9911796707
TMI Blog1979 (2) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of the assessee was that it closed down its workshop with effect from 1st January, 1969, and handed over the service job to M/s. Narain Sales Corporation, a sister concern, under a deed of agreement dated 3rd January, 1969. Similarly, for the assessment year 1970-71, the assessee debited a sum of Rs. 1,22,030, to its profit and loss account on account of service charges paid to M/s. Narain Sales Corporation for servicing the tractors and motor cycles sold by the assessee. The ITO found that the provisions of s. 40A(2) of the I.T. Act, 1961 (hereinafter referred to as " the Act "), were applicable and consequently he disallowed the claim of Rs. 20,498, for the assessment year 1969-70, and a sum of Rs. 61,015 for the assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e finding of the Tribunal holding that provisions of section 40A(2) are applicable in the case of the assessee is not illegal and unjustified? " Similarly, vide another application under s. 256(1) of the Act, out of which Income-tax Case No. 50 of 1976 arises, which relates to the assessment year 1970-71, the assessee moved the Tribunal for referring the following questions of law for the opinion of this court : " (1) Whether, in view of the facts and under the circumstances of the case, the Tribunal was legally justified in disallowing Rs. 61,015 out of service charges paid by the assessee to M/s. Narain Sales Corporation? (2) Whether there was any material before the Tribunal on the basis of which it has held that the payment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of M/s. Narain Sales Corporation are close relations of the partners of the assessee-firm. The payment made by the assessee to M/s. Narain Sales Corporation can, therefore, be said to be an indirect payment to the relatives of the partners of M/s. Narain Sales Corporation as under : Rs. Shri Harvinder Singh 1,200 Smt. Harkirat Kaur 900 Smt. Manmohan Kaur 1,000 ---------- 3,100 ---------- Against the above contribution of capital, the net profit earned by the firm, M/s. Narain Sales Corporation, in the very first assessment year, i.e., 1970-71, amounts to Rs. 62,706 against the gross receipt of Rs. 1,05,473 in respect of services rendered by it during the relevant year. It would thus appear that the net profit of the fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Corporation was definitely excessive as compared to the market value of the services which M/s. Narain Sales Corporation rendered on behalf of the assessee. 10. From the facts stated above, there is no doubt in our mind that the provisions of section 40A(2) are clearly applicable in this case in view of the close relationship of the partners of the firm M/s. Narain Sales Corporation with the partners of the assessee firm and also in view of the payment made by the assessee to M/s. Narain Sales Corporation being excessive having regard to the fair market value of the services rendered by the latter to the assessee. Of the three partners in M/s. Narain Sales Corporation only Shri Harvinder Singh was devoting his full personal attention to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel for the petitioner could not successfully point out as to what precisely, was the error of law committed by the Tribunal in recording the above-mentioned findings. The question as to whether the amount paid was in excess of the actual market value of the free services rendered, is essentially a question of fact which has been determined by the authorities keeping in view the available material on record and thus the questions sought to be referred to this court, cannot in any case, be termed as involving the questions of law. For the reasons recorded above, there is no merit in both these cases, i.e., I. T. Cases Nos. 22 of 1975 and 50 of 1976, and the same are hereby dismissed. However, there will be no order as to costs. - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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