Dipak Kumar Sen, J.
1. In this reference under Section 66(1) of the Indian Income-tax Act, 1922, the question before the court is :
'Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the entire payment of selling agency commission was not an allowable deduction in computing the income from business but only a portion thereof was allowable for the assessment years1960-61 and 1961-62 under the Indian Income-tax Act, 1922 ?'
2. The reference is at the instance of M/s. J. K. Steel & Industries Ltd., Calcutta, the assessee. The assessment years involved are 1960-61 and1961-62, the relevant previous years ending on the 30th June, 1959, and 30th June, 1960, respectively.
3. The facts found or admitted are that the assessee is a public limited company and carries on the business of manufacture of jute bailing, hoops, steel wire ropes and box strapping. The assessee was incorporated on the 13th October, 1953, and by a resolution dated the 13th November, 1953, it appointed one J. K. Alloys Ltd. as its sole selling agent for a term of five years, In the assessment years involved in this reference the said J. K. Alloys Ltd. ceased to be the sole selling agent and another concern known as M/s. Nav Bharat Vanijya Ltd. was appointed as the sole selling agent for all the products of the assessee. The agreement entered into by and between the assessee and the said Nav Bharat Vanijya Ltd., on the 1st July, 1953, has been annexed to the statement of the case and forms part thereof. The material clauses of the said agreement dated 1st July, 1958, are as follows:
'1. That the agents shall act as the sole selling agent of all the products of the principal.
2. That this agreement shall commence from the 1st day of July, 1958, and shall continue unless otherwise determined earlier by mutual consent of the parties, till the 30th day of June, 1963. ............
5. That the agents shall sell the goods of the principal at such price as may be prescribed by the principal from time to time.
6. That the principal will allow the agents commission at the rate of 11/2% (one and a half per cent.) on sale of all products of the principal effected by the agents either themselves or through sub-agents appointed by them or by the principal directly and such commission will be payable monthly on the net realised sales :
Provided always that the rate of commission above mentioned may be varied by mutual consent of the parties hereto.
8. That the agents shall be responsible for payment of the prices and all other monies to the principal immediately after the goods shall leave the principal's works or godown. Such payment will be made on presentation of necessary papers or documents by the principal to the agent not later than a fortnight after the date the goods shall have been despatched. In default of payment as aforesaid the principal will be entitled to charge interest until realisation at the rate of 6% per annum on the balance for the time being outstanding.
9. That the agents will be responsible for the due performance of all contracts made by them whether for ready or forward sales and also for the consequence of any breach of contract by any customer and for all losses and damages arising therefrom to the principal provided there shall be no default on the part of the principal in manufacturing or giving of any goods required for sale under any contract in accordance with the stipulation thereof.'
4. In the assessment years 1960-61 and 1961-62 the assessee paid the amounts of Rs. 1,40,668 and Rs. 1,83,281 respectively to the said Nav Bharat Vanijya Ltd. on account of commission under the said agreement.
5. In assessing the income of the assessee for the said assessment years the Income-tax Officer held that the commission paid to the selling agents could not be regarded as an expenditure incurred wholly and exclusively for carrying on the business of the assessee. The Income-tax Officer came to such conclusion on the basis that the said selling agents, were not equipped to carry out its duties, that the sales of the assessee were in fact looked after by the employees of the assessee or its managing agents and not the sole selling agent, that the assessee could not show that any service was actually rendered by the selling agents and, lastly, that the surrounding circumstances showed that the arrangement was collusive. He disallowed deduction in respect of the said two amounts.
6. Being aggrieved by the decision, the assessee appealed to the Appellate Assistant Commissioner who upheld the orders of the Income-tax Officer. The Appellate Assistant Commissioner found that there was no evidence that any service was rendered by the selling agents who had neither thestaff nor the capacity to carry out their obligations. He also held that there was evidence to show that the sales had been looked after by the assessee itself. The Appellate Assistant Commissioner concluded that payment of the commission to the selling agents was not motivated by commercial considerations as no services were rendered by the agents.
