relates to, or affects, any other company (emphasis added), the extent of shareholding interest in that other company of every director, if any, of the first mentioned company shall also be set out in the statement if the extent of such shareholding interest is not less than 20 per cent of the paid up share capital of that other company. 15. The statement by way of explanation at p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed because Harprashad went directly ". This assertion of hers clearly undercuts the claim made by the assessee that it was she, who brought these contracts in favour of the assessee and as such, she being representative of M/s. Niki Tasha (India) Pvt. Ltd., the payments to M/s. Niki Tasha @ 3 per cent on the f.o.b. price of Rs. 5.75 crores was justified. This explanation of the assessee has no substance in it as there is no supporting evidence except tall claims that have been repeatedly made. 18. From the above abstracted statement of Smt. Ritu Nanda, it is clear that M/s. Asar Co. started dealing with the assessee-company after their introduction. Their introduction was held as having been made by Smt. Ritu Nanda in the ordinary course of her duties as a director of M/s. Harprashad Co. Ltd. at the material time. This is very clear from the order of the Tribunal for the assessment year 1979-80 made on 16th Feb., 1985. Now, in her statement, she has also recorded that thereafter, she had no other services rendered to the assessee. Now, the assessee's claim before us is that M/s. Asar Co., did not render such services to the assessee as to justify their continuation in servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is of no avail, whatsoever, in the context of the facts of the case narrated supra. On the other hand, we find that the observations of the Tribunal in the case of the assessee for the asst. year 1979-80 that the ITO had the right to examine the payments made from the angle of their admissibility are wholly in accordance with law and facts of the case. The question whether an amount claimed as expenditure was laid out or expended wholly or exclusively for the purpose of assessee's business, profession or vocation has to be decided on the facts and in the light of the circumstances of each case as held by the Supreme Court in the case of Swadeshi Cotton Mills Co. Ltd. The mere existence of an agreement between the assessee and the commission agent, assuming, there was such agreement and payment, does not bind the ITO to hold that the payment was made exclusively and wholly for the purpose of the assessee's business. Although, there might be such an agreement in existence and the payment might have been made, it is still open to the ITO to consider the relevant facts and determine for himself, whether the commission paid has been paid and is deductible in computing the t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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