Appeals dismissed; 0.5% incentive commission to sister concern held genuine with no evidence of tax evasion

HC held the Tribunal rightly set aside the CIT(A)'s disallowance of a 0.5% incentive commission paid to a sister concern for AYs 1991-92 and 1992-93, finding no evidence that the higher commission was used to evade tax (the sister concern was assessed at a higher tax rate and its assessment orders were on record). The HC answered the legal question affirmatively and dismissed the appeals.

---

---

Issues:
- Appeal against common order dated 31st October, 1999 passed by the Income-tax Appellate Tribunal, Mumbai Bench "C", Mumbai.
- Allowability of incentive commission paid to sister company for deduction under section 234 of the Income Tax Act, 1961 for Assessment Years 1991-92 and 1992-93.

Analysis:
1. The Revenue appealed the Tribunal's order disallowing excess commission paid to the assessee's sister concern under section 40A(2) of the Income-tax Act for Assessment Years 1991-92 and 1992-93. The Tribunal allowed the appeal partly, deleting the additions confirmed earlier. The Revenue contended that the Tribunal erred in allowing the claim of incentive commission paid to the sister concern, which was more than other sub-agents, invoking section 40A(2)(b) of the Act.

2. The Tribunal accepted facts showing that the assessee paid handling charges at the same rate to its sister concern and other agents. Previous assessment years also indicated reasonable handling charges paid to the sister concern. The sister concern was assessed to tax, and no attempt to evade tax was found. A circular by the Central Board of Direct Taxes stated no disallowance under section 40A(2) for payments to relatives and sister concerns without tax evasion intent.

3. The Court found the Tribunal's conclusion correct, disagreeing with the Commissioner of Income-tax (Appeals) on disallowing half per cent commission paid to the sister concern for Assessment Years 1991-92 and 1992-93. The Revenue failed to show tax evasion by alleged higher commission payment to the sister concern, which was also taxed at a higher rate. The Court affirmed the Tribunal's decision, answering the question of law in the affirmative and dismissing the appeals filed by the Revenue, with no costs awarded.

---