7. The assessee went up in further appeal before the Tribunal. It was contended before the Tribunal for the assessee that the agreement between the assessee and its agent was a genuine agreement and the same had been acted upon. It was also contended that services were in fact rendered by the agent under such agreement. The Tribunal held that the particular features of the case which were considered by the authorities below were not sufficient to warrant the conclusion that the agreement itself was a collusive one. Such a conclusion was based on surmise. The Tribunal noted that the agreement was between two public limited companies and there were other co-sharers of the companies apart from the controlling group.
8. The Tribunal, however, held that the agents did not render any service and, in fact, the agents were incapable of rendering any service on account of the inadequacy of their staff.
9. An alternative contention was made on behalf of the assessee that, even if no services were rendered, the agreement itself provided that the agent would undertake certain responsibilities. Particularly, the agent undertook to be responsible for payment of prices by the customers. The commission paid to the agents was sought to be justified on this ground. It was contended on behalf of the revenue on the other hand that the commission was payable only for the services rendered and if no services were rendered there would be no consideration for payment of commission. The Tribunal did not accept the contentions of the revenue and held that the consideration for receiving commission was not only for services to be rendered but also for undertaking the responsibilities, inter alia, as provided in Clause 8 of the agreement. The mere fact that the selling agents were not called upon to meet or carry out their responsibility in the absence of a bad debt was held not sufficient to affect the position. The contention that undertaking of such a responsibility cannot be a part of the consideration for payment of commission was not accepted.
10. The Tribunal held as follows :
'Once we hold that the N.B.V. Ltd. received 11/2% commission for undertaking the responsibility apart from rendering other services, we must hold that the commission is allowable in part. We cannot accept the suggestion on behalf of the assessee that the entire commission is payable because N.B.V. Ltd. undertook the responsibility of ensuring payment of price. We have already mentioned above that the consideration forreceiving 11/2% commission to N.B.V. Ltd. is both for the purpose of rendering services as sole selling agents and for undertaking certain responsibilities as mentioned in Clause 8 of the agreement. Here comes the question of determining how much commission is to be allowed. The apportionment has evidently not been done in the view the lower authorities have taken. Since it is a question of fact depending upon various factors we would not like to apportion at our stage. It is desirable that the matter should be looked into by the A.A.C. for the purpose of apportioning the commission allowable in the light of our findings stated above. We therefore remit the matter to the A.A.C. for the aforesaid purpose.'
11. Dr. Debi Pal, learned counsel appearing for the assessee, has contended before us that the question involved is covered by a decision of the Supreme Court in the case of Aluminium Corporation of India Ltd. v. Commissioner of Income-tax : 86ITR11(SC) . The parties before the Supreme Court belonged to the same group who are parties to the present reference. The facts were that by an agreement dated the 30th December, 1949, the assessee in that case appointed sole selling agents for selling its products. The relevant clauses of the said agreement were as follows :
'1. That the agents shall act as the selling agents of all aluminium ingots, sheets, circles, expanded metal, shots, utensils and anodised and alloy goods manufactured by the principal.
2. That this agreement shall commence from the 1st day of April, 1950, and shall continue, unless otherwise determined by mutual consent of the parties, till the 31st day of March, 1955......
6. That the principal will allow the agents discount in the manner indicated hereunder on sale of all products of the principal effected by the agents either by themselves or through sub-agents appointed by them or directly by the principal themselves :
Aluminium ingots1%Aluminium sheets &circles2;%Aluminium expandedmetal12%Aluminium utensils & anodised and alloy goods17%Aluminium shots5% Provided always that the rates of discount above mentioned or any of them may be varied by mutual consent of the parties......
8. That the agents shall be responsible for payment of the price and all other moneys to the principal immediately after the goods leave the principal's works or godown. Such payment will be made on presentation of necessary papers or documents by the principal to the agents and not later than a fortnight after the date the goods shall have been despatched. In. default of payment as aforesaid the principal will be entitled to chargeinterest until realisation at the rate of six per cent. per annum on the balance for the time being outstanding.
9. That the agents will be responsible for the due fulfilment of all contracts made by them whether for ready or forward sales and also for the consequences of any breach of contract by any customer and for all losses and damages arising therefrom to the principal provided there shall be no default on the part of the principal when manufacturing or giving delivery of any goods required or sold under any contract in compliance with the stipulations thereof.'
