ASSAM PESTICIDES AND AGRO CHEMICALS VS COMMISSIONER OF INCOME-TAX
1999 P T D 2443
[227 I T R 846]
[Gauhati High Court (India)]
Before S. Barman Roy and D. N. Choudhury, JJ
ASSAM PESTICIDES AND AGRO CHEMICALS
Versus
COMMISSIONER OF INCOME-TAX
Income-tax Reference No.3 of 1990, decided on 02/05/1997.
Income-tax---
----Business expenditure---Burden of proof---Commission---Finding that payment of commission was not made out of commercial considerations-- Commission riot deductible---Indian Income Tax Act, 1961, S,37.
Mere payment, by itself, would not entitle an assessee for deduction of the said expenditure unless the same was proved to be paid for commercial considerations. The onus of proof at all relevant times rests upon the assessee. The law does not prescribe any quantitative test to find out whether the onus in a particular case has been duly discharged. It all depends on the facts and situations of the case.
The assessee-firm claimed deduction of Rs.60,644 which was paid as commission to A, which was a sister concern of the assessee. The Assessing Officer looked into the claim of the assessee which was made on the basis of the agreement, dated April 1, 1979. The Assessing Officer disbelieved the claim that A was experienced in the line. He also found that the areas covered continued to be the same even after the introduction of the agent A. He noted that the agreement made was simply a device to reduce the income of the assessee by applying the same to other members of the families of the partners, who, in fact, did not render services to the assessee. He disallowed the claim. The Commissioner of Income-tax (Appeals) allowed the claim. However, the Tribunal restored the order of the Assessing Officer. On a reference:
Held, that the Tribunal took into consideration the finding of the Assessing Officer that no services were ever rendered by A or by its partners constituting the firm, which remained . undisturbed in the order of the Commissioner of Income-tax (Appeals). Hence, the amount of commission paid was not deductible.
CIT v. Govind Narain (1975) 101 ITR 602 (All.); CIT v: Industrial Engineering Projects (Pvt.) Ltd. (1993) 202 ITR 1014 (Delhi); CIT v. Om Parkash Behl (1981) 132 ITR 342 (P&H); Grace Pharma Distributors v. CIT (1988) 169 ITR 231 (AP); Lachminarayan Madan Lal v. CIT (1972) 86 ITR 439 (SC); Narsingdas Surajmal Properties (P.) Ltd. v. CIT (1981) 127 ITR 221 (Gauhati) and Swadeshi Cotton Mills Co. Ltd. v. CIT (1967) 63 ITR 57 (SC) ref.
R. K. Joshi and Sint. U. Chakravarty for the Assessee.
Dr. A. K. Saraf and K. K. Gupta for the Commissioner:
JUDGMENT
D. N. CHOWDHURY, J.---The following questions of law were referred for the opinion of the High Court:
"(1) Whether, on the facts and in the circumstances of the case, there was any evidence before the Tribunal to come to the conclusion that the discount/commission paid by the assessee was without any commercial consideration or business ex0ediency and without any services rendered by the agent, Agro India?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the view of the. Assessing Officer that the agreement was sham and only a device to reduce the income of the family by applying to the other members of the family?
(3) Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in ignoring the existence of Agro India, the commission agent, which has been duly constituted as a registered firm and assessed to taxes by the Assessing Officer comprising incomes from commission during the relevant assessment year?"
The question that arises in this reference is whether the assessee is entitled to the deduction on account of discount payment paid to Agro India.
The assessee is a firm maintaining the mercantile system of accounting. In the assessment year 1980-81, the assessee, amongst other things, claimed a deduction of Rs.64,745 on account of discount payment out of which Rs.60,644 was paid to Agro India, a sister concern of the assessee. The Assessing Officer pointed out that during the earlier year payment on account of discount was only to the extent of Rs.7,702. He looked into the claim of the assessee which was made on the basis of the agreement, dated April 1, 1979. There were discount payments to other parties also. According to the assessee, Agro India was well versed with the sale of products dealt with by the assessee, i.e., seeds and pesticides. The Assessing Officer found that in the said firm, Smt. Vidya Jhingram, Shri Sunil Jhingram and Shri Prabhat Jhingram, were partners as on April 1, 1979, and the assessee's accounting year started from April 1, 1979, and ended on March 31, 1980, and that is why the Assessing Officer observed that this fact would go to doubt the veracity of the statement of the assessee in the agreement that Agro India was experienced in the line. He noted that there was a reconstitution of the firm on April 1, 1979 when some partners were taken in. He mentioned that Shri Sunil Jhingram is a common partner in both the firms and the other partners were not. The Assessing Officer disbelieved the claim that Agro India was experienced in the line. He also noted that the agreement was made on a stamp paper of Rs. 7 which was purchased on April 5, 1979, though the agreement was purported to have been drawn up and executed on April 1, 1979. He, therefore, concluded that the agreement was bogus and false. He also found that the areas covered continued to be the same even after the introduction of the agent, i.e., Agro India. He noted that the agreement made was simply a device to reduce the income of the assessee by applying the same to other members of the family of the partners, who, in fact, did not render services to the assessee. He disallowed the claim.
