COMMISSIONER OF INCOME-TAX VS KUMAR ENGINEERS
1991 P T D 53
[Punjab and Haryana High Court (India)]
Before Gokal Chand Mital and S.S. Sodhi, JJ
COMMISSIONER OF INCOME-TAX
versus
KUMAR ENGINEERS
Income-tax References Nos. 30 and 31 of 1982, decided on 28/02/1989.
Income-tax---
----Reference---Payments not deductible ---Assessee-firm paying commission at 6% to its sole selling agent for procuring orders ---I.T.O. disallowing commission on ground that two of the partners of assessee-firm were partners of firm carrying on sole selling agency---Tribunal finding that the two partners of sole selling agency firm obtained huge orders for assessee resulting in higher sales---Tribunal holding that, on facts, 4 percent. commission paid was reasonable---Quantum of commission paid is a question of fact---Tribunal's finding was justified.
For the assessment year 1976-77, the assessee-firm claimed deduction of commission paid at 6 percent. to its sole selling agent for procuring orders. The Income-tax Officer disallowed the claim on the ground that two of the partners of the assessee-firm were partners of the firm carrying on the sole selling agency and since no work was done by the sole selling agency, he held that the commission paid was unreasonable. The Commissioner of Income-tax (Appeals) found that one of the partners of the sole selling agency firm had travelled throughout India to collect orders which increased the sales of the assessee and held that 2 percent. commission would be reasonable and disallowed, the rest. The Tribunal found that two of the partners of the sole selling agency firm had gone around the country and had obtained huge orders for the products of the assessee-firm resulting in higher sales and, therefore, held that 4 per cent commission would be reasonable and disallowed the rest. On a reference:
Held, that whether the commission paid was reasonable or not was largely a question of fact. Considering the agreement of sole selling agency and all facts and circumstances of the case, no question of law or even a mixed question of law and fact arose for decision. Moreover, on the basis of facts taken into consideration by the Tribunal, it could not be said that the Tribunal was not justified in allowing further 2 percent. commission as admissible under section 40A(2) of the Income-tax Act, 1961.
Upper India Publishing House P. Ltd. v. C.I.T. 1979 117 ITR 569 (S C) and Narain Motors v. C.I.T. (1979) 120 I T R 106 (P & H) ref.
Ashok Bhan and Ajay Mittal for the Commissioner.
B.S. Gupta and Sanjay Barisal for the Assessee.
JUDGMENT
GOKAL CHAND MITAL, J.--The assessee, Kumar Engineers, appointed Kumar and Company, as their sole selling agent. The sole selling agent was to be paid commission at the rate of 6 percent. on the orders procured by them. For the assessment year 1976-77, the assessee claimed deduction of commission paid to the sole selling agent but the Income-tax Officer disallowed it. He came to the conclusion that two of the partners of the assessee-firm were partners of the firm carrying on the sole selling agency and since no work was done by the sole selling agency, he held that the commission paid was unreasonable.
On appeal, the Commissioner of Income-tax (Appeals) came to the conclusion that it was found that one of the partners of the sole selling agency firm had travelled throughout India to collect orders which increased the sales of the assessee and held that 2 percent. commission was reasonable and disallowed the remaining 4 percent.
On further appeal, the Income-tax Appellate Tribunal, Delhi, further found that two of the partners of the sole selling agency firm were proved to have gone around the country obtaining huge orders for the products of the assessee firm and keeping in view the higher sales and other relevant factors came to the conclusion that 4 percent. was reasonable and disallowed only 2 percent. commission.
Both sides filed applications for reference and the Tribunal, as would be apparent from para 5 of the statement of the case, agreed to refer one common question, so as to cover the controversy raised by both the sides and thus referred the following question for opinion:
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in allowing a further allowance of Rs. 15,033 as admissible under section 40A(2) of the Income-tax Act, 1961?"
Since references were made on the applications of both the sides, they have been registered as ITR Nos. 30 and 31 of 1982.
A reading of the aforesaid referred question shows as if reference has been made only at the instance of the Revenue and not at the instance of the assessee. To avoid any complication or technical objection, the assessee filed Income-tax Case No. 48 of 1982, for recasting the question or for calling for a separate question at its instance.
Shri B.S. Gupta, Senior Advocate, appearing for the assessee, did not press I.T.C. No. 48 of 1982, nor did he claim recasting of the question.
In this view of the matter, we proceed to decide the question as referred. I.T.C. No.48 of 1982 is dismissed as not pressed.
Whether the commission paid is reasonable or not is largely a question of fact and it has been so held by the Supreme Court in Upper India Publishing House P. Ltd. v. CIT (1979) 117 ITR 569 and by this Court in Narain Motors v. CIT (1979) 120 ITR 106. We have gone through the agreement of sole selling agency and the order of the Tribunal, and are of the opinion that considering all the facts and circumstances of the case, no question of law or even a mixed question of law and fact is found to have been made out.
Moreover, on the basis of facts taken into consideration by the Tribunal, it cannot be said that the Tribunal was not justified in law in allowing further 2 percent. commission which came to Rs. 15,033 as admissible under section 40A(2) of the Act.
Accordingly, we answer the question in favour of the assessee, that is, in the affirmative, with no order as to costs.
Z.S./790/TOrder accordingly.