COMMISSIONER OF INCOME TAX Vs. ALUMINIUM CORPORATION OF INDIA LTD

JUDGEMENT

(1.) THE question asked on this Income-tax Reference is as follows :

(2.) THE assessee is the Aluminium Corporation of India Ltd. of 7, Council House Street, Calcutta. THE statement of the case relates to the asst. yr. 1955-56, the corresponding previous year being the financial year ended on March 31, 1955. By an agreement dated 30th Dec., 1949, the assessee appointed M/s J.K. Alloys Ltd. as the sole selling agent for selling its aluminium products. THE agreement was effected for a period of 5 years from 1st April, 1950. Under the terms of the agreement the selling agents were to receive the commission on all sales either effected by the agents themselves or by the principals directly. Clause 6 of the agreement states as follows :

(3.) IN our judgment, the Tribunal took a view which is not supported by any fact. The Tribunal certainly was right in saying that the mere fact that no sales were effected did not show that the agreement was not acted upon or that it was sham or collusive and that cl. 6 of the agreement itself permitted commission being earned without sales being effected by the agents. But it is not that "mere fact" which was the foundation of the orders of the ITO and the AAC. They found more facts which are quoted above and which were not upset by the Tribunal. The Tribunal apparently was of the view that the very fact that there was an agreement entitling the agent to earn commission without doing any work was enough to show that this sum was expended or laid out wholly or exclusively for the purpose of the business. That is a view which we find unable to accept. This was the very point which was decided by the Supreme Court in Swadeshi Cotton Mills Co. Ltd. vs. CIT (1967) 63 ITR 57(SC). The Supreme Court there points out that the question whether an amount claimed as expenditure was laid out or expended wholly or exclusively for the purpose of the assessee's business is to be decided on the facts and in the light of circumstances of each case. But the conclusion on the admissibility of an allowance was one of law. The Supreme Court particularly points out there that "merely because of the existence of an agreement between the assessee and his employee for payment of a certain remuneration and the fact of actual payment, the ITO is not bound to hold that the payment was made exclusively and wholly for the purpose of the assessee's business. Although there might be such an agreement in existence and the payment might have been made, it is still open to the ITO to consider all the relevant factors and determine for himself whether the remuneration paid to the employee or any portion thereof is properly deductible under s. 10(2)(xv) of the IT Act. The observation of Ramaswami J. at pp. 60-61 of that report in Swadeshi Cotton Mills Co. Ltd. vs. CIT (1967) 63 ITR 57 (SC), clearly brings out the ratio of this decision. The learned judge at page 60 observes :