V.N.Khare,J. - (1.) This is a reference under Section 256(1) of the Income-tax Act, 1961, for the assessment year 1985-86, at the instance of the Commissioner of Income-tax, West Bengal-Ill, Calcutta. The Income-tax Appellate Tribunal, Calcutta, has referred the following two questions for answer to this court : " (1) Whether, on the facts and in the circumstances of the case, the finding of the Tribunal that commission of Rs. 5,00,000 paid to IPCO Trading Company was for the purpose of business is based on any relevant material or arbitrary and thereby deleting the disallowance of Rs. 5,00,000 made in the assessment ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the consultancy fee of Rs. 7,50,000 paid by the assessee to Sri N. K. Tapuriah, a director of the company did not fall within the purview of Section 40(c)(i) of the Income-tax Act, 1961, and thereby deleting the addition of Rs. 6,48,000 made in the assessment ?"
(2.) The facts giving rise to the above two questions are these that under an agreement the assessee-company, viz., R. M. Investment and Trading Co. (P.) Ltd., was to render consultancy services to Boeing Company of USA for promotion of their sales of various types of Boeing aircraft in India. In return, the assessee was to receive commission on sale of such aircraft. The USA company used to remit a substantial amount to the assessee-company as service charges to meet various overhead expenses for canvassing sales of their aircrafts. The service charges were to be adjusted against the commission due on sale but the service charges received by the assessee were not liable to be refunded to the USA company even if there was no sale of any aircraft in a particular year. During the relevant assessment year, the assessee received service charges as in the assessment year 1984-85 and claimed expenses against the receipt as in that year. The Assessing Officer disallowed the claim. On appeal both the learned Commissioner of Income-tax (Appeals) and the Tribunal upheld the claim of the assessee. It is in this background the abovequoted two questions have been referred to us for answer.
(3.) Learned counsel appearing for the Department argued that the sum of Rs. 5,00,000 which was paid to IPCO Trading Company was in the nature of commission and, as such, it was not for the purpose of business and it was wrongly deleted by the appellate authorities.;