(a) Income-tax---

----Reference---Question of law---Capital or revenue expenditure ---Assessee deriving income from export of spare parts and commission from Indian and foreign authorities---Deduction claimed on account of commission paid to G---Tribunal finding that G had helped assessee in obtaining better price and commission paid to G in accordance with memorandum of understanding reached between assessee and G---Assessee receiving repeated orders for supply of detergent but no commission paid to G on that account or in respect of every contract---Both assessee and G free to compete with each other---Tribunal finding that expenditure by way of commission to ward off competition in individual transaction and leaving competitor surviving in field is only revenue expenditure---Finding of Tribunal is finding of fact-- No question of law arises for reference---Indian Income Tax Act, 1961, S.256(2).

(b) Income-tax---

----Reference---Question of law---Business expenditure---Assessee receiving commission for sale of textile machinery imported from USSR against which assessee paying commission to A---A introducing assessee to P mills which was purchasing textile machinery on assessee's persuasion---P mills purchasing machinery from USSR---Tribunal finding exchange of regular correspondence between assessee and A showing role played by A in securing orders to assessee---A confirming receipt of commission from assessee and payment made to A by account payee cheques or drafts---Bank confirming transactions between assessee and A on inquiries from revenue-- Commission paid to A only, one-fifth of total commission receipts of assessee---A was an independent entity and was filing Income Tax Returns-- Tribunal deleting disallowance of commission -paid to A---Finding of Tribunal finding of fact and no question of law arises for reference---Indian Income Tax Act, 1961, S. 256(2).

It is well-settled that whether an expenditure was incurred or not, is a question falling within the domain of facts. Whether such expenditure is allowable as a deduction or not and how the nature of such expenditure is to be classified under the relevant legal provision is a question of law.

The assessee derived income from exports of spare parts to Russia and also commission received from various Indian and foreign authorities. As against his receipts from commission the assessee claimed deduction on account of commission paid to G amounting to Rs.22,50,000. The Assessing Officer held the expenditure was capital in nature. The Commissioner of Income-tax (Appeals) affirmed the order of the Assessing Officer. The Tribunal accepted the contention of the assessee that G had helped the assessee in obtaining a better price and there was a regular memorandum ' of understanding arrived at between the assessee and G specifying the terms of the understanding and the commission was paid to G in accordance with those terms. The Tribunal found that the assessee received repeated orders for supply of detergent for which he earned commission but no amount was paid to G, that the amount was paid by the assessee only in respect of a contract for 6000 mt (and not in respect of every contract) for supply of detergent goods or commodities to USSR or any other contract though the assessee was receiving repeated orders and that both the assessee and G were free to compete with each other in the manner best suited to them. The Tribunal observed that if an expenditure eliminated for good a competitor, then it was a capital expenditure but if the expenditure related to. warding off competition in an individual transaction and leaving the competitor surviving in the field, then it was merely revenue expenditure. On an application seeking a reference under section 256(2) of the Income Tax, Act, 1961:

Held, that the finding recorded by the Tribunal was a finding of fact and no question of law arose for reference.

The assessee had received commission for sale of textile machinery imported from the USSR against which he made a claim for payment of Rs.46,65,600 to A. It was explained that A had introduced the assessee to P cotton mills which was interested in purchasing textile machinery on the assessee's persuasion. P cotton mills purchased the textile machinery from the USSR. The Assessing Officer made enquiries under section 131 of the Income Tax Act, 1961, but found no such party as A at the given address. The assessee also could not produce A before the Assessing Officer. The Assessing Officer found that there was no written agreement for payment of commission between the assessee and A, that the commission paid to A was totally disproportionate to the quantum of commission earned by the assessee, that A had not filed any returns of income and hence rejected the claim of the assessee for deduction of the commission paid to A. The Commissioner of Income-tax (Appeals) upheld the order of the Assessing Officer. The Tribunal found that there was regular exchange of correspondence between the assessee and A showing the role played by A in helping the assessee in securing orders, that A had confirmed the receipt of the commission in part and then reminded the assessee for releasing the balance commission, that the payments made by the assessee to A were all by account payee cheques or drafts, that inquiries made by the Revenue from the bank confirmed these transactions by entries having been made in the accounts of the assessee and A, that the amount paid to A was 18 percent. of the total commission receipts of the. assessee, that A being an independent entity and very much in existence, as it was found to have filed its returns prior to the assessment year in question and its records having been taken into custody by the police in connection with some investigation, the factum of such payment could not be doubted and that it was not the case of Revenue that the amount paid to A had come back to the. assessee. The Tribunal, therefore, deleted the addition. On a reference:

