COMMISSIONER OF INCOME TAX vs. ANNAPURNA FIBRES PVT. LTD.

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ITA/137/1998HC GujaratGJHC24024175199818 August 1998Author: HONOURABLE MR. JUSTICE R.K.ABICHANDANI,HONOURABLE MR. JUSTICE ANIL R. DAVE3 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the ITAT's finding that the commission payments were made for services rendered by the commission agents, based on a written agreement, is a finding of fact. The Tribunal considered the grounds that weighed with the appellate authority, including the lack of infrastructure for the commission agents. The Court found that the Department failed to prove that the payments were in excess of what would be receivable for such services in the market or that Section 40A(2) was attracted. The genuineness of the written agreement was not disputed, and similar payments had been allowed in the past. Therefore, the matter rested entirely on findings of fact and did not raise any substantial question of law. The application for calling for a statement of the case was rejected.

What were the facts?

The Commissioner of Income Tax (CIT) filed an application before the High Court of Gujarat under Section 256(2) of the Income-tax Act, 1961, seeking to call for a statement of the case from the Income Tax Appellate Tribunal (ITAT). The ITAT had previously rejected the CIT's application under Section 256(1) to refer certain questions of law to the High Court. The ITAT's decision was based on its finding that the commission payments made by the assessee, Annapurna Fibres Pvt. Ltd., were for services rendered by commission agents under a written agreement. The CIT (Appeals) had initially upheld the disallowance of these payments.

What were the issues?

1. Whether the Appellate Tribunal correctly appreciated the facts on record to direct the Assessing Officer to allow the alleged commission payments in toto? (Question of fact) 2. Whether the Appellate Tribunal ought not to have appreciated that these alleged payments were nothing but diversion of profits for which there was no agreement? (Question of mixed law and fact, concerning Section 40A(2) of the Income-tax Act, 1961) 3. Whether the Appellate Tribunal, in the facts and circumstances of the case, ought not to have appreciated that the transactions were nothing but a ruse or a subterfuge to divert profits? (Question of mixed law and fact) Assessee's Contentions: Not recorded in the judgment. Revenue's Contentions: The Tribunal failed to consider relevant facts that led the CIT (Appeals) to uphold the disallowance, specifically the lack of staff, office, and telephone facilities for the commission agents to attend to their work. The payments were merely a diversion of profits without any agreement and constituted a ruse or subterfuge.

Which sections of the Income-tax Act were involved?

Section 256(2),Section 256(1),Section 40A(2)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX APPLICATION No 137 of 1998

For Approval and Signature:

Hon'ble MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE A.R.DAVE ============================================================ 1. Whether Reporters of Local Papers may be allowed to see the judgements? Yes

2.

To be referred to the Reporter or not?

3.

Whether Their Lordships wish to see the fair copy of the judgement?

4.

Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be circulated to the Civil Judge?

2 to 5: No -------------------------------------------------------------- COMMISSIONER OF INCOME TAX Versus ANNAPURNA FIBRES PVT. LTD. -------------------------------------------------------------- Appearance: MR MANISH R BHATT for Petitioner MR RK PATEL for Respondent No. 1

--------------------------------------------------------------

CORAM : MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE A.R.DAVE Date of decision: 18/08/98

ORAL JUDGEMENT (per R.K. Abichandani, J.)

The petitioner has suggested the following questions for calling for the statement of the case from the Income Tax Appellate Tribunal under Sec. 256(2) of the Income-tax Act, 1961. "

1.

Whether the Appellate Tribunal has correctly appreciated the facts on record so as to direct the Assessing Officer to allow the alleged commission payments in toto?

2.

Whether the Appellate Tribunal ought not to have appreciated that these alleged payments were nothing but diversion of profits for which there was no agreement?

3.

Whether the Appellate Tribunal in the facts and circumstances of the case ought not to have appreciated that the transactions were nothing but a ruse or a subterfuge so as to divert the profits?"

2.

An application under sec. 256(1) of the Act was made before the Tribunal for referring the aforesaid questions for the opinion of the court and the Tribunal, by its order dated 26th September 1997, rejected the same on the ground that its decision was based on findings of fact to the effect that the commission agents had rendered services for which the payments were made under a written agreement.

3.

The learned counsel appearing for the petitioner contended that the Tribunal has not taken into account the relevant fact which weighed with the CIT (Appeals) who upheld the disallowance. It was argued that the CIT (Appeals) had considered the fact that there was no staff, no office, no telephone facility etc. in order to show that commission work was being attended to.

4.

The record established that there was a written agreement between the assessee company and the commission agent by which the commission agent was responsible for recovering payment from the customers of the assessee company. Under the said agreement, it was the duty of the commission agent to procure business of the assessee from the party only after verifying the creditworthiness of the customers. Referring to the written agreement, the Tribunal found that both the commission agents recovered not only the sale proceeds but also interest due from the parties. They had confirmed this fact in their statements. It was also proved that the commission agents looked into the creditworthiness of the parties effectively. The Tribunal held from the record that the Department did not prove that payments made by the assessee to the commission agents were in excess of the payments which would be receivable for such services by other parties in the market. It also held that the Department failed to prove that the provisions of Sec. 40A(2) of the Act were attracted to the facts of the case. The genuineness of the written agreement was never in dispute. Payments were made in the past and such amounts were allowed. The Tribunal, therefore, did not find any fresh compelling facts for not allowing the amount during the year in question. According to us, the finding of the Tribunal that the payment as claimed by the assessee was, in fact, made for the services rendered by the commission agents, is a finding of fact which is based on the material on record. The Tribunal did consider the grounds which had weighed with the appellate authority including the ground that there was no infrastructure for rendering services of commission agents. Therefore, it cannot be said that the finding of the Tribunal is perverse on the ground that material evidence has been omitted from its consideration. In our opinion, the matter does not raise any question of law and entirely rests on findings of fact.

3.

This application is, therefore, rejected. Rule is discharged with no order as to costs.

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