TaxTMI 
TaxTMI 
1974 (11) TMI 41
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....rd of directors of the assessee company passed a resolution on 17th Aug., 1964, as under:— "Resolved that Nutan Distributors be appointed Sole selling Agents on the terms and conditions laid down in the agreement and they may be paid the commission on net sales @ 2 per cent with effect from 1st Sept., 1964." The shareholders in their third annual general meeting held on 30th Sept., 1964 passed the following resolution:— "Resolved that the appointment of Nutan Distributors, as Sole Selling Agents, for the sale of flouring products in India, for the period of five years from 1st Sept., 1964 on the terms and conditions enumerated in the agreement, submitted to this meeting and approved by the board of Directors of the Company vide their resolution dt. 17th Aug., 1964, be and is hereby approved and confirmed." By an agreement dt. 23rd Sept., 1964 effective from 1st Sept., 1964, the company appointed Nutam Distributors as Sole Sellings Agents for the sale of its products for a period of five years. The said partnership firm commenced its business effective from 1st Sept., 1964 and the deed of partnership was executed on 15th Sept., 1964 between the following partners; (1....
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....ssion was disallowed for the asst. yrs. 1966-67, 1967-68 and 1968-69. In the asst. yr. 1969-70, the assessee company was again asked to justify the payment to the sole selling agents. The assessee reiterated the explanation furnished earlier and further stated that controls had been lifted on various occasions and accumulation of stocks had created special problems. Further the company had the facility of investment from Nutan Distributors, there was a guarantee of collection of debts and due to its assistance the capacity of the Mill in respect of the goods produced by its was enhanced. It was explained that the payment of commissioner to Sole Selling Agents was due to business expediency. The ITO observed that the assessment with Nutan Distributors was for five years effective from 1st Sept., 1964 but at the relevant time there was control on goods produced by the assessee. He stated he following figures of sales through the Sole Selling agents and through permits:— Asst. yr. Through Nutan Distributors Through permits issued by Food Department Total sales . Rs. Rs. Rs. 1965-66 3,67,106 18,52,559 22,19,665 1966-67 7,62,803 26,17,252 ....
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....74,870 1969-70 1,39,305 (loss) 88,740 . 1,60,624 (Loss revised) . 1970-71 3,07,659 (loss) 23,070 4. The assessee filed appeals before the AAC and for the asst. yrs. 1965-66 to 1968-69 the AAC called for a remand report vide his order dt. 27th Nov., 1970. The ITO submitted a report dt. 24th Feb., 1971. For the asst. yr. 1965-66, the AAC observed that the working of the company in the asst. yr. 1964-65 was only for a few months and in the asst. yr. 1965-66, it realised the commercial expediency of the appointment of sole selling agents. The working of the company in the earlier year would hardly be any basis for the disallowance of the commission. In the very first year of the business there could be hardly nay bad debts. He also did not agree with the ITO that the aforesaid firm was constituted by relatives of the directors and shareholders of the company. We pointed out that the shareholders of a company (whether public or private) where not debarred from undertaking any work connected with the sales of the products of a company. Similar was the position of their relatives. He observed that no attempt had been made to established a relationshi....
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....swant Sugar Mills Ltd. vs. CIT (1970) 78 ITR 154, wherein payment of commission to settling agents, after introduction of control on sale of sugar, was held to be incurred wholly and exclusively for the purposes of the business. The commission of Rs. 44,393 for the asst. yr. 1965-66 was therefore, allowed. The order for the asst. yrs. 1965-66 was followed by the AAC for the asst. yr. 1966-67, 1967-68 and 1968-69 and CIT paid to the Sole Selling Agents was fully allowed in these years. For the asst. yrs. 1969-70 and 1970-71, the AAC confirmed the ITO's finding that this expenditure was not incurred wholly and exclusively for purposes of the business. The Revenue is aggrieved by the orders of the AAC for the asst. yrs. 1965-66 to 1968-69 and the assessee is aggrieved by the order of the AAC for the asst. yrs. 1969-70 and 1970-71. 5. Before we consider the contentions of the parties it may, be clarified that the disallowance made is not sought to be supported by the Revenue by the provisions of s. 40(c). The dispute between the parties is whether the payment of commission in question is paid out or expended wholly and exclusively for the purpose of the business of the assessee and ....
