BELLISS and MORCOM (INDIA) LTD. vs COMMISSIONER OF INCOME TAX.

SUHAS CHANDRA SEN, J. :

The Tribunal has referred the following three questions of law of this Court under s. 256(1) of the IT Act.

"1. Whether on the facts and in the circumstances of the case the Tribunal was justified in holding that the selling agents commission of Rs. 30,000 and Rs. 11,675 paid to M/s. Sunder Electric Mart and Shri A. N. Shukla was not paid out or expended wholly and exclusively for the purpose of assessees business ?

Whether on the facts and in the circumstances of the case the Tribunal was justified in holding that the Technical Service Fees amounting to Rs. 35,617.50 payable to Belliss & Morcom Ltd. U.K. under the agreement dated 30th December, 1974 subsequently confirmed by a debit note issued on 21st June, 1977 in terms of the said agreement, was not an expenditure allowable in the asst. yr. 1978-79 ?

Whether on the facts and in the circumstances of the case the Tribunal was justified in holding that the expenses incurred by the applicant amounting to Rs. 48,778 in respect of packages of goods are not entitled to additional deduction under s. 35B of the IT Act ?"

The assessment year involved in this Reference is the asst. yr. 1978-79, for which the relevant period of account is year ending on 31st December, 1977.

In the first question, the finding of fact made by the Tribunal has not been challenged. Specific finding of fact by the Tribunal is that the IAC had disallowed the claim of the assessee on the ground that the assessee failed to produce any necessary supporting evidence or details regarding the services rendered by the selling agent. The CIT (A) while confirming the finding of the IAC held that sufficient justification was not made out for these payments. The Tribunal upheld the additions by pointing out that the counsel for the assessee was unable to produce any supporting evidence in regard to the actual services rendered by the two selling agents. The Tribunal thus held as follows :

"We have considered the submissions of the parties concerned and we are of the opinion that the CIT(A)s order does not require any interference in this regard. The assessees learned counsel was unable to produce before us any evidence in regard to the actual services rendered by the two selling agents. It is also found from the IACs order that the assessee, in spite of opportunity given, as per letter dated 6th March 1981, did not furnish any supporting evidence nor details in regard to the exact nature of the orders produced (sic-procured) by the two selling agents. Besides stating that the payments have been authorised by the Board of Directors and that two sum of Rs. 30,000 and Rs. 11,875 have been paid by account payee cheques, no other evidence has been produced to show that M/s. Sunder Electric Mart and Shri A. N. Shukla procured orders by rendering special services to the assessee-company and consequently we are satisfied that the expenditure claimed was not laid out or expended wholly and exclusively for the purpose of assessees business. Both the additions are accordingly upheld."

In view of the facts found by the Tribunal, which have not been challenged as perverse, the question No. 1 must be answered in the affirmative and in favour of the Revenue.

The second question relates to disallowance of Rs. 40,346 being adjustments relating to previous years. The Tribunal in the Statement of Case has recorded its finding as follows :

"We have considered the submissions of the parties of concerned. In regard to the first sum of Rs. 4,746 it is found on a perusal of the journal entries dated 31st December, 1976 about which necessary evidence has been furnished now before us, that a sum of Rs. 6,329.11 has been debited to suspense account being the amount due as on 31st December, 1976 to Gokok Patel Wolkart Ltd. and a further sum of Rs. 998.55 has been debited to commission account by crediting suspense account. The evidence so furnished do not clarify the point raised by the IAC -whether commission payable to Gokok Patel Wolkart Ltd. was credited twice during the accounting year ending 31st December, 1976. The assessees counsel, however, agreed to furnish necessary evidence in that regard in case another opportunity was given to the assessee. We accordingly restore the matter on the IACs file with a direction to examine afresh whether the assessees contention that a sum of Rs. 4,746.74 was credited twice in the account relevant to 1976 was correct or not. In case the assessee is able to produce necessary evidence in that regard, the said sum of Rs. 4,746 should be allowed in recomputing the assessees income for the assessment year under appeal while giving effect to this order.

In regard to the technical fees payable to the assessees Holding Company in U.K. amounting to Rs. 35,617.50 we are satisfied that the assessees liability for payment of this amount arose on 30th December, 1974 when the terms of the original agreement were revised w.e.f. 1st April, 1974. The assessee was aware of its liability as and when the agreement was entered into with its U.K. principals. The subsequent receipt of the debit note from the U.K. principals, in our opinion cannot entitle the assessee for deduction of the said amount on accrual basis. The addition of Rs. 35,617.50 is accordingly upheld."

So far as the addition of Rs. 35,617.50 is concerned, the assessee was given an opportunity to appear and furnish necessary evidence in support of its claim and the Tribunal directed the IAC to examine afresh whether the assessees contention that a sum of Rs. 4,746.74 relating to year 1976 was correct or not. So far addition of Rs. 35,617 is concerned, the Tribunal has found that the terms of the original agreement were given effect to w.e.f. 1st April, 1974 and the liability for payment arose on 31st December, 1974. The Tribunal has also found that the assessee was aware of the liability as and when the agreement was entered into. If that be so, the Tribunal was right in holding that the assessee was not entitled to obtain any deduction of the said amount on accrual basis in this year of account. There is no dispute that the assessee was following mercantile system of accounting.

It has been sought to be argued that the Tribunal has misunderstood the facts. The assessee has filed a rectification application in which all the facts have been brought out before the Tribunal but it wrongfully rejected the said rectification application. If that be so, a question of law could have been raised on that point but at this stage, this point cannot be allowed to be urged.

On the facts that have been brought on record and the facts found by the Tribunal in its appellate order, the question No. 2 must also be answered in the affirmative and in favour of the Revenue.

The last question to weighted deduction. The Tribunal found that : "Weighted deduction claimed on expenditure of Rs. 1,32,368, the admissible amount was computed in the assessment at Rs. 41,795 on export market development expenditure of Rs. 83,590. The expenditure disallowed was Rs. 48,778 which, according to IAC related to Freight and Carriage. During the course of hearing before us the assessees learned counsel stated that the sum mentioned in ground No. 1, i.e. Rs. 24,389 related to the expenditure incurred on package of goods. The learned counsel conceded that the expenditure claimed to the tune of Rs. 24,389 was not to be allowed as a deduction in view of the decision of the Tribunal Special Bench, Bombay in the case of J. Hemchand & Co. (ITA Nos. 3255 & 3330/Bom/76-77) dated 17th June, 1978 but the appeal was filed to keep the matter alive as the appeal against the said Special Bench decision is pending before the Bombay High Court."

The Tribunal ultimately held that the "addition has been rightly upheld by the CIT(A) on the basis of the Special Bench Decision."

The Advocate appearing for the assessee had conceded the point before the Tribunal that in view of the decision of the Special Bench the assessee was unable to show how the Tribunal had gone wrong on this point.

In view of the above, the question No. 3 must also be answered in the affirmative and in favour of the Revenue.

In view of the aforesaid, all the three questions are answered in the affirmative and in favour of the Revenue.

There will be no order as to costs.

BHAGABATI PRASAD BANERJEE, J. :

I agree.