TaxTMI 
TaxTMI 
2018 (5) TMI 1162
X X X X Extracts X X X X
X X X X Extracts X X X X
....rs/Managing Director of the respondent assessee. 3.It appears that the assessee paid commission of Rs. 349.37 lakhs to Sri.E.K.Parthasarathy, the Chairman cum Managing Director of the assessee towards profit commission in the assessment year 2010-11. His salary during the aforesaid year was Rs. 32 lakhs. In the following assessment year, that is, 2011-12, when Sri E.K.Parthasarathy's total salary was Rs. 60 lakhs, he was paid commission of Rs. 371.86 lakhs and in 2012-13, when his total salary was Rs. 60 lakhs, he was paid commission of Rs. 347.01 lakhs. 4.It appears that the commission was computed at the rate of 20% of the profit of the assessee before tax. The Assessing Officer found that the amount of commission paid to Sri.Parthasarathy fell within the ambit of Section 40A(2) of the Income Tax Act, 1961, hereinafter referred to as 'the said Act', which is set out herein below for convenience. Expenses or payments not deductible in certain circumstances. 40A. (1) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provision of this Act relating to the computation of income under the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....allow deduction of so much of the expenditure as is considered by the Assessing Officer to be excessive or unreasonable. In the assessment orders for the years in question, the Assessing Officer deleted the expenditure as aforesaid on profit commission of Rs. 349.37 for the Assessment Year 2010-11, Rs. 371.86 lakhs for the Assessment Year 2011-12 and Rs. 347.01 for the Assessment Year 2012-13 holding the same to be unreasonable. 6.The Assessing Officer disallowed the profit commission inter alia on the following grounds: "(1)The phenomenal increase in the requirement of Automatic Slack Adjusters was attributable to change in Government policies rather than to individual efforts of Mr.Parthasarathy; (2)The increase in sales in the preceding two years was mainly due to the entry into the Russian Market and the person who was instrumental for this, Mr.John Bruce, had been rewarded separately; (3)Though the payment of commission is granted by the Board of Directors, the major shareholding is in the hands of family members of Mr.Parthasarathy. The resolution of the Board and approval of the shareholders was under the influence of Mr.Parthasarathy; and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o as the Appellate Tribunal. The Appellate Tribunal upheld the decision of the Appellate Commissioner in this regard and dismissed the Cross Appeals filed by the Revenue insofar as the Cross Appeals related to profit commission paid to Mr.E.K.Parthasarathy. The Appellate Commissioner and the learned Appellate Tribunal have concurred in their finding that the profit commission paid to Mr.E.K.Parthasarathy was neither unreasonable nor excessive. The finding is on facts. The question is whether the appeals can be entertained. 12.Section 260A of the Income Tax Act, 1961, provides as follows: "Section 260A. Appeal to High Court. (1) An appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal before the date of establishment of the National Tax Tribunal, if the High Court is satisfied that the case involves a substantial question of law. ....... (3) Where the High Court is satisfied that a substantial question of law is involved in any case, it shall formulate that question. (4) The appeal shall be heard only on the question so formulated, and the respondents shall at the hearing of the appeal, be allow....
X X X X Extracts X X X X
X X X X Extracts X X X X
....would, in our opinion, be whether it is of general public importance or whether it directly and substantially affects the rights of the parties and if so whether it is either an open question in the sense that it is not finally settled by this Court or by the Privy Council or by the Federal Court or is not free from difficulty or calls for discussion of alternative views. If the question is settled by the highest court or the general principles to be applied in determining the question are well settled and there is a mere question of applying those principles or that the plea raised is palpably absurd the question would not be a substantial question of law." 17.In Dy. Commr. v. Rama Krishna Narain, reported in AIR 1953 SC 521 : 1954 SCR 506, the Supreme Court held that a question of law of importance to the parties was a substantial question of law entitling the appellant to a certificate under (the then) Section 100 CPC. 18.In Santosh Hazari v. Purushottam Tiwari, reported in (2001) 3 SCC 179, the Supreme Court held: "To be substantial a question of law must be debatable, not previously settled by law of the land or a binding precedent, and must have a material bear....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pra, are: "(i) An inference of fact from the recitals or contents of a document is a question of fact. But the legal effect of the terms of a document is a question of law. Construction of a document involving the application of any principle of law, is also a question of law. Therefore, when there is misconstruction of a document or wrong application of a principle of law in construing a document, it gives rise to a question of law. (ii) The High Court should be satisfied that the case involves a substantial question of law, and not a mere question of law. A question of law having a material bearing on the decision of the case (that is, a question, answer to which affects the rights of parties to the suit) will be a substantial question of law, if it is not covered by any specific provisions of law or settled legal principle emerging from binding precedents, and, involves a debatable legal issue. A substantial question of law will also arise in a contrary situation, where the legal position is clear, either on account of express provisions of law or binding precedents, but the court below has decided the matter, either ignoring or acting contrary to such legal pr....