9911796707
TMI Blog1988 (1) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... commission paid ranged between 12-1/2 per cent to 13.93 per cent. He was further of the view that in the preceding years, commission payments had been allowed to the assessee-firm at the rate of 12-1/2 per cent and, therefore, the excess payment in the year under consideration, which came to Rs. 14,437, be disallowed. He, therefore, disallowed the aforesaid sum out of the commission payments. 4. In appeal, the learned CIT(A) noted that the point was considered in appeal by him in the immediately preceding year in the case of the assessee itself and that in view of the peculiar nature of business activities of the assessee, the entire amount claimed by way of commission payments had been wholly and exclusively expended for the purposes of assessee's business and was accordingly allowable. The learned CIT(A), therefore, allowed the entire amount claimed by the assessee-firm on account of commission payments. 5. At the hearing before us the learned departmental representative had to admit that in view of the peculiar nature of the business activities of the assessee similar payments in excess of 12-1/2 had been allowed to the assessee in the immediately preceding year. No distin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vant facts are that the assessee firm had come into existence as a partnership firm under the Articles of Partnership dt. 1st Nov., 1976, During the previous year ending on 30th June 1979 relevant to the asst. yr. 1980-81 the assessee firm paid a sum of Rs. 65,500 to its four outgoing partners in their profit sharing ratio. The said four partners, namely, Shri Chandrabhan Tibrewala. R.D. Gadodia S.M. Gupta and Smt. Sarlaben Tibrewala, had retired from the firm w.e.f.30th June 1978 under a retirement deed executed on 29th June, 1978 The relevant clauses of this retirement deed provided as under: (2) The accounts of the assets and liabilities of the partnership and profit and loss account for the period ending on 30th June, 1978 have been finalised and agreed upon by the parties hereto of all parts and they have been signed by all the parties here to the brief details is recorded as under: (i) For the year ended 30 June 1977 the profit as per Books and agreed by the partners is Rs. 1,98,000 deducting amount of firm tax Rs. 38,548 the net divisible comes to Ers. 1,56,452. (ii) For the year ending on 30th June 1978 the profit agreed to by the partners as per the books of accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing an order amounting to Rs.8,61,000 and such order could be booked upto 30th June, 1978, The retiring partners wanted their shares of profit in all the three transactions it was in these circumstances that the parties had to work out the anticipated profit in the transaction with Janata Prints and working out the anticipated profit in that transaction at 15 per cent future profits were estimated at Rs. 1,31,000 The outgoing partners were promised to be given 50 per cent of the estimated future profits and their share came to Rs. 65,500. The learned CITA) further noted that at the time of retirement of the said partners no payments of their shares in the estimated future profits in the transaction with Janata Prints was made. Such payment could be made to them during the accounting year relevant to the assessment year under consideration. The learned CIT(A) on these facts took the view that the payments made to the outgoing partners in the facts and circumstances of the case was revenue expenditure and in support of his such view the learned CIT(A) relied upon the Punjab 8 Haryana High Court decision the case of Sukhbir Prashad vs. CIT (1983) 33 CTR (P H) 83 : (1983) 144 ITR 437 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee's paper book and contended that it was not difficult to gather that under the retirement deed what was agreed between the partners was simply the payment of their shares in the contingent profits in a transaction which had resulted in booking an order at a time when the outgoing partners were partners in the firm Mr. Patel contended that contingent profits or contingent profiteer contingent liabilities could simply affect the profit and loss account of the firm and that such contingent payment can never be in the nature of capital expenditure. Another view point that was placed by Mr. Patel was that it is the established position on record that the four outgoing partners had retired from the assessee firm w.e.f. 30th June, 1980 whereas the payments of their share in the profits in the transaction of sale of machinery booked with M\s beekay Textiles P. Ltd. (Sic) was made to them in the accounting year relevant to the assessment year under consideration At the time when the payment was made to those retiring partners they were not partners in the firm and therefore they would be treated to be strangers to the firm. In that case the payments made to the strangers would certainly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion In this state of affairs when the established fact is that the payment in respect of the contingent liability had been made to the four outgoing partners in the accounting period relevant to the assessment year under consideration such payment certainly partakes the character of revenue expenditure and not of capital expenditure. We may further add that as has been specifically mentioned in cl. 2(iii) of the retirement deed the payment was to be made towards the share of profit of the outgoing partners in a transaction which had materialised in booking order for the sale of machinery with M/s Beekay Textiles Pvt. Ltd. The said payment on the face of it carried no element of payment towards consideration of any good will to the out going partners and therefore, such payment could not have been treated as capital expenditure. The cases relied upon by the learned departmental representative as rightly contended by Mr. Patel during the course of his arguments were clearly distinguishable on facts and we need not discuss them Suffice it on our part to say that as relied upon by the CIT(A) in support of his conclusion go a long way to support the case of the assessee. Having adjudge ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