12. In the relevant year of assessment the Income-tax Officer had disallowed the claim for deduction of the amount of commission paid on the ground that payment had not been made for business consideration. On appeal, the Appellate Assistant Commissioner had agreed with and had upheld the order of the Income-tax Officer holding that payment had been made for extra-commercial consideration and that the agreement had not been acted upon. The Tribunal had rejected the order of the Appellate Assistant Commissioner and had allowed the commission to be deducted holding that the commission paid was an expenditure expended wholly and exclusively for the purpose of the assessee's business as provided in Section 10(2)(xv).
13. The Tribunal came to the above conclusion on taking note that during the year in question all sales were effected directly by the assessee and no sales were effected by the selling agents, that the agents were responsible for payment of the price due from the purchaser immediately after the goods left the principal's works or godown, and that under Clause 9 of the agreement, the agents were also responsible for due fulfilment of all contracts made by them and also for consequences of any breach of contract by any customer and for all losses and damages arising therefrom to the assessee.
14. On the above facts, the Supreme Court held that under Section 10(2)(xv) it was for the Income-tax Officer to decide whether any remuneration paid by an assessee to his selling agents was wholly or exclusively spent for the purpose of the assessee's business. The Supreme Court held further that merely because the assessee established the existence of an agreement between him and his agents and actual payment thereunder would not take away the jurisdiction or the discretion of the Income-tax Officer to consider whether the expenditure was made exclusively for the purpose of the business. It had to be determined whether the expenditure incurred was commercially expedient. The Supreme Court noted its earlier decisions in J. K. Woollen Manufacturers' case : 72ITR612(SC) and the case of Walchand & Co. : 65ITR381(SC) and reiterated that in applying the test of commercial expediency for determining whether an expenditure waswholly and exclusively laid out for the purpose of the business, reasonableness of the expenditure had to be adjudged from the point of view of the businessman and not of the revenue.
15. But it was possible for the Appellate Tribunal to come to a conclusion that an alleged payment was not real or that such a payment was not incurred by the assessee in the character of a trader or that it was not laid out wholly and exclusively for the purposes of the business of the assessee and on these three grounds the Tribunal could disallow the claim. The Supreme Court held that on the primary facts found by the Tribunal in the case before it and the factual inferences drawn therefrom, the decision of the Tribunal was correct and was not open to review by the High Court.
16. Dr. Pal invited us to follow the above decision of the Supreme Court. He contended that in the instant case the Tribunal had found the agreement to be a genuine one. There was no dispute between the parties as to the factum of the payment. The Tribunal had also held that there was a consideration for the payment of the commission, namely, the undertaking of responsibility by the agent. On the basis of these primary facts it was submitted by Dr. Pal that it was open to the Tribunal to come to only one conclusion that the entire payment had been made wholly and exclusively for the purposes of the business of the assessee. The Tribunal not having found that the payment of this commission was excessive, nor having found that any part of such payment was for extra-commercial consideration, it had no basis nor any reason to hold that the commission paid should be apportioned. Before deciding that there would be apportionment the Tribunal had held first as to which part of the commission would be disallowed.
17. Mr. Suhas Sen, learned counsel for the revenue, contended on the other hand that the facts in the present reference were different from those before the Supreme Court in Aluminium Corporation's case : 86ITR11(SC) . There the Tribunal had found as a fact that the entire commission paid was spent wholly and exclusively for the purposes of the business of the assessee. In the present case, the facts were otherwise and the Tribunal has found that the entire commission was not paid for such purpose. No doubt in the present case it has also been found that the agreement is not collusive but the Tribunal having found that no services were rendered by the selling agents it cannot be said that the agreement was fully acted upon. He also contended that the Tribunal had not negatived wholly the findings of the authorities below that the payment of the commission was for extra-commercial consideration.
