1988 (1) TMI 59 - AT - Income Tax

Revenue's Appeal Dismissed, CIT(A) Decisions Upheld on Commission Payments & Retiring Partners

The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decisions on both issues. The Tribunal upheld the allowance of commission payments ... - Issues Involved:1. Deletion of addition made by the ITO in respect of commission charged on sale of goods.2. Deletion of Rs. 65,500 paid to the retiring partners.Issue 1: Deletion of Addition Made by the ITO in Respect of Commission Charged on Sale of GoodsThe first ground of appeal by the Revenue involved the deletion of the addition made by the ITO concerning commission charged on the sale of goods to New Reshmy Dyeing P. Ltd. The assessee, a registered firm engaged in manufacturing textile processing machines, claimed commission payments amounting to Rs. 3,50,000 over sales of Rs. 26,90,000. The ITO disallowed Rs. 14,437 out of the commission payments, arguing that the commission rate exceeded the previously allowed 12-1/2 percent.The CIT(A) allowed the entire commission payment, noting that similar payments were allowed in the preceding year due to the peculiar nature of the assessee's business. The Tribunal agreed with the CIT(A), emphasizing that the marketing of costly machines justified the higher commission rates. The Tribunal found no distinguishing features to differentiate the current year's case from the previous year's or from the commission payments to Janta Prints. Consequently, the Tribunal dismissed the Revenue's ground, affirming the CIT(A)'s decision.Issue 2: Deletion of Rs. 65,500 Paid to the Retiring PartnersThe second ground of appeal concerned the deletion of Rs. 65,500 paid to the retiring partners. The assessee firm, established under a partnership deed dated 1st Nov. 1976, paid this amount to four outgoing partners upon their retirement on 30th June 1978. The payment was claimed as revenue expenditure by the assessee, but the ITO disallowed it, considering it capital in nature.On appeal, the CIT(A) examined the issue extensively, noting that the assessee's business required continuous marketing efforts and that the retiring partners were entitled to their share of profits from pending transactions. The CIT(A) concluded that the payment was revenue expenditure, supported by the Punjab & Haryana High Court decision in Sukhbir Prashad vs. CIT.The Revenue argued that the payment was capital expenditure, referencing Supreme Court decisions in McDowell and Co. Ltd. vs. CTO and Devidas Vithaldas & Co. vs. CIT. However, the Tribunal found the payment to be contingent on profits from a transaction with M/s Beekay Textiles Pvt. Ltd., and thus, a revenue expenditure. The Tribunal dismissed the Revenue's arguments, agreeing with the CIT(A) that the payment was not for goodwill and did not constitute capital expenditure.Conclusion:The Tribunal dismissed the Revenue's appeal on both grounds, affirming the CIT(A)'s decisions regarding the commission payments and the payment to the retiring partners. The Tribunal emphasized the peculiar nature of the assessee's business and the necessity of the payments for business purposes, thereby upholding them as allowable revenue expenditures.