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TMI Blog1987 (12) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 1 dated 22nd November, 1980 to the said party. So also 0.25 per cent of the said FOB value which came to Rs. 9,101 was also credit to parties 2 and 3 given above by sending credit notes. The total of the commission said to have been paid to the above said three parties worked out to 2 per cent FOB value of the tobacco exported to the USSR. The ITO asked to furnish reasons for payment of commission to the above parties and also to adduce evidence in support of the services rendered by those three parties to enable them to get commission from the assessee- company. On behalf of the assessee-company it was pointed out that there was no documentary evidence like agreements, correspondence or proof to show that the above three parties rendered any services whatsoever in obtaining orders from the USSR. It was further stated before the ITO that the payments were made on the basis of oral agreements entered with them. It was asserted that without the assistance of the above three parties the assessee-company would not have got the Russian order. It is further submitted that the assessee had been making payments to the above said three parties even during the earlier period in order to e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 969) 72 ITR 612 (SC), Aluminium Corporation of India Ltd. v. Commissioner, West Bengal (1972) 86 ITR 11 (SC). It was contended that as long as the above three requirements were satisfied the claim for commission cannot be disallowed on the ground that no evidence has been produced such as correspondence with the foreign party through intermediaries etc. It was further contended that the very fact that the commission agents had succeeded in getting the orders was proof enough to show that they have earned their commission. They had also declared the commission received from the assessee in their Income-tax. The payments of commission were made also by crossed account payee cheques. The receipt of the commission by these parties was not questioned by the ITO and it was not the case of the ITO that the payment of commission was made for a non-business purpose and therefore, it was submitted on behalf of the assessee that the claim should have been allowed. It appears that the learned Commissioner (Appeals) was very much impressed by the arguments advanced before him as he had accepted the assessee's contention and allowed the commission by deleting the same as addition to the returned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any documentary evidence like agreements, correspondence or proof to show that the above three parties rendered any service in obtaining orders from USSR. According to the assessee the payments were made on the basis of oral agreement entered into with the alleged commission agents and without their assistance, the assessee company would not have secured the Russian order. If fact, it was submitted that payments were being made to the above three parties even earlier in order to enable them to get orders from USSR and as the orders were not received during the earlier assessment years no claim for deduction of the payments made to them was made in the earlier assessments. However, ultimately during the accounting year in question the order could be obtained and therefore, the commission payment previously made was adjusted in their accounts as agreed upon. The ITO verified this claim made on behalf of the assessee company and found it as a fact that the assessee company has been making payment off and on to the above mentioned three parties. As can be seen from the version put forward on behalf of the assessee company the payment were stated to be given not in the accounting yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee were not produced before us or before any of the lower authorities would clearly show that had they been produced the credit entries would not have supported the case of the assessee. The very fact that the ITO called upon the assessee to furnish reasons for payment of commission and also to adduce evidence in support of the services rendered by those three alleged commission agents would clearly go to prove that he wanted to verify whether the expenditure alleged to have been incurred through payment of commission was let out or expended wholly and exclusively for the purpose of business of the assessee company under section 37(1) of the Income-tax Act. However, except the bare assertion by the assessee company there is no other evidence to show that the so called three commission agents secured the Russian orders for the assessee company. USSR is socialist country and generally the contract would be by tenders. Atleast no proof was produced before us or before the lower authorities by what means the contract was struck _ is it by negotiations or is it by tenders? No evidence is produced that there is scope for commission agents or Liason Officers to have had a hand in con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itself or omitted to consider any evidence or has relied on any irrelevant material in arriving at its conclusion." Firstly the mere fact that the commission payments were shown in the Income-tax returns filed by the alleged commission agents and were assessed is not a conclusive proof of the services, if any, rendered by them in securing the contract from the USSR, Nor is it conclusive proof that the assessee incurred the expenditure for purposes of its business. According to the above stated Calcutta decision the onus is on the assessee that the commission payment constitutes a business expenditure. However, in our opinion the learned Commissioner (Appeals) had taken the mere circumstance of the receipt of the commission by the three parties as a conclusive proof of all the requirements. For instance he says in his impugned orders that it was not the ITO's case that the payment was made for a non-business purpose. If really the ITO felt that the payment is for business purposes why should be call upon the assessee to furnish reasons for payment of commission and adduce evidence in support of the services rendered by them to enable them to get commission. In our opinion the lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etent to disallow such expenditure. The next Supreme Court decision relied on was J.K. Woollen Manufacturers v. Commissioner UP. There also according to the terms of appointment of the General Manager Shri J.P. Vaish, it is stated that in case the profits of the assessee-company exceeded 1 lakh rupees the commission payable to him was 25 per cent. The lower authorities wanted to tinker with the said percentage of commission claimed as deduction (Rs. 75,465). The Supreme Court held that such tinkering is not allowable. It is significant that the Hon'ble Supreme Court made the following observation at page 616:- "The question referred by the Tribunal and answered by the High Court only deals with the claim of deduction of the amount paid to Shri J.P. Vaish under section 10(2)(xv) and not under section 10(2)(x) of the Act". That means the question referred was whether the impugned expenditure was incurred wholly and exclusively for purpose of a business or not and whether such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made. What all that is held by the Supreme Court in that case was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or details were furnished by the assessee-company so as to enable the taxing authorities or the Tribunal to come to a conclusion that the purpose for which the payments were made was satisfactorily established; in other words, the inquiry about details or particulars was not for determining the reasonableness or otherwise of the expenditure but for satisfying itself that the expenditure itself was for the purposes indicated in the resolutions and the taxing authorities and the Tribunal held that the assessee-company had failed to establish the same. As regards half of the expenditure allowed in the case of the two directors, it appears that the Tribunal has taken a lenient view that Rs. 3,500 in the case of each should allowed as that part could be ascribed to the contingency of entertainment mentioned in the resolution dated 12th May, 1955. In view of this position which obtains in the instant case, it is difficult to accept Mrs. Kolah's contention that the payments that were made to the two directors of the assessee-company and the four salesmen in question should have been allowed as a deduction under section 10(2) (xv) of the Act". In our view the facts of the case dealt wi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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