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TMI Blog1985 (12) TMI 67X X X X Extracts X X X X X X X X Extracts X X X X ..... ng an amount of Rs. 17,458 being the amount of commission paid to Anand Dyes Corpn. on the ground that the liability is of past year ; (x) disallowing an amount of Rs. 4,400 being bonus payment to an employee Mr. Bhurabhai Desai. 2. The assessee is a private limited company engaged in the business of manufacturing dyes. It has only three shareholders, who themselves are directors of the company. The company is in business for past more than 10 years. 2.1 In respect of the first ground regarding disallowance of selling commission paid to Anand Dyes Corpn., the ITO observed as follows in paragraph 4 of his order: "In the profit and loss account an amount of Rs. 1,26,107 is debited as commission to sole selling agents. This includes an amount of Rs. 17,458 pertaining to the earlier year. The break up of this amount shows an amount of Rs. 66,862 paid to Anand Dyes Corpn., Bombay, a partnership firm in which the director Smt. S.D. Oza has 50 per cent share and the partners may be relatives. Last year, invoking the provisions of section 40A, I held that there is no special reason for giving commission at 10 per cent to this partnership firm when the commission paid to others vary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance in the case of the said partnership firm would not arise. But it is a case where others are paid a lesser rate of commission whereas this firm is paid at much higher rate, and therefore, the question of reasonableness arises. In the circumstances, the excess over 5 per cent is disallowed and the disallowance is worked out as under: 1. Commission paid at 10 per cent 9,361 disallowed over 5 per cent (-)4,830 4,830 2. Commission paid at 10 per cent 34,992 disallowed over 5 per cent 17,496 17,496 -------- 22,326 3. Commission relating to past year as discussed above in para 3(a) 17,458 -------- Total disallowables 39,784" -------- 2.2 On appeal, the order passed by the ITO was confirmed on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld not have grievance on the same because perquisites are taxed in the hands of the directors. Again, regarding omission according to the Commissioner (Appeals) in respect of certain facts regarding huge amounts paid to the directors, etc., not having been brought to the notice of the Hon'ble Members of the Tribunal while deciding the appeal for the assessment year 1979-80, it was submitted that such observation was baseless because neither any miscellaneous application was preferred by the revenue nor any reference was made and in fact all the situations and circumstances were considered by the Tribunal. On the aspect regarding the disallowance of liability for an amount of Rs. 17,458 pertaining to earlier year as alleged and stated in ground No. 9 for the assessment year 1980-81, it was submitted that the same is covered by the decision of the Supreme Court in Nonsuch Tea Estate Ltd. v. CIT [1975] 98 ITR 189. 2.4 The learned departmental representative on the other hand strongly supported the order passed by the Commissioner (Appeals) and submitted that no investigation was done since the assessment year 1971-72 and only this year some investigation was made by the ITO and str ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd above would require the approval of shareholders by special resolution and also of the Central Government. These provisions will apply also to sole buying or purchasing agents as it has been found that company managements misuse for personal gain their power in relation to the purchase of raw materials and other goods." The powers and functions of the Central Government under this section have been delegated to the Company Law Board by GSR 343(E), dated 24-6-1975. The Central Government has also made rules called the Company (Appointment of Sole Selling Agents) Rules, 1975 as published in the Gazette of India, dated 1-3-1975, when the package of emergency measures were taken. Form of application for approval of the Central Government to the appointment of sole selling agents by a company prescribes plenty of information including factual data called for from the applicant. In brief the following information is required to be supplied : (i) Management structure including particulars of other directors. (ii) Products manufactured together with details of production in past years. (iii) The nature of organisation and structure and size of the organisation of the sole selling ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s alleged. Decisions taken by inter-Ministry-departments are required to be extended due weightage. Suffice to say that the authorities below have not known the provisions of section 294AA and Rules framed thereunder. The learned counsel for the company was correct in stating that it is not only in this year that commission has been paid at the rate of 10 per cent, but there is a mention on this factual aspect even in the order of the Tribunal for earlier year. We, therefore, do not see any reason to retain any part of the disallowance made and, therefore, delete the same in both the years. 4. In respect of amount of Rs. 17,458 pertaining to earlier year disallowed in assessment year 1980-81, the reliance placed by the learned counsel on decision in the case of Nonsuch Tea Estate Ltd. is correct and therefore, the same cannot be disallowed. 5. Coming to the next ground regarding disallowance of bank guarantee commission, the same was disallowed by the ITO on the basis that assessee was requested to furnish the details of the assets of the directors, who had given guarantee to the bank in order to procure the loan for the business of the assessee-company. 5.2 The Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectors. We do not see any reason to sustain the addition and, therefore, the same is deleted. 6. Coming to the disallowance of bonus payment to directors the same is covered by the decision of the Tribunal for the assessment year 1979-80 and, therefore, respectfully following the same, we delete the addition made. 7.1 Coming to the disallowance in respect of contribution for drainage, paragraph 8 of the order passed by the Commissioner (Appeals) states as under : "The next objection is with regard to the disallowance made by the Income-tax Officer of Rs. 6,000 being the welfare expenditure during the assessment year 1981-82 and such disallowance of Rs. 10,000 made during the assessment year 1980-81. The Income-tax Officer has held that the amount spent is not for the purpose of the business. Therefore, this expenditure have been disallowed. The learned counsel has objected that the payment have been made to the Junagarh Vikas Council for the drainage of the dirty water. This amount was paid to the said concern for the purpose of the removal of the dirty water and to repair the drainage system. Thus, it is urged that the amount has been spent towards working of the factory. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e as capital because the assets, if any, does not belong to the assessee. The decision of the Supreme Court in the case of Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1 would support the case of the assessee. Again, it is seen from the orders of the authorities below that in spite of holding the same as capital expenditure, no depreciation is allowed by them as this would prove the case of the assessee that the claim was not required to be considered from the point of view of capital expenditure as the asset did not belong to the assessee-company. 8.2 Coming to the disallowance in respect of car expenses, following the decision of the Tribunal for the assessment year 1979-80, we hold that the same is required to be deleted and, hence, no disallowance is made. 9. Coming to the claim, in respect of miscellaneous expenses, it was submitted by the learned counsel for the assessee that he had instructions not to press the disallowance of Rs. 12,155 for the assessment year 1981-82. However, for the assessment year 1980-81, it was submitted that the same was in connection with building of a statue in the memory of one of the directors of the company and he was the founder director. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r has given the findings that as per the provisions of the Bonus Act, these bonus payments are excess and not allowable as per the provisions of the Bonus Act. Therefore, the Income-tax Officer has disallowed the same in accordance with the provisions of section 36(1)(ii). The learned counsel has stated that the new scheme was drawn during the year under consideration in order to increase the production and hence the agreement was made with the employees' members, resolution was passed that certain amount of incentive bonus would be given to the workers if the production reaches after certain level and hence it is stated that the Income-tax Officer should have considered these facts because of the persons to whom the incentive bonus have been paid and there is an evidence to show that this agreement has been made in order to increase the production." 15. The learned counsel for the assessee relied upon the decisions in the cases of Mumbai Kamgar Sabha v. Abdulbhai Faizullabhai AIR 1976 SC 1455, Hukumchand Jute Mills Ltd. v. Second Industrial Tribunal [1980] 4 Taxman 43 (SC) and Baidyanath Ayurveda Bhawan Mazdoor Union v. Management of Shri Baidyanath Ayurveda Bhawan (P.) Ltd. [19 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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