18. In support of his contentions, Mr. Sen cited a number of decisions. The principle which he sought to cull out from these, decisions was that apportionment of payments claimed to be deductible under Section 10(2)(xv)was lawful. This has all along been laid down by the courts. The decisions cited are dealt with in their chronological order, Stott and Ingham v. Trehearne  9 TC 69 was cited. In this case, the facts were that a person took into partnership his two sons and allowed them one-third share of the profits of the business. Prior to their being partners the sons had been employed in the business. They had received salaries initially but thereafter they received a commission in addition to salaries. There was no written agreement for payment of the commission but the rate of commission was fixed verbally at the beginning of the year. The question which was mooted was whether the whole of the commission for two years was not paid to the sons for services rendered as managers of the business. The Special Commissioners had found that out of the commission paid at the rate of 331/3% only 10% ought to be deductible in arriving at the profits of the business. The court did not disturb the findings of the Special Commissioners who decided on the materials before them. It appears that in this case there was no dispute as to whether such a partial allowance was lawful or not.
19. The next is the case of Swadeshi Cotton Mills Co. Ltd. v. Commissioner of Income-tax : 63ITR57(SC) . Here the assessee had paid additional remuneration to its directors to the extent of Rs. 1,11,090. The Income-tax Officer did not allow the amount to be deducted under Section 10(2)(xv) on the ground that the directors had not rendered any extra service so as to entitle them to such additional remuneration. The Appellate Assistant Commissioner and the Appellate Tribunal affirmed the view of the Income-tax Officer. The question which was ultimately mooted before the Supreme Court was :
'Whether the sum of Rs. 1,11,090 paid as remuneration to the five directors of the assessee-company during the relevant previous year was an expenditure incurred wholly and exclusively for the purpose of the business under Section 10(2)(xv) of the Income-tax Act '
The High Court had already answered this question in favour of the revenue and against the assessee. The Supreme Court noted that this payment was made pursuant to a special resolution of the shareholders and the payment was made otherwise than in accordance with law. From these facts it was sought to be argued that the payment was made wholly and exclusively for the purposes of the business of the assessee and, therefore, could be properly claimed as a deduction under the said section. The Supreme Court rejected this contention and laid down the law in the following language at page 59 :
'It is true that as between the directors and the company the resolution had a binding effect and the payment had to be legally, made. But it is for the Income-tax Officer to decide whether the amount so paid to thedirectors was wholly and exclusively spent for the purpose of the business within the meaning of Section 10(2)(xv) of the Income-tax Act. It is an erroneous proposition to contend that as soon as an assessee has established two facts, viz., the existence of an agreement between the employer and the employee and the fact of actual payment, no discretion is left to the Income-tax Officer except to hold that the payment was made wholly and exclusively for the purposes of the business. Although the payment might have been made and although there might be an agreement in existence, it would still be open to the Income-tax Officer to take into consideration all the relevant factors which will go to show whether the amount was paid as required by Section 10(2)(xv), The question as to whether an amount claimed as expenditure was laid out or expended wholly and exclusively for the purpose of such business, profession or vocation has to be decided on the facts and in the light of the circumstances of each case. But, as observed by this court in Eastern Investments Ltd. v. Commissioner of Income-tax : 20ITR1(SC) , the final conclusion on the admissibility of an allowance claimed is one of law. It is for example open to the assessee to contend that the decision arrived at by the income-tax authorities was based on no evidence at all. If the assessee satisfies the court that the decision of the income-tax authorities is based on no evidence then the question at issue becomes one of law and the court would be entitled to say that the decision of the Income-tax Officer is defective in law. But, as we have already stated, it is not open to the assessee to contend that merely because of the existence of an agreement between the employer and the employee and the fact of actual payment, the Income-tax Officer must hold that the payment was made exclusively and wholly for the purpose of the business. It is manifest that the Income-tax Officer is entitled to examine the circumstances of each case to determine for himself whether the remuneration paid to the employee or any portion thereof was properly deducted under Section 10(2)(xv) of the Income-tax Act.'
20. The Supreme Court noted the finding of the Appellate Tribunal that the payment of the commission was made to the directors for extra-commercial reasons and was not wholly and exclusively made for the purpose of the business. This finding followed the primary facts found, namely, (a) the directors did not render any special service in the year in question, justifying the payment of additional remuneration, (b) the work of the assessee had been done by the managing agents and very little work had been done by the directors, (c) the increase in profits in the year in question was not due to any special exertion of the directors which alone could justify the payment of extra remuneration. The Supreme Court affirmed the decision of the High Court.
