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1994 (7) TMI 22

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..... this court under section 256(2) of the Income-tax Act, 1961 : "1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, was justified in refusing to rectify its earlier order even when the claim for deduction in respect of the commission paid by the assessee to its employee, Gopal Das, as allowable expenditure under section 36(1)(ii) of the Income-tax Act, 1961, was based upon the decision of their Lordships of the Supreme Court on the subject (Shahzada Nand and Sons v. CIT [1977] 108 ITR 358)? 2. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, was justified in refusing to rectify its earlier order passed .....

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..... sion was genuine and the Income-tax Officer was not justified in making addition of it. The Revenue challenged this matter before the Income-tax Appellate Tribunal who examined the matter in detail and found that there is no evidence on record to show that Gopal Das rendered any extra services and for services which he rendered he was being paid remuneration by way of salary. On this finding that Gopal Das has not rendered any extra service for which extra payment is alleged to have been made, it was found that it is of no legal consequence that the payment of commission has been disbursed to him. The Tribunal has referred to the decision in the case of Shazada Nand and Sons v. CIT [1973] 90 ITR 91 (P H). The assessee, thereafter, made a .....

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..... rely factors to be taken into account by the Revenue authorities in determining the reasonableness of the amount of commission. It may be that one of these factors yields a negative response. To take an example, there may be no general practice in similar business or profession to give commission to an employee, but, yet, having regard to the other circumstances, the amount of commission paid to the employee may be regarded as reasonable. What the proviso requires is merely that the reasonableness of the amount of commission shall be determined with reference to the three factors. But it is well-settled that these factors are to be considered from the point of view of a normal, prudent businessman. The reasonableness of the payment with ref .....

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..... as he who was advising OCM in regard to designs, etc., and he and Saheb Dayal were primarily responsible for the flourishing state of the business. The turnover of the sales of the assessee steadily rose from 1960-61 and in the relevant accounting year, it reached the exciting figure of Rs. 54.28 lakhs. So also the overriding commission which started with the modest figure of Rs. 35,964 in the accounting year relevant to the assessment year 1960-61 went on steadily increasing from year to year until it reached the figure of Rs. 1, 13,449 in the relevant accounting year. The assessee, therefore, felt that in view of the tremendous progress in the business which was largely the result of the services rendered by Saheb Dayal and Gurditta Mal, .....

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..... employer to offer incentives to his employees by sharing a part of his profits with them. This would not only be good business but also good ethics. It would be in consonance with the Gandhian concepts as also modern socialistic thought which, with its deeply rooted faith in social and economic democracy, regards the employees as much as the employer as co-sharers in the business. If an employer earns profits to which the employees have necessarily contributed by putting in their labour, there is no reason why the employer should not share a part of these profits with the employees. That is the demand of social justice today and it is high time that the administration of our tax laws recognised it and encouraged sharing of profits by emplo .....

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..... ess of any transaction can also be looked into and if the payment is bogus or sham, the Income-tax Officer has jurisdiction to disallow the same. The payment must be a real one. If the payment is not real or is not incurred by the assessee, the Income-tax Officer is justified in disallowing the same. The payment has to be examined by applying the test of commercial expediency. The finding has been recorded in the present case that Gopal Das has not rendered any service for which the payment of the commission is alleged to have been made. It was found that it was not for the purpose of business. So far as the question of rendering extra services is concerned, it was observed in the case of Shahzada Nand's case [1977] 108 ITR 358 (SC) that se .....

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