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Indian Press Exchange Ltd. Vs. Commissioner of Income-tax, Central-i - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 231 of 1977 (sic), 493 to 495 of 1975 and 511 to 514 of 1975
Judge
Reported in(1982)30CTR(Cal)99,[1982]138ITR594(Cal)
ActsIncome Tax Act, 1961 - Section 256(2)
AppellantIndian Press Exchange Ltd.
RespondentCommissioner of Income-tax, Central-i
Appellant AdvocateR.N. Bajoria, Adv.
Respondent AdvocateAjit Sengupta, Adv.
Excerpt:
- .....said finding of the tribunal is based on conjectures, suspicion and surmises not supported by any evidence on material and on failure to consider the relevant material on record and is perverse ? 3. whether, there was any material before the tribunal to hold that the evidence produced by the assessee was not contemporary and was obtained or given with a motive ' i.t. ref. no. 494 of 1975 : '1. whether, there was any material before the tribunal on which it could hold that sri r.s. goenka and sri s.k. goenka were given commission not on the basis that they rendered services to the assessee but because they happened to be the sons of sri a.l. goenka, an influential executive of certain companies ? 2. whether, the said finding of the tribunal is based on conjectures, suspicion and surmises.....
Judgment:

Sabyasachi Mukharji, J.

1. As directed by this court, under Section 256(2) of the I.T. Act, 1961, for the assessment years 1963-64 to 1969-70, the following questions have been referred to this court:

I.T. Ref. No. 493 of 1975:

' 1. Whether, there was any material before the Tribunal on which it could hold that Sri R.S. Goenka was given commission not on the basis that he rendered service to the assessee but because he happened to be the son of Sri A.L. Goenka, an influential executive of certain companies ?

2. Whether, the said finding of the Tribunal is based on conjectures, suspicion and surmises not supported by any evidence on material and on failure to consider the relevant material on record and is perverse ?

3. Whether, there was any material before the Tribunal to hold that the evidence produced by the assessee was not contemporary and was obtained or given with a motive '

I.T. Ref. No. 494 of 1975 :

'1. Whether, there was any material before the Tribunal on which it could hold that Sri R.S. Goenka and Sri S.K. Goenka were given commission not on the basis that they rendered services to the assessee but because they happened to be the sons of Sri A.L. Goenka, an influential executive of certain companies ?

2. Whether, the said finding of the Tribunal is based on conjectures, suspicion and surmises not supported by any evidence or material and on a failure to consider the relevant material on record and is perverse ?

3. Whether, there was any material before the Tribunal to hold that the evidence produced by the assessee was not contemporary and was obtained or given with a motive ?'

I. T. Ref. No, 495 of 1975 :

'1. Whether, there was any material before the Tribunal on which it could hold that Sri R.S. Goenka was given commission not on the basis that he rendered services to the assessee but because he happened to be the son of Sri A.L. Goenka, an influential executive of certain companies?

2. Whether, the said finding of the Tribunal is based on conjectures suspicion and surmises not supported by any evidence or material and on failure to consider the relevant material on record and is perverse ?

3. Whether, there was any material before the Tribunal to hold that the evidence produced by the assessee was not contemporary and was obtained or given with a motive ?'

I.T. Ref. No. 511 of 1975

'1. Whether, there was any material before the Tribunal on which it would hold that Shri R.S. Goenka and Shri S.K. Goenka were given commission not on the basis that they rendered services to the assessee but because they happened to be the sons of Shri A.L. Goenka, an influential executive of certain companies ?

2. Whether, the said finding of the Tribunal is based on conjectures, suspicion and surmises not supported by any evidence or material and on a failure to consider the relevant material on record and is perverse ?

3. Whether, there was any material before the Tribunal to hold that the evidence produced by the assessee was not contemporary and was obtained or given with a motive ?'

I.T. Ref. No. 512 of 1975

'1. Whether, there was any material before the Tribunal on which it could held that Sri R.S. Goenka and Sri S.K. Goenka were given commission not on the basis that they rendered services to the assessee but because they happened to be the sons of Sri A.L. Goenka, an influential executive of certain companies ?

