COMMISSIONER OF INCOME TAX Vs. RAJGARHIA N K

JUDGEMENT

(1.) THIS is an application under S. 256(2) of the IT Act, 1961, filed by the Revenue seeking a mandamus to the Tribunal stating the case for the opinion of the High Court on the following questions:

(2.) THE assessee is an individual doing business in the name and style of Taxcomash Exports. For the relevant previous year, the assessee's source of business income were exports of spare parts to Russia as also commission received from various Indian and foreign authorities. As against his receipts from commission, the assessee claimed deduction on account of commission paid to Giriraj Fertilisers and Chemicals (P) Ltd., (GFC, for short), to the tune of Rs. 22,50,000. The genuineness of the payment was not under challenge before the AO. The AO and the CIT(A) had formed an opinion that the expenditure was of a capital nature. However, the plea of the assessee that GFC had helped the assessee in obtaining a better price and there was a regular memorandum of understanding reached by the assessee with the GFC specifying the terms of understanding and commission was paid in accordance with these terms, prevailed with the Tribunal and was upheld. The Tribunal recorded the finding of fact that the assessee received repeated orders for supply of detergent for which he earned commission but no amount was paid to GFC on that account. The amount was paid by the assessee only in respect of a contract for 6000 mt. (and not in respect of every contract) for supply of detergent goods or commodities to USSR or any other contract though the assessee was receiving repeated orders. Both were free to compete with each other in the manner best suited to them. The Tribunal applied the test laid down by a Division Bench of the Madras High Court in Chelpark Co. Ltd. vs. CIT (1991) 94 CTR (Mad) 71 : (1991) 191 ITR 249 (Mad) : TC 17R.592 and opined that if the expenditure eliminated for good a competitor, then it was a capital expenditure but if the expenditure related to warding off competition in individual transaction and leaving the competitor surviving in the field then it was merely a revenue expenditure. The test which divides an expenditure between capital and revenue is one of enduring benefit.

(3.) ON question No. 2, the relevant facts are that the assessee has received commission for sale of textile machinery imported from USSR against which he made a claim for payment of Rs. 46,65,600 to Anand Pratyabhut Vit Nigam Ltd., (APVN for short). It was explained that APVN had introduced the assessee to Prakash Cotton Mills Ltd., which was interested in purchasing textile machinery on the assessee's persuasion. The said mill purchased the textile machinery from the USSR. The AO made inquiries under S. 131, but found no such party as APVN at the given address. The assessee also could not produce the said APVN before the AO. The AO found that there was no written agreement for payment of commission between the assessee and APVN, that APVN was not produced before the AO, that the commission paid to APVN was totally disproportionate to the quantum of commission earned by the assessee and that APVN had not filed any returns of its own. For these four reasons, the claim was rejected. The rejection was upheld by the CIT(A).