2004 (8) TMI 15 - HC - Income Tax

High Court upholds commission payment legality, allows deduction for delayed provident fund interest

Commissioner of Income-Tax Versus Ishwari Khetan Sugar Mills Private Limited.

The High Court ruled in favor of the assessee, holding that the commission payment to M/s. Bharat Vyapar Mandal was justified for the business, and the ... Payment of commission to sole selling agents – disallowance - Tribunal has found that the firm had been assessed in the status of a registered firm. Thus, it is a genuine firm. It has further found that the firm had rendered service on account of which the assessee had earned huge profits. The agreement entered into by the assessee with the firm as also the payment of commission has not been doubted. In view of the findings recorded by the Tribunal, which are based on appreciation of evidence and material on record, it cannot be said that the appointment and payment of commission to the said firm was (not) wholly and exclusively for the purpose of business of the assessee-company. - Tribunal was in law justified in deleting the additions on account of commission to the sole selling agents – further, Tribunal was legally correct in deleting the disallowance of Rs. 3,401 and Rs. 3,460 being interest paid to the trust in respect of contribution to the provident fund Issues:1. Justification of commission payment to M/s. Bharat Vyapar Mandal for the business of the assessee-company.2. Legality of the appointment of M/s. Bharat Vyapar Mandal as sole selling agents.3. Deletion of additions on account of commission to the sole selling agents in the assessment years 1969-70 and 1970-71.4. Legality of deleting the disallowance of interest paid to the trust in respect of contribution to the provident fund in the assessment years 1969-70 and 1970-71.Analysis:1. The Tribunal found that the payment of commission to M/s. Bharat Vyapar Mandal was wholly and exclusively for the business of the assessee-company. The firm had been assessed as a registered firm, and its genuineness was not in doubt. The Tribunal noted that the appointment of selling agents was justified due to market trends and the rise in sugar prices, leading to substantial profits for the assessee. The Tribunal held that the selling agents did render services, justifying the commission payment.2. The Tribunal's decision on the legality of appointing M/s. Bharat Vyapar Mandal as sole selling agents was based on the necessity arising from market conditions and the need to secure the best prices for the sugar sold. The Tribunal considered the appointment fully justified, especially given the significant profits earned by the assessee during the relevant years.3. Regarding the deletion of additions on account of commission to the sole selling agents in the assessment years 1969-70 and 1970-71, the Tribunal upheld the claim of the assessee. It found that the firm provided services and that the commission payment was justified, leading to the deletion of the additions made by the assessing officer.4. The Tribunal also addressed the issue of the disallowance of interest paid to the trust for delayed payment of provident fund contributions. Citing legal precedents, including the decision in Mahalakshmi Sugar Mills Co. v. CIT, the Tribunal held that interest on delayed payment of provident fund was an allowable deduction under section 37 of the Income-tax Act. This decision favored the assessee, leading to the deletion of the disallowance.In conclusion, the High Court answered all four questions in favor of the assessee and against the Revenue. The judgment emphasized the justification for the commission payment, the legality of appointing the sole selling agents, the deletion of additions related to commission payments, and the allowability of interest on delayed payment of provident fund contributions as deductions.