2. Whether, the said finding of the Tribunal is based on conjectures, suspicion and surmises not supported by any evidence or material and on a failure to consider the relevant material on record and is perverse ?

3. Whether, there was any material before the Tribunal to hold that the evidence produced by the assessee was not contemporary and was obtained or given with a motive ?'

I.T. Ref. No. 513 of 1975

'1. Whether, there was any material before the Tribunal on which it could hold that Shri R.S. Goenka was given commission not on the basis that he rendered services to the assessee but because he happened tobe the son of Sri A.L. Goenka, an influential executive of certain companies ?

2. Whether, the said finding of the Tribunal is based on conjectures, suspicion and surmises not supported by any evidence or material and on a failure to consider the relevant material on record and is perverse ?

3. Whether, there was any material before the Tribunal to hold that the evidence produced by the assessee was not contemporary and was obtained or given with a motive?'

I.T. Ref. No. 514 of 1975

'1. Whether, there was any material before the Tribunal on which it could hold that Shri R.S. Goenka and Shri S.K. Goenka were given commission not on the basis that they rendered services to the assessee but because they happened to be sons of Shri A.L. Goenka ?

2. Whether, the said finding of the Tribunal is based on conjectures, suspicion and surmises not supported by any evidence or material and on a failure to consider the relevant material on record and is perverse ?

3. Whether, there was any material before the Tribunal to hold that the evidence produced by the assessee was not contemporary and was obtained or given with a motive ?'

2. As would be apparent, there are three different questions for three different years dealing with the relevant assessment years. The facts are more or less, of course, identical. The assessee is a company and carries on advertising agency business. The assessment years, as we have mentioned hereinbefore, are 1963-64 to 1969-70, and the relevant accounting years are the earlier calendar years 1962 to 1968, respectively. The assessee had paid commission to Sri R.S. Goenka and S.K. Goenka, as according to the assessee-company, these persons secured the business from various concerns as tabulated below :

Assessment yearPerson to whom commission paidAmountConcerns whose business secured

1234

Rs. 1963-64R. S. Goenka13,151(1) Oriental General Industries Ltd. (2) C. & E. Morton India Ltd.1964-65R. S. Goenka14,322(1) & (2) above.1965-66R. S. Goenka14,365(1) & (2) above. (3) Bengal Stores. (4) Ruby Gen. Insurance Co. (5) Hindustan Gas Group.1966-67R. S. Goenka18,280(1), (2) & (3) above. S. K. Goenka7,570

(a) Kesoram Spun Pipes & Foundries. 25,850(b) National Engineering Industries Ltd. (c) Allahabad Canning. (d) Jayashree Textiles.1967-68R. S. Goenka18,309(1), (2) & (3) above. S. K. Goenka15,352

(b) above. 33,661(e) India Linoleum Ltd. (f) Sir Silk Ltd. (g) Hindustan Gas Group. (h) Jayashree Tea Group.1968-69R. S. Goenka18,501(1), (2) and (3) above Tin Products. S. K. Goenka16,089(b), (e) and (h) above. (i) Sirpur Paper Mills Ltd. (j) Air Conditioning Corpn. Ltd. (k) Taylor Instrument.1969-70R. S. Goenka21,488(1) & (2) above. S. K. Goenka17,796(b), (e), (f), (h), (i), (j), (k) and Orient Paper Mills Ltd.'

3. Sri R.S. Goenka was born on 7th September, 1942, and is the son of Sri A.L. Goenka, who was the director of the assessee up to 1956. Sri R.S. Goenka started securing the business, as it is alleged, for the asses-see in 1956 at the age of 15 years. He passed his M.Com. in 1966 and LL.B. in 1967 and he also enrolled himself as an advocate. It must be borne in mind, as was emphasised on behalf of the assessee, that during the relevant previous years with which we are concerned, R.S. Goenka, was not a minor and had attained majority. The assessee in its letter dated 10th December, 1956, addressed to R.S. Goenka recorded as follows :

'With reference to our discussion with you, we hereby confirm that we agree to pay you commission @ 5% on the total business that will be placed with us by (1) Orient General Industries Ltd., (2) C. & E. Morton India Ltd., in consideration of your being successful in securing us the publicity business of the aforesaid parties, who had told us of their decision to place their business with some other agency from the year 1957 onwards. We also agree to pay you commission at 5% in respect of any other parties whose business may be placed with us through your efforts.

