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TMI Blog1976 (9) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... also required to state in what circumstances the commission @ 5 per cent was paid to M/s Goodwill Enterprises and a further commission of 2 per cent to M/s Vikas Agencies. The assessee vide its letters dt. 19th Oct., 1970, 9th Nov., 1970 and 10th Dec., 1970 stated that the commission was allowed to M/s Goodwill Enterprises as per their agreement and for services rendered by them by way of contracting parties, booking orders, arranging supplies, helping the assessee in getting payments and 'C' forms, giving market report from time to time, exercising their influence over parties to place orders with the assessee etc. and also other services as per agreement with them. The assessee also stated before the ITO that other concerns in this line were giving a much higher rate of commission. the assessee filled certificates from various buyers in Rajasthan, UP and Delhi in proof of services rendered by the selling agents. The assessee further stated that the sole selling agents had their resident representatives and sub-agents in important selling centres, particularly in UP at Kanpur and in Rajasthan at Jodhpur. They contacted the customers regularly on phone and personally. the general m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Goodwill Enterprises were sole-selling agents only for a part period of the year under consideration and thereafter the firm M/s Goodwill enterprises was dissolved and Sole-selling agency was given to M/s goodwill Dye Chemicals Industry on the basis of a letter dt. 30th June, 1969 and agreement dt. 28th July, 1969. This firm was paid commission of Rs. 36,383. The ITO found that the terms of agreement with this firm was on the lines of the agreement with M/s Goodwill Enterprises. He found that according to the letter dt. 30th June, 1969 the new firm was to start its own chemical industry at Delhi but in view of the commission offered by the assessee it abandoned the business. Accordingly, the ITO on the reasoning stated in the case of M/s Goodwill Enterprises, came to the conclusion that the commission payable to the new firm was also not allowable. However, he was convinced with the payment of commission of Rs. 17,964 to M/s Vikas Agencies, Kanpur. Thus, he added Rs. 1,25,247 (Rs. 88,864 plus Rs. 36,383) to the total Income of the assessee. It is relevant to mention that M/s Goodwill Enterprises only rendered upto 30th June, 1969 and thereafter the new firm was appointed as sole se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oodwill Enterprises and Goodwill Dye Chem. Industries, as also the fact that the assessee while earning only a profit of about 2-5 per cent was prepared to pass a commission of 5 per cent besides another technical commission of 2 per cent to Vikash Agencies. The whole question of allowance of the commission requires to be reconsidered in the light of the facts found by the lower authorities or those placed before them by the assessee. Since that has not been done, we would like to set aside the order of the AAC and restore the matter to his file for disposal of the appeal afresh, in accordance with law. While doing so, he will allow proper opportunity both to the assessee and to the Department". 5. The AAC pursuant to the above direction of the Tribunal took up the appeal of the assessee afresh. The assessee as well as the ITO both were heard by the AAC. The assessee submitted its explanation in its letter dt. 23rd Dec., 1974, in which it was stated that since the assessee could not carry on its business satisfactorily at the Delhi branch, it appointed the sole-selling agents M/s Goodwill Enterprises and M/s Goodwill Dye-chem Industries. M/s. Goodwill Dye-chem Industries abandon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in Delhi, it cannot be said that the sales were the products of the assessee firm manufactured by it. He further submitted that the order of the predecessor AAC should be maintained. 6. The AAC after considering the arguments of the assessee as well as the ITO, came to the conclusion that it could not be said that the idea of payment of commission to two sole-selling agents was an after thought matter. For this purpose, he enumerated the evidence like this: "(a) The commission was already allowed to M/s. Goodwill enterprise on all sales of goods month after month and when a new agreement was entered with M/s. Goodwill Dye-Chem. Industry on 28th July, 1969, the old selling agents M/s. Goodwill Enterprises ceased to work. (b) Had the payment been based on an after thought the assessee would have easily paid 15 per cent commission on Varanasi factory products only as paid and allowed in the past instead of 5 per cent on entire sales and it would have been much more than actual paid and would have been allowed. (c) Accounting period of the assessee firm ended on 31st Oct., 1969 and that of the selling agency firm was 30th June, 1969. (d) The commission payable under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed before the A.A.C. at the payment of commission at 5 per cent was more beneficial to the assessee rather than paying commission @ 15 per cent on the manufactured goods. Accordingly, the assessee urged that the order of the AAC should be maintained. 8. The first AAC. allowed a relief of Rs. 51,412 to the assessee. Thus, while allowing a relief of Rs. 51.412 the genuineness of agreements for sole-selling agency and payments have been accepted by him. A part of the commission was disallowed only on the ground whether the sole-selling agents rendered services for even non-manufactured goods. The assessee has supplied sufficient materials before the AAC. in the form of letters and its enclosures and certificates. After considering those documents, he came to conclusion that the sole-selling agents have rendered services to the assessee and they are genuine firms. The AAC has also come to the conclusion that sole-selling agents sold only manufactured goods of the assessee. They did not deal in non-manufactured goods. In this connection the AAC stated that the goods purchased by the Delhi Branch were not sold through the sole-selling agents in the same from but they were materially c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.C. had discussed elaborately in paragraph 4 of his order on this issue. He found that the total staff welfare expenses and entertainment expenditure upto 28th Feb., 1970 in branch set amounted to Rs. 6,423, out of which Rs. 1,666 was allowed by the ITO. Thus, he found that there was a balance of Rs. 4,757 which was allowable either for staff welfare or for entertainment expenditure incurred before 28th Feb., 1970. Similarly he also found that staff welfare and entertainment expenditure incurred in H.O. amounted to Rs. 894, which was also allowable expenditure. He, therefore, allowed deduction for these items. The finding of the A.A.C. is perfectly in order on this issue. These were incurred by the assessee for the purpose of its own staff. Thus those expenses incurred by it were incidental to its business and they are allowable. The entertainment expenditure incurred by the assessee for the purpose of its own business upto 28th Feb., 1970 were also an allowable expenditure. Consequently there is nothing wrong with the order of the A.A.C. while he allowed the expenditure at Rs. 5,443 of staff welfare and entertainment upto 28th Feb., 1973 to the assessee. We therefore, maintain th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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