THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY and THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM
I.T.T.A. No. 109 of 2002
% 20.08.2014
Between:
# The Commissioner of Income Tax.
Versus $ M/s.Transport Corporation of India.
...
APPELLANT ...RESPONDENT < Gist:
> Head Note:
! COUNSEL FOR THE APPELLANT :- Sri J.V.Prasad ^COUNSEL FOR RESPONDENT :-Sri Y.Ratnakar ? Cases Referred:
1. 256 ITR 701
2. 188 ITR 6 (Bombay) THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY AND THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM ITTA No.109 of 2002
JUDGMENT: (per the Hon’ble Sri Justice L.Narasimha Reddy)
This appeal is preferred by the Revenue against the order, dated 31.10.2000, passed by the Income Tax Appellate Tribunal, Hyderabad Bench ‘A’ (for short ‘the Tribunal’) in I.T.A.No.1327/Hyd/92.
Briefly stated the facts are that the respondent, which mainly carries on the activity of the transport, filed its return for the assessment year 1988-89. Apart from other items, the respondent claimed deduction of a sum of Rs.1,19,30,493/- under Section 37 (1) of the Income Tax Act (for short ‘the Act’) towards payment of secret commissions to promote its business. The Assessing Officer disallowed the same through order, dated 27.03.1991. Aggrieved by that, the respondent filed an appeal before the Commissioner of Appeals. Through an order, dated 10.12.1991, the Commissioner took the view that the said amount is allowable in view of the orders of the Tribunal in Appeal Nos.978 and 979/Hyd/88 for the assessment years 1983-84 and 1984-85 in respect of this very respondent. The appellant filed further appeal before the Tribunal feeling aggrieved by the order of the Commissioner. The appeal, to that extent, was dismissed. Hence, this appeal under Section 260 A of the Act.
Sri J.V.Prasad, learned Standing Counsel for the appellant, submits that the very description of the amount claimed as deduction is opposed to law and nowhere in the Act, the secret commission is treated as an allowable deduction. He submits that in respect of the respondent itself, this Court in COMMISSIONER OF INCOME TAX Vs. TRANSPORT
[1]
CORPORATION OF INDIA LTD. held that such commissions are not payable and still, the Commissioner and the Tribunal allowed it. He submits that whatever may have been the basis for the Commissioner as well as the Tribunal to take the view as they did regarding the secret commission, the same is not permissible in view of the judgment referred to above.
Sri Y.Ratnakar, learned counsel for the respondent, on the other hand, submits that the judgment referred to above was on facts, and nowhere it was held that the secret commission, if proved to have been paid, is not allowable under Section 37 (1) of the Act. He contends that disallowance of the amount under that head in the said case was on account of the fact that the particulars were not furnished nor any plea was raised to the effect that the disclosure of the names of the recipients of the commission would be detrimental to the interest of the assessee.
The only dispute is about the secret commission said to have been paid by the respondent, being a sum of Rs.1,19,30,493/- for the concerned assessment year. The Assessing Officer took the view that it is not permissible in law. On facts also, he was not satisfied. In the appeal preferred by the respondent, the contention in this behalf was dealt with in para 14 as under:
“The 7th ground of appeal is the disallowance of Rs.1,19,30,493/- out of commission payments not proved. The question of secret payment of commission had been decided by the ITAT. Following the decision of the ITAT in Nos.978 & 979/Hyd/88 for the assessment year 1983-84 and 1984-85 by their order, dated 11.05.1990, I direct that this disallowance be restricted to Rs.50,000/-. “ Obviously because there was an order of the Tribunal on that very aspect, the Commissioner did not feel it necessary to deal with the matter in detail and accordingly, did not discuss the relevant facts, be it as regards the particulars of payment, or the persons to whom it was paid. In the appeal preferred by the Revenue, the Tribunal dealt with the contentions in detail. While the Revenue pleaded that the claim itself is impermissible in law, the respondent pleaded that there is no prohibition as such. As regards particulars, it is stated that not only the item-wise expenditure, but also the names of the persons to whom the payments were made were available on record. The Tribunal agreed with the Commissioner. The judgment referred to above does not have a direct relevance to the case on hand. Incidentally, the parties to the present appeal are parties to the reference in that case. The following questions were referred to this Court:
(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in coming to the conclusion that the payments claimed to have been made under the head “secret commission’ is not opposed to public policy and is an admissible item of deduction in the computation of the total income of the assessee?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the expenditure by way of secret commission was deductible under Section 37 (1) of the Income Tax Act in computing the business income of the assessee?