It should be distinctly understood that this commission will be payable to you only on the completed business and not merely on the contract that we may enter into with the said client. We trust that you will be successful in persuading the said parties to place their business with us, which will receive our best attention and service. We also hope that you will be able to secure some more accounts to our mutual interest.'

4. In the letter dated 15th January, 1958, addressed to the asscssee R.S. Goenka stated as follows :

'I have to refer to my interview with you when you informed me that my client desired improved and varied services, which could be rendered by you only at considerable extra time and expense and that in the circumstances, you can pay me that commission @ 2 1/2% only instead of 5% as had been originally agreed to. I have considered over the matter and hereby confirm that I am agreeable to accept the commission @ 2 1/2% in respect of all business done through you by all of my clients from 1st July, 1958. Please note that the commission will be payable to me up to the 30th April, every year in respect of all business done in the immediately preceding calendar year. Kindly confirm the above arrangement.'

5. The assessee acknowledged the said letter of R.S. Goenka on 17th January, 1958, which reads, inter alia, as follows:

'We acknowledge the receipt of your letter dated January 15, 1958, and hereby confirm the terms of commission payable to you by us in respect of the business pertaining to your clients, as stated in your letter under reference.

We hope that you will endeavour to secure more business to our mutual advantage.'

6. The ITO, based on the aforesaid correspondence, allowed the assessee's claim of deduction of the commission of Rs. 13,266 paid to R.S. Goenka for the assessment year 1958-59.

7. Sri S.K. Goenka was born on 10th December, 1950, and is also the son of Sri A.L. Goenka. He too started securing business for the assessee in the year 1965, it is alleged again, at the age of 15 years. He passed his B.Com. examination in 1970. A.L. Goenka, father of R.S. Goenka and S.K. Goenka, was an executive and director of M/s. Orient General Industries Ltd. and C. & E. Morton (India) Ltd. In the course of the assessment proceedings, for the relevant years, the ITO examined R.S. Goenka on the 9th August, 1967, who made the following statements :

'I am carrying on advertisement commission (business) from December, 1958. I have done this business only for Indian Press Exchange andhave secured from Orient General Industries, and C. & E. Morton (India) Ltd. orders for them. I get arts and designs for advertisements from Indian Press Exchange and put it for approval before the advertisers. After getting orders from them, I place it with the Indian Press Exchange, who then directly deal with the advertisers. I passed my M.Com. in 1968.

I am not related to any director of Indian Press Exchange but my father is a director of C. & E. Morton, Orient General Industries. I received commission of 2 1/2% on orders booked. In the year 1962, I have received commission to the extent of Rs. 13,150.20. This payment is by cheque. I am assessed by Income-tax Officer, C-Ward at Dist. VI at GHR No. VI/1249-J/G. I am producing three letters dated 10th February, 1956, 15th January, 1958, (sic) wherein the percentage of commission payable to me have been mentioned, I do not maintain books of a/c. but maintain a bank a/c. where the cheque received by way of commission is deposited. There is no correspondence with the advertisers as they are all at Calcutta.'

8. In the assessment order for the assessment year 1963-64, the ITO stated that, (1) both the assessee-company as well as the company from which R.S. Goenka had said to have secured business for the assessee belonged to the Birla group of companies, (2) the business activities of the assessee as well as other concerns of the group were closely connected, (3) the father of R.S. Goenka, viz., Sri A.L. Goenka was the director of M/s. Orient Industries Ltd. and C. & E. Morton (India) Ltd., (4) Sri A.L. Goenka was the director of the assessee-company up to 1956 and thereafter R.S. Goenka, who was then only 15 years old, was offered commission for securing business for the assessee of M/s. Orient General Industries Ltd. and C. & E. Morton, and (5) there was no evidence to show that R.S. Goenka had rendered any service to the assessee. Accordingly, the ITO came to the conclusion that the commission paid to R.S. Goenka was made for extra-commercial consideration and this was done to facilitate making certain payment to the minor son of a prominent executive of the Birla group of concerns. In this view of the matter, he disallowed the assessee's claim for deduction of Rs. 13,158. For the other years under reference the ITO followed his decision given in the assessment year 1963-64. As regards the commission paid to S.K. Goenka for the assessment years 1966-67 to 1969-70, the ITO relied on his finding and disallowed the assessee's claim for deduction of the commission paid to S.K. Goenka.