The assessee took up the matter before the Commissioner of Income-tax (Appeals) who heard both the sides. He considered the material placed before him relating to the acquisition of the rubber stamp to show that there were correspondence or letters between the assessee and Agro India regarding appointment even prior to the date of execution of the deed. The Commissioner of Income-tax (Appeals) found that there were vouchers, dated April 1, 1979, regarding purchase of rubber stamp and there was no reason to suspect the existence of the rubber stamp on that day which was used by the assessee in the correspondence. He also noted that why Shri Sunil Jhingram did not put his signature on the same date on the agreement when it was purported to have been executed on April 1, 1979.
The Commissioner of Income-tax (Appeals) observed that there was no doubt that the agreement was in existence in the month of April, 1979, and it was possible that the date, i.e., April 1, 1979, has been misplaced. He pointed out that Agro India has started to receive payment later on. On the reasons recorded by him, the Commissioner of Income-tax (Appeals) accepted the claim of the assessee.
The Revenue took up the matter before the Appellate Tribunal reiterating the findings and the reasoning adopted by the Assessing Officer in disallowing the claim. The Appellate Tribunal heard both the sides at length and observed that the Income-tax Officer gave a finding that no service was rendered to the assessee-firm by the partners of the agent firm so as to justify the payment and that this finding of the Assessing Officer remains un dislodged by the Commissioner of Income-tax (Appeals). The Appellate Tribunal noted that the Assessing Officer mentioned that no new territory was covered with the help of the representative of Agro India and that this finding was not dislodged by the Commissioner of Income-tax (Appeals). The Appellate Tribunal found no material or reason on the basis of which the Commissioner of Income-tax (Appeals) has made the observation that the date, i.e, April 1, 1979, mentioned in the deed of agreement to have been misplaced.
The Appellate Tribunal in its detailed discussion came to the conclusion that it was difficult to sustain the order of the Commissioner of Income-tax (Appeals) in the circumstances. The order of the Commissioner of Income-tax (Appeals) was' accordingly reversed and that of the Assessing Officer was restored.
Mr. R. K. Joshi, learned counsel appearing on behalf of the assessee, submitted that the function of the Tribunal in hearing an appeal is purely judicial in nature. It is invested with the authority to determine all questions of fact by assigning reasons therefore. Mr. Joshi further submitted that the Tribunal at all relevant times is required to maintain judicial balance while deciding the claims of the public revenue and the assessee. Mr. Joshi assailed the finding of the learned Tribunal as perverse. Mr. Joshi also contended that 'the learned Tribunal while considering the appeal heavily leaned on the findings of the concerned income-tax Officer without independently applying its mind to the facts and circumstances of the case. Learned counsel drew our attention to the initial order of assessment and the order of the Commissioner of Income-tax (Appeals). Mr. Joshi, learned counsel for the assessee, particularly drew our attention to the findings of the Commissioner of Income-tax (Appeals) justifying the allowance of Rs.60,644 as discount payment to the sister concern of the assessee. Mr. Joshi particularly submitted that the rejection of the claim of the assessee in the aforesaid head on the face of it was arbitrary, capricious and perverse and therefore unsustainable in law. According to learned counsel, the sole ground for rejection of the claim of the assessee both by the Income-tax Officer as well as the Tribunal was on the ground of purported irregularity or illegality of the agreement executed on April 1, 1979. According to learned counsel, when the assessee incurred the expenditure on payment of discount to the sister concern, the assessee was entitled to the deduction under the law. In support of his contention, Mr. Joshi referred to the decision of this Court in Narsingdas Surajmal Properties (P.) Ltd. v. CIT (1981) 127 ITR 221. In addition to the aforesaid decision, Mr. Joshi also referred to and relied upon the decisions in CIT v. Om Parkash Behl (1981) 132 ITR 342 (P&H) and Grace Pharma Distributors v. CIT (1988) 169 ITR 231 (AP).
