1972 (9) TMI 4 - SC - Income Tax

Deduction under section 37 selling agency commission: factual inquiry required; agreements not conclusive, tribunal's finding sustained.

Deduction under section 37 concerned the deductibility of selling agency commission where factual questions of firm existence and transport arrangements ... Deduction under section 37 - Selling agency commission - whether any question of law arose from the order of the Tribunal which required the Tribunal to state the case for the opinion of the High Court. - HELD THAT:- For finding out when that firm came into existence, we have to refer to the partnership deed dated April 13, 1962. That document in clear terms says that it has come into existence on that day. It is true, as is contended by Mr. Setalvad, that the selling agency agreement says that the same will come into force on April 13, 1962. But, that is not the question before us. We are here concerned with the question whether the selling agency firm existed on March 26, 1962. On that question the Tribunal's conclusion is not open to challenge. There is a discrepancy between the two documents. We may also notice at this stage the reference in the Tribunal's order to the fact that the selling agency firm had no transport vehicles of its own is based on the oral evidence in the case. The Tribunal also did not believe the oral evidence led on behalf of the assessee that the darwan of the selling agency firm went in the lorry for delivering the goods sold. In our opinion, the facts of this case come within the rule laid down by this court in Swadeshi Cotton Mills Co. Ltd. v. Commissioner of Income-tax.[1966 (9) TMI 30 - SUPREME COURT] The question whether an amount claimed as an expenditure was laid out or expended wholly and exclusively for the purpose of the business has to be decided on the facts and in the light of the circumstances in each case. The mere existence of an agreement between the assessee and its selling agents or payment of certain amounts as commission, assuming there was such payment, does not bind the Income-tax Officer to hold that the payment was made exclusively and wholly for the purpose of the assessee's business. Although there might be such an agreement in existence and the payments might have been made, it is still open, to the Income-tax Officer to consider the relevant factors and determine for himself whether the commission said to have been paid to the selling agents or any part thereof is properly deductible under section, 37 of the Act. Thus, we are of opinion that the Tribunal was justified in not stating a case for the opinion of the High Court under section 256(1) of the Act and the High Court was justified in not calling for a statement of case under sub-section (2) of section 256. In the result, this appeal fails and the same is dismissed with costs. Issues: Whether any question of law arose from the Tribunal's order requiring it to state a case under section 256(1) of the Income-tax Act, 1961 in respect of the disallowance of selling agency commission claimed as expenditure under section 37.Analysis: The Tribunal concluded as a matter of fact that the selling-agency arrangement was a make-believe device and not a genuine business arrangement, relying on several factual findings including discrepancy in dates between the alleged agreement and the partnership deed, composition of the selling-agency firm (presence of minors and relatives), common business address, lack of independent assets or transport, and doubts as to the credibility of oral evidence. The Tribunal considered the oral testimony but declined to accept it in light of surrounding circumstances; these were findings open to evaluation on the evidence. Established authorities permit interference only where a conclusion of fact is not supported by any legal evidence or is perverse. On the record, the Tribunal's conclusions were supported by material and were rationally open to it.Conclusion: The Tribunal was not obliged to state a case under section 256(1), and the High Court was justified in refusing to call for a statement of case under section 256(2); no question of law requiring such a reference arose.Final Conclusion: The appellate challenge to the Tribunal's factual conclusions fails and the appeal is dismissed.Ratio Decidendi: A reference under section 256 is required only where a question of law arises from the tribunal's order; a tribunal's factual findings that are supported by evidence and are rationally possible do not give rise to such a question of law and need not be referred for the High Court's opinion.