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TMI Blog2007 (2) TMI 660X X X X Extracts X X X X X X X X Extracts X X X X ..... imed a sum of ₹ 33,00,000 being the instalment payment made to GEC. GEC was the sole distributor for MICO products in certain States of North India and the distribution agreement was for a certain period. Since it was prematurely cancelled by the assessee, the assessee had to agree to pay compensation of ₹ 99,00,000 payable in instalments in triennium, but such instalment was payable in the year of account. Assessee paid a compensation of ₹ 99,00,000 and claimed deduction of the same in the assessment for the year 1978-79. There was dispute between the assessee and the revenue, not only with regard to allowability of the same for the year 1978-79, but also whether the expenditure could go into the revenue field. The Tribunal held that if ₹ 99,00,000 were allowed as deduction in the assessment year 1978-79, then there could be no deduction in this year and if at all deduction is to be allowed, it would be of the sum of ₹ 33,00,000 paid in this year. The Tribunal in the light of a reference application has chosen to refer the following questions of law in the light of the order passed in RA No. 198/Bang./1995, RA No. 213/Bang./1995 and RA No. 214/Bang./1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions. On a second appeal by the revenue, the Tribunal upheld the order of the CIT(A) deleting the additions. It is in these circumstances, Revenue is before us by way of reference proceedings. 4. Heard the learned counsel for the assessee. He would take us through the material on record in support of his submission. He refers to the agreement dated 9-2-1977. Various clauses are read over to us. He would say that various services have been rendered by the company and the company had long-standing relationship in the matter. He would also say that on an earlier application, the authorities accepted the expenditure of ₹ 2.75 lakhs and the issue of remaining ₹ 2.75 lakhs is not considered as the matter was remanded and the matter is pending decision. In these circumstances, he wants the first question to be answered in favour of the assessee. He would rely on certain judgments in support of his submission. He would say that in the event of the first question being answered in favour of the assessee, there is no need to consider the second question. 5. Sri Seshachala, learned counsel would support the order and he would say that the Tribunal was justified in rejec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arties. In fact, the company has mentioned that it had been obtaining oral advices from the GEC. At this stage, it is to be noticed that this very agreement was considered by the Tribunal in STA No. 11/Bang./ 1991. The Tribunal after noticing the very agreement and after noticing the availability of the contract has chosen to allow ₹ 2.75 lakhs as allowable expenditure under section 37 of the Act and the said order has become final and the same is not challenged. For the remaining ₹ 2.75 lakhs, the matter is pending consideration. In the given circumstances, we are of the view that a detailed roving enquiry is unnecessary in such cases unless the very agreement is doubted or rejected by the taxing authority. Admittedly, in the case on hand, despite an adverse finding, the Tribunal would never say that the agreement is not a bona fide agreement. The agreement is accepted. Once the agreement is accepted the authorities must be slow in rejecting the contention of the assessee unless a very strong case is made out against the assessee. In the case on hand, as mentioned earlier, long standing relationship between the parties, the earlier acceptance of ₹ 2.75 lakhs as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The fact that they were supposed to be rendering service at a stage when they were minors was not conclusive but was a relevant piece of evidence. The whole course of conduct had been taken into account specially in the background that there was no written agreement entered into between the assessee and those two persons who were supposed to procure business for the assessee. It was on the facts and circumstances of that case, the Calcutta High Court accepted the order of the Tribunal. The judgment of the Calcutta High Court is distinguishable on facts. 10. We would be failing in our duty if we do not refer to the judgment of this Court in the case of this very assessee reported in CIT v. Motor Industries Co. Ltd. [1997] 223 ITR 112 1 (Kar.). In the said case also, this very company (sic) Division Bench of this Court has chosen to refer to the test prescribed by the Supreme Court in CIT v. Dhanrajgirji Raja Narasingirji [1973] 91 ITR 544 as under : The legal position as stated in the above decisions, can thus be said to be fairly well-settled, namely, the commercial expediency of a businessman s decision to incur an expenditure cannot be tested on the touchstone of str ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proved to be so utterly irrational or far removed from the realities that it would look like a device adopted to evade taxes.... (p. 136) Ultimately, the Tribunal holds that the legal position can thus be said to be fairly well-settled, namely, the commercial expediency of a businessman s decision to incur an expenditure cannot be tested in the touchstone of strict legal liability to incur such an expenditure. Such decisions in the very nature of things have legal liability to incur such an expenditure. Such decisions in the very nature of things have to be taken from a business point of view and have to be respected by the authorities no matter that it may appear to the latter that the expenditure incurred was unnecessary or avoidable. 11. In the case on hand, the authorities, in our view, have committed a legal error in not accepting the case of the assessee. In these circumstances, we deem it proper to answer the first question in favour of the assessee. In the light of our answer in favour of the assessee to the question No. 1, the second question need not be answered, since it is only an alternative question raised by the assessee. 12. Two more questions (numbe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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