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TMI Blog1984 (10) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 147(a) of the Income-tax Act, 1961 ? " The assessee was a registered firm and was assessed as such for the assessment years 1962-63, 1963-64, 1966-67, 1967-68, 1968-69 and 1969-70. One Tribhuvandas was one of the partners of this firm in all the previous years relevant to the said assessment years. In the intervening two years relevant to the assessment years 1964-65 and 1965-66, the business was carried on by Tribhuvandas as sole proprietor, with which we are not concerned in these matters. For the assessment years 1962-63 and 1963-64, the firm was constituted by an instrument dated November 15, 1960, with three partners including Tribhuvandas. This instrument was silent as to commission payable to Tribhuvandas, but an agreement executed after a couple of days expressly provided for such benefits. In the agreement dated November 17, 1960, the partners agreed that all the goods manufactured by the firm shall be sold through Bitco Sales Service, the proprietary concern of Tribhuvandas, and he shall be paid commission at the rate of 10 per cent. on the sales effected. It was also stated that the agreement should be supplemental to the instrument of partnership dated Novemb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f assessment for the year 1970-71, he found out that the assessee had paid 10 per cent. commission to Tribhuvandas in all the earlier years also. As a result, he reopened the assessments for the earlier years under section 147(a) and in the reopened assessments included the commission paid to Tribhuvandas under section 40(b) of the Act. The amount so added for the various years are as follows: Assessment year Commission Paid Rs. 1962-63 70,990 1963-64 83,076 1966-67 1,44,469 1967-68 1,29,882 1968-69 1,98,146 1969-70 1,91,924 In the reassessment proceedings, the assessee contended that the amounts paid to Bitco Sales Service could not be added back under section 40(b), since there was no payment of commission as such to Tribhuvandas, but only discount was given to him and net sales were shown after deducting the discount at 10 per cent. The Income-tax Officer rejected this plea. The assessee then challenged the reassessment orders before the Appellate Assistant Commissioner on two grounds : (i) that the reopening of the assessments under section 147(a) was illegal ; and (ii) that the amounts, in any event, could not be added back under section 40(b) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business or profession........ (b) in the case of any firm, any payment of interest, salary, bonus, commission or remuneration made by the firm to any partner of the firm." This clause prohibits any allowance in respect of any payment by way of interest, salary, bonus, commission or remuneration made by a firm to any of its partners. The prohibition contained in this section is absolute and it apparently makes no distinction between the payments by way of interest, commission, remuneration, etc., made to a partner as a partner, and such payments made to him although in a different capacity as the proprietor of an independent concern. This court in N. M. Anniah Co. v. CIT [1975] 101 ITR 348, while taking a similar view, has observed that s. 40(b) is absolute in its terms and is applicable to all cases irrespective of the character in which a person has become a partner of a firm. On the first question that arises for consideration, it would be too difficult to accept the contention urged by Sri Sarangan, learned counsel for the assessee, that there was no commission as such paid to Tribhuvandas. The agreement dated November 17, 1960, expressly states that the goods manufactur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t between the partners, Bitco Sales Service had no right to retain 10 per cent. of the sale proceeds. If there was no such agreement, the assessee-firm would have been entitled to the whole of the sale proceeds. Apart from that, the payment of 10 per cent. commission to Bitco Sales Service on all the sales effected cannot also be disputed in view of the despatch memos issued by the assessee-firm. The assessee-firm thereunder did allow 10 per cent. commission to Bitco Sales Service. It would be, therefore, incorrect to state that Bitco Sales Service was not paid 10 per cent. commission. Such a payment cannot cease to be a commission paid to Tribhuvandas merely because Bitco Sales Service was also doing similar business on behalf of other manufacturers as well. The other business of Bitco Sales Service has nothing to do with the question arising in this case, In this view of this matter, it is unnecessary to consider the decision of the Madras High Court in CIT v. Gemini Productions [1977] 110 ITR 847, relied upon by Mr. Sarangan in support of his contention. The next question to be considered is whether there was full and true disclosure of all primary facts by the assessee in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion paid to Bitco Sales Service or to Tribhuvandas. Hence, the Incometax Officer was not told that the assessee had paid commission to Tribhuvandas. The case on hand, in our opinion, squarely falls within the ratio of the decision of the Supreme Court in Malegaon Electricity Co. P. Ltd. v. CIT [1970] 78 ITR 466. It will be useful to advert to the facts in that case. There, the assessee-company sold its assets to another company and the entire consideration which was much more than the written down value of the assets was paid in cash. In its return for the relevant assessment year 1952-53, the assessee did not show any profits under section 10(2)(vii) of the Indian Income-tax Act, 1922, nor did it show the price received in excess of the written down value of the assets in Part I of section D of the return. In the course of the original assessment proceedings, the assessee informed the Income-tax Officer about the sale and how the sale price was determined and also brought to his notice the minutes of the board meetings of the assessee and of the purchasing-company including the agreement between them. It also submitted a statement of unabsorbed depreciation which set out the dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had earned any profit under section 10(2)(vii) nor even the essential fact, viz., the written down value of the assets sold was supplied to him so as to enable him to find out the price in excess of the written down value realised by the assessee. It is true that if the Income-tax Officer had made some investigation, particularly if he had looked into the previous assessment records, he would have been able to find out what the written down value of the assets sold was and consequently he would have been able to find out the price in excess of their written down value realised by the assessee. It can be said that the Income-tax Officer, if he had been diligent, could have got all the necessary information from his records. But that is not the same thing as saying that the assessee had placed before the Income-tax Officer truly and fully all material facts necessary for the purpose of assessment. " The facts in the present case are not different. They lie in close parallel with the facts found by the Supreme Court in Malegaon Electricity Co.'s case [1970] 78 ITR 466. Therefore, in the light of the principles enunciated by the Supreme Court in that case and having regard to the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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