Law: Income Tax Act, 1961

Section: 40

Income-tax----Reference---Payments not deductible ---Assessee-firm paying commission at 6% to its sole selling agent for procuring orders ---I.T.O. disallowing commission on ground that two of the partners of assessee-firm were partners of firm carrying on sole selling agency---Tribunal finding that the two partners of sole selling agency firm obtained huge orders for assessee resulting in higher sales---Tribunal holding that, on facts, 4 percent. commission paid was reasonable---Quantum of commission paid is a question of fact---Tribunal's finding was justified. For the assessment year 1976-77, the assessee-firm claimed deduction of commission paid at 6 percent. to its sole selling agent for procuring orders. The Income-tax Officer disallowed the claim on the ground that two of the partners of the assessee-firm were partners of the firm carrying on the sole selling agency and since no work was done by the sole selling agency, he held that the commission paid was unreasonable. The Commissioner of Income-tax (Appeals) found that one of the partners of the sole selling agency firm had travelled throughout India to collect orders which increased the sales of the assessee and held that 2 percent. commission would be reasonable and disallowed, the rest. The Tribunal found that two of the partners of the sole selling agency firm had gone around the country and had obtained huge orders for the products of the assessee-firm resulting in higher sales and, therefore, held that 4 per cent commission would be reasonable and disallowed the rest. On a reference: Held, that whether the commission paid was reasonable or not was largely a question of fact. Considering the agreement of sole selling agency and all facts and circumstances of the case, no question of law or even a mixed question of law and fact arose for decision. Moreover, on the basis of facts taken into consideration by the Tribunal, it could not be said that the Tribunal was not justified in allowing further 2 percent. commission as admissible under section 40A(2) of the Income-tax Act, 1961. Upper India Publishing House P. Ltd. v. C.I.T. 1979 117 ITR 569 (S C) and Narain Motors v. C.I.T. (1979) 120 I T R 106…

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