COMMISSIONER OF INCOME TAX vs. JAGFASHION TEXTILE MILLS PVT.LTD.

ITR/23/1995HC GujaratGJHC24022348199501 December 2005Author: HONOURABLE MR. JUSTICE D.A.MEHTA,HONOURABLE MS. JUSTICE HARSHA DEVANI4 pages
AI SummaryAllowed

What were the facts?

The assessee is Jagfashion Textile Mills Pvt. Ltd. and the revenue is the Commissioner of Income Tax. The assessment year is 1985-86. The Assessing Officer disallowed Rs. 5,15,038/- towards sales commission, treating it as sales promotion expenses, under Section 143(3) of the Income Tax Act, 1961. The CIT(A) confirmed this disallowance, noting that commission was paid for effecting sales but upholding the order due to the absence of a written agreement. The Income Tax Appellate Tribunal, Ahmedabad Bench 'A', in further appeal, followed decisions of the Calcutta High Court and directed the exclusion of Rs. 5,33,336/- paid as sales commission from the disallowance under Section 37(3A). The revenue has filed this reference before the High Court.

What did the High Court hold?

The High Court held that the Appellate Tribunal was justified in law and on facts in excluding the amount of Rs. 5,33,366/- on account of sales commission while quantifying the disallowance under Section 37(3A) of the Income Tax Act, 1961. The Court applied the ratio of its own decision in the case of Commissioner of Income Tax vs. Zippers India (Supra). The reasoning is that the issue has been authoritatively decided by the High Court in favour of the assessee in a similar case. The ratio decidendi is that sales commission paid for effecting sales, when properly evidenced, should not be disallowed under Section 37(3A) if the Tribunal's finding is based on facts and established legal precedent. The question referred to the Court is answered in the affirmative, in favour of the assessee and against the revenue. The reference stands disposed of accordingly.

What were the issues?

1. Whether the Appellate Tribunal is right in law and on facts in excluding the amount of Rs. 5,33,366/- on account of sales commission while quantifying disallowance under Section 37(3A) of the Income Tax Act, 1961? Assessee's contentions: The judgment does not record specific contentions made by the assessee before the High Court. However, the Tribunal's decision, which the High Court is considering, followed the Calcutta High Court's decisions in CIT vs. Hindustan Motors Ltd. (1991) 192 ITR 619 and CIT vs. Sutlej Cotton Mills Ltd. (1992) 194 ITR 66, implying that sales commission paid for effecting sales should not be disallowed under Section 37(3A). Revenue's contentions: The revenue, represented by the Commissioner of Income Tax, has challenged the Tribunal's order. The learned Senior Standing Counsel for the revenue fairly pointed out that the issue is concluded by a decision of the High Court in the case of Commissioner of Income Tax vs. Zippers India, I.T.R No.141 of 1994, decided on 5/10/2005, in favour of the assessee.

Which sections of the Income-tax Act were involved?

Section 37(3A),Section 143(3),Section 256(1)

AI-generated summary — verify with the full judgment below

ITR/23/1995 1/4 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE No. 23 of 1995 For Approval and Signature: HONOURABLE MR.JUSTICE D.A.MEHTA HONOURABLE MS.JUSTICE H.N.DEVANI ============================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ============================================================== COMMISSIONER OF INCOME TAX - Applicant(s)

Versus JAGFASHION TEXTILE MILLS PVT.LTD. - Respondent(s) ============================================================== Appearance : MR MANISH R BHATT for Applicant(s) : 1, NOTICE UNSERVED for Respondent(s) : 1, ================================================================== CORAM :  HONOURABLE MR.JUSTICE D.A.MEHTA and HONOURABLE MS.JUSTICE H.N.DEVANI Date : 01/12/2005 ORAL JUDGMENT (Per : HONOURABLE MS.JUSTICE H.N.DEVANI) 1.

The order continues below.

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