C.S.P. SINGH J. - The I.T. Appellate Tribunal, Allahabad Bench, Allahabad, has referred the following question of law for our opinion :
'Whether, on the facts and in the circumstances of the case, the I.T. Appellate Tribunal was legally justified in allowing deduction of commission pertaining to assessment year 1958-59, out of the total income for the assessment year 1959-60 ?'
the assessee-firm acted as bankers of M/s. J.K. Cotton ., Kanpur, for a number of years, and was in receipt of commission at the rate of 1% as collection charges. This amount used to be credited by monthly credit notes, and the companys account debited by the corresponding amount. The assessee followed the Samvat year as its accounting year. For the assessment year 1958-59, the previous year ended on 20th March, 1958, and for the assessment year 1959-60, on the 8th April, 1959. So far as the company was concerned, its previous year ended on the 30th September, 1957, and 30th September, 1958, for these two assessment years, respectively. On the 30th September, 1957, a resolution was passed by the company authorising Sri Hemantpat Singhania, one of its directors to negotiate with the assessee-firm for reduction of the collection charges from 1% to 1/4% from October 1, 1957. On the 30th September 1958, the assessee-firm by a letter agreed to the proposed reduction as from October 1, 1957. In this letter a request was made that two debit notes be issued. On in respect of the period from October 1, 1957, to March 20, 1958, and the other for the period March 21, 1958, to September 30, 1958. These debit notes from the company were received some time after 30th September, 1958, i.e., after the close of the previous year for the assessment year 1958-59, but during the previous year relevant for the assessment year 1959-60. The first note was for an amount of Rs. 44,654.16 and the other for Rs. 50,136.80. It is necessary to mention that before the receipt of the debit notes for the previous year relevant or the assessment year 1959.60, the assessee had credited those amounts on the basis of the monthly credit notes received from the company at the rate of 1%. After the debit notes were received credit entries in favour of the company were passed for the assessment year 1959-60.
The assessee showed the commission receipts for the year 1958-59 after the aforesaid adjustment of Rs. 44,654.16, and for the assessment year 1959-60 as reduced by Rs. 50,136.80. The Income-tax Officer, however, calculated the commission at the rate of 1% and rejected the claim made by the assessee. The assessee thereafter took up the matter in appeal. The assessees claim for reduction of the commission by an amount of R. 44,654.16 for the year 1958-59 was not accepted by the AAC. The claim of Rs. 50,136.80 was, however, allowed for the assessment year 1959-60, on the basis of the agreement aforesaid. In the appeal for the year 1959-60, the assessee had been permitted to raise an additional ground by the AAC to the effect that the amount of Rs. 44,654.16 should be allowed as business expenditure under S. 10(2)(xv). This contention too was not accepted. The assessee appealed. The Tribunal held that so far as the deduction of Rs. 44,654.16 is concerned, that could not be allowed in the assessment year 1958-59, as it had already accrued to the assessee in that year, and the modification of agreement had taken place in the subsequent year. They, however, upheld the assessees claim for deduction of this amount under S. 10(2)(xv) for the assessment year 1959-60. The counsel for the department urged that although the agreement came into existence on September 30, 1958, as it was retrospective in its operation, the amount could be allowed if at all in the assessment year 1958-59, and not for the assessment year 1959-60. It was also urged that the AAC had found that the aforesaid amount had not been incurred on the basis of any business consideration, the Tribunal erred in allowing the assessees appeal without examining this aspect of the matter.
We will consider the second contention first. The fact that an agreement took place on September 30, 1958, and we retrospective in its operation, is not in doubt. The genuineness of this agreement cannot also be assailed as the AAC, relying on this deed, allowed relief in respect of the amount of Rs. 50,136.80 in the assessment year in question. The assessee was acting as the collecting agent for bills for the company and charging a commission of 1 per cent. under an agreement executed earlier. The assessees case in respect of the subsequent agreement was that it agreed to a reduction of its rate of commission with retrospective effect in order to continue the business relationship with the company. The agreement as such, was entered into by the assessee on grounds of business expediency. As the assessee-firm credited the amount of Rs. 44,654.16 to the company in keeping with the terms of the agreement, the adjustment made was clearly dictated by reasons of commercial expediency, as the assessee was bound under the terms of the agreement to make the adjustment, as it had agreed to charge lesser rate of interest for the earlier year. It is not correct to say that the Tribunal has not applied its mind to this aspect of the matter, for they have noticed the inconsistencies in the AACs order while allowing an amount of Rs. 50,136.80 on the basis of this very agreement, and disallowing the amount in dispute now. In fact, a finding has been recorded that the agreement was entered into in the best interest of the business. The second contention must, therefore, fail.
Coming now to the first contention, it is no doubt true that the agreement was entered into on September 30, 1958, and was retrospective in its operation, but the occasion for making the adjustment arose only when the assessee-firm received the debit notes from the company. It was only when this claim for the specific amount in question was made by the company that liability to make the adjustment arose. Thus, it did not arise in the accounting period relevant for the assessment year 1958-59.
We, accordingly, answer the question in the affirmative, in favour of the assessee, and against the department. The assessee is entitled to its costs, which is assessed at Rs. 200. Counsels fee is assessed at the same figure.