Dipak Kumar Sen, J. - (1.) The facts found and/or admitted in this reference may shortly be stated as follows :
(2.) Messrs. Vishnu Agencies (P.) Ltd. is the assessee and the assessment year involved is 1966-67, the relevant accounting year being the one ended on the 31st January, 1966. The only question in this reference is whether the assessee was entitled to claim a deduction of an amount of Rs. 76,127 paid by it to M/s. Mangilal Sethia, the sole selling agent appointed by the assessee under an agreement dated the 2nd February, 1959. The agreement was entered into by and between the assessee and the said sole selling agent in respect of spun R.C.C. pipes and collars manufactured by the assessee and provided, inter alia, as follows: (a) The agency would be effective on and from the 1st February, 1959. (b) The sole selling agent would deposit a sum of Rs. 10,000 to be held by the assessee without interest during the subsistence of the agreement. (c) The sole selling agent would not during his appointment purchase or receive for sale any commodity similar to those manufactured by the assessee from any third party in his own name or account or in the name or on account of any other person or persons. (d) During the subsistence of the agreement the assessee would not appoint any other sole selling agent to sell any of its produce but this would be without prejudice to the rights of the assessee to appoint agents, distributors or sub-distributors. (e) On all sales of the products of the assessee, through any agent or distributor or sub-distributor or direct to dealers or consumers, the sole selling agent would be paid a commission of 4% on the listed price. (f) The agreement would in the first instance be for a period of three years from the 1st February, 1959, to the 31st January, 1962, unless deter-mined earlier otherwise. (g) The sole selling agent would bear all expenses of establishment, publicity, godown rent, etc., that might have to be incurred in connection with the promotion and sale of the goods of the assessee.
(3.) At the assessment the ITO following the assessments in earlier years disallowed the assessee's claim for deduction. On appeal preferred by the assessee, the AAC upheld the order of the ITO on the ground that the appellant could not place on record any evidence to prove that the said agents rendered any service to the assessee. All the effective customers of the company were Government departments which placed orders on the basis of tenders. At any rate the appellant did not produce any evidence to show that the services of the said agents were necessary for entering into contracts with such Government departments or that sales could be effected only with the help of the agents. The assessee did not produce any evidence to establish that the Government departments accepted the contracts only at the initiative or with the help of the selling agents.;