VOLTAMP TRANSFORMERS PRIVATE LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) IN this reference under S. 256(2) of the IT Act, 1961, the following two questions have been referred to us at the instance of the assessee :

(2.) THE assessment year under consideration is asst. year 1969 70, the previous year being the year July 1, 1967, to June 30, 1968. The assessee is a private limited company and has been carrying on the business of manufacturing and sale of electric transformers. The main shareholders of the assessee company during the previous year were Shri L. H. Patel, Shri N. R. Patel, Shri B. H. Patel and Shri H. R. Patel. The assessee appointed M/s Voltamp Associates, a registered partnership firm, as the sole selling agents of the assessee company. The assessee company's name is Voltamp Transformers Private Ltd. In the registered firm of Voltamp Associates, the partners were Srimati Urmilaben L. Patel, wife of Shri L. H. Patel, and Srimati Kusumben N. Patel, wife of Shri N. R. Patel. An agreement of sole selling agency was executed on October 9, 1967. According to the terms and conditions of the sole selling agency, the agreed rate of commission was at the rate of three per cent. in the case of sales made to Government and semi Government institutions and at the rate of five per cent. in the case of sales to private parties and the commission was to be calculated on the invoice value of the goods sold by the company. Sales tax, general sales tax, excise duty or any other taxes, freight, transport charges, etc., were not to be included in the net invoice value for the purpose of calculating the commission. In the previous year, that is, in the year ending June 30, 1968, the assessee company paid a total amount of commission of Rs. 80,977 to the partnership firm of Voltamp Associates. The question was whether this amount of commission could be allowed. The ITO, after examining all the facts of the case, came to the conclusion that there was no commercial expediency for paying the commission. He, accordingly, disallowed the entire commission amount of Rs. 80,977.

(3.) IT is true that in this case we have to deal essentially with findings of fact arrived at by the Tribunal, but as has been pointed out by the Supreme Court in CIT vs. Officer in Charge (Court of Wards), Paigah 1976 CTR (SC) 404 : (1976) 105 ITR 133, if the Tribunal has applied wrong principles of law and has relied upon incorrect principles of law for arriving at its conclusion on facts, then those conclusions which become in such cases mixed questions of law and fact are vitiated and it is open to this Court, in exercise of its jurisdiction under S. 256 of the IT Act, to arrive at its own conclusions in the light of facts which are otherwise not in dispute or facts which otherwise emerge from the materials on record.