1983 (11) TMI 138 - AT - Income Tax

Appellate Tribunal rules on travelling expenses & commission payments in income tax case

The Appellate Tribunal upheld the disallowance of travelling expenses under rule 6D(2) of the Income-tax Rules, 1962, ruling in favor of the revenue. ... Any Other Person, Business Expenditure, Travelling Expenses Issues:1. Disallowance of travelling expenses under rule 6D(2) of the Income-tax Rules, 1962.2. Disallowance of commission paid to agents for non-performance of certain duties.Issue 1: Disallowance of Travelling ExpensesThe appeal involved the disallowance of travelling expenses amounting to Rs. 3,456 by the Income Tax Officer (ITO) under rule 6D(2) of the Income-tax Rules, 1962. The Commissioner (Appeals) had allowed the expenses based on a decision of the Chandigarh Bench. The rule specified limits for expenditure incurred for business travel within India. The crux of the matter was whether the directors of the company, who were not employees, fell under the category of 'any other person' in clause (iii) of the rule. The Appellate Tribunal rejected the assessee's argument that directors should not be considered 'any other person' under the ejusdem generis principle, emphasizing that directors are distinct from employees. The Tribunal upheld the application of rule 6D(2) by the ITO, withdrawing the relief granted by the Commissioner (Appeals) and ruling in favor of the revenue on this ground.Issue 2: Disallowance of Commission Paid to AgentsThe second ground of appeal concerned the disallowance of a commission amounting to Rs. 23,520 paid to agents for the sale of drugs. The ITO disallowed one-third of the commission as two out of six specified duties were not performed by the agents. The Commissioner (Appeals), however, disagreed with the ITO's decision, stating that since the commercial services by the agents were not disputed and the commission payments were verifiable, there was no justification for upholding the disallowance. The Tribunal considered the terms of the agreement between the assessee and the agents, emphasizing that the agents were obligated to render all specified services. The Tribunal rejected the ITO's approach and upheld the payment of the full commission, noting that the agents had indeed rendered the agreed-upon services. Drawing on a Supreme Court decision related to managing agency commission, the Tribunal concluded that there was no basis for disallowing any part of the commission, ultimately ruling in favor of the assessee on this issue.In conclusion, the Appellate Tribunal partially allowed the revenue's appeal, upholding the disallowance of travelling expenses under rule 6D(2) but rejecting the disallowance of commission paid to agents, emphasizing that the agents had fulfilled their obligations as per the agreement.