Income-tax

----Reference---Business expenditure---Secret commission---Findings with reference to genuineness and quantum of deduction as secret commission whether justified---Question of law---Indian Income Tax Act, 1961, Ss-.37 & 256.

Held, that it had been contended on behalf of the Revenue that despite various specific defects, irregularities and lacunae pointed out by the Income-tax Officer in the vouchers and other evidence produced by the respondent-assessee in support of its claim, the deduction was allowed on general considerations such as the auditors' report or the directors' report and on the ground that the assessee-company had eminent persons on its board, or the assessee was being allowed similar commission without doubting the correctness of the documents produced during the previous years. In the facts and circumstances and on the tenor of the findings recorded by the Tribunal. the question whether, on the material available in the case, the findings given by the Tribunal with regard to the genuineness and quantum of deductions to be allowed - under the head of secret commission' were perverse and based on irrelevant considerations had to be referred..

S.R. Ashok for Petitioner

S.R. Chandra Murthy for Respondent

JUMGMENT

These petitions are filed under section 256(2) of the Income Tax Act, 1961, by the Commissioner of Income-tax, Karnataka-Central, seeking reference of the following two questions for the opinion of this Court:

"(1)Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the expenditure by way of secret commission was deductible under section 37(1) of the Income-tax Act in computing the business income of the assessee?

(2)Whether, on the facts and in the circumstances of the case, the appellate Tribunal is right in law in coming to the conclusion that the payments claimed to have been made under the head 'secret commission is not opposed to public policy and is an item of deduction in the computation of the total income of the assessee?"

Two other questions arising out of the same order of the Tribunal have already been referred by the Tribunal but the Tribunal declined reference of the above two questions. They turn on the larger question whether the secret commission paid by the assessee who is a transporter to the brokers and others is allowable deduction under section 37(1) of the Income-tax Act. The two questions extracted above turn on the propriety of allowing deductions without proper proof. -In other words, it is contended that despite various specific defects, irregularities and lacunae pointed out by the income-tax Officer in the vouchers and other evidence produced by the respondent-assessee in support of its claim, the deduction was allowed on general considerations such as the auditors' report or the director's (report did not advert to any irregularities, that the assessee-company had eminent persons on its board, or the assessee. was being allowed similar commission without doubting the correctness of the documents produced during the previous years. Thus, the contention of the Revenue is that the findings of the Tribunal though appear to be factual in nature are perverse and based on irrelevant considerations. We are of the view that in the facts and circumstances and on the tenor of findings recorded by the Tribunal an arguable question of law does arise. Accordingly, we direct the following question to be referred for the opinion of this Court:

Whether, on the material available in the case, the findings given by the Tribunal with regard to the genuineness and quantum of deductions to be allowed under the head of 'secret commission' are perverse and based on irrelevant considerations?"

We have thus recast the question to be referred to the High Court The income-tax case is accordingly allowed. No costs.

M.B.A./1233/FC Order accordingly.