Deduction allowed for full selling agency commission under Income-tax Act

The High Court held that the entire payment of selling agency commission was allowable as a deduction under section 66(1) of the Indian Income-tax Act, 1922. The court found the agreement between the assessee and the selling agent to be genuine and acted upon, with the commission being deemed partly for services rendered and partly for undertaking responsibilities. The court emphasized that the commission was commercially expedient and wholly for business purposes, leading to the conclusion that the entire commission should be allowed as a deduction. The decision favored the assessee, ruling against the apportionment of the commission by the Tribunal.

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Issues Involved:
1. Whether the entire payment of selling agency commission was an allowable deduction in computing the income from business.
2. Whether the agreement between the assessee and the selling agent was genuine and acted upon.
3. Whether the commission paid was for services rendered or for undertaking responsibilities.
4. Whether the commission paid was commercially expedient and wholly and exclusively for business purposes.

Summary:

1. Allowability of Selling Agency Commission as Deduction:
The court examined whether the entire payment of selling agency commission was an allowable deduction u/s 66(1) of the Indian Income-tax Act, 1922. The Tribunal had held that only a portion of the commission was allowable, not the entire payment, for the assessment years 1960-61 and 1961-62.

2. Genuineness and Execution of Agreement:
The assessee, a public limited company, had appointed Nav Bharat Vanijya Ltd. as its sole selling agent. The Tribunal found the agreement between the assessee and the agent to be genuine and not collusive. The Tribunal noted that the agreement was between two public limited companies and was acted upon.

3. Services Rendered vs. Responsibilities Undertaken:
The Tribunal held that the agents did not render any service due to inadequacy of their staff. However, it acknowledged that the agents undertook certain responsibilities, such as ensuring payment of prices by customers (clause 8 of the agreement). The Tribunal concluded that the commission was partly for services and partly for undertaking responsibilities.

4. Commercial Expediency and Business Purpose:
The Tribunal's decision to apportion the commission was based on the finding that the commission was not entirely for services rendered. The Tribunal remitted the matter to the Appellate Assistant Commissioner (A.A.C.) to determine the allowable portion of the commission. The court referred to the Supreme Court's decision in Aluminium Corporation of India Ltd. v. Commissioner of Income-tax [1972] 86 ITR 11, which emphasized that the Income-tax Officer must decide if the expenditure was commercially expedient and wholly for business purposes.

Conclusion:
The High Court concluded that there was no basis for the Tribunal to apportion the commission as there was no finding that any part of the commission was paid on extra-commercial considerations or was excessive. The agreement was genuine, and the commission was for undertaking responsibilities. Therefore, the entire commission should be allowed as a deduction. The question was answered in the negative and in favor of the assessee.

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