21. The next is Bengal Enamel Works Ltd. v. Commissioner of Income-tax : 77ITR119(SC) . The facts before the Supreme Court were that the company had appointed a son-in-law of a director of a company as a technical adviser and had paid large amounts by way of his remuneration, namely, 15 per cent. of the gross profits. It was found as a fact that the technical adviser was appointed not on commercial considerations but on other factors. The remuneration paid to the technical adviser was sought to be disallowed partly not on the ground that the same was in itself excessive in the view of the revenue but because it was found that the remuneration agreed to be paid was influenced by extra-commercial consideration and was, therefore, held to be excessive. On such facts disallowance of part of the remuneration was sustained by the Supreme Court.
22. The next decision is Commissioner of Income-tax v. Dhanrajgirji Raja Narasingirji : 91ITR544(SC) . In this case substantial sums of money were spent over a criminal litigation and such expenditure was claimed to be spent for the purpose of the business of the assessee. It was found by the Tribunal that in the facts and circumstances the criminal prosecutions ultimately resulted in a compromise. The Tribunal found further that the expenditure in question had been incurred; it was a bona fide expenditure and was in fact incurred for the purpose of the business. On such findings the Tribunal held that only 1/3rd of the expenditure should be considered as having been expended wholly and exclusively for the purpose of the business.
23. This decision of the Tribunal was not challenged by the assessee. But the part of the expenditure which was allowed was challenged by the revenue. The High Court while accepting the findings of the Tribunal opined that the entire expenditure incurred should have been allowed as deduction and advised the Tribunal accordingly. On appeal the Supreme Court held that the High Court directing the Tribunal as it did had gone beyond the question referred to it and was not justified in doing so. The order of the High Court was vacated and the questions were answered in favour of the assessee.
24. The latest decision cited was J. K. Cotton . v. Commissioner of Income-tax : 101ITR221(SC) . In this case, the expenditure in dispute was a payment made to the managing agents as compensation for termination of the managing agency agreement. The assessee claimed the entire amount to be allowable as business expenditure under Section 10(2)(xv). The Supreme Court held that the termination of the managing agency was voluntary and with the object of obtaining an enduring or recurring benefit. The payment of compensation was not dictated by commercial expediency as there was no necessity to terminatethe managing agency. The object was to benefit persons belonging to the same family and group. It was held that the compensation paid to the outgoing managing agents was capital expenditure and not allowable as a business expenditure. It appears that in this case the point in issue was different than that in the case before us.
25. We have carefully considered the respective submissions of the parties and the law which has been cited. It appears to us that the question referred is concluded by the two decisions of the Supreme Court referred to above, namely. Aluminium Corporation of India. Ltd. : 86ITR11(SC) and in the case of Dhanrajgirji : 91ITR544(SC) .
26. In the instant case, there is no specific finding by the Tribunal that any part of the commission was paid on extra-commercial consideration. There is not even a finding that the amount paid was excessive. On the other hand, the finding of the Tribunal is that the agreement was genuine and the sole selling agent had undertaken responsibilities under the agreement during the years in question. There is no dispute between the parties as to the factum of the payment. There is no finding by the Tribunal that any part of the commission was not paid wholly or exclusively for the purposes of the business of the assessee. In that view of the matter, there was no basis or ground for the Tribunal to come to a conclusion that the commission paid should be apportioned.
27. Before the authorities below there appears to have been some confusion as to the 'services to be rendered'. From the clauses of the agreement, it does not appear to us that under such terms any particular service was to be performed or rendered by the sole selling agents. If the sole selling agent in fact took the trouble of negotiating or effecting further sales of the assessee's products only then it would be entitled to further commission. The commission which was payable to the agent on the other sales appears to be validly referable to the other consideration, namely, undertaking responsibility and standing guarantee for other customers which has been upheld by the Supreme Court in Aluminium Corporation's case : 86ITR11(SC) .
28. For the reasons given above, we answer the question referred to us in the negative and in favour of the assessee. In the facts and circumstances there, will be no order as to costs.
29. I agree.