TaxTMI 
TaxTMI 
2002 (6) TMI 44
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....Tribunal was right in law in holding that the expenditure by way of secret commission was deductible under section 37(1) of the Income-tax Act in computing the business income of the assessee?" In addition to the above two questions referred by the Income-tax Appellate Tribunal, this court by its order dated November 1, 1995 (CIT v. Transport Corporation of India Ltd. [1996] 221 ITR 127), in I. T. C. Nos. 36 of 1992 and 22 of 1993 directed the Tribunal to refer the following question which, for convenience sake, is described as question No. 3: "3. Whether, on the material available in the case, the findings given by the Tribunal with regard to the genuineness and quantum of deductions to be allowed under the head of 'Secret commission' are perverse and based on irrelevant considerations?" The facts of the case be noted first: The assessee, viz., Transport Corporation of India Limited, Secunderabad, is one of the largest cargo movers in the country and it has more than 600 branches scattered throughout the country during the relevant previous years. According to the assessee, the business of transport of goods is highly competitive and in order to survive in the business an....
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.... for the Income-tax Department, assailed the validity of the opinion of the Tribunal by contending that in the first place, the assessee had utterly failed to place any satisfactory materials and evidence before the assessing authority to show that as a matter of fact, it paid secret commission as claimed by it during the relevant assessment years and that the Tribunal had wrongly placed the burden on the Department. Learned counsel contended that it is well settled that when an assessee claims this allowance under section 37(1) of the Act, it is his or its burden to prove that the payment was made by him or it. Learned standing counsel contended that the alleged payment made by the assessee-company is opposed to public policy and therefore, not allowable under section 37(1) of the Act. Learned standing counsel contended that the judgment of this court in CIT v. Kodandarama and Co. [1983] 144 ITR 395 and the judgment of the Bombay High Court in Goodlas Nerolac Paints Ltd. v. CIT [1982] 137 ITR 58 clinch the controversy as regards the questions referred to this court and that the questions have to be answered in favour of the Revenue and against the assessee in the light of those ju....
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....re in question should not be of the nature described under the specific provisions of sections 30 to 36 and 80VV (section 80VV was omitted with effect from April 1, 1986); (ii) The expenditure should not be of the nature of capital expenditure ; (iii) It should not be a personal expenditure; and (iv) The expenditure should have been laid out or expended wholly and exclusively for the purposes of the business or profession. It is thus clear that conditions at (i), (ii) and (iii) above are negative conditions whereas the condition at (iv) above is a positive condition. If the expenditure satisfies the negative conditions, it has to satisfy the positive condition in order to be eligible for deduction under section 37(1) of the Act. Thus, section 37(1) allows deduction of any "expenditure" subject to conditions noticed above. In Indian Molasses Co.'s case [1959] 37 ITR 66, the Supreme Court pointed out that the word "expenditure" is equal to "expense" and "expense" is money laid out by calculation and intention. But the idea of "spending" in the sense of "paying out or away" money is the primary meaning and it is with this meaning that one is concerned. "Expenditure" is thus what is "p....
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.... entitled to claim this allowance under section 37(1) of the Act. In CIT v. Chandravilas Hotel [1987] 164 ITR 102 (Guj), it is held that if the expenditure is doubted by the assessing authority, it is the duty of the assessee to prove by leading evidence that the expenditure was in fact, incurred. In the premise of the above noticed well established principles, let us proceed to examine whether these necessary conditions existed to claim this allowance under section 37(1) of the Act and whether the assessee discharged the burden cast on it. The details of the total receipts, commission payments and amount of commission disallowed for the assessment years 1981-82 to 1984-85 are as under: --------------------------------------------------------- A.Y Total receipt Commission Commission (Rs.) (Rs.) (Rs.) -----------------------------------------------....
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.... Tribunal has no legs to stand in law. The law is otherwise. As noticed supra, the burden is on the assessee who claims this allowance under section 37(1) of the Act to place necessary materials and establish his claim and it is not for the Income-tax Officer to independently collect evidence and prove that the deduction claimed by the assessee is baseless. Nextly, the mere fact that before the assessment year 1981-82, the Income-tax Officer had allowed similar claims of the assessee cannot be a ground to allow this allowance without examining whether necessary conditions existed to allow this allowance under section 37 of the Act in terms of the statute or not and whether the assessee had discharged the burden cast on him with regard to the subsequent assessment years. Allowance or disallowance of a claim under section 37(1) of the Act should depend upon the existence or non-existence of the four conditions stated above and depending upon the answer to the question whether the assessee has discharged the burden cast on him or not. Therefore, it is not open for the Tribunal or for the court to allow this allowance solely on the ground that in respect of certain previous years su....
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....ce proceedings, cannot go beyond the facts found. However, the apex court in the said decision was pleased to observe that where the High Court is of the view that it is requisite that facts other than those found need to be ascertained, it must call upon the Tribunal to submit a supplemental statement of the case. In the instant case, as noticed above, this court by its order dated November 1, 1995 (CIT v. Transport Corporation of India Ltd. [1996] 221 ITR 127) in I.T.C. No. 36 of 1992 and 22 of 1993 directed the Tribunal to refer question No. 3 extracted above for its opinion as a supplemental question, and accordingly the Tribunal has referred the supplemental question No. 3. Therefore, the decisions cited by learned counsel for the assessee reported in CIT v. A.S.K. Rathinasamy Nadar [1995] 212 ITR 527 (Mad) and CIT v. Goodlass Nerolac Paints Ltd. [1991] 188 ITR 1 (Bom), in support of the plea that this court cannot go beyond the findings of fact recorded by the Tribunal in deciding these references are of no help to the assessee in the context of this case, where the court finds that the finding of fact recorded by the Tribunal is perverse in the sense that it is not based on ....
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....stated that the accounts of the assessee-company were subjected to audit and the auditors, in their report, did not raise any doubt about the payment of secret commission; the auditors' report did not contain any whisper or doubt regarding payment of secret commission. So opining, the Tribunal has recorded the finding that the assessee had paid the secret commission which was incidental to its business. If the above finding of the Tribunal is not based on evidence or is based on irrelevant materials and factors, such a finding, though a finding of fact, cannot be a basis to allow deduction under section 37(1) of the Act. The finding recorded by the Tribunal is solely based on surmises and conjectures. All the reasons stated by the Tribunal to record the finding of fact, in our considered opinion, are totally irrelevant and perverse to the decision-making. The Tribunal has not addressed itself to the relevant questions properly to see whether the necessary conditions existed or not to allow deduction under section 37(1) of the Act and whether the assessee has discharged the burden cast on it. The whole approach of the Tribunal is erroneous. The Tribunal, in recording the above findi....
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....he Supreme Court in Sassoon J. David's case [1979] 118 ITR 261, held that the necessary conditions did exist and that the expression "wholly and exclusively" occurring in sub-section (1) of section 37 of the Act, does not mean "necessarily". In other words, according to the Tribunal, ordinarily it is for the assessee to discharge whether any expenditure should be incurred in the course of his business or trade and such expenditure may be incurred voluntarily and without any necessity and if such expenditure is incurred, even voluntarily for promoting the business interest and to earn profits, the assessee is entitled to claim deduction under sub-section (1) of section 37 of the Act, though there is no compelling necessity to incur such expenditure. There cannot be any quarrel with the above proposition. But the question is whether such payment is made either to the petty brokers or to the employees of the customers of the assessee-company. The assessing authority, after appreciation of the entire materials collected by him and placed before him, has recorded the finding that the payment of secret commission is not established. Such a finding recorded by the assessing authority and ....