Held, that the finding recorded by the Tribunal was a finding of fact. Merely' because the fact finding Tribunal could have arrived at a different finding by a parity of reasoning, a question of law would not arise. The question as proposed by the Revenue as to the payment of Rs.46,65,600 to A did not arise as a question of law in view of the finding of fact arrived at by the Tribunal.

The Supreme Court dismissed the special leave petition filed by the Department against this judgment.

Chelpark Co. Ltd. v. CIT (1991) 191 ITR 249 (Mad.) ref.

R. D. Jolly with Ms. Prem Lata Bansal for the Commissioner.

G. C. Sharma, Senior Advocate with Tarim Dua for the Assessee

JUDGMENT

R. C. LAHOTI, J.---This is an application under section 256(2) of the Income Tax Act, 1961, filed by the Revenue seeking a mandamus to the Tribunal stating the case for the opinion of the High Court on the following questions:

"(1) Whether the Income-tax Appellate Tribunal was correct in law in allowing the commission of Rs.22,50,000 paid to Giri Raj Fertilizers and Chemicals (Pvt.) Ltd. by holding that it was revenue in nature, allowable under section 37 of the Income-tax Act?

(2) Whether the commission of Rs.46,65,600 paid to Anand Pratyabhut Vit Nigam was allowable in law as held by the Income-tax Appellate Tribunal even in the absence of any material that could prove the rendering of services by such company to the assessee?

(3) Whether the Income-tax Appellate Tribunal was correct in law in allowing the-commission of Rs.46,65,600 paid by the assessee to APVN without discharging the onus of proving that it was incurred wholly and exclusively for the purposes of business?

(4) Whether the Income-tax Appellate Tribunal was correct in law in ignoring the fact that the claim for payments of commission was an arranged affair by the assessee to reduce his tax liability?

(5) Whether the order of the Income-tax Appellate Tribunal is correct on facts and not perverse, in allowing the claim of commission by ignoring certain relevant facts, such as--

(a) The Assessing Officer's findings after collecting necessary information and making enquiries with regard to the assessee's claim of payment of Rs.22,50,000 as not related to business expenditure of the assessee?

(b) The Assessing Officer's conclusion that Anand Pratyabhut Vit Nigam did not file a. return for income of the assessment year 1990-91 and that payment claimed to have been made at Rs.46,65,600 were not verifiable from the assessment, records of the payee company?

(c) Likewise, the enquiries made by the Assessing Officer while examining the claim of the assessee in respect of payments of commission as referred to above and the conclusions drawn have not been taken into consideration?"

It is conceded at the Bar that the real controversy is reflected by questions Nos. 1 and 2 and the other questions are merely incidental to the first two.

The assessee is an individual doing business in the name and style of Taxcomash Exports. For the relevant previous year, the assessee's source of business income were exports of spare parts to Russia as also commission received from various Indian and foreign authorities. As against his receipt received from commission, the assessee claimed deduction on account of commission paid to Giriraj Fertilizers and Chemicals (P,.) Ltd., (GFC, for short), to the tune of Rs.22,50,000. The genuineness of the payment was not under challenge before the Assessing Officer. The Assessing Officer and the Commission of Income-tax (Appeals) had formed an opinion that the expenditure was of a capital nature. However, the plea of the assessee that GFC had helped the assessee in obtaining a better price and there was a regular memorandum of understanding reached by the assessee with the GFC specifying the terms of understanding and commission was paid in accordance with these terms, prevailed with the Income-tax Appellate Tribunal and was upheld. The Tribunal recorded, the finding of fact that the assessee received repeated orders for supply of detergent for which he earned commission but no amount was paid to GFC on that account. The amount was paid by the assessee only in respect of a contract for 6000 Mt (and not in. respect of every contract) for supply of detergent goods or commodities to USSR or any other contract though the assessee was receiving repeated order. Both were free to compete with each other in the manner best suited to them. The Tribunal applied the test laid down by a Division Bench of the Madras High Court in Chelpark Company Ltd. v. CIT (1991) 191 ITR 249 and opined that if the expenditure eliminated for good a competitor then it was a capital expenditure but if the expenditure related to warding off competition in individual transaction and leaving the competitor surviving in the filed then it was merely a revenue expenditure. The test which divides an expenditure between capital and revenue is one of enduring benefit.

