COMMISSIONER OF INCOME TAX Vs. BALAJI ENTERPRISES

JUDGEMENT

(1.) THIS is a petition filed by the Commissioner of Income-tax Madras, under section 256(2) of the Income-tax Act 1961, to direct the Appellate Tribunal to state a case and refer the following questions of law for the opinion of this court :

(2.) WHETHER, on the facts and in the circumstances of the case, the Tribunal was right in law in directing the Assessing Officer to allow deduction of service charges amounting to Rs. 3,29,17,500 ?

(3.) WE have carefully considered the rival submissions of the parties. The question whether the payment is allowable as business expenditure is a mixed question of law and fact. WE are not expressing any opinion on merits of the case as it will prejudice the rights of the parties, at the time of final hearing in the tax case. The Supreme Court in CIT v. Gannon Dunkerley and Co. Ltd. [1987] 167 ITR 637, held that the question whether the expenditure incurred by the assessee by way of secret commission is deductible or not under section 37(1) of the Income-tax Act, 1961, in computing the business income of the assessee is a question of law. Similarly, the Supreme Court in Lachminarayan Madan Lal v. CIT [1972] 86 ITR 439, held that the mere existence of an agreement between the assessee and its selling agents or payment of certain amounts as commission, assuming there was such payment, does not bind the Income-tax Officer to hold that the payment was made exclusively and wholly for the purpose of the assessee's business. The Supreme Court in CIT v. Greaves Cotton and Co., Ltd. [1968] 68 ITR 200, has also taken a view that the question whether a certain expenditure was laid out or expended wholly or exclusively for the purpose of the assessee's business is a question which involves, in the first place, the ascertainment of facts by the Appellate Tribunal, and in the second place, the application of the correct principle of law to the facts so found and, therefore, the question is a mixed question of fact and law. Hence, we are of the opinion that the second question as framed and suggested by the Revenue does arise out of the order of the Appellant Tribunal.