(3) Whether, on the material available in the case, the findings given by the Tribunal with regard to the genuineness and quantum of deductions to be allowed under the head of ‘secret commission’ are perverse and based on irrelevant considerations?"
The third question was answered in favour of the Revenue and in that view of the matter, the answer to questions 1 and 2 was held to be not necessary.
We have gone through the judgment in detail. It is difficult to discern from it that a principle was laid to the effect that the secret commission as such cannot be paid at all, and if paid, cannot be deducted under Section 37 (1) of the Act. Some cloud on the meaning of the expression “secret commission” needs to be cleared. At the first blush, it may give an impression that the expenditure was incurred for undertaking some clandestine activities. In fact, it is not so. The secret commission referred to in the orders of assessment or the subsequent judgments, is the amount, which is paid to certain individuals or agencies, that provide transport business to the respondent. Beyond that, it has no taint of illegality or secrecy.
The respondent relied upon the judgment of the Bombay
[2]
High Court in C.I.T. Vs. SIGMA PAINTS LTD. . In that case, the assessee furnished not only the details of commission paid transaction-wise, but also established that it tallies with the total turnover. However, the assessee refused to furnish the names of the persons to whom commission was paid by pleading that the disclosure of the names would be detrimental to its interest. That plea did not weigh with the authorities under the Act including the Tribunal. In the reference made to it, the Bombay High Court took the view that if the disclosure of the names of the recipients of the commission is detrimental to the interest of the assessee, it cannot be compelled and the corresponding amount cannot be disallowed as deduction as long as payments are genuine and for the purpose of business.
The basis for this Court to answer a question against the assessee in TRANSPORT CORPORATION OF INDIA LTD’s case (one supra) is that firstly the item-wise expenditures were not furnished in the returns and no plea was raised to the effect that disclosure of the names of the recipients of the commission would be detrimental to the interest. Relevant portion of the judgment reads as under:
“In the instant case, as noticed supra, firstly the payment itself is not established and secondly it is not the case of the assessee before the assessing authority that the particulars of the persons to whom secret commission was paid could not be supplied without detriment to the business of the assessee having regard to the nature of the business of transport of cargo carried on by the assessee-company. Looking from that angle, the above judgment of the Bombay High Court has no bearing to the facts of this case.”
In the case on hand, the respondent pleaded that it has furnished the particulars of not only the quantum of payment transaction-wise, but also the names of the persons to whom the commission was paid.
We have already observed that the Appellate Authority did not deal with that aspect, obviously because it relied upon the order passed by the Tribunal in respect of the very assessee. Now that a view is expressed by this Court that the deduction cannot be claimed as a matter of course, and it can only be on complying with the two requirements, namely (a) the particulars of the amounts paid as commission are furnished transaction-wise and ultimately they are correlated to the turnover and (b) the names of the recipients are (i) furnished in the returns or (ii) a plea is raised to the satisfaction of the Assessing Authority that the disclosure of the names of the recipients is detrimental to the interest of the assessee. Those two important factors have not been addressed by the Appellate Authority. We are of the view that the matter needs to be remanded for fresh consideration and disposal.
We, therefore, allow the appeal and set aside the orders passed by the Tribunal as well as the Commissioner. The matter is remanded to the Commissioner for fresh disposal in accordance with law. There shall be no order as to costs.
The miscellaneous petitions, if any, filed in this appeal shall also stand disposed of.
L.NARASIMHA REDDY,J Dt:20.08.2014 Note: L.R. copy to be marked. kdl RAM,J CHALLA KODANDA
[1] 256 ITR 701
[2] 188 ITR 6 (Bombay)