9. There was an appeal before the AAC. In the appeal, it was submitted on behalf of the assessee that the ITO was not justified in disallowing the assessee's claim for a deduction of the commission paid to R.S. Goenka and S.K. Goenka merely on the ground that the payments were not dictated by any commercial consideration. In this connection the assessee had produced certain letters from the aforesaid concerns before the AAC in order to prove that these persons, in fact, did help the assessee in securing the business. After considering the letters which were produced, for the first time, before the AAC, he was of the view that the commission paid to R.S. Goenka appeared to be in order. The AAC was further of the view that merely because the name of the assessee was listed by the Monopoly Commission as belonging to the 'Birla group of concerns' and R.S. Goenka was only 14 years of age, when he received commission, for the first time, these factors were not in any way going to detract from the merits of the assessee's claim. He was further of the view that the close relationship between the assessee and the companies, in which R.S. Goenka's father was a director, would not in any way be of any consequence to decide the issue in dispute. In this view of the matter, by his order dated 17th January, 1973, the AAC accepted the assessee's claim for deduction of commission paid to R.S. Goenka for the assessment years 1963-64 to 1964-65. In a consolidated order dated 28th March, 1973, the AAC for the assessment years 1965-66 to 1969-70, relying on his earlier order for the assessment years 1963-64 and 1964-65, accepted the assessee's claim for deduction of the commission paid to R.S. Goenka and S.K. Goenka. In this connection, it may be relevant to mention that a few letters were produced before the AAC, for the first time. These letters were of different dates in the month of April, 1972, and one of these letters may be cited to give an illustration as to the contents of this letter. The letter dated April 12, 1972, reads as follows :

'ALLAHABAD CANNING COMPANY

(Proprietors : The New Swadeshi Sugar Mills Ltd.)

Regd. Office : Industry House, 212,Ballygunge Place,159, churchgate Reclamation, Calcutta-19,Bombay-2 April 12, 1972. The Advertising & Sales Promotion Co.,

1, Ratendone Road, New Delhi.

Dear Sirs,

We have pleasure in confirming that it was at the specific request of your Shri S.K. Goenka that we decided to route all our advertising work through your agency.

Yours faithfully,

for the Allahabad Canning Company.

(Sd.) Illegible.'

10. Being aggrieved by the order of the AAC, the Revenue went up in appeal before the Tribunal. Before the Tribunal it was submitted that the AAC was not justified in allowing the assessee's claim for a deduction of the commission paid to Shri R.S. Goenka and Shri S.K. Goenka. It was contended that the AAC was not justified in entertaining the fresh evidence which was produced before him and in accepting the assessee's claim for a deduction of the commission paid to the aforesaid persons. As regards the commission the Tribunal considered the rival contentions and observed, inter alia, as follows :

