9911796707
TMI Blog1989 (1) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer found that one of the partners of Bharat Sales Corporation was a director of the assessee-company and other partners were related to the shareholders of the assessee-company. In view of this, he applied section 40(c) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), and for the first year disallowed the commission to the extent of Rs. 22,694 and for the next year disallowed Rs. 29,000. On the assessee's appeal, the Appellate Assistant Commissioner restricted the disallowance for the first year to Rs. 11,984 and maintained the disallowance for the subsequent year. The order of the Appellate Assistant Commissioner was confirmed by the Income -tax Appellate Tribunal, Amritsar. At the instance of the assessee, the foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company or to a relative of the director or of such person, as the case may be,. . ." A reading of the aforesaid provisions would show that this provision gets attracted only when any payment is made by way of remuneration or benefit or amenity to a director or to a person who has a substantial interest in the company or to a relative of the director or of such person, as the case may be, and not otherwise. Here, the partnership concern, namely, Bharat Sales Corporation, which is a separate legal entity was appointed as the sole selling agent of the assessee-company. It is true that in the partnership concern one of the partners is also the director of the assessee company and other partners are relatives of the shareholders of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the firm and this money cannot be said to be remuneration paid by the company to the directors or their relatives directly or indirectly." We are in agreement with the aforesaid view and hold that section 40(c) of the Act is not attracted to the facts of the case. The matter may have been different if a finding had been recorded that there was no firm or partnership concern in existence and in fact no payment was made but payment was shown in the account books of the company. On those facts, the entire amount could be disallowed as not having been expended but not by virtue of section 40(c) of the Act. On the facts of the case, the existence of the sole selling agent firm has been accepted because only part of the commission has been dis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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