- (1.) THE Income-tax Appellate Tribunal, Chandigarh Bench, Chandigarh, referred the following questions of law under Section 256 (1) of the Income-tax Act, 1961, for the opinion of this court : " (1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in sustaining the disallowance of commission paid to Messrs. Textile Processing Agency'? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in disallowing the amount of Rs. 6,800 paid as director's fee?"
(2.) THE facts of this case are that the assessee, Messrs. Nirmla Textile Finishing Mills Private Ltd. , is a company with limited liability. This company is exclusively engaged in the business of dyeing, bleaching and finishing and other such processes in almost all kinds of textile fabrics, i. e. , woollen, art silk, nylon and staple, etc. The assessment year is 1961-62 for which the accounting year is financial year 1960-61. During the assessment year, the following were the directors of the company: (1) Shri Jugal Kishore Mehra ; (2) Shri Rishi Ram Aggarwal; (3) Shri Madan Mohan Aggarwal; (4) Shri Jai Gopal Mehra; (5) Shri Het Ram Aggarwal.
(3.) IN the profit and loss account, the assessee claimed brokerage and commission amounting to Rs. 96,080 and this sum included an amount of Rs. 69,228 paid to Messrs. Textile Processing Agency, Amritsar. The commission to this firm was stated to have been paid in pursuance of an agreement dated March 31, 1960, whereby this firm was appointed as agent of the assessee. The firm, Messrs. Textile Processing Agency, Amritsar, came into existence on April 1, 1960, under a partnership agreement, which was executed on the same day. The Income-tax Officer found that on March 31, 1960, when the agreement between the assessee and Messrs. Textile Processing Agency was executed, the firm, Messrs. Textile Processing Agency, was not in existence. Since the firm had not come into existence on that date there was no question of Dr. Het Ram Aggarwal entering into an agreement with the assessee as agent of that firm. Since one of the parties to the agreement did not, as a matter of fact, exist on the date when the agreement is purported to have been made, the agreement was held by the Income-tax Officer as void ab initio and the commission alleged to have been paid in pursuance of the agreement was accordingly held to be inadmissible. The Income-tax Officer further found that the partners of this firm were either directors in the assessee-company or they were closely related to the directors. The relationship of each of the partners with the directors of the assessee-company was given by the Income-tax Officer in the assessment order as under: Name of the Relation with directorpartner Dr. Tirath Ram son of Dr. Het Ram Aggarwal, Aggarwaldirector and brother of Sarvshri Madan Mohan Aggarwal, and Rishi Ram Aggarwal, directors. Smt. Raj Rani wife of Shri Rishi Ram Aggarwal, director. Smt. Santosh wife of Shri Madan Mohan Kumariaggar-wal, director. Shri Jaishi Ram father of Sarvshri Jugal Kishore Mehramehra and Jai Gopal Mehra, directors. Shri Jatinder brother of Shri Jugal Kishore Kumar Mehramehra and Jai Gopal Mehra, directors. Shri Joginder Lal brother of Shri Jugal Kishore Mehramehra and Jai Gopal Mehra, directors. Smt. Nirmala wife of Shri Jugal Kishore Mehra, Kumaridirector. Smt. Sheela wife of Shri Jai Gopal Mehra, Mehradirector.;