In our opinion, the finding recorded by the Income-tax Appellate Tribunal is purely of fact and does not raise any referable question of law.

On question No. 2, the relevant facts are that the assessee has received commission for sale of textile machinery imported from USSR against which he made a claim for payment of Rs.46,65,600 to Anand Pratyabhut Vit Nigam Ltd., (APVN for short). It was explained that APVN had introduced the assessee to Prakash Cotton Mills Ltd., which was interested in purchasing textile machinery. on the assessee's persuasion. The said mill purchased the textile machinery from the USSR: The Assessing Officer made inquiries under section 131, but found no such party as APVN at the given address: The assessee also could not produce the said APVN before the Assessing Officer. The Assessing Officer found that there was no written agreement for payment of commission between the assessee and APVN, that APVN was not produced before the Assessing Officer, that the commission paid to APVN was totally disproportionate to the quantum of commission earned by the assessee and that APVN had not filed any returns of its own. For these four reasons, the claim was rejected. The rejection was upheld by the Commissioner of Income-tax (Appeals).

However, the Income-tax Appellate Tribunal reversed the findings of the Assessing Officer and the Commissioner of Income-tax (Appeals) by passing a detailed order. A perusal of the order of the Tribunal specially para. 8 thereof reveals a few findings of fact recorded by the Income-tax Appellate Tribunal. There had been exchange of regular correspondence between the assessee and APVN showing the role played by APVN in helping the assessee securing the order. APVN had confirmed the receipt of commission in part and then reminded the assessee for releasing the balance commission. The payments made by the assessee to APVN were all either by account payee cheques or by account payee bankers cheques (pay order). Inquiries made by the Revenue from the UCO Bank, Defence Colony, confirmed these transactions by entries having been made in the accounts of the two. The amount paid to APVN was 18 percent. of the total commission receipts of the assessee. APVN being an independent entity and very much in existence as it was found to have filed its returns prior to the assessment year in question and its records having been taken into custody `by the police in connection with some investigation, the factum of such payment could not be doubted. It was not the case of the Revenue that the amount paid to APVN had come back to the assessee. The Income-tax Appellate Tribunal also formed an opinion that such being the facts and circumstances, the claim could not have been rejected merely because APVN could not be produced before the Assessing Officer by the assessee and because APVN had not filed its return for the relevant assessment year. The Tribunal then came to a finding that the amount of commission paid by the assessee to APVN could not have been back to the income of the assessee. The addition was deleted.

In our opinion, the above said finding recorded by the Income-tax Appellate Tribunal is again a finding of fact. Merely because the fact finding Tribunal could have arrived at a different finding by a parity of reasoning a question of law does not arise. It is well-settled that whether an expenditure was incurred or not, is a question falling within the domain of facts: whether such an expenditure is allowable as a deduction or not and how the nature of such expenditure is to be classified under the relevant legal provisions is a question of law. The question as proposed by the. Revenue as to the payment of Rs.46,65,600 to APVN does not arise as question of law in view of the findings of fact arrived at by the Tribunal.

In our opinion, no referable question of law arises from the order of the Tribunal. The Tribunal had rightly opined while rejecting the petitioner's application under section 256(1) of the Act that the questions raised by the Revenue were merely of fact and hence were not referable to the High Court.

The application under section 256(2) of the Income-tax Act is, therefore, rejected.

M.B.A./3290/FC Application rejected.