'We have carefully considered the rival submissions of the parties and are of the view that the Dept. must succeed in these appeals. There is no doubt in our mind that Sri R.S. Goenka and S.K. Goenka were given commission not on the basis that they rendered any services to the asses-see but because they happen to be the sons of Sri A.L. Goenka, an influential executive of various concerns with which the assessee had business dealings. Moreover, those concerns had dealing with the assessee even prior to 1956 and there is no evidence except the assessee's letter dated 10th December, 1956, addressed to Sri S.K. Goenka to which much credence cannot be attached because Sri S.K. Goenka was only a minor of 15 years old then on record to show that they would not have given business to the assessee (sic). It is also worthy that the assessee had not produced any written agreement entered into between itself and these persons. Again, there is no correspondence on record to suggest that these persons did, in fact, render any service to the assessee. We are not prepared to give any weight to the evidence (pages 15 to 22 of the assessee's paper book) which was produced for the first time before the AAC because, (a) this was not contemporary evidence but obtained subsequently, and (b) the tenor of the matters written by various concerns shows that they were written with a motive. Even assuming that there were some agreements between the assessee and these persons and that the assessee had, in fact, paid the commission to those persons that, by itself, would not automatically entitle the assessee for the deduction claimed for in view of the decision of the Supreme Court in the case of Swadeshi Cotton Milk Co. Ltd. : [1967]63ITR57(SC) . The facts in the case of CIT v. Chari and Chari Ltd. : [1965]57ITR400(SC) , relied on by the learned representative for the assessee, are entirely different from the facts obtaining in the present case. From the aforesaid discussion we are of the view that Sri R.S. Goertka and S.K. Goenka were paid the commission mainly on the ground that they happen to be the sons of Sri A.L. Goenka. In our view, the assessee's claim for deduction of the commission paid to various persons had to be viewed from the angle of an ordinary business man. It is difficult to believe that boys of the age of 15 or 21 without any experience could aspire to get such a huge commission other than for extra-commercial considerations. As regards Sri A.K. Gupta also the assessee had not produced any evidence to show that he had rendered any services to the assessee. Again, there was no agreement entered into between the assessee and Sri A.K. Gupta in this regard. In this view of the matter, we set aside the order of the AAC on this point and restore those of the ITO.'

11. Upon these findings, as the Tribunal refused to refer the questions as suggested by the assessee, as directed by this court the questions as mentioned hereinbefore have been referred to this court. It was contended on behalf of the assessee before us that it was true that Shri R.S. Goenka and Shri S.K. Goenka were related to Shri A.L. Goenka, who was a director of the concerns, whose business was alleged to have been secured by the services of Shri R.S. Goenka and Shri S.K. Goenka, It was submitted that it was quite natural that because of the influence of the father the sons were paid this commission so that business, might have been procured for the company. It was further urged that this factor did not detract from the question of allowance of the commission if in fact such allowance was paid and business was in fact procured by making such payment. It is true, whether the payment was made to procure the business must be judged from the commercial point of view and it is also true that sometimes the influential people in companies, whose companies' business are procured, are close associates and relatives of the agents who might facilitate in obtaining business for these concerns. But the basic fact in this case is whether the persons to whom payments have been made had, in fact, rendered services in procuring this business for the assessee-company. It is not the case of the assessee in this case that the payments were made directly to those concerned or were made to Shri A.L. Goenka for getting this business. Here the question is whether Shri R.S. Goenka and Shri S.K. Goenka rendered, as agents, services to procure the business because of their relationship with Shri A.L. Goenka which relationship easily facilitated in obtaining the business. Here, as we mentioned hereinbefore, the Tribunal and the revenue authority have found in fact that no services were rendered by those two persons. The fact that these persons were supposed to be rendering services at a stage when they were minors is not conclusive but is a relevant piece of evidence. Bearing in mind that, in the instant case with which we are concerned, they were not minors but they had become majors, is also certainly a relevant factor. The whole course of conduct has been taken into account, specially in the background tha~t there was no written agreement, as such produced, or entered into between the assessee and those two persons, who were supposed to procure business for the assessee and the company. Whether a particular document subsequently corroborating the factum of the services being rendered in the past is of value or not must depend upon the facts and circumstances of the case and must be left to the judgment of the adjudicating authority. Having taken the entire course of events the Tribunal has not put much credence on the services and the letters of the concerns, produced subsequently by the assessee, whose businesses were procured. We cannot say that the Tribunal acted improperly. In that view of the matter, we are of the opinion that the finding of the Tribunal in this case cannot be said to be erroneous.

12. In that view of the matter question No. 1 is answered in the affirmative and in favour of the Revenue. Question No. 2 is answered in the negative and in favour of the Revenue and question No. 3 we answer by saying that the Tribunal was right in not putting much weight on the subsequent letters produced before the AAC. This is also answered in favour of the Revenue. As the questions are similar for all these years, the questions are answered in the manner indicated for all these years.

13. In the facts and circumstances of the case, parties will pay and bear their own costs.

Suhas Chandra Sen, J.

14. I agree.


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