ALUMINIUM CORPORATION OF INDIA LTD. vs. COMMISSIONER OF INCOMETAX, WEST BENGAL

CIVIL APPEAL No. 394/1969Supreme Court[1973] 1 S.C.R. 109729 August 1972Bench: 3 JudgesAuthor: K.S. HEGDE, P. JAGANMOHAN REDDY, HANS RAJ KHANNA8 pages
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What were the facts?

The assessee, Aluminium Corporation of India Ltd., entered into an agreement with M/s. J.K. Alloys Ltd. as selling agents for its aluminium products for a period of five years from April 1, 1950. Clause 6 of the agreement stipulated that the principal (assessee) would allow discount on sales effected by the agents, or through sub-agents, or directly by the principal. Clauses 8 and 9 made the agents responsible for payment of price and for due fulfillment of contracts. The commission paid to selling agents was allowed as a deduction in earlier years. However, for the assessment year 1955-56, the Income Tax Officer disallowed the claim, holding the payment was not for business considerations. The Appellate Assistant Commissioner further held the agreement was not acted upon. The Tribunal disagreed, finding the payment was for commercial expediency and the agreement was acted upon. The High Court, in reference proceedings, held the expenditure was not wholly and exclusively for business purposes because all sales were directly effected by the assessee and not by the selling agents.

What did the Supreme Court hold?

The Supreme Court held that the High Court's jurisdiction under Section 66 of the Income-tax Act, 1922, is advisory and it cannot act as an appellate court over the Tribunal's decision. The High Court overlooked the effect of clauses 6, 8, and 9 of the agreement, the significance of prior years' deductions, and the assessee's contention that sales were canvassed by the agents. The Tribunal, after considering the agreement terms and earlier deductions, correctly concluded that the expenditure was for commercial expediency and the agreement was in force. The primary facts and factual inferences made by the Tribunal were not open to review by the High Court. The Court distinguished the facts from Swadeshi Cotton Mills Co. Ltd. v. Commissioner of Income-tax, U.P., where payments were for extra-commercial reasons. The appeal was allowed, the High Court's judgment was set aside, and the question was answered in the affirmative, in favour of the assessee. The Revenue was directed to pay costs.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 1,56,806/- was wholly and exclusively laid out for the purpose of business and as such allowable as a business expenditure, under Section 10(2)(xv) of the Income-tax Act, 1922? Assessee's contentions: The assessee argued that the High Court erred in its decision. It contended that the High Court overlooked crucial clauses (6, 8, and 9) of the selling agency agreement, the fact that commission was allowed as a deduction in earlier years, and the assessee's submission that even if sales were directly effected, they were canvassed by the selling agents. The assessee relied on Commissioner of Income-tax, Bombay v. Walchand & Co. Private Ltd. and J.K. Woollen Manufacturers v. Commissioner of Income-tax U.P. Revenue's contentions: The Revenue contended that the expenditure was not wholly and exclusively for business purposes because all sales were directly effected by the assessee and no sales were effected by the selling agents. The Revenue implicitly supported the High Court's finding.

Which sections of the Income-tax Act were involved?

Section 10(2)(xv),Section 66,Section 66A(2)

AI-generated summary — verify with the full judgment below

~ ' { \ B c D E F G ALUMINIUM CORPORATJON OF INDIA LTD. v. COMMISSIONER OF INCOME·TAX, WEST BENGAL August 29, 1972 [K. S. HEGDE, P. JAGANMOHAN REDDY AND H. R. KHANNA, JJ.] Income Tax Act 1922 s. 10(2)(xv) & 66-Exr,endilure laid out wholly and excluslVely .for business-Commission payab e to selling agents In a case whNe sales are not actually effected through selli11g agents-Construe· lion of agreement-Expenditure on such Commission whether allowable as a deduction-Question of fact 'decided by Tribrmal--High Courfs power to interfere in reference proceedings under s.

66.

Under clause (6) of the agreement between the assessee company and its Selling Agents discount was to be allowed to the Selling Agents not only on sales effected through the said Agents or sub-agents but also on sales effected directly by the Principal. Under clause (8) the Agents were res- ponsible for the payment of the priq, due from the purchasers immediately after the goods left the Principal's works or godown. Such payment had to be made on presentation of necessary papers or documents by the assessee, not later than a fortnight after the goods were despatched. In default of payment

The order continues below.

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