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.... on the basis of which the Tribunal in that case reached the conclusion that the selling agency firm was not genuine and the agreement was only a make-believe agreement. The findings of the Tribunal in that case were held by the Supreme Court to be findings of fact. In the case before, us the selling agency agreement was executed on 23rd Sept., 1964, effective from 1st Sept., 1964 and the firm Nutan Distri butors came into existence by a deed of partnership executed an 15th Nov., 1964 effective from 1st Nov., 1964. There is no dispute about the proposition that a partnership arrangement may be oral. On the day when the selling agreement was entered into by the assessee company with Nutan Distributors the latter firm was in existence. The aforesaid judgment of the Supreme Court is, therefore, distinguishable on facts. It is true that the Board of Directors of the assessee company passed a resolution on 17th Aug., 1964 resolving that with effect from 1st Sept., 1964. Nutan Distributors may be appointed its sole Selling Agents. Nutan Distributors was not in existence on the day viz. 17th Aug., 1964 but the sole selling agency agreement was not entered into on that day. Effective from ....
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.... was a working partner and the others had no business experience and that Raghunandan Biyani himself was on the rolls of the assessee company except for a period of six months from 1st Oct., 1964 to 31st March, 1965. The contention of the learned Counsel of the assessee is that Raghunandan acted as an agent of the other partners and because of his experience and trustworthiness, they had explicit faith in him. In the case referred to above the ladies had no experience and the only male adult partner in that firm was a partner in another manufacturing concerns situated at a place quite distant from the place where the selling agency business was said to have been carried on. In the case before us the assessee's own business as also the business of Nutan Distributors is situated at Sirsa and there is no evidence on record that Raghunandan could not devote any time for the sole selling agency business. The tour expenses in the books of Nutan Distributors for various years indicated that Raghunandan used to tour a lot for the business of the sole selling agency. This contention of the learned Departmental Representative cannot also be accepted. 9. The learned Departmental Representa....
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....ers) to produce only maida and resultant 'Atta' and major changes and investment will be needed for switching over to wholemeal 'Atta'. It was in this connection that the assessee stated in that letter that its products were popular. That does not prove that the appointment of selling agents was not necessary. The learned Departmental Representative next contended that controls were in effect from 5th Sept. 1964 and therefore, appointment of selling agents was not necessary. This argument cannot also be accepted because the day when the selling agents were appointed viz. 1st Sept., 1964, there was no control. The control was not a regular feature and it went off and came on from time to time. This did not imply that the assessee should have cancelled the sole selling agency and revived the selling agency at different points of time depending on the change of the Government's decision to impose or lift the said control. The judgment in the case of Jaswant Sugar Mills vs. CIT (1970) 78 ITR 154 may be refereed to. The assessee could not provide varying rates of commission on controlled and non-controlled sales. The lifting of the control boosted up the sale in the asst. yr. 1969-70 to....
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....remises as that of the assessee and that the firm did not have separate premises. That may have been done for the sake of convenience, but Natan Distributors have separately incurred expenses which are shown in their profit and loss accounts of different years. Rent has been paid by that firm in each year and their expenses are under the heads (i) Entertainment, (ii) Travelling, (iii) General, (iv) Postage and Telegram, (v) Stationery and Printing, (vi) Salary, (vii) Rent (viii) Telephone etc. It was also argued that vide resolution dt. 30th Sept., 1964. Ambika Prasad was to look after, inter alia, the sales side on a payment of Rs. 1,200 per month w.e.f. 1st Oct., 1964 and further Shiv Rattan Biyani was paid Rs. 5,615 for the asst. yr. 1965-66 for purpose of sales and development. These payments have been made by the assessee in the interest of its own business and for business expediency and such payments do not detract the necessity of the sole selling agents. These persons were admittedly doing other work also. With the help of these persons, the assessee could not be said to have created a separate organisation of sales which may have obviated the necessity of sole selling age....
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....before the ITO. Since order books were produced by the assessee before the ITO, the aforesaid lists filed before us (page 54 to 92 of the assessee's paper book) are admitted before us. Even otherwise we would admit this evidence before it is necessary for a decision in his case. These lists of order placed by Nutan Distributors on a number of parties belonging to different places do prove the assessee's contention that services were definitely rendered by Nutan Distributors. The second piece of evidence which the learned counsel of the assessee relied upon is the profit and loss accounts of Nutan Distributors for all the six years which show the following travelling expenses :— Assessment year Travelling expenses 1965-66 3,236 1966-67 6,000 1967-68 6,127 1968-69 4,037 1969-70 7,507 1970-71 2,219 In the face of this expenditure on travelling, it cannot be doubted that services were rendered by the selling agents. The selling agents have their own separate office and details of expenses are contained in those accounts. Nutan Distributors paid commission to brokers and sub-agents. A list of 20 items showing payments to different parties o....