Dr. A. K. Saraf, learned counsel appearing on behalf of the Revenue, on the other hand, submitted that the first two questions are relatable to factual evaluation and the Tribunal on consideration of all the material facts arrived at its own conclusion. Dr. Saraf also submitted that question No.3 is purely an academic question which requires no answer from the Tribunal. Dr. Saraf in support of his argument referred to the decisions in Swadeshi Cotton Mills Co. Ltd. v. CIT (1967) 63 ITR 57 (SC), Lachminarayan Madan Lal v. CIT (1972) 86 ITR 439 (SC), CIT v. Govind Narain (1975) 101 ITR 602 (All.) and CIT v. Industrial Engineering Projects (Pvt.) Ltd. (1993) 202 ITR 1014 (Delhi).
The jurisdiction of a High Court in a reference under section 256 of the Income Tax Act, 1961, is of a special nature, distinguished from the customary jurisdiction of a Civil Court. Hearing a reference under this provision, the High Court does not exercise any appellate, revisional or superintending jurisdiction over the Tribunal. The Court of reference plays the advisory role and provides the Tribunal with the necessary guidance and it is for the Tribunal to' put into action the advice of the High Court. The High Court can only determine the question or the questions, which are referred to it. The High Court does not hear an appeal against the order of the Tribunal. It merely answers the questions of law, which are referred to it in the light of the facts established. The decision of the Tribunal on the facts is final and conclusive unless the same can be assailed on the ground of perversity or illegality. In the instant case, the Income-tax Officer upon evaluation of the material facts disallowed the deduction as claimed by the assessee holding the same to be a sham transaction. The said order was set aside by the Commissioner of Income-tax (Appeals). The Tribunal in appeal considered the respective cases of the parties and upheld the conclusion of the Income-tax Officer and set aside the order of the Commissioner of Income-tax (Appeals). The Appellate Authority took into consideration all the relevant aspects and upheld the decision on an analysis of the factual materials. The authority tried to ascertain the real nature of the transaction from the commercial point of view in the light of the surrounding circumstances. No single test of universal application can be discovered in determining the actual nature of the transaction. The true nature and character of the transaction are to be ascertained from the materials on record which are to be tested in the background of the relevant circumstances. The Tribunal on considering all the aspects of the matter upheld the decision of the Income-tax Officer. While setting aside the order of the Commissioner of Income-tax (Appeals), the Tribunal took into consideration the finding of the Assessing Officer that no services were ever rendered by Agro India or by its partners constituting the firm which remained undisturbed in the order of the Commissioner of Income-tax (Appeals). Mere payment by itself would not entitle an assessee to deduction of the said expenditure unless the same was proved to be paid for commercial considerations. The onus of proof at all relevant times rested upon the assessee. Mr. Joshi, learned counsel appearing for the assessee, further submitted that whether the other partners rendered services or not that could have been ascertained by examining the persons under section 131 of the Act. The onus of proof claiming deduction rests on the assessee. It cannot be said that even if the taxpayer does not produce any evidence in support of the claim for allowance, the Income-tax Officer himself independently is to collect evidence and decide that the allowance claimed is baseless having regard to the legitimate business needs of the assessee. It is for the taxpayer to establish by evidence that a particular allowance is justified.
The conclusion arrived at by the Assessing Officer to the effect that no services were rendered by Agro India or by the partners was not interfered with by the Commissioner of Income-tax (Appeals). In the absence of any services rendered by the agent, there cannot be any valid reason from the commercial point of view in making such payment of commission/discount. The increase in the volume of business by itself without anything more does not ipso facto lead to the conclusion that the said increase is relatable to the services rendered by Agro India. The concerned authority on an appraisal of facts reached its conclusion which cannot be said to be perverse. The law does not prescribe any quantitative test to find out whether the onus in a particular case has been duly discharged. It all depends on the facts and situations of the case. In certain matters the burden may be heavy whereas in others it may be nominal. There is no cut and dried formula. Science is yet to conceive any machinery for ascertaining the reliabilit, of evidence before a Court or the Tribunal. The Courts and the Tribunals are left to judge the materials before them by applying the test of human probabilities. The test of reliability and credibility may vary from person to person with a view to remove the uncertainty. A decision 0 the final fact-finding authority is conclusive and binding.
In the premises we answer the first two questions submitted to us in the affirmative and in favour of the Revenue. We, however, decline to answer question No.3 which, in our view, is purely academic which is not germane to the disposal of the real issue between the assessee- and the Revenue. There will be no order as to the costs of the reference.
M.B.A./